MB609F Activity 5 Nonprofit Organizations

ACTIVITY 5

MB609 Capstone: Case & Industry Analysis

Lesson 5: Nonprofit Organizations

Activity 5: Nonprofit Organizations

History

From the years of 1819-1863 the roots of Mayo Clinic were developed well before the Mayo family and their associates settled in Rochester, Minnesota. Dr. William Worrall and Mother Alfred Moes were strong-willed pioneers who found common cause in serving patients (“Mayo Clinic”, 2018, p.1). During the early years of the Industrial Revolution, two immigrants both Dr. Mayo and Mother Alfred took different roads to Rochester. Their values and experience laid the foundation of the Mayo Clinic today (“Mayo Clinic”, 2018, p.1). William Worrall Mayo was born in Salford, near Manchester, England, on May 31. Little is known about his family background, although there are accounts of physicians and scientists among his ancestors (“Mayo Clinic”, 2018, p.1). His father James was a successful woodworker who installed wooden fixtures such as doors, windows and paneling into residential and commercial building providing his family with a secure though not luxurious, livelihood in that booming community (“Mayo Clinic”, 2018, p.1).

James married Anne Bonsall Mayo whose family included prosperous farmers and factory owners. John Dalton found it impossible to get a university faculty position because of prejudice against his Quaker beliefs. Dalton was meteorologist, chemist and pioneer in development of the atomic theory he also wrote the first scientific description of color blindness (“Mayo Clinic”, 2018, p.1). Unable to become a professor he ran a class in a room he rented from the Manchester Literary and Philosophical Society. At some point in this time young Mayo enrolled. Since Dalton’s records were destroyed in the Nazi German attack on Manchester during World War II, we do not know the of Mayo’s education with Dalton (“Mayo Clinic”, 2018, p.1). It is possible, however, to discern how Dalton may have influenced the academic interests and character of his student:

Merit and individual effort – Dalton and Mayo valued the dignity of labor rather than the privileges of birth.

Respect for all people – Church-run schools at the time only admitted boys. By contrast, Dalton enrolled girls as well. All his life, William Worrall Mayo found company with strong, independent women.

Scientific method – Dalton believed in discovering natural facts and applying them for practical benefit in serving others. He modeled the scientific method through observation, measurement and inquiry.

The profession of medicine – Dalton may have helped plant the seed for Mayo’s later decision to pursue medicine as a career. As a young man, Dalton was interested in medicine, but his uncle argued against it. Undaunted, Dalton studied medicine on his own and helped establish the Manchester School of Medicine. After years of persistent effort, William Mayo made medicine his vocation (“Mayo Clinic”, 2018, p.1).

The first job that William Worrall Mayo found in America foreshadowed his career in medicine. Upon arrival in New York City, the young immigrant began work as a “chemist” at Bellevue Hospital, where he drew upon skills he had developed with John Dalton (“Mayo Clinic”, 2018, p.1). Hospitals at the time were unsavory places, often a final stop for the poorest and sickest patients who had no family to care for them at home. Disease spread quickly amid the foul conditions. W.W. Mayo did not stay there long, which proved to be a key decision in the history of Mayo Clinic. By leaving Bellevue, he escaped a typhus epidemic that occurred a short while later, which killed 13 staff members. By autumn, the cholera crisis had passed (“Mayo Clinic”, 2018, p.1). W.W. Mayo became a United States citizen and enrolled in Indiana Medical College in LaPorte, where Dr. Deming was on the faculty.

The school enrolled about 100 students, some of whom came from the Eastern seaboard. While it was far from the Ivy League, Indiana Medical College had a microscope – 20 years before Harvard added one to its curriculum – which furthered W.W. Mayo’s interest in scientific research as the basis of caring for patients (“Mayo Clinic”, 2018, p.1). Due to his prior experience with John Dalton, Bellevue Hospital and Dr. Deming, W.W. Mayo was excused from some of the graduation requirements and received his degree on February 14, 1850 (“Mayo Clinic”, 2018, p.1). From the years of 1940-1985 from the battlefields to the home front Mayo Clinic played a vital role in WWII. In the post war era Mayo’s contributions included the Nobel Prize winning discovery of the cortisone (“Mayo Clinic”, 2018, p.1). Warren Burger chief of justice of the Supreme Court and member of the Board of Trustees called Mayo Clinic a private trust for public purposes. From the 1986 to present these words come from J.E. Davis the loyal patient and benefactor who encouraged Mayo’s first expansion beyond Minnesota (“Mayo Clinic”, 2018, p.1). By upholding our values and being open to change Mayo Clinic is expanding into new locations and avenues of service. Please join us as we create the future of health care (“Mayo Clinic”, 2018, p.1).

Finance

An important requirement implemented at the founding of the Mayo Health System was that each participating organization must remain financially sound. Each entity must “sustain the practice” (be able to fully support its own practice), including both operating expenses and working capital needs (Carryer, Sterioff, 2003, p.1047). At the outset, Mayo recognized that this requirement for local financial accountability also necessitated local autonomy in daily operations (Carryer et al., 2003, p.1047). In recent years, the Mayo Health System has had a target annual operating margin of 5% to allow sufficient funds for current operations, replacement of needed equipment and facilities, and growth and development of the system. Organizations integrated with their local hospitals are better able to achieve this level of financial performance (Carryer et al., 2003, p.1047).

Most small hospitals have been granted “Critical Access Hospital” designation by the federal government, which allows government reimbursement on a cost basis as opposed to a prospective payment basis, and this designation helps their financial performance (Carryer et al., 2003, p.1047). In 6 of the first 10 years of operation, the Mayo Health System has either sustained itself financially or come close to doing so. The annual operating margin is now about 2.0% to 2.5%, with a net operating income in the range of $18 million (Carryer et al., 2003, p.1047). In 2003, net medical revenue for the Mayo Health System will be about $1 billion (Figure 3).

Figure 3

Actual and planned growth of the Mayo Health System in terms of physicians and net revenue.

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The original Mayo Clinic capital investment in the Mayo Health System went primarily toward market-based reimbursement for tangible assets of the acquired clinics and for limited infrastructure improvements of acquired hospitals in many of the communities (Carryer et al., 2003, p.1047). In 1998, a Mayo Health System finance committee was established to provide central financial planning. Capital allocation from the limited annual pool of allocated funds from the Mayo Foundation has been the major task for this council (Carryer et al., 2003, p.1047). Representatives include chief executives and financial officers from several Mayo Health System organizations as well as both Mayo Health System and Mayo Clinic Rochester leaders. Formulas have been advanced to allocate capital funds based on a combination of local accumulated depreciation and local operating performance (Carryer et al., 2003, p.1047). The capital appetite always greatly exceeds available supply, but the perceived fairness of the allocation process has allowed a better understanding of financial issues throughout Mayo Foundation and has deflected many of the concerns of Mayo Health System leaders on this issue (Carryer et al., 2003, p.1047).

Evaluate Corporate Governance and the Board of Directors

Mayo Health System organizations are owned solely by Mayo Foundation, except for 1 joint venture, Franciscan Skemp Healthcare in La Crosse, Wis, which has dual corporate sponsorship by Mayo Foundation and the Franciscan Sisters of Perpetual Adoration (Carryer et al., 2003, p.1049). The initial covenant between any health center, clinic, or hospital and Mayo Clinic is designed as a permanent arrangement, with a view that the merged entities will work together for long-term success and benefit to the communities they serve. Mayo Health System’s governance includes a tiered multi-board structure (Carryer et al., 2003, p.1049). Each local entity reports to the Mayo Clinic, and ultimate authority resides with Mayo Foundation, the parent organization of Mayo Clinic Rochester. Regularly scheduled meetings are held between local Mayo Health System leaders and Mayo Clinic Rochester’s Board of Governors to optimize communication and planning (Carryer et al., 2003, p.1049).

Continued involvement of community board members emphasizes the importance of engaging community leaders in decisions about management and services appropriate for each location. The Mayo Clinic has reserved certain authority for oversight and determination of policy, and the same Mayo defined reserved powers apply to all entities (Carryer et al., 2003, p.1049). These reserved powers are unchanged from the inception of the health system and include approval of strategic plans of individual practices, annual capital and operating budgets, fee schedules, new programs and services, compensation, changes in employee benefits, incurrence of debt, any transfer of assets other than in the ordinary course of business, large capital expenditures by item or aggregate program, professional staff requests, rights of corporate members under state law, and bylaw amendments, mergers, or other fundamental changes (Carryer et al., 2003, p.1049). The Mayo Health System was designed to include regional administrative governing boards. These boards were initially grouped geographically and were representational.

For example, the 4 boards for Iowa, Minnesota, west central Wisconsin, and La Crosse had members from each of the practice sites in those regions (Carryer et al., 2003, p.1049). Mayo maintained the majority control on the governing boards by a delegated appointment system. There has not been a vote on a controversial item that split strictly along the lines of Mayo Health System entity representatives’ vs Mayo Clinic representatives (Carryer et al., 2003, p.1049). The appeal to each regional board member is to consider his or her role in serving the system rather than allegiance to any entity or program. Although each organization joined the Mayo Health System with full knowledge of the other entities within the system, there was no sense of linkage among the sites—in fact, some had been competitors (Carryer et al., 2003, p.1049).

After several years of being asked to perform joint planning for system-wide quality initiatives, to distribute allocated capital funds transferred to the Mayo Health System by Mayo Foundation, and to periodically assist adjacent organizations with their health care delivery, the Mayo Health System sites began to see the benefits of sharing of resources within the system, economies of scale, and joint strategic planning (Carryer et al., 2003, p.1049). As trust has grown in nonrepresentational functions such as capital planning and allocation, strategic planning has led to discussion and approval (January 2003) of the concept of a single board (Figure 2) (Carryer et al., 2003, p.1049). This new Mayo Health System Board has 16 members, half of whom are regional practice leaders and half who are Mayo Clinic Rochester leaders, including 2 members of the Mayo Clinic Rochester Board of Governors. The single-board concept recognizes that the Mayo Health System is a cooperative health system with geographic alliances and cooperation across service lines (Carryer et al., 2003, p.1049). The benefit derived from improvements in management and governance has augmented support for the single board concept. This decade-long process of change exemplifies the principle that governance is not a static process but rather an evolutionary one (Carryer et al., 2003, p.1049).

Figure 2

Current reporting structure for the Mayo Health System (MHS). FSPA = Franciscan Sisters of Perpetual Adoration.

Internal Environment

To analyze the internal environmental (IE) factors for MC, one will have to first identify the strength and weakness of the organization. Mayo being a world-renowned name has lots of strengths.

Strengths

1. World renowned brand name.

2. Acknowledged for its contribution to medical research and practice.

3. Provides best care for wide variety of health issues under one umbrella.

4. Certified by National accrediting bodies, such as the National Committee for Quality Assurance (NCQA) and the Joint Commission on the Accreditation of Health Care Organizations (JAHCO) (Matanovich, 2004).

5. Strong towards Public responsibility and social commitment.

Weakness:

1. Location in the central region of the country with extreme weather in winter.

2. International market of Mayo Patient is receiving tough competition from hospitals in other counters.

3. An issue with getting easy visa to visit at MC is another hindrance to Mayo’s success.

Resource-based view for Mayo Clinic:

The Mayo Clinic is on defining the characteristics of the ideal service experience. The Mayo Clinic is widely recognized as perhaps the world’s finest healthcare organization. The first lesson to be learned from the Mayo Clinic is that it creates value through values (Matanovich, 2004). In fast-paced, high-stress environments like healthcare, the rulebook simply cannot be written. Mayo routinely articulates, hires for, and reinforces the organization’s core values.

Core competencies

A core competence is a capability or skill that a firm emphasizes and excels in doing while in pursuit of its overall mission. Core competencies that differ from those found in competing firms would be considered distinctive competencies (Pearce & Robinson, 2011). There are three Basic Resources: Tangible Assets, Intangible Assets and organizational capabilities. Some the tangible assets of MC are the research that is been conducted, the physicians, MC cash reserves. The financial resources and physical resources like the buildings, equipment’s used in patient care and labs etc.

The assessed intangible assets at MC are its brand image, reputation, trademarks, and technological resources like intellectual property: patent portfolio, copyright, trade secrets resources for innovation: research facilities, technical and scientific employees. All the resources available at MC are valuables, they provide the customer needs better than other alternatives. The resources are scarce and drive a key portion of overall profit. This makes the service provided by MC sustainable over long period of time, which help in making better strategic plan for the organization.

Mayo Clinic Competitive position and Possibilities

Distinctive competencies that are identified and nurtured throughout the firm, allowing it to execute effectively to provide products or services to customers that are superior to competitor’s offerings, become the basis for a lasting competitive advantage (Pearce & Robinson, 2011). MC stands strong and gives very tough competition in its current competitive position. With best patient care provided in the world by the world-class physicians and staff, MC provides treatment for wild range of health issues.

Explain whether you think the organization has made the correct strategic decisions and if you feel that they are or are not poised for future success

Strategic Planning

The Mayo Health System performed its first thorough strategic planning effort in 1995. This effort focused on defining the mission and principles for the system, a vision for linking education and research between the Mayo Clinic and the Mayo Health System and defining the organizational options for linking the clinical practices across all entities (Carryer et al., 2003, p.1052). Since then, there have been 2 broadly based planning efforts focused on the entire Mayo Health System strategy and annual update efforts focused on a few new core goals for the system. The last comprehensive strategic planning effort for the Mayo Health System occurred in 2001.

A major impetus for this exercise came from the Mayo Foundation Board of Trustees, who inquired about long-term plans for growth in the overall size of the system and in the specialties within the system (Carryer et al., 2003, p.1052). This analysis sought to align and optimize all Mayo Clinic patient care activities across the region. While seeking to accomplish this task, Mayo Health System organizations recognized that their own strategic plan goals, both individual and as part of an integrated system, needed to derive from and be consistent with those of the Mayo Clinic in Rochester (Carryer et al., 2003, p.1052). It also became clear that the previous Mayo Health System core goals meshed with those of Mayo Clinic Rochester. These core goals included growth and integration, financial success, staff and patient satisfaction, quality and service, innovation and scholarship, and the future of the health care environment (Carryer et al., 2003, p.1052).

A major initiative within the most recent strategic planning effort was a rigorous, data-driven review of past and future provider growth plans at each Mayo Health System organization (Carryer et al., 2003, p.1052). This review yielded anticipated system-wide provider growth plans of 5% to 8% per year. This growth included both acquisition of current providers within communities and incremental additions. These data allow a more robust joint planning effort for growth and patient access in all Mayo Health System locations, including Mayo Clinic Rochester (Carryer et al., 2003, p.1052). The data also have stimulated considerable debate about the implications of growth on the availability of limited strategic capital to accommodate that growth, implications for specialists at the Mayo Clinic in Rochester, and the ability of the Mayo Health System to manage the local cultural and group dynamics created by too rapid an infusion of new young providers into a site (Carryer et al., 2003, p.1052).

Most of the requested growth came from 2 of the larger organizations that are each building new facilities, and this issue has yet to be fully resolved (Carryer et al., 2003, p.1052). Based on the information that I have read, and researched Mayo Clinic has made some strategic decisions and it shows in their financial report. Their focus on quality, referral activity, peer group interactions, strong regional community presence, and robust spirit as a professional partner of the Mayo Clinic have all contributed to its highly successful first decade. I believe that their future looks bright for continued success (Carryer et al., 2003, p.1052).

References

Carryer, P., Sterioff, S. (2003). Mayo Health System: A Decade of Achievement. Science Direct, 78(8), 1047-1053. doi: https://doi.org/10.4065/78.8.1047

Mayo Clinic. (2018). Mayo Clinic Timeline. Retrieved from http://history.mayoclinic.org/timelines/history-timeline.php

Pearce, J. A., II, Robinson, R. B. (2011). Strategic management: Formulation,

implementation, and control (12th ed.). Boston, MA: McGraw-Hill/Irwin.

Matanovich, T. (2004). Know Your Service Strategy. Marketing Management, 13(4), 14-15.