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Strategic planning in public academic health centers and its relationship to financial resource allocation

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Strategic planning in public academic health centers and its relationship to financial resource allocation
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Jordan, Stephen Moreland
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English
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xiv, 205 leaves : illustrations ; 29 cm

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Subjects / Keywords:
Medical centers -- Planning -- United States ( lcsh )
Medical centers -- Finance -- United States ( lcsh )
University hospitals -- Planning -- United States ( lcsh )
University hospitals -- Finance -- United States ( lcsh )
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bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )

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Bibliography:
Includes bibliographical references (leaves 150-155).
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Submitted in partial fulfillment of the requirements for the degree, Doctor of Philosophy, Graduate School of Public Affairs.
General Note:
School of Public Affairs
Statement of Responsibility:
by Stephen Moreland Jordan.

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|University of Colorado Denver
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ocm23451170
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LD1190.P86 1990d .J67 ( lcc )

Full Text
STRATEGIC PLANNING IN PUBLIC ACADEMIC
HEALTH CENTERS AND ITS RELATIONSHIP
TO FINANCIAL RESOURCE ALLOCATION
by
Stephen Moreland Jordan
B.A., University of Northern Colorado, 1971
M.P.A., University of Colorado, Denver, 1979
A thesis submitted to the
Faculty of the Graduate School of Public Affairs of the
University of Colorado in partial fulfillment
of the requirements for the degree of
Doctor of Philosophy
Graduate School of Public Affairs


1990 by Stephen Moreland Jordan
All Rights Reserved


This thesis for the Doctor of Philosophy
degree by
Stephen Moreland Jordan
has been approved for the
Graduate School
of Public Affairs
by
John C. Buechner
Mark A. Emmert
Lawrence H. Meskin
Date


Jordan, Stephen Moreland (Ph.D., Public Administration)
Strategic Planning in Public Academic Health Centers and
Its Relationship to Financial Resource Allocations
Thesis directed by Professor John C. Buechner
This dissertation focuses on a unique component of
the health care industry, public academic health centers,
and how they might respond to their rapidly changing
environments through the use of strategic planning. They
are of interest to both the academician and the
practitioner because they provide a distinctive laboratory
for examining the theory and practice of strategic
planning.
The purpose of this dissertation is two-fold.
First, to determine if public academic health centers have
a strategic plan and the relationship, if any, of the
budgeting system and subsequent financial resource
allocations in support of the plan. Second, to use public
academic health centers as a study group to draw
conclusions about the theoretical and practical issues
surrounding strategic planning and their implications for
public universities and other organizations with similar
characteristics.
A survey was sent to the entire population of deans
of the schools of medicine and the hospitals directors of
the owned or affiliated university hospitals of public
academic health centers. The survey consisted of three
parts. Part 1 established the type of organization (school


V
exists, and if not, what type of planning occurs in those
organizations that do not have a strategic plan. Part 2
centered on the nature and focus of the strategic plan.
Part 3 addressed the type of budgeting system used for
financial resource allocation and the programmatic focus
of financial resource allocations in fiscal year 1987-88.
The data was analyzed using Statistical Package for
the Social Sciences Personal Computer (SPSS-PC).
Descriptive statistics were applied as appropriate.
Five subsidiary questions were developed and
analyzed based upon the relevant literature. A general-
ized planning model is described.
Six implications for future study which may affect
both the theory and practice of strategic planning are
discussed. Three of the implications concern the present
literature on strategic planning and governmental
budgeting. Two others arise from the strategic planning
literature and suggest that present practices in public
academic health centers may need to be modified. One
implication concerns the finding that strategic plans in
public academic health centers are moderately linked to
financial resource allocation and suggest the need for
further study.


VI
The form and content of this abstract are approved. I
recommend its publication. 7
Signed ___
in charge of


CONTENTS
CHAPTER 1
INTRODUCTION.............................................. 1
The Environment of the Public
Academic Health Center .............................. 1
Marketplace Environment ............................. 2
The Hazardous Zone .................................. 6
Purpose and Organization ............................. 11
Purpose ............................................ 11
Procedure .......................................... 11
Organization ....................................... 13
CHAPTER 2
LITERATURE .............................................. 15
Historical-Intellectual Origins
of Strategic Planning .............................. 15
Generalized Models of Planning ....................... 18
Six Models ......................................... 18
Formal-Rational Model ........................... 19
Organizational Development Model ................ 19
Technocratic/Empirical Model .................... 19
Philosophical Synthesis Model ................... 20


viii
Political Advocacy Model ........................... 20
Coordinated Anarchy Model .......................... 21
Classifications ...................................... 21
Characteristics and Purposes
of Strategic Planning ................................ 23
Direction Finding ................................... 30
Environmental Scanning ............................. 30
Assessment of Strengths and Weaknesses ............. 32
Values Assessment .................................. 34
Linking Direction Finding
and Implementation ................................. 35
Budgets Instruments of Strategy ...................... 38
Functions of Budgeting ............................... 38
Principles of Budgeting ............................. 41
Budgeting Systems .................................... 43
Line-item budgets .................................. 43
Zero-based budgets ................................. 45
Performance budgets ................................ 47
Program budgets .................................... 49
Summary ................................................. 51
CHAPTER 3
INVESTIGATIVE PROCEDURES ................................... 55
Purpose of the Study .................................... 55


ix
Research Design ...................................... 57
The Survey Instrument ............................... 59
Data Analysis ........................................ 61
Lickert Scale 1-5 62
Lickert Scale 1-7 62
Summary ................................................ 64
CHAPTER 4
ANALYSIS ................................................... 65
Overview ................................................ 65
Summary of Findings .................................... 67
Subsidiary Question One ................................ 69
Subsidiary Question Two ................................ 75
Subsidiary Question Three .............................. 82
Direction Finding ................................... 83
Time Horizon ...................................... 83
Environmental Scanning ............................ 83
Assessment of Strengths and Weaknesses ............ 88
Values Assessment ................................. 93
Resulting Directions .............................. 97
Approval of Plan ................................. 101
Implementation ...................................... 103
Subsidiary Question Four .............................. 106


X
Subsidiary Question Five ............................. 112
Planning in Public Academic Health
Centers Without Strategic Plans .................... 118
Summary ............................................. 125
CHAPTER 5
CONCLUSIONS ............................................. 130
Findings ............................................. 130
Purpose and Procedure .............................. 130
A Strategic Planning Model ......................... 132
Non-Strategic Planning Model ....................... 136
Implications ......................................... 139
Implications for Literature ........................ 139
Generalized Planning Models ..................... 139
Generalized Budget Models ....................... 141
Planning Period ................................. 142
Implications for Practice .......................... 144
Values, Aspirations and Ideals .................. 144
Boundary vs. Market ............................. 146
Perception of Resource Allocation .................. 147
Closing .............................................. 149
BIBLIOGRAPHY ................................................. 150
APPENDIX 1 156
APPENDIX 2
160


XI
APPENDIX 3 ................................... 164
APPENDIX 4 ................................... 179


TABLES
Table
1. Differentiating Strategic Planning
from Other Forms of Planning ........................... 27
2. Use of Generalized Planning Models in
Public Academic Health Centers ......................... 70
3. Use of Generalized Planning Models in
Public Schools of Medicine ............................. 72
4. Use of Generalized Planning Models in
Public University or Affiliated Hospitals .............. 73
5. Importance of Environmental Factors to
Public Academic Health Centers ......................... 76
6. Importance of Environmental Factors to
Public Schools of Medicine ............................... 78
7. Importance of Environmental Factors to
Public University or Affiliated Hospitals .............. 79
8. Plan Preceded by Planning Horizon ........................ 84
9. External Environment Considered in
Public Academic Health Centers with
Strategic Plans .......................................... 85
10. Plan Preceded by Environmental Scan ...................... 87
11. Strategic Plan Identified Strengths ...................... 90
12. Strategic Plan Identified Values,
Aspirations and Ideals ................................... 92


xiii
13. Values, Aspirations and Ideals Represented
in Public Academic Health Centers ...................... 94
14. Values, Aspirations and Ideals Represented
in Schools of Medicine ................................. 95
15. Values, Aspirations and Ideals Represented
in University or Affiliated Hospitals .................. 96
16. Programs Emphasized in Strategic Plan in
Public Academic Health Centers ......................... 98
17. Programs Emphasized in Strategic Plan in
Schools of Medicine ...................................... 99
18. Programs Emphasized in Strategic Plan in
University or Affiliated Hospitals ...................... 100
19. Budgets Linked to Strategic Plan ....................... 104
20. Budgeting Systems in
Public Academic Health Centers .......................... 107
21. Budgeting Systems in
Schools of Medicine ..................................... 108
22. Budgeting Systems in
University or Affiliated Hospitals ...................... 109
23. Frequency of Budgeting Systems in
Public Academic Health Centers ....................... Ill
24. Financial Resources Allocated to Programs
in Public Academic Health Centers ...................... 113
25. Financial Resources Allocated to Programs
in University or Affiliated Hospitals .................. 114
26. Financial Resources Allocated to Programs
in Schools of Medicine ........................... 116
27. External Environments Considered in
Public Academic Health Centers without
Strategic Plans ......................................... 120


XIV
28. Identified Values, Aspirations and
Ideals in Public Academic Health Centers
Without Strategic Plans ................................... 121
29. Importance of Planning Documents to Overall
Direction of Public Academic Health Centers
without Strategic Plans ................................... 123
30. Programs Emphasized in
Public Academic Health Centers without
Strategic Plans ........................................... 124


FIGURES
Figure
1. Model for Strategy Formulation
and Implementation ....................................... 29
2. Planning Horizon in
Public Academic Health Centers ........................... 68
3. Group Responsible for Developing
Environmental Scan ..................................... 89
4. Frequency of Groups Reviewing or
Approving Strategic Plan ................................. 102
5. Frequency of Groups Reviewing or
Approving Budget ......................................... 105
6. Characteristics of Academic Health Centers
without Strategic Plans .................................. 119


CHAPTER 1
INTRODUCTION
These are the times that try mens souls.
Thomas Paine
The Environment of the Public
Academic Health Center
There is a revolution occurring in America today: Americans are
revolting against the high cost of health care. We should not be surprised.
In 1985, the federal government reported that total national health care
expenditures were 10.7 percent of the gross national product, or $425 billion
dollars. The health care sector provided employment in excess of 8 million
jobs or 1 out of every 13 jobs in the United States (The Commonwealth Fund
1987). In an effort to exert some control over what is perceived by many as
a monolithic industry, third party payors, led by the federal government, have
attempted control costs through prospective payment systems (DRGs) and to
encourage greater competition through utilization of less expensive health
care alternatives to inpatient hospitalization. Among the alternatives which
have arisen are health maintenance organizations (HMOs), emergi-centers,


2
wellness centers, outpatient clinics, employee assistance programs, and
preferred provider organizations (PPOs) (Fottler 1987). In the context of this
rapidly changing environment, many health care organizations are attempting
to respond and adapt to these concerns through the use of strategic planning.
This thesis focuses on a unique component of the health care
sector, public academic health centers, and how they might respond to their
rapidly changing environments through the use of strategic planning. They
are of interest to both the academician and the practitioner because they
provide a distinctive laboratory for examining the theory and practice of
strategic planning. First, through the university or affiliated hospital, they
have all the characteristics of a traditional business enterprise operating in a
competitive market-place environment. Second, as identified by Keller
(1983, 5), academic health centers with their schools of medicine and other
associated health programs share with other american colleges and
universities "a special, ^hazardous zone in society, between the competitive
profit-making business sector and the government owned and run state
agencies." Third, the implementation of strategies in these organizations
necessarily results in the need to determine whether performance is in
accordance with expectations. As noted by Jones (1984), public budgeting
resource allocation processes provide a framework for accountability.
Marketplace Environment
Public university hospitals have traditionally been the focus of care


3
of the medically indigent, those individuals without sufficient insurance or
financial resources to pay for their health care. At the same time that
competition is escalating among health care providers, public hospitals are
being forced to increase their share of uncompensated care, presumably to
serve the growing number of uninsured Americans which grew from
approximately 27 million in 1977 to 35 million in 1984 (Freedman and others
1988).
Concurrently, the costs of health care have risen dramatically. The
consequence is that this population goes without health care until they are so
sick their health care is more costly. They seek their health care in academic
medical centers which have traditionally been financially supported by
government (federal and state) and which have had few or no private
patients. Government support has been diminishing as a percent of total
academic health center operating revenues, thus forcing public academic
hospitals to cost shift the uncompensated care onto the bills of their limited
private payor base (Carey 1987). The third-party private payors, following
the lead of the federal government, are recognizing the cost shift and
resorting to prospective payment systems (predetermined reimbursements for
specific procedures, regardless of what the real or actual individual procedure
cost might end up). A Hobsons choice begins. Who pays, who benefits and
how does the public academic health center enter the competitive market-
place?


4
The ability of public academic health centers to confront this
dilemma is affected by the relationship between the academic schools and the
teaching hospital. Similar to other university educational programs, the
teaching laboratory is an integral component of the educational process.
However, nowhere in academe is the link between the academic program and
provision of services to a client or public so close as in an academic health
center. The movement toward operating the teaching hospital as a business
first, and a teaching laboratory second, has profound implications for the
academic program. First, as noted by Petersdorf (1987), the role of the
University Hospital Director (teaching hospital) is very different than ten
years ago. The director today has become a businessman, and less and less
an academician, in order to assure the financial survival of his or her teaching
hospital. This means that the director will most likely be finding ways to
match strategy with required skills and resources to assure that the hospital
does not find itself "stuck in the middle" (i.e., in an extremely poor and
ineffective strategic position).
Either [he/she] must take the steps necessary to achieve cost
leadership or at least cost parity, which usually involves aggressive
investments to modernize and perhaps the necessity to buy market
share, or [he/she] must orient [himself/herself] to a particular
target (focus) or achieve some uniqueness (differentiation) (Porter
1980, 32).
The decisions made by the hospital director will presumably be
based upon some assessment of the strengths and weaknesses of the hospital,
and in many cases, that translates into the strengths and weaknesses of the


5
faculty. It is the faculty that is the driving force for providing medical
services in the teaching hospital.
The final determinations of what new services or programs to
initiate will have profound effects on the educational programs for both
undergraduate medical students and housestaff. Will those decisions be in
concert with the academic decisions being made through the traditional
academic and governance structures in the schools?
Complicating the problem is the fact that an examination of the
revenue trends of academic medical centers shows that between 1970 and
1984 the amount of revenue provided by medical service, the combination of
physician fees and hospital earnings, had grown from 12 percent of total
revenues to 33 percent of total revenues for the centers.
It is quite clear that the fiscal importance of the academic hospital
to the medical school has increased. Not only are schools
becoming increasingly dependent on the profit generated by the
hospital, but they are also increasingly dependent on the fees
generated by the clinical faculty (Carey 1987, 55).
Clearly, the trend in financing of the total academic health center
programs is inextricably tied to profit generating activities. At the same time,
the environment is pushing for controlling costs and profits of hospitals and
physicians. Not only have prospective payment systems replaced charge
based systems, but now third party payors are examining replacing the
procedures based systems that faculties at teaching hospitals rely so heavily
upon with an alternative approach which bases reimbursement on the


6
resource-input cost.
These issues are not dissimilar to those facing public higher
education in its broader context. A recent study by Halstead (1989) shows
that state support of public institutions for current operating expenses per
annual full-time equivalent student has diminished over the decade from 1978
to 1988 in many states. At the same time, the cost of attending public
universities continues to increase at a pace faster than inflation as universities
develop tuition pricing structures to maximize resources while attempting to
maintain and increase their respective market shares of the student
populations. In fact, phrases like "market share," "market challenge," "market
forces," and "market penetration" have become the language of university
administrators.
The Hazardous Zone
It is clear that public higher education in general is under greater
pressure for accountability. Education costs always seem to increase faster
than the consumer price index because education is an extremely labor
intensive industry (National Comparison Local School Costs 1977). There is
an ever increasing interest in the way all sectors use resources and this
interest is likely to lead to more formalized modes of accountability
(Spitzberg 1980). Consumers are asking "What are we receiving for our
investment in higher education?"


7
An increasingly pervasive belief developing across the land is that
discipline must be imposed on higher education from outside its
ivied walls to ensure quality (Gilley, Fulmer, and Reithlingshoefer
1986, 5).
To the extent that higher education institutions do not meet the
expectations of the public, there will be a number of political actions taken,
ranging from penalties in the distribution of resources to the institutions to
actual legal liability of the institutions for failure to provide quality services
to students and society in general (Hodgkinson 1980).
Public academic health centers share with other public universities
the issue of accountability. For both, strategic planning becomes a
mechanism to survey the environment and determine its implications for
accountability, among many issues. Budgets become a devise by which plans
are implemented, priorities are signaled and performance is demonstrated.
A critical variable for academic health centers will be the extent
to which they are able to overcome problems associated with dual lines of
authority that create role ambiguity, role conflict, and problems of
coordination and accountability. Universities with their relatively
independent faculty and dual governance structures share this characteristic,
although their faculty (professionals) do not have to be coordinated as closely
as in a health care organization where activities deal directly with human life
(Fottler 1987). Academic health centers, therefore, combine the character-
istics of health care organizations with universities.
According to Fottler, "The key health care management issue (from


8
both an academic and practitioner viewpoint) over the next decade will be to
determine what strategies and tactics to pursue in order to satisfy key
stakeholders" (Fottler 1987, 373). He continues by saying that clearly there
is a need to apply the concepts originally developed in the business strategy
literature to health care organizations. This conclusion is supported by a
study conducted by Arthur Anderson and Company and the American College
of Hospital Administrators (1984) which concluded, among other things, that
future success of health care institutions would be dependent upon strategic
and financial planning. From an academic perspective, it would seem
reasonable that the lessons which might be learned from the application of
business strategy to public academic health centers would have implications
for public universities and other organizations with similar characteristics of
role ambiguity, role conflict, coordination and accountability.
Public academic health centers are attempting to compete in the
marketplace, while at the same time finding a number of constraints which
impede, if not prohibit their responding effectively and efficiently to the
environment. Principal among these constraints is the very fact that they are
"public." Munson and DAunno (1987) found that growing competitive
pressures and changing payment systems for inpatient care were causing many
public universities to address the question of separation of their hospitals
from the university because the marketplace decisions which may be
financially wise for the hospital may not be congruent with the academic


9
values of the university. Similarly, universities are developing and marketing
with tuition pricing structures new programs which are perceived to be
responsive to market competition, but which also may not be congruent with
traditional academic values.
Further, public academic health centers and public universities
share three problems which are attributable to being "public":
1. Decisions are often made elsewhere, with an inadequate
understanding of needs. The decision making process could include parties
from the academic health center, the central university offices, state coordin-
ating boards, the executive branch of state government, and the state
legislature.
2. Bureaucratic procedures accompanying university or state
personnel and purchasing systems are perceived as inhibiting the ability of
these organizations to respond in a timely and cost efficient manner to oppor-
tunities that may arise in the marketplace.
3. Public budgeting systems often limit the capacity of managers to
focus on program output accountability because the focus of the budget
system is on program input accountability.
These three problems are often indicative of public sector efforts
to centralize control of institutional activities under the guise of economy and
efficiency, and thus affect institutional mission. One study of twenty
institutions that were observed to be "on the move" institutions found that


10
centralization was not the answer to improved quality and efficiency in higher
education. The study asked the basic question of whether centralization in
determination of missions, retrenchment, closing and merging of institutions,
etc., is the best way to ensure access, quality and efficiency in Americas
colleges and universities. Among the major findings was:
In the 20 institutions we visited, there was not one instance of a
state coordinating board level initiative that improved quality;
promoted efficiency; addressed a major societal or educational
issue; encouraged an institution to seek new levels of excellence;
or anticipated trends or issues (Gilley, Fulmer, and Reithlings-
hoefer 1986, 11).
The study found ten characteristics and nine emerging admin-
istrative trends contributing to the promotion of quality, efficiency and the
encouragement of excellence that were common in at least three-fourths of
the twenty institutions. Among them were:
1. A well defined strategic mission orientation was present at each
institution. Strategic planning is on the rise.
2. There was the belief that individuals make the difference and there
was a high degree of commitment from the faculty and staff. Efforts to
improve these institutions were being instigated from the bottom up rather
than from the top down.
3. These institutions are keeping an eye on the environment. All the
institutions share in the notion of opportunity consciousness. That is, the
future is now. The use of initiatives as a strategic management tool is
becoming common as the method to seize opportunities.


Purpose and Organization
Purpose
The purpose of this thesis is two-fold. First, to determine if public
academic health centers have a strategic plan and the relationship, if any, of
the budgeting system and subsequent financial resource allocations in support
of the strategic plan. Second, to use public academic health centers as a study
group to draw conclusions about the theoretical and practical issues
surrounding strategic planning and their implications for public universities
and other organizations with similar characteristics of role ambiguity, role
conflict, coordination and accountability. To assist in determining whether
public academic health centers have strategic plans, subsidiary questions were
developed based upon the relevant literature and are included in Chapter 3.
Procedure
The literatures for strategic planning in the business and higher
education sectors and budgeting for the public sector were reviewed. The
literatures were then used to develop a survey instrument which was specific
to public academic health centers but which focused on the fundamental
constructs of the two literatures.
The first part of the survey instrument determines whether the
respondent is a school of medicine or a university or affiliated hospital,
whether the organization has a strategic plan, and if not, what planning


12
documents are important to the organization. The second part of the survey
instrument concerns strategic planning and centers on descriptive questions
about the existence, nature and focus of the strategic plan. The questions
pertain to both direction finding, or strategic formulation, and organizational
or implementation issues. The third part concerns budgeting or financial
resource allocation in the public sector. Survey questions in this part are both
descriptive and qualitative. The focus of the questions are on the type of
budgeting systems used by public academic health centers and the extent to
which financial resource allocations were made toward support of the
objectives identified in the strategic plan in fiscal year 1987-88.
The instrument was sent to Dean of the School of Medicine and
the Hospital Director at each of the fifty-three public academic health
centers. Deans and hospital directors were selected to respond to the survey
because they are the chief executive and academic officers of their
organizations. As noted by Steiner and Miner (1977):
The view of the top manager is unique. No one else in an
organization has the same perspective. He alone is responsible for
relating his organization to a changing environment. He alone is
responsible for assuring the proper balance among various
competing subsystems in his organization (5).
The data was analyzed using Statistical Package for the Social
Sciences Personal Computer (SPSS-PC). Descriptive statistics were applied
to each of the questions by the total population of academic health centers
and by the total populations of schools of medicine and university or


13
affiliated hospitals. Crosstabulations and measures of associations (Chi
Square and Lambda) were used where it seemed appropriate for illuminating
a point.
The findings were then used to draw conclusions about strategic
planning and subsequent financial resource allocations in public academic
health centers and their implications for future study which may affect both
the theory and practice of strategic planning for public higher education
institutions and other organizations with dual missions.
Organization
This thesis consists of five chapters. Chapter 1 discusses the
environment in which public academic health centers find themselves and why
this study is of interest to both the academician and the practitioner. Three
specific reasons why strategic planning should be important to public
academic health centers and to public higher education and other
organizations with dual missions are enumerated. The purposes, procedures
and organization of the thesis are discussed.
Chapter 2 contains the literature survey which is divided into two
sections. The first section includes the relevant literature on strategic
planning in the business sector as well as applicable literature on strategic
planning in postsecondary education. The major components of this section
are: a discussion of the six generalized models of planning; the characteristics
and purposes of strategic planning; a description of a two-part model which


14
describes strategic planning as a process with elements of environmental
scanning, situation audits and values assessment; and a discussion of linking
direction finding (strategic planning) with implementation (resource
allocation). The second section includes the relevant literature on budgeting
in the public sector. This literature is used because the focus of the study is
on public institutions. The major components of this section are a discussion
on the principles of budgeting and a description of the four major systems of
public budgeting.
Chapter 3 takes the two research questions on the purpose of the
study and develops five subsidiary questions based upon the literature review
in Chapter 2. Each subsidiary question is used to develop descriptive and
quantitative questions for the survey instrument. This chapter includes a
discussion of the statistical techniques to be used in analyzing the responses
to the survey.
Chapter 4 includes the analysis of each of the subsidiary questions
being investigated. Also included are analyses regarding interactions between
subsidiary questions.
Chapter 5 presents conclusions and recommendations which result
from the analysis of the individual subsidiary questions in Chapter 4 as well
as conclusions and recommendations from interactions between subsidiary
questions. Also included are implications and indications for present and
future practices, for theory, and for additional needed investigations.


CHAPTER 2
LITERATURE
Historical-Intellectual Origins
of Strategic Planning
The literature of strategic planning has at least four foundations
which help to understand the current practices and approaches to research in
public organizations with dual missions. These foundations are:
1. Historical intellectual origins (Cope 1987).
2. General business management practices (Anthony 1965; Ansoff
1965; Chandler 1962; and Steiner and Miner 1977).
3. Planning models (Peterson 1980).
4. Public administration budgeting (Lindblom 1959; Schick 1980; and
Wildavsky 1979).
Although the distinctions and relationships among the foundations
are not always clear, it is helpful to the researcher and the practitioner to be
aware of each and to make appropriate adaptations in research and
practice.
It is often assumed that strategic planning has its origins with
Chandlers (1962) Strategy and Structure: Chapters in the History of the


16
American Industrial Enterprise which summarized the history and expansion
of 100 of the nations largest firms during the previous 100 years. The work
focused on the way these firms prospered as they anticipated opportunities
presented by future environments.
The next major work was Ansoffs (1965) Corporate Strategy.
Ansoff conceptualized three distinct classes of decisions in corporations:
strategic, administrative and operating. Strategic decisions, according to
Ansoff, are concerned with how organizations relate to their environments as
contrasted to how they resolve internal decisions. Administrative decisions
are concerned with internal administrative organizational hierarchy and
structure. Operating decisions are concerned with how organizations
maximize their resource to increase profitability of operations.
Most of the subsequent business literature is derived from the
concepts established by Chandler and Ansoff. However, as noted by Cope
(1987), Chandler, Ansoff and subsequent authors fail to give appropriate
credit to earlier geopolitical theories.
Geopolitical military theory reaches as far back as Sun Zi, a
Chinese general who wrote about the art of warfare 2500 years ago. Even
earlier, the word "strategy" originated its meaning from the Greek strategos
which meant general. The word strategy, therefore, literally means "the art
of the general." In its geopolitical or military sense it meant that which a


17
general did to offset actual or potential actions of enemies (Koontz and
ODonnell 1955).
More recently Mahan (1890) traced the growth of maritime powers
in the 17th and 18th centuries and suggested six strategies for nations to
achieve economic power through geographic positioning, form of government,
the deployment of resources, and the attitudes of people and government.
Mackinder (1904) presented a paper which predicted that the
insulation from the effects of global trends on closed political-economic
systems would end. His paper is seen as the foundation of modem
geopolitics (Cope 1987).
The key concept from these earlier works is the notion of response
to the environment. It has only been since the seminal work of Chandler that
strategy has come to refer to those elements of managing an organization
which are of major concern to the top managements of organizations as
distinct from operational management (Anthony 1965; Goetz 1963; and
Steiner and Miner 1977).
Cope (1987) concludes:
All the newest propositions advanced as modern strategic concepts
- whether advanced as "planning," "management," or "leadership" -
can be found in these earlier geopolitical works and the works of
military science (93).
More recently Steiner and Miner (1977) have defined strategy as:


18
... the formulation of basic organizational missions, purposes, and
objectives; policies and program strategies to achieve them; and
the methods needed to assure that strategies are implemented to
achieve organizational ends (7).
In the business literature, strategic planning covers the entire
process of determining major outside interests focused on the organization;
expectations of dominant inside interests; information about past, current, and
projected performance; and evaluations of environmental opportunities and
threats, and company strengths and weaknesses. With this data in hand,
managers are in a position to determine company missions, basic purposes,
objectives, policies and program strategies. These results are called strategies
by a growing number of scholars in the field (Ansoff 1965; Cannon 1968;
Chandler 1962; Christensen, Andrews, and Bower 1973; Newman and Logan
1971; and Steiner and Miner 1977).
Generalized Models of Planning
Six Models
A part of the puzzle of strategic planning lies in the complexities
of the conceptual models of planning. There are at least six general models
or approaches to planning identified in the literature. The appropriate model
for any given organization or institution will depend upon individual
traditions, governance, administrative style and the particular problems facing
the institution. The six general models are:


19
Formal-Rational model. First described in the 1950s, the formal-
rational model assumes a rational sequence of events, beginning with the
formulation of institutional mission, development of goals and objectives,
establishment of programs and resource allocations, implementation and
evaluation. Key to the process is the assumption that the formulation of
institutional mission can be clearly articulated (Taylor 1976). It is built upon
a step-to-step paradigm.
Organizational Development fO.D.l model. The organizational
development model begins from the assumption that the organization is
composed of individuals and groups whose needs, abilities, attitudes and
activities more appropriately describe the patterns of the institution rather
than formal organizational structures and processes. Targets for change are
the institutions culture, management style, decision processes, patterns of
influence and communication through an experimental, trial and evaluation
method. The primary emphasis is internal to the institution, usually consensus
centered, seeking goals that most members will endorse (Bennis and others
1976; Michael 1973).
Technocratic/Empirical model. This model emphasizes rational
process concepts or techniques which help with limited pieces of the planning
process. Beginning in the late 1960s, this approach to planning is based upon
the assumption that basic units of the institution are subject to quantification


20
which can be traced through a functionally linked tasks, activities and
programs. Techniques associated with this model are environmental scanning,
trend analysis, forecasting, simulation modeling, Delphi, cost-benefit analysis,
budget analysis and market research to name only a few. These concepts can
be applied either internally or externally (Schick 1980).
Philosophical Synthesis model. The philosophical synthesis model
is premised upon asking fundamental questions about mankind and society.
Where are our political, social and economic systems taking us? How will
that affect the mission of the institution and guide institutional decisions and
programs? Conceptually, this model begins with the individual members of
the institution as the fundamental planning units, but unlike the organizational
development approach which focuses on their behavioral and psychological
nature, the philosophical synthesis model focus on their intellectual and
human traditions. The emphasis is on reasoned discussion, debate and
persuasion.
Political Advocacy model. This model, more than the others, is
able to deal with boundary conflicts between the institution and its external
environments. The policy issues accommodated by this model include the
entire range from strategic to tactical, from substantive to procedural. The
strategic directions focused upon by this model tend to be more pluralistic
and attempt to accommodate multiple goals and objectives. The process


21
suggests five stages as (Baldridge 1971): 1. social context analysis, in which
the problem and concerned interest groups are identified; 2. interest articula-
tion, in which the various interest groups articulate their positions and attempt
to influence others; 3. policy formulation, in which policy alternatives are
developed, analyzed, and reacted to by interest groups; 4. legislative trans-
formation, in which policy is enacted by the authorized planning or legislative
body; and 5. enactment, in which the necessary rules and regulations for
carrying out the policy are adopted.
Coordinated Anarchy model. Another pluralistic model attempting
to accommodate diverse goals is the coordinated anarchy model. This model
begins with the assumption that the basis for organizing is by independent,
highly productive, autonomous units. Described by Kerr (1963) and Cohen
and March (1974) this model is based upon the assumption that the
professionals in the autonomous units are best equipped to determine the
needs and wants of the units, that creativity should be fostered, and that
limitations should be minimized. Institutions using this model attempt to
evaluate where each unit and its environment is heading and then to
coordinate those movements within the institutions broader philosophical
framework, mission and resource allocations.
Classifications
Peterson (1980) classifies these six models into two fundamental


22
groups: 1. the rational planners; and 2. the radical planners. He notes that
colleges and universities have always had severe critics of rational planning
and points to Enarson (1975) who defends "intuitive" planning and Lindblom
(1959) who popularized the concepts of "muddling through." He goes on to
say that three of the models (philosophical synthesis, political advocacy, and
coordinated anarchy) incorporate some of the concerns of radical planners
who have difficulty accepting the more objective, mission- and goal-directed,
and formalized process notions reflected in the first three models (formal-
rational, organizational development, and technocratic/empirical). Peterson
continues, saying that the three more radical planning models also reflect, in
different ways, the failure of the rationalists to deal with the intellectual
nature of higher education (philosophical synthesis), the reality of interest
groups and conflict (political advocacy), and the lack of spontaneity and
freedom (coordinated anarchy).
Peterson (1980) identifies four functional needs that planning
specifically can serve any organization with dual missions such as higher
education institutions. Two are concerned with external considerations and
two are more concerned with internal considerations. According to Peterson,
planning which focuses on the institutional mission to ensure organizational
"adaptation" to the external environment, engages in the most ambitious and
difficult to manage effort. Planning which focuses on improving and
maintaining the flow of resources to the institution, and with the various


23
groups associated with the resources, engages in managing "problems in
boundary relations." While still externally oriented, this type of planning, he
says, is not as difficult to manage. Planning which attempts to improve
operations through changes in resource allocation, program evaluation or
institutional processes is said to focus on "improvement of institutional
management." This type of planning, Peterson believes, typically will not
result in radical change to an institutions mission, but may assist in achieving
the mission. Finally, planning which focuses on improving human
performance in the institution through improved faculty or staff morale,
commitment and opportunities for individual or group growth are focused on
the "human maintenance" dimension.
According to Peterson an institution should determine the extent
to which it can control outside influences in determining its resource flows.
To the extent that outside influences can be controlled and resource flows
managed, an institution can focus its planning process on internal issues. To
the extent that outside influences dominate, an institution must focus its
planning process on outside trends and forces.
Characteristics and Purposes
of Strategic Planning
There are four characteristics of strategic planning identified in the
literature:


24
1. First, strategic planning is the place where decisions of the highest
priority to the organization are made.
2. Second, the time frame covered by the strategic plan goes from the
very short-term to the long-term.
3. Third, the process of strategic planning is continuous for top
management, even though it may produce written documents only periodicly.
4. Fourth, unlike short- or medium-term planning, strategic planning
does not follow a neatly prescribed form. That is, strategic planning is
generally more flexible and variable in content, while short- or medium-term
planning result in more precise recommendations for action for prescribed
periods of time.
Peterson (1980) has noted that the primary purpose of strategic
planning is to foster institutional adaptation by assuring alignment between
an organization and its relevant and often changing environment, by
developing a workable plan for the future by monitoring and modifying the
plan as needed, and by devising strategies that promote the accomplishment
of the plan. The emphasis of strategic planning is clearly on developing
congruence between the organization and its environment. The measure of
an organizations success is no longer only on efficiency as determined by
cost-benefit analysis or return on investment.
... there is a growing suspicion that the more relevant criterion of
organizational effectiveness is not, as it used to be, that of
efficiency, but rather that of adaptability to changes in the
environment (Organ 1971, 74).


25
Strategic planning according to Irwin (1978) is concerned with
change. Specifically it is concerned with:
1. Change in the future environment.
2. Change in the nature of the organizations activities.
3. Change in how that organizations activities will be conducted.
As Newman and Logan (1971) have noted, strategies are forward-
looking plans that not only anticipate change, but they initiate action to take
advantage of opportunities that have been integrated into the concepts or
mission of the company as a result of the planning process.
The tension in planning lies between the "is" of the reality one
must face and the "ought" of the vision one wishes to achieve.
Like weather forecasting, it attempts to understand underlying
forces in order to predict changes, which one can then approach
strategically. But unlike weather prediction, institutional planning
necessarily involves understanding the hopes and visions of
individuals and developing strategies that will guide change
consistent with these ideals (Spitzberg 1980, 9).
In summary, strategic planning is focused on planning for the
whole organization in the context of the organizations environment. It is
premised upon the belief that organizational adaptation to the whole
environment is essential to organization vitality, if not survival. It is the
compass that shows direction to the organization in relation to its total
surroundings. It is future oriented and proactive.
Beyond the concepts discussed above, strategic planning is difficult
to neatly prescribe with precision. Like many academic disciplines, strategic
planning is as much art as it is science. This is particularly true for higher


26
education where the concept can be difficult to transfer from the business
literature. Cope (1987) offers a definition to draw attention to the essential
elements of strategic planning:
Strategic planing is an open systems approach to steering an
enterprise over time through uncertain environmental waters. It
is a proactive problem-solving behavior directed externally at
conditions in the environment and a means to find a favorable
competitive positions in the continual competition for resources.
Its primary purpose is to achieve success with mission while linking
the institutions future to anticipated changes in the environment
in such a way that the acquisition of resources (money, personnel,
staff, students, good will) is faster than the depletion of resources
(3).
Copes definition leads to an important conclusion about the
ultimate reason for strategic planning institutional prosperity. Ultimately,
strategic planning is about how institutions position themselves to compete for
resources in the environment. The following table (Table 1) contrasts
strategic planning with other forms of planning. As noted by Cope, the
distinctions offered in Table 1 suggest that the art of strategic planning is
focused on the environment, oriented toward change, with vision and
emphasis on doing the right things. It looks for synergy and effectiveness
through opinions, intuition and qualitative judgments. This contrasts with
other forms of planning which emphasize the science of analysis with focus
on stability for the enterprise itself. Strengths and weaknesses and doing
things right based upon extrapolation from the past and tried and tested
techniques become the focus of other or non-strategic planning.


27
Table 1. -- Differentiating Strategic Planning from
Other Forms of Planning
Strategic Planning Other Planning
Emphasis on the environment
Oriented toward change
Vision directed
Inductive and integrated
Proactive
Emphasis on doing the
right things
Art
Open and external focus
Anticipates changes
Current decisions based on
looking from the future
Entrepreneurial and action-
oriented, even when there
is ambiguity
Emphasis on innovation and
creativity
Synergistic
Enterprises environment and
-context are primary determinants
of strategy/choices/direction
Emphasis on opinions, intuition
and the qualitative
Orientation toard effectiveness
Patterns are in a stream of
decisions
Emphasis on the enterprise
Emphasis on stability
Follows a blueprint
Deductive and analytical
Reactive
Emphasis on doing things
right
Science
Closed and internal focus
Extrapolates from the past
Current decisions based on
looking from the present
Inaction when there is
ambiguity
Emphasis on the tried and
tested
Univariate
Enterprises strengths and
weaknesses are primary deter-
minants of strategy/choices/
direction
Emphasis on facts and the
quantitative
Orientation toward efficiency
Decisions are made and
carried out
Source: Cope 1987, 4.


28
A two-part model helps to organize the concepts of strategic
planning (Drake 1986). The left part of the model shown in Figure 1 below
emphasizes mission through environmental scanning, an assessment of
institutional strengths and weaknesses, and vision. The latter are those
elements which the organization must do relative to its resource providing
environment to assure organizational prosperity and viability. This direction
finding part of the model describes a process for examining an institutions
strengths and weaknesses relative to its environment, determining
opportunities and molding a resulting vision for the institution.
The right part of the model focuses on the factors necessary for
implementation of strategy. Implementation is shaping the institution through
the arrangement of structures, the acquisition and allocation of resources, the
development of cultures that are favorable to the institution and the use of
systems for rewards, information and control.
Mintzberg (1987) uses an analogy of "crafting" to provide an image
of direction finding and shaping which helps to explain the strategic concept.
In my metaphor, managers are craftsmen and strategy is their clay.
Like the potter, they sit between a post of corporate capabilities
and a future of market opportunities. And if they are truly
craftsmen, they bring to their work an equally intimate knowledge
of the materials at hand. That is the essence of crafting strategy
(66).


29
Figure 1 Model for Strategy Formulation
and Implementation
O
03

e
6
3
O
to
2 CO CO o 2


30
Mintzberg contrasts what we define as being strategy and what we
describe ourselves or others (our competitors) actually pursuing. He believes
that strategy is "a pattern in action over time." He goes on to say that "if
strategies can be planned and intended, they can also be pursued and realized
(or not realized, as the case may be)." The pattern in action, whether
planned or not, becomes the strategy which is in pursuit. As a conscious
process, Mintzberg says that strategies are in many cases formed or emerged -
not simply formulated. For example, a salesman visits a customer. The
product is not quite right. The salesman works with the customer to modify
the product, goes back and convinces the company to make the changes.
After several rounds the product is finally right, and significantly different.
The company has changed strategic course by forming, not formulating.
Direction Finding
As discussed previously in the two-part model, there are three
broad elements involved in direction finding. First, an environmental scan or
assessment to identify trends and determine their implications to the institu-
tion. Second, an institutional assessment to identify strengths and weaknesses
of the institution. Third, a values assessment to identify and verify values,
aspirations and ideals of the institution and its environment.
Environmental scanning. Hofer and Schendel (1978) define
strategy as matching an organizations internal resources and skills (referred


31
to collectively as competencies) and the opportunities and risks created by the
organizations external environment. King and Cleland (1978) point out that
strategic planning is applicable to any situation which involves significant
uncontrollable environmental forces which affect organizational performance.
Until recently many organizations considered only the maximiza-
tion of resources at their disposal in the production of goods and services and
prices consumers were willing to pay, also known as profit maximization.
Now organizations must respond to the broader interests of individuals
outside the organization. Edward N. Cole (1970, 1), former President of
General Motors, has noted, "The big challenge to American business as I see
it is to carefully evaluate the constantly changing expressions of public and
national goals. Then we must modify our own objectives and programs to
meet as far as possible within the realm of economic and technological
feasibility the new demands of the society we serve."
Stated simply, strategic planning is concerned with the
organization-environment interface. It is intended to provide a framework
within which tactical planning, or the development of specific strategies for
implementation occurs.
Peterson identifies environmental scanning and assessment as the
one of the least developed elements of strategic planning in higher education.
Generally, responsibility for conducting the environmental scan falls to one
of three groups: (1) an institution-wide planning or analytical staff; (2) an


32
institutional research or other administrative group; or (3) an appointed
planning group consisting of members knowledgeable about external environ-
ments but which adopts a less research structured approach to environmental
scanning.
Assessment of strengths and weaknesses. Systematic strategic
planning begins with a situation audit, the identification and evaluation of
information necessary to making decisions (Steiner and Miner 1977). The
"situation audit" has alternatively been called the "strategic assessment," the
"resource profile, and the "appraisal of internal strengths and weaknesses."
Christensen, Andrews and Bower describe the role strategic assessment plays
in the strategic planning process (Christensen, Andrews, and Bower 1973):
The first step in validating a tentative choice among several
opportunities is to determine whether the organization has the
capacity to prosecute it successfully. The capability of an
organization is its demonstrated and potential ability to accomplish,
against the opposition of circumstance and competition, whatever
it sets out to do. Every organization has actual and potential
strengths and weaknesses. Since it is prudent in formulating
strategy to extend or maximize the one and contain or minimize
the other, it is important to try to determine what they are and to
distinguish one from the other (254).
The identification of strengths and weaknesses is a necessary first
step in formulating effective strategy, and thus, avoiding being "stuck in the
middle" (Collier 1982). There are numerous ways to identify strengths and
weakness, or conversely, there is no single way to identify and analyze an
organizations strengths and weaknesses. What is important, is that the


33
process attempt to do both. Simply pursuing strategies that are based upon
an organizations strengths will not assure continued success. As Steiner and
Miner (1977, 98) have noted, "it is observable that companies have failed
because they ignored their weaknesses."
Four commonly accepted methodologies for the identification of
opportunities and threats are briefly described below:
1. Problem identification The identification of a problem through
simple observation or complex analysis and the subsequent definition of the
cause and the development of alternative solutions.
2. Missions and objectives The identification of opportunities and
threats to the achievement of the basic missions and objectives of the
organization.
3. Opportunism Waiting for opportunities to appear and then
analyzing the opportunities in the context of the organization environment.
4. Instinctive feel or intuition A simple "gut" feeling that an
opportunity or threat is imminent.
To assist in accomplishing the situation audit a data base, which
includes facts about the past, present and future, should be developed. The
past often focuses on the performance of the organization. The present
focuses on both the performance of the organization and the strengths of the
organization including managerial and employee skills. The future consists
of forecasts which postulate on future performance of the organization.


34
With respect to higher education, Peterson (1980) found that most
institutions practice institutional assessment, whose principle purpose is
obtaining a rational picture of the institutions current functioning; what are
the strengths and weaknesses of the various academic, research and support
services of the institution. Typical institutional assessment data bases include
accreditation reviews, periodic program reviews and ad hoc studies. In
addition, Dressel (1976) found that critical to good institutional assessment is
the need to provide a picture of the major resources (inputs), the activities
(processes), and the results (outputs) of all major components of the
institution.
Values assessment. Strategy is formed through learning (Mintzberg
1987). It emerges as people take actions one by one and respond to them,
resulting in a pattern. Successful strategies often reflect a grass-roots
approach to strategic management. As people learn and resources are
provided to support that capacity, strategies take root. That is they become
a collective strategy, shared by all, and become part of the corporate culture.
Two kinds of strategies emerge, umbrella strategy and process strategy.
Umbrella strategy occurs when the senior management establishes the broad
guidelines and leaves the specifics to others lower in the organization.
Process strategy occurs when senior management controls the process of
strategy development, including design of the structure, staffing, procedures,


35
etc. and leaves the development of content to others lower in the
organization.
This second grass roots approach leads to a values assessment
which is intended to identify the basic values of individuals and groups inside
of the organization. Particularly important are the values of top managers.
Often values which are basic or fundamental to any comprehensive plan go
unspoken, or at least unwritten. Values such as, "I want the organization to
be the technologically best in the industry over the next . ." provide an
important frame of reference for conducting strategic planning. In higher
education the value assessment is most likely to be the outcome of a series
of discussions by a faculty dominated institution-wide planning or governing
body (Peterson 1980).
Linking Direction Finding
and Implementation
Based upon the preceding analyses, the strategic planning process
formulates the basic missions, purposes, long-range objectives, and the policies
and strategies to achieve them. Typically, these decisions are then reflected
in medium- and short-range plans. The medium-range plans will vary in time,
often the planning period is five years, and will focus on the strategies for
achieving the organizations objectives and missions for the major programs
of the organization and in comparatively simple terms. The short-range plans
are the detailed tactics for achieving the strategies formulated in the


36
medium-range plan. The comprehensive operating budgets provide the
financial detail for each tactic that will be pursued. Short-range plans will
cover a broad range specifying each of the components necessary to achieve
the strategies identified in the medium-range plans for the major programs.
Steiner and Miner (1977) note that organizational decisions range
across a spectrum from a broad strategy to minute tactics. They distinguish
between these two types of decisions in the following manner:
1. Level of Conduct Strategy is developed at the highest levels of
management. Tactics are employed and relate to lower levels of manage-
ment.
2. Regularity The formulation of strategy is regular but the decisions
emanating from it are irregular because they depend upon the appearance of
opportunities, new ideas, management initiative, crises, and other nonroutine
stimuli. Tactics are generally determined on a periodic basis with fixed
schedules, such as budget cycles.
3. Subjective values Strategic decisions are more heavily weighted
toward the subjective values of managers than are tactical decisions.
4. Range of alternatives The total possible range of values from
which management may choose is far greater in strategic decision making
than in tactical decision making.
5. Uncertainty Uncertainty is usually greater in both the formulation
and implementation of strategy. The time dimension in tactical decision


37
making is generally shorter and therefore it is easier to assess potential
outcomes of tactical decisions.
6. Nature of problems Strategic problems tend to be unstructured
and one of a kind. Tactical problems are more structured and tend to be
more repetitive.
7. Information needs Formulation of strategy relies on large
amounts of information generated from knowledge about the environment
outside of the organization. Most of the information relates to the future.
Tactical information relies more heavily on internally generated information,
often from accounting systems and relying more heavily on historical
information.
8. Time horizons Strategies are intended to last over long periods
of time. Tactics cover a shorter duration and are uniform for all parts of an
operating program.
9. Reference Strategies are the source or origins for the
development of tactics. Tactics are formulated within and in pursuit of
strategies.
10. Detail Strategies are usually broad and have fewer details than
tactics.
11. Type of personnel involved in formulation Strategies for the most
part involve top management and its staff. The numbers of people involved
are comparatively few compared to tactics in which large numbers of


38
managers and employees are generally involved in participation.
12. Ease of evaluation Because of the time frames involved with
strategies, effectiveness and efficiency are more difficult to measure. Due to
the shorter time frames involved in implementing tactics, results are more
quickly evident and easier to measure.
13. Point of view Strategies are formulated from a corporate point
of view. Tactics are formulated from a functional point of view.
14. Importance Strategies, by definition, are of the highest
importance to the organization. Tactics are considerable less significant.
Budgets Instruments of Strategy
Functions of Budgeting
The implementation of direction finding occurs primarily through
the resource acquisition and allocation process the budget. The remainder
of this chapter will focus on budgeting and how public budget systems are, or
are not, supportive of the concepts of strategic planning and responding to a
changing environment.
Schick (1980) has observed that there are three principles of
planning that are applicable to budgeting. They are:
1. Planning is future oriented, connecting present decisions to the
achievement of future goals and objectives.


39
2. Planning considers all sources of potential revenue in the
attainment of future goals and objectives.
3. Planning is means-ends oriented; the allocation of resources being
dictated by the ends to be accomplished.
Schick continues by noting that "Institutionally and operationally,
planning and budgeting have run along separate tracks." He attributes this to
the fact that appropriations cycles, not the need to meet future objectives,
tend to direct the focus and orientation of budgeting. All financial decisions,
including those with multi-year implications, are fit within the constraints of
the one-year budget cycle. The consequence is that planning "occurs
independently of budgeting and with little relation to it" (Mosher 1954,47-48).
There are three functions traditionally served by any budget
system. These functions have been identified by Anthony (1965) as strategic
planning, management control and operational control.
Strategic planning is the process of deciding on objectives of the
organization, on changes in these objectives, on the resources used
to attain these objectives, and on the policies that are to govern
the acquisition, use, and disposition of these resources.
Management control is the process by which managers assure that
resources are obtained and used effectively and efficiently in the
accomplishment of the organizations objectives.
Operational control is the process of assuring that specific tasks
are carried out effectively and efficiently (16-18).
Schick says that every budget system, even the most basic ones, contain
elements of each of the processes identified by Anthony. The typology, then,


40
suggests that budgeting systems should be examined for the extent to which
they emphasize each of the elements. Orwig and Carathers (1980) have
noted that:
All institutions make decisions in their budgetary processes that
affect the future direction of the institution. Some do this more
consciously and systematically than others, but all do it. There is,
therefore, a necessary and inevitable interrelationship between the
planning and budgeting processes (341).
There are four factors that appear to have influenced the
progression of budgeting toward a more comprehensive planning orientation.
First, fiscal and budgetary policy have become increasingly influenced by
macro and micro economics. Second, policy analysis has been aided by the
development of new technologies which enhance decision-makers capacities
to apply objective evaluations. Third, planning and budgetary processes have
gradually converged. Fourth, budgeting has become more complex, largely
caused by the growing complexity of modem life.
At its most basic level a budget is a conversion of financial
resources into human objectives. Wildavsky (1979) defined a budget as:
In the most literal sense a budget is a document, containing words
and figures, which proposes expenditures for certain items and
purposes. The words describe items of expenditure (salaries,
equipment, travel) or purposes (preventing war, improving mental
health, providing low-income housing), and the figures are attached
to each item or purpose (1).
The term "budget" originally referred to the bag in which the
Chancellor of the Exchequer in England carried to Parliament statements of
the governments needs and resources. Eventually, the meaning shifted from


41
the bag to the documents which were in the bag the governments financial
statements (Burkhead 1956). Today, budgeting can be considered "an
organizations financial plan to accomplish its purpose (Turnbull 1970, 18)."
It is also an instrument of control, a guide to management, and an instrument
of public policy.
Principles of Budgeting
"Principles of budgeting" reflect the historical purposes that the
budgeting process serves. Budgeting developed as part of the growth of
representative government in Europe. By controlling the purse strings, the
legislature soon learned it could also control the Crown. Therefore, the
earliest principles of budgeting emphasize "control". In the United States
budgeting did not become important until the early part of the twentieth
century when wide-spread corruption in government made control of public
funds important to this country (Burkhead 1956).
Smith has identified the following control-oriented principles of
budgeting (Smith 1945):
1. Publicity All steps of the budgetary process should be made
public.
2. Clarity The budget should be understandable to every person.
3. Comprehensiveness The budget should take into account all
relevant considerations in making decisions and should contain all government
revenues and expenditures.


42
4. Unity All receipts should be recovered into one general fund for
financing all expenditures.
5. Detailed specification Receipts and appropriations should be
expressed in detailed specifications; transfer of items should be permitted
only in exceptional cases.
6. Prior authorization The budget should be submitted, considered
and acted upon in advance of the period during which the expenditures are
to be made.
7. Periodicity Appropriations should be authorized for a definite
period of time. If an appropriation is not used at the end of the period, it
should lapse and be reappropriated.
A change in emphasis away from legislative control and toward
assisting the requirements of management began in the United States at the
time of the New Deal legislation and continued as a prime focus of budgeting
well into the 1950s (Steiss 1972).
Bartizal (1942) found that control is actually a function of
management not budgeting. Budgeting can only chart the course toward
certain objectives. It cannot, however, prevent deviations from the course.
Budgeting is an effective means of organizing management information to
make correct decisions concerning the allocation of limited fiscal resources
(Steiss 1972). The real objective of budgeting is "the achievement of the best
utilization of limited resources" (Snyder 1972, 107).


43
Budgeting Systems
As stated earlier, budgets are the tactical instruments for achieving
strategies. Therefore, it is important to review the basic budgeting systems
and understand how they might assist in realizing or deterring from the
achievement of strategic goals and objectives. There are four generally
accepted public budgeting systems, line-item budgeting, performance
budgeting, program budgeting and zero-based budgeting. Two of the systems
emphasize control (line-item and zero-based), one emphasizes management
(performance), and one emphasizes planning (program).
Line-item budgets. The line-item budget is a traditional system
which focuses on objects of expenditures such as supplies, maintenance, and
personnel. No program detail is provided in this type of budget. Budgeting
divisions are listed by organizational units, and types of expenditures are
listed by category (Bubunaskis 1976; Lee and Johnson 1977).
The primary advantages are expenditure control, the safeguarding
of funds for their assigned uses, and the protection of fiscal resources. The
line-item budget focuses on the attainment of a balanced budget and forces
a review of activities and policies because the process is repeated every year.
Line-item budgeting fosters central control in several ways. First,
it provides external control by legislative bodies and central monitors who are
not responsible to operating agencies. Line-item controls are particularly
effective for salaries and other objects, which together account for the bulk


44
of labor intensive programs. Second, control is uniform and comprehensive.
Control is exact and routine. That is, the records upon which the control is
built are acquired in the ordinary course of activity. Third, there are multiple
opportunities for control as central authority can be exercised at several
points in the expenditure process and throughout he fiscal year. Fourth, line-
item supervision ensures established expenditure ceilings will not be breached
and also permits control to extend down to particular items. Fifth, line-item
controls establish a basis for budget cutting. Items can easily be deleted or
reduced until the required target is reached. Finally, and most importantly,
line-item budgeting eases decision making. Once a budget has become
implemented, it becomes a precedent; because a decision has been reached
once through the budget the chances of the same budgetary decision being
reached again are significantly improved.
The disadvantages of line-item budgeting are numerous. First, line-
item budgeting basically deals with how to increase or decrease expenditures
rather than examining the basic program structure. Second, line-item
budgeting is not conducive to long-range planning as it is premised upon a
year-to-year process which tends to postpone necessary future actions. Third,
line-item budgeting is difficult, if not impossible, to relate to organizational
objectives, accomplishments and outputs. Finally, line-item budgeting makes
no provision for examining alternative methods of achieving objectives.


45
The line-item budget provides justification for decisions that have
been made historically and does not yield system data which can be used for
alternative course of action. Additionally, it makes it easier for agencies to
conceal their activities, with the result that it becomes impossible to perform
interdepartmental comparisons or reorganizations by function or activity. Any
duplication of effort remains undetected in a line-item budget and program
management and control rather than planning is emphasized.
The preceding years line-item is accepted as the standard for the
next years budget, with little or no analysis of the effectiveness of the
expenditures. The largest determining factor of the size and content of this
years budget is last years budget. The budget is a product of previous
decisions. Because the budget is revised annually, insufficient consideration
is given to new program planning. The tendency is to meet only the most
pressing demands and to avoid programs who effects cannot be seen in the
immediate future.
The line-item budget also encourages competition among
departments for available funds. Each department attempts to achieve
satisfice and its fair share and base regardless of its relative importance to
overall objectives.
Zero-based budgets. Zero-based budgeting (ZBB) is a relatively
new budgeting system. The basic concept of ZBB is the review of each
program in its entirety, or from a zero base. No program is allowed to have


46
a base funding below which its appropriations are immune from reductions.
In the past, legislative bodies have generally considered only
incremental changes in programs. Coordination between programs was minor
or nonexistent. Many programs overlapped or were duplicative. ZBB has
attempted to control expenditures by placing competition between programs
for limited funds. Analysis and evaluation are essential components of ZBB.
They are used to develop alternative levels of services, rank in priority the
proposed levels of services, and calculate the necessary funding for each level.
The exact method of ZBB varies, however, a general method can
be described (Pyhrr 1976). All programs are divided in decision units,
generally equivalent to a budget or cost center unit. Each unit makes its own
set of decision packages. Each package consists of alternative levels of
service, often decremental and incremental levels of funding such as 80
percent, 100 percent and 120 percent of existing funding levels. Each decision
package includes information on:
1. The goals of the unit.
2. The program by which the goals are to be achieved.
3. The benefits expected from the program.
4. The cost of providing the program.
5. The alternatives.
6. The consequences of not approving the decision package.


47
The program manager will rank each of the decision packages and
the agency manager will then re-rank each package. The legislative body
reviews the decision packages, re-ranks them to meet legislative priorities, and
then appropriates funds from the highest ranking packages to the lowest until
all funds are allocated.
Zero-based budgeting has several disadvantages. First, it is
legislative expenditure control oriented rather than executive program
oriented. As such, it has become a device for shifting the bulk of budget
preparation from increments above the budget base to decrements below the
base. Second, the amount of paperwork involved in ZBB has shifted its
usefulness from a instrument for building the budget from scratch every year
or two, to a form of marginal analysis. Third, ZBB budgeting is not tied to
long-range planning and the obtainment strategic objectives.
Performance budgets. Considerable confusion surrounds the use
of the terms "performance budgets" and "program budgets". Frequently they
are used interchangeably, although each has a distinct meaning. Often the
two are combined as "program-performance budgets" to reflect a philosophy
of budgeting; that is, budgeting should relate to the functions or purposes of
the agencys activities.
A performance budget tells the level of services being bought with
allocated funds. It provides information on how much of what kind of service
is going to be provided toward accomplishing some predetermined objective


48
or purpose. Performance budgeting derived much of its intellectual base from
cost accounting and scientific management. It is considered to be a tool of
management.
There are two necessary elements in the development of a
performance budget. First, there must be the capacity to develop a realistic
measure of output, how much of what are you doing for the money expended.
Second, there must be the capacity to determine what the appropriate level
of services should be.
Performance budgeting is management-oriented. It helps adminis-
trators to assess the work-efficiency of units by formatting budgets in
functional terms and by providing work-cost measurements to determine the
efficiency of the activities to be implemented. There is an emphasis on
putting the work-cost measurements into discrete and measurable units.
Performance budgeting, according to Turnbull (1970), accomplishes
the following:
1. It monitors the relationship between inputs and functional outputs.
2. Performance budgeting provides a technique which
emphasizes evaluation of the preferred means of accomplishing a task.
3. It examines the respective costs and benefits associated with
accomplishing a task.
4. Performance budgeting examines the respective merits of allocating
resource alternatives.


49
The principal disadvantage of performance budgeting is that
organizations tend to become overinfatuated with the means-ends relation-
ship, without giving sufficient attention to the question of whether the
designed activities are in fact working toward the most important objectives.
A second disadvantage is the desire to discover elegant performance criteria
which often lead to a pattern of suboptimization of resources.
Program budgets. Program budgeting differs from performance
budgeting in that it is planning oriented. The goal of program budgeting is
to rationalize policy decisions by:
1. Providing data on the costs and benefits of alternative approaches
to achieving public objectives.
2. Providing output measurements to determine the degree of success
in achieving the selected alternative.
In performance budgeting the goal is to modify the mixture of
inputs until the optimal predetermined output is achieved. In program
budgeting the objective is variable; the analysis of alternatives is conducted
to select a statement of objective that results in the greatest benefit. Program
budgeting has drawn its intellectual base from economics and systems
analysis. It attempts to answer the question formulated by Key (1940, 1138);
on what basis do we "allocate x dollars to activity A instead of activity B?"
Program budgeting attempts to make budgeting an allocative process among
competing claims, and the budget a statement of policy.


50
Program budgeting indicates activity oriented budgeting (Turnbull
1970). The program budget is built upon proposed "activities", "functions", or
"programs", of an organization and the amount of funds requested or
allocated for each function. It lacks some of the controls inherent in a line-
item budget, since proposed spending levels are for overall functions or
activities, not the objects to be purchased or personnel to be hired. For
example, recruitment and testing may be one function of a personnel division.
The program budget includes an amount of money for this activity, but does
not break down the spending as a line-item budget would do (e.g., six
personnel specialists, three clerks, X amount of test materials, Y amount of
computer time, etc.).
The program administrator has considerable independence and
responsibility for the way funds and time are utilized. The post-audit will
look at the overall functioning of the authorized program, not at whether
precise predetermined amounts were spent for individual items or services.
The principle disadvantage of program budgets is their failure to
assess the performance of the activities which were funded. To address this
problem, performance budgeting and program budgeting have merged through
PPBS Planning, Programming, Budgeting System. PPBS attempts to
consider "expenditure proposals ... in light of the objectives they are
intended to further . ." (Smithies 1955, 16) and to measure results through
cost-benefit, cost-effectiveness, or other technical analysis.


51
This rational approach to budgeting is not, however, without its
critics. Wildavsky (1979) argues that the rational-comprehensive approach to
budgeting cannot be successfully implemented, and in doing so, he supports
the successive limited comparison model articulated by Lindblom (1959).
One prescription for "rationally" solving problems of calculation is
to engage in comprehensive and simultaneous means-ends analysis.
But budget officials soon discover that ends are rarely agreed
upon, that they keep changing, that possible consequences of a
single policy are too numerous to describe, and that knowledge of
the chain of consequences for other policies is but dimly perceived
for most conceivable alternatives. The result, as Charles Lindblom
has demonstrated, is that although this comprehensive approach
can be described it cannot be practiced because it puts too great
a strain by far on mans limited ability to calculate. What budget
officials need are not injunctions to be rational but operational
guides that will enable them to manage the requisite calculations
(147).
Summary
The literature of strategic planning has at least four foundations
which help understanding of current practices and approaches to research in
public organizations with dual missions. The distinction and relationships
among the foundations are not always clear and it is helpful to the researcher
and the practitioner to be aware of each and to make appropriate adaptations
in research and practice.
Strategic planning has its earliest foundations in geopolitical
theories. The word strategy derives is origins from the Greek strategos and
literally means "the art of the general." Strategy is the more common word


52
today for what use to be called policy. Strategy concerns the formulation of
organizational missions, purposes and objectives; the policies and program
strategies needed to achieve them; and the operational methods needed to
assure successful implementation.
Six general models of planning are identified. Three are
characterized as rational planning and three are characterized as radical
planning.
The four characteristics of strategic planning are:
1. Strategic planning is the place where decisions of the highest
priority to the organization are made.
2. The time frame covered by the strategic plan goes from the very
short-term to the long-term.
3. The process of strategic planning is continuous for top
management, even though it may produce written documents only
periodically.
4. Unlike short- or medium-term planning, strategic planning does not
follow a neatly prescribed form.
The primary purpose of strategic planning is to foster institutional
adaptation by assuring alignment between an organization and its relevant
and often changing environment. A two-part model is discussed. The first
part concerns direction finding. This is accomplished through the use of three
broad elements to the strategic planning process. First, an environmental scan


53
or assessment to identify trends and determine their implications to the
institution. Second, an institutional assessment to identify strengths and
weaknesses of the institution. Third, a values assessment to identify and
verify values, aspirations and ideals of the institution and its environment.
The second part of the model concerns implementation. Strategy
is implemented through the use of tactics. The principal tool for
implementing tactics is the budget. The word budget derives its meaning
from the bag which the Chancellor of the Exchequer in England carried to
parliament statements of the governments needs and resources. It is the
conversion of financial resources into human objectives.
Budgets serve a number of purposes, among which is control.
Seven control-oriented principles of budgeting are identified. Additionally,
seven management oriented principles are identified.
There are a number of characteristics of budgeting, including
simplifying calculations, fragmentation, strategies and mandatories. Each is
briefly discussed.
Four major public budgeting systems are identified and discussed.
The four systems are: 1. line-item budgets; 2. zero-based budgets; 3. per-
formance budgets; and 4. program budgets. The first two are control oriented
systems; the third is a management oriented system; and the fourth is a
planning oriented system. Line-item budgeting is the traditional method and
focuses on objects of expenditures such as supplies, maintenance, and


54
personnel. Zero-based budgeting is the annual review of each program in its
entirety, from a zero base. Performance budgeting focuses on the level of
services being bought with allocated funds. It provides information on how
much of what kind of service is to be provided toward a predetermined
objective or purpose. Program budgeting is planning oriented. It provides
data on the costs and benefits of alternative approaches to achieving public
objectives.


CHAPTER 3
INVESTIGATIVE PROCEDURES
Purpose of the Study
In Chapter 1, three reasons were given why public academic health
centers provide a distinctive laboratory for examining the theory and practice
of strategic planning and should be of interest to both academicians and prac-
titioners. First, through the university or affiliated hospital, public academic
health centers have all the characteristics of a traditional business enterprise
operating in a competitive market-place environment. Second, as identified
by Keller (1983), public academic health centers with their schools of
medicine and other associated health programs share with other american
colleges and universities a "hazardous zone" between the competitive profit-
making business sector and the government owned and run state agencies.
Third, the implementation of strategies in these organizations necessarily
results in the need to determine whether performance is in accordance with
expectations. As noted by Jones (1984), public budgeting resource allocation
processes provide a framework for accountability.
The purpose of this thesis is two-fold. First, to determine if public
academic health centers have a strategic plan and the relationship, if any, of


56
the budgeting system and subsequent financial resource allocations in support
of the strategic plan. Second, to use public academic health centers as a study
group to draw conclusions about the theoretical and practical issues
surrounding strategic planning and their implications for public universities
and other organizations with similar characteristics of role ambiguity, role
conflict, coordination and accountability.
The literature review in Chapter 2 suggests that there are five
subsidiary questions which are relevant to this study:
1. Which of the six general models of planning characterizes planning
in public academic health centers?
2. Which of the four functional internal and external needs identified
by Peterson (1980) does planning serve at public academic health centers?
3. Does the two-part model emphasizing direction finding and
implementation apply to public academic health centers?
4. What type of budgeting system characterizes public academic
health centers?
5. What relationship exists between the strategic plan and the
allocation of financial resources?
The responses to the five subsidiary questions will determine the
answer to the first principal research question and will provide the basis for
drawing inferences for the theory and practice of strategic planning in
organizations with similar characteristics to public academic health centers.


57
Research Design
Chapter 1 demonstrated that public academic health centers have
organizational and environmental characteristics which are similar to other
public higher education institutions and suggested that these institutions would
be a good model for studying the application of strategic planning concepts
and the resulting institutional responses to the environment. The design of
this study is based upon a population survey. In Chapter 1, a public academic
health center was defined as a publicly owned and operated institution with
a school of medicine, at least one other health sciences related school and an
owned or affiliated teaching hospital. There are fifty-three institutions that
meet this definition (Appendix 1).
An important factor which influences the study is the role
ambiguity and dual missions of public academic health centers. Because of
this factor it was decided that study design should be based upon a survey of
the two principle components of the academic health center, the university or
affiliated hospital and the school of medicine. Consequently, each university
or affiliated hospital director and each school of medicine dean received an
identical survey instrument. Questions in the instrument focused on the five
subsidiary research questions enumerated above.
Deans and hospital directors were selected to respond to the survey
because they are the chief executive and academic officers of their
organizations. As noted by Steiner and Miner (1977):


58
The view of the top manager is unique. No one else in an
organization has the same perspective. He alone is responsible for
relating his organization to a changing environment. He alone is
responsible for assuring the proper balance among various
competing subsystems in his organization. He alone is responsible
for determining the total thrust of the organization and for
assuring that performance matches his design (5).
The entire population of public academic health centers was
decided upon for two reasons. First, the population was relatively small,
allowing for a survey of the entire population. Because these individuals are
involved in teaching and research, it suggested that they would be likely to
cooperate in the survey and maximize the rate of return in an area of interest
to them professionally and administratively. Second, in considering random
sampling techniques for study populations, and given the relatively small
initial population, it was believed that a greater level of inference might be
lost with a smaller sample, acknowledging that some survey instruments
would not be returned.
Survey instruments were sent out on March 27, 1989 with a
requested response date within ten days. Thirty-six responses were received
from the first mailing. A follow-up letter was sent to nonrespondents on
April 14 with a second copy of the survey, asking that if they had not
previously responded, please complete the survey and return it within 10 days.
An additional twenty-eight responses were received. A final follow-up letter
with a third copy of the survey was sent to remaining nonrespondents on May
5, again asking for completion and return of the survey within 10 days. Five


59
responses were received, bringing the total response rate to 71 respondents
or an overall response rate of 67%.
The Survey Instrument
The survey instrument consisted of one hundred questions in three
parts. The first part has four purposes. First, to determine whether the
responding organization is a school of medicine or a university or affiliated
hospital. Second, to determine if the responding organization believes that
is has a strategic plan. Third, to determine the planning horizon for those
organizations that do not have a strategic plan. Fourth, for those
organizations that respond that they do not have a strategic plan, to
determine what type of planning documents are important to guiding daily
decisions.
If the responding organization has a strategic plan it is asked to
complete part two. The second part concerns the strategic planning process
in public academic health centers and is reliant on the strategic planning
literature identified in Chapter 2. This part of the survey is descriptive and
its purpose is to answer the first three subsidiary questions:
1. Which of the six general models of planning characterizes planning
in public academic health centers?
2. Which of the four functional internal and external needs identified
by Peterson (1980) does planning serve at public academic health centers?
3. Does the two-part model emphasizing direction finding and


60
implementation apply to public academic health centers?
Questions in this part of the instrument are designed to solicit the
dean or hospital directors opinion about the existence, nature and focus of
the strategic plan. Questions in part two are descriptive and a based upon
two concepts. The first concept is to use the literature in Chapter 2 to define
how public academic health centers view strategic planning. Does the
literature apply to public academic health centers? The second concept is to
specifically determine what are the important environmental factors, who
participates in the strategic planning process, and what program areas are
emphasized in the strategic plans of public academic health centers.
The third part of the survey instrument concerns budgeting and the
allocation of financial resources toward the achievement of the strategic plan.
All respondents were asked to complete part three. This part of the
instrument is based upon the literature for budgeting in the public sector
which is identified in Chapter 2 and is designed to answer the last two sub-
sidiary questions:
4. What type of budgeting system characterizes public academic
health centers?
5. What relationship exists between the strategic plan and the
allocation of financial resources?
Questions in this part of the instrument have two purposes. First,
to attempt to determine the type of budgeting system used by the responding


61
organization by asking to what extent certain characteristics describe
budgeting their organizations. Two descriptive questions are asked about
each of the four principle budgeting systems discussed in the literature.
Second, part three attempts to determine if there is a perceptual
link between the strategic plan and the allocation of financial resources by
asking to what extent financial resources were allocated to each of eight
categories of programs in fiscal year 1987-88. The eight categories in part
three are the same as those listed in part two to determine the programmatic
focus of the strategic plan.
Data Analysis
The purpose of the analysis is to describe the population being
studied. Nominal and ordinal level data appropriate to descriptive statistics
were collected in the survey process. The purpose is not to explain causal
relationships among one or more variables.
The data was analyzed using Statistical Package for the Social
Sciences Personal Computer (SPSS-PC). Descriptive statistics were applied
to each of the questions by the total population of academic health centers,
by total populations of schools of medicine and university or affiliated hospi-
tals and by populations of schools of medicine and university or affiliated
hospitals with and without strategic plans. Crosstabulations and measures of
association (Chi Square and Lambda) were used where it seemed appropriate
for illuminating a point. Figures using bar graphs were developed for


62
presentation of the data.
In many instances, the survey instrument relied upon the use of a
Lickert Scale, either 1 5 or 1 7. The Lickert Scale from 1 5 was
ascending with labels of "To no extent," "To a small extent," "To some extent,"
"To a considerable extent," and "To a very great extent." The Lickert Scale
from 1-7 was ascending with labels of "To no extent" at the value 1 and "To
a very great extent" at the value 7.
The analysis in this chapter used the following conventions for
interpreting the responses.
Lickert Scale 1-5. Three levels of responses were interpreted for
the Lickert Scale 1-5.
1. Strong A variable with a mean response greater than 4.0 was
interpreted as strongly contributing to the planning or financial resource
allocation process.
2. Moderate A variable with a mean response greater than 2.5 and
less than or equal to 4.0 was interpreted as moderately contributing to the
planning or financial resource allocation process.
3. Neutral A variable with a mean response less than 2.5 was
interpreted as not contributing to the planning or financial resource allocation
process.
Lickert Scale 1-7. Three levels of responses were interpreted for
the Lickert Scale 1 7.


63
1. Strong A variable with a mean response equal to or greater than
5.5 was interpreted as strongly contributing to the planning or financial
resource allocation process.
2. Moderate A variable with a mean response equal to or greater
than 3.5 but less than 5.5 was interpreted as moderately contributing to the
planning or financial resource allocation process.
3. Neutral A variable with a mean response less than 3.5 was
interpreted as not contributing to the planning or financial resource allocation
process.
To answer the question of what relationship exists between
programs emphasized in the strategic plan and the extent to which financial
resources were allocated to those same program categories, a statistical
crosstabulation was made. The analysis was controlled for "by schools of
medicine" and "by university or affiliated hospitals." The strategic plan was
treated as the independent variable and the financial resource allocation as
the dependent variable. The analysis answers the question of whether there
is an association between the extent to which a program category is
emphasized in the strategic plan and the extent to which financial resources
were allocated to the same program category and the strength of the associa-
tion.


64
Summary
The purpose of the study is to determine if academic health centers
have a strategic plan, and if so, to determine what effect that has upon the
allocation of financial resources. There are five subsidiary questions that are
suggested from the literature review. These five subsidiary questions form
the basis of the survey instrument which was sent to each dean and hospital
director at a public academic health center. The survey instrument was in
three parts; the first part focused on identifying the respondent and obtaining
some information on those organizations that do not have a strategic plan; the
second part focused on the strategic planning process; and the third part
focused on budgeting and resource allocation.
Responses to the survey were analyzed using SPSS. The analysis
used descriptive statistics. Crosstabulations and measures of association were
used to analyze limited relationships between variables.


CHAPTER 4
ANALYSIS
Overview
As previously discussed in Chapters 1 and 3, the purpose of this
thesis is two-fold. First, to determine if public academic health centers have
a strategic plan and the relationship, if any, of the budgeting system and
subsequent financial resource allocations in support of the strategic plan.
Second, to use public academic health centers as a study group to draw
conclusions about the theoretical and practical issues surrounding strategic
planning and their implications for public universities and other organizations
with similar characteristics of role ambiguity, role conflict, coordination and
accountability.
As discussed in Chapter 1, public academic health centers are of
interest to both the academician and the practitioner because they provide a
distinctive laboratory for examining the theory and practice of strategic
planning. First, through the university or affiliated hospital, they have all the
characteristics of a traditional business enterprise, operating in a competitive
market-place environment. Second, academic health centers, with their
schools of medicine and other associated health programs, share with other


66
public american colleges and universities the problems of role ambiguity, role
conflict and coordination. Third, the implementation of strategies in these
organizations necessarily results in the need to determine whether
performance is in accordance with expectations. Public budgeting resource
allocation processes provide a framework for accountability.
The literature review in Chapter 2 suggests that there are five
subsidiary questions which are relevant to this study. They are:
1. Which of the six general models of planning characterizes planning
in public academic health centers?
2. Which of the four functional internal and external needs identified
by Peterson (1980) does planning serve at public academic health centers?
3. Does the two-part model emphasizing direction finding and
implementation apply to public academic health centers?
4. What type of budgeting system characterizes public academic
health centers?
5. What relationship exists between the strategic plan and the
allocation of financial resources?
The responses to the five subsidiary questions will determine the
answer to the first principal research question and will provide the basis for
drawing inferences in Chapter 5 for the theory and practice of strategic
planning in organizations with similar characteristics to public academic health
centers.


67
Chapter 4 will focus on answering the five subsidiary questions by
analyzing the results of the survey. Where appropriate, findings will be linked
to the arguments in the literature in Chapter 2. Throughout this chapter, the
words "centers," "schools," and "hospitals," will be used interchangeably with
"public academic health centers," "schools of medicine," and "university or
affiliated hospitals."
Summary of Findings
Seventy-one organizations responded to the survey, 38 schools and
33 hospitals, for a total response rate of 67% (Figure 2). Forty-seven of these
organizations, or 66.2% of the respondents, indicated that they had a written
strategic plan for their organization, 24 schools and 23 hospitals. Twenty
organizations, 12 schools and 8 hospitals, indicated that they did not have a
written strategic plan for their organization. Four organizations, 2 schools and
2 hospitals, responded that they were unable to complete the survey because
the dean or hospital director had only recently assumed administrative
responsibility and did not have sufficient background or knowledge of the
organization to complete the instrument.


Figure 2 -- Planning Horizon in
Public Academic Health Centers
Total Response
Hi Strategic Plan
No Strategic Plan
Total Respondents 62


69
Subsidiary Question One
Which of the six general models of planning characterizes planning
in public academic health centers? Respondents were given a series of
statements about planning and asked to what extent each one described the
planning process for their organization. Each statement was taken from the
descriptions of the six general models of planning that were discussed in
Chapter 2. A Lickert Scale of 1 7 was used.
The responses would indicate that centers strongly describe their
planning process as using the formal-rational model. As can be seen on Table
2, the responses to the questions concerning the rational model are
significantly higher than those for any of the other five models. This finding
may be somewhat qualified since one of the two questions asked concerning
the formal-rational model was slightly below the convention used to
characterize a strong response. The difference is explained by the schools
response to rational model question 1 in which they indicated less likelihood
for the planning process to follow a rational sequence of events.


70
Table 2 -- Use of Generalized Planning Models
in Public Academic Health Centers
Model Mean Std Dev Min Max N
Rational #1 . 5.39 1.45 2 7 46
Rational #2 . 5.98 1.18 3 7 46
Organizational Development # . . 14.27 1.56 1 7 44
Organizational Development #2 . . 4.19 1.71 1 7 43
Technical/Empirical #1 . 4.76 1.76 1 7 45
Philosophical Synthesis #1 . 4.49 1.71 1 7 45
Philosophical Synthesis #2 . 4.72 1.56 1 7 46
Political Advocacy #1 . 4.80 1.47 2 7 45
Political Advocacy #2 . 4.59 1.40 2 7 44
Political Advocacy #3 . 4.45 1.70 1 7 44
Coordinated Anarchy #1 . 3.38 1.45 1 6 45
Coordinated Anarchy #2 . 4.84 1.36 2 7 45
Coordinated Anarchy #3 . 4.84 1.60 2 7 44
Lickert Scale 1 7.


71
More importantly, however, they indicated that the planning
process focuses on the components of the formal-rational model, institutional
mission, development of goals and objectives, programs and resources alloca-
tions. As can be seen on Tables 3 and 4, the mean responses for both
organizations fall in the strong category, the standard deviations are low, and
the minimum and maximum ranges are the least for any of the models.
Consequently, the strength of the responses of rational model question 2 and
the importance of the notion that the organizational planning processes would
include the components of the formal-rational model lead to the conclusion
that the model is strongly perceived to be used by public academic health
centers.
There are four models that fall into the moderate level: organiza-
tional development model, technical/empirical model, philosophical synthesis
model and political advocacy model. In each model, university or affiliated
hospitals responded more positively than schools of medicine. For one
model, the technical/empirical model, the university or affiliated hospitals
response is strong. This would be consistent with organizations showing a
preference for rational planning


72
Table 3 Use of Generalized Planning Models
in Public Schools of Medicine
Model Mean Std Dev Min Max N
Rational #1 .... 4.96 1.46 2 7 24
Rational #2 .... 5.63 1.28 3 7 24
Organizational Development #1 4.09 1.74 1 7 22
Organizational Development #2 .... 3.59 1.71 1 7 22
Technical/Empirical #1 .... 4.04 1.66 1 7 23
Philosophical Synthesis #1 .... 4.35 1.53 1 7 23
Philosophical Synthesis #2 4.29 1.27 1 6 24
Political Advocacy #1 4.26 1.36 2 6 23
Political Advocacy #2 4.27 1.28 2 6 22
Political Advocacy #3 4.27 1.45 1 6 22
Coordinated Anarchy #1 3.52 1.41 1 6 23
Coordinated Anarchy #2 4.52 1.50 2 7 23
Coordinated Anarchy #3 4.50 1.41 2 7 22
Lickert Scale 1 7.


Table 4 -- Use of Generalized Planning Models
in Public University or Affiliated Hospitals
Model Mean Std Dev Min Max N
Rational #1 . . .5.86 1.32 3 7 22
Rational #2 .... 6.36 .95 4 7 22
Organizational Development #1 4.45 1.37 2 7 22
Organizational Development #2 4.81 1.50 2 7 21
Technical/Empirical #1 5.50 1.57 2 7 22
Philosophical Synthesis #1 4.64 1.92 1 7 22
Philosophical Synthesis #2 5.18 1.74 2 7 22
Political Advocacy #1 5.36 1.40 2 7 22
Political Advocacy #2 4.91 1.48 2 7 22
Political Advocacy #3 .... 4.64 1.94 1 7 22
Coordinated Anarchy #1 .... 3.23 1.51 1 6 22
Coordinated Anarchy #2 .... 5.18 1.14 3 7 22
Coordinated Anarchy #3 .... 5.18 1.74 2 7 22
Lickert Scale 1-7.


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With the exception of the planning process being rational, planning
in public academic health centers does not follow a prescribed pattern as
defined by any of the planning models individually. Rather, the relative
equality of the responses indicates that planning in these organizations is an
amalgamation of components from each of the models. Hospitals draw more
heavily upon the goal oriented and formalized process of the three rational
processes (formal-rational, organizational development and technical/
empirical) while recognizing the intellectual nature of higher education
(philosophical synthesis), the reality of interest groups and conflict (political
advocacy) and the lack of spontaneity and freedom (coordinated anarchy).
Schools, other than believing that their planning processes follow
a rational sequence of events which focuses on institutional mission, develop-
ment of goals and objectives, programs, and resources allocations, do not
appear to have any other strong orientation toward other planning models.
The low moderate level responses to the radical planning models
(philosophical synthesis, political advocacy and coordinated anarchy) suggest
that while schools recognize the intellectual and entrepreneurial nature of
faculty in academic settings, they do not strongly influence the planning
processes of schools.
These findings were surprising given Petersons view that the
rationalists models (formal-rational, organizational development, and
technocratic/empirical) fail to give appropriate recognition to the intellectual


75
nature of higher education, the reality of interest groups and conflict and the
need for spontaneity and freedom in higher education planning. Following
Petersons argument, one would have anticipated that schools responses to
questions concerning the radical planning models (philosophical synthesis,
political advocacy, and coordinated anarchy) would have been stronger than
would the responses from hospitals. On the other hand, hospitals responses
to the rationalists models would appear to be consistent with the notion that
organizations operating in a competitive market-place environment would
place higher values on models premised upon more objective, mission- and
goal-directed, and formalized processes.
Subsidiary Question Two
Which of the four functional needs identified by Peterson (1980)
does planning serve at public academic health centers? To answer this
question, respondents were asked to what extent fourteen environmental
factors were important considerations in their organizations strategic plans.
A Lickert scale of 1 7 was used to measure the strength of responses.
Four environmental factors are important to public academic
health centers. They are: state legislature, academic health center
administration, third party payors and faculty (Table 5). It should be noted
that faculty are rated as the most important environmental factor with the
highest mean response, the smallest variance and the smallest range.


76
Table 5 Importance of Environmental Factors
to Public Academic Health Centers
Model Mean Std Dev Min Max N
Executive .. 4.94 1.66 1 7 47
Legislature . . 5.51 1.59 1 7 47
Local Hospitals . . 4.91 1.46 1 7 47
Governing Board . . 4.85 1.65 1 7 46
Other Academic Health Centers . . . 3.60 1.62 1 7 47
University Administration . .. 4.96 1.52 1 7 47
AHC Administration . . 5.74 1.44 1 7 46
Public . . 5.13 1.28 1 7 46
Community Physicians . . 4.62 1.55 1 7 47
Federal Government .. 5.06 1.41 1 7 47
Third Party Payors . . 5.66 1.07 3 7 47
Faculty . . 6.26 .82 4 7 47
Students . . 4.83 1.74 2 7 47
Staff . .. 4.85 1.46 2 7 47
Lickert Scale 1-7.


77
Schools and hospitals are examined separately in Tables 6 and 7.
For schools, students are added with continuing strong environmental factors
of state legislature, academic health center administration and faculty. For
hospitals, the public is added to continuing strong environmental factors of
academic health center administration, third party payors and faculty.
The remaining ten environmental factors are moderately important
to centers. These factors are state executive agencies, local hospitals, other
academic health centers, university administration, university governing board,
public, community physicians, federal government, students, and staff.
One response, other academic health centers, was significantly
lower than all other responses in the moderate category. This low response,
which was consistent for both schools and hospitals, was unexpected given the
amount of attention focused nationally on competition for faculty and the
specialized roles of academic health centers as tertiary care facilities with
highly specialized services.


Table 6 Importance of Environmental Factors
to Public Schools of Medicine
Model Mean Std Dev Min Max N
Executive .... 5.25 1.51 1 7 24
Legislature .... 5.83 1.37 1 7 24
Local Hospitals .... 4.63 1.56 1 7 24
Governing Board .... 5.21 1.32 1 7 24
Other Academic Health Centers .... 3.63 1.56 1 7 24
University Administration 5.21 1.35 1 7 24
AHC Administration .... 5.83 1.34 1 7 23
Public .... 4.74 1.18 1 7 23
Community Physicians .... 4.13 1.36 2 7 24
Federal Government .... 4.96 1.16 1 7 24
Third Party Payors .... 5.21 .98 3 7 24
Faculty 6.21 .83 4 7 24
Students .... 5.75 1.22 3 7 24
Staff 4.71 1.60 2 7 24
Lickert Scale 1 7.


Table 7 -- Importance of Environmental Factors
to Public University or Affiliated Hospitals
Model Mean Std Dev Min Max N
Executive .... 4.61 1.78 2 7 23
Legislature .... 5.17 1.75 2 7 23
Local Hospitals .... 5.22 1.31 3 7 23
Governing Board . . 4.45 1.90 1 7 22
Other Academic Health Centers .... 3.57 1.73 1 6 23
University Administration .... 4.70 1.66 2 7 23
AHC Administration 5.65 1.56 1 7 23
Public . .. 5.52 1.27 3 7 23
Community Physicians 5.13 1.60 1 7 23
Federal Government 5.17 1.64 1 7 23
Third Party Payors .... 6.13 .97 4 7 23
Faculty .... 6.30 ,82 4 7 23
Students . . . .... 3.87 1.69 2 7 23
Staff . .... 5.00 1.31 2 7 23
Lickert Scale 1 7.


80
Attention must be called to the differences in responses between
schools of medicine and university or affiliated hospitals. In nine of the ten
environmental factors ranked in the moderate level, there is a difference
which affirms the initial observations made in Chapter 1. Public academic
health centers have role ambiguity, role conflict, and dual lines of authority.
When school responses are stronger than hospital responses, the focus is on
boundary relations between the school and a constituency within the school
or on groups which can influence the flow of resources to the school. When
hospital responses are stronger than school responses, the focus is on an
environmental factor which influences the marketplace and the ability of the
university or affiliated hospital to compete in the marketplace. Consequently,
public academic health centers view the environment from very different
perspectives which makes it difficult for them to act as a unified body, but
rather which may encourage them to act as independent bifurcated
organizations.
As will be discussed in greater detail in Subsidiary Question 3.
centers indicated that their organizations considered external environments
and that their strategic planning processes were preceded by an environ-
mental scan. Considering the responses above, planning at public academic
health centers is focused on external considerations. However, it is clear that
schools are more focused on "problems of boundary relations" including
improving and maintaining the flow of resources to the institution, while


81
hospitals are more focused on the institutional mission to ensure organiza-
tional "adaptation" to the external environment.
This conclusion is further supported by the findings to Subsidiary
Question 1 in which public academic health centers responded most strongly
to questions concerning the formal-rational model which focuses on
institutional mission, development of goals and objectives, programs and
resource allocations. Further, hospitals showed strong preferences for the
goal-directed, mission oriented rational models (formal-rational,
organizational development, and technocratic/empirical) which would be
consistent with organizations concerned with competitive market-place
environments. Schools did not show strong preferences for any planning
models other than the formal-rational model.
It is apparent that both schools and hospitals believe that outside
influences cannot be controlled, and in that realization, have chosen to try to
adapt to the environment either through changing institutional mission or
through attempting to improve boundary relations. Consequently planning
processes at public academic health centers are oriented toward external
influences rather than toward internal issues of improvement of institutional
management or improving human performance.


82
Subsidiary Question Three
Does the two-part model emphasizing direction finding and
implementation apply to public academic health centers? The two-part model
was discussed in Chapter 2 as a paradigm to organize the concepts of strategic
planning. One side of the model emphasized future mission, or direction
finding, through three components. They are: environmental scanning, an
assessment of institutional strengths and weaknesses, and vision. The other
side of the model focused on factors necessary for implementation of strategy.
These factors include: arrangement of structures, the development of cultures
that are favorable to the institution, the use of systems for rewards,
information and control, and the acquisition and allocation of resources.
The survey instrument focused on all three components of the
mission side of the model as well as on the resource acquisition and allocation
component of the implementation side of the model. The other components
of the implementation side were not included because it was believed that the
resource acquisition and allocation component was the most significant and
a necessary precondition to the others. This analysis will primarily focus on
the direction finding component of the model, although there will be a brief
discussion of the resource allocation component of the implementation side
of the model. The implementation component will be discussed in greater
detail in Subsidiary Question 4 and Subsidiary Question 5.


83
Direction Finding
Time horizon. Public academic health centers overwhelmingly
identified 2-5 years as the planning horizon for their organizations (Table
8). Thirty-six (78.3%) of the respondents with strategic plans use this
planning horizon. Centers without strategic plans responded similarly, with
12 (75.0%) identifying 2-5 years as the planning horizon for their organiza-
tions.
The predominant response of 2 5 years contrasts with the notion
prescribed in the literature which suggests that while the time frame for
strategic planning goes from the very short-term to the long-term, its primary
focus is on the long-term. Clearly, this notion was enforced by the findings
of Mintzberg (1987) who characterized strategic planning as "crafting"
which is a "pattern in action over time." The responses, indicate that in an
environment which is changing dramatically, it is necessary to plan
strategically on a shorter time frame in order to remain competitive.
Environmental scanning. As can be seen in Table 9, respondents
with strategic plans indicated that their organizations considered external
environments to a moderate extent in the strategic plan. The response of
hospitals was much stronger.


84
Table 8 -- Plan Preceded
by Planning Horizon
With Strategic Without Strategic
Plan Plan
Frequency Percent Frequency Percent
1-2 Years .................... 1 2.2 2 12.5
1-5 Years ................... 36 78.3 12 75.0
6 10 Years.................. 7 15.2 1 6.3
Greater than 10 Years....... 2 4.3 1 6.3
Total........................ 71 100.0 71 100.0


85
Table 9 External Environment Considered
in Public Academic Health Centers
with Strategic Plans
Model Mean Std Dev Min Max N
Academic Health Centers .... 3.848 .816 1.000 5.000 46
Schools of Medicine 3.458 .779 1.000 4.000 24
University Hospitals 4.273 .631 3.000 5.000 22
Lickert Scale 1-5.