GF585 Unit 2 Healthcare Share Strategy Memo Example

What 40 Percent Healthcare Costs: A Unit 2 Strategy Translation Memo for a Linen Service

[Student Name]

Purdue University Global

GF585: Strategic Financial Planning and Forecasting Analytics

Unit 2 Strategy Translation Memo

[Instructor Name]

[Date]

The linen service, its accounts and every driver and cost are composite and illustrative; the articles and book cited are real.

To: Chief Executive Officer From: Financial Planning Analyst Re: What the healthcare target requires

The Sentence in the Plan

The board's strategic plan says: "Grow healthcare to 40 percent of revenue within three years, using our existing plant." The measurable part is a revenue share and a date. The phrase "using our existing plant" is a constraint. Everything else in the plan, such as service quality and reputation, is left aside here because it cannot be counted.

Where We Stand

Revenue last year was $16.21 million. Healthcare, from 85 clinic and hospital accounts, was 27.6 percent of it. Hospitality, from 140 hotel accounts, made up the rest.

What the Plan Leaves Unsaid

A share can be reached by growing healthcare or by shrinking hospitality. This memo assumes hospitality accounts, pounds and prices stay at current levels, so the target is met by growth rather than by losing hotel business.

The Exhibit: From Words to Drivers

1. Hospitality weekly billings: 140 accounts at 2,600 pounds and 62 cents a pound, $225,680.

2. Healthcare billings needed for 40 percent: two thirds of hospitality, $150,453 a week.

3. Healthcare accounts needed: at 1,150 pounds and 88 cents a pound, $1,012 per account per week, so 149 accounts, 64 more than today.

4. Plant volume: 364,000 hotel pounds plus 171,350 healthcare pounds, 535,350 a week, against one-shift capacity of 520,000.

5. Delivery routes: at twelve stops per truck, six more routes, with $570,000 of trucks and $348,000 a year in drivers.

6. Linen in circulation: about $576,000 placed with the new accounts.

7. Plant labor: 73,600 more pounds a week at 9.5 plant hours per thousand pounds, about 17.5 positions.

Capital Versus Recurring Cost

Trucks and linen, about $1.15 million together, are one-time investments, though linen must be replaced as it wears. Drivers and plant staff, about $1.2 million a year combined, are recurring. Separating them matters because the board's capital budget and the operating budget are approved by different committees.

The strategy contradicts itself: 40 percent healthcare on today's plant requires 535,350 pounds a week, about 3 percent more than one shift can wash, so either the share, the plant or the hospitality book has to give.

The Highest Share the Plant Supports

At 520,000 pounds a week, with hospitality unchanged, the plant can wash 156,000 healthcare pounds, about 135 accounts. That supports a healthcare share of about 37.8 percent.

What Each Reading Costs

A partial second shift adds about 1,000 plant hours a month at an evening premium, roughly $330,000 a year, but keeps the full growth in healthcare revenue. Accepting 37.8 percent gives up about 14 healthcare accounts, roughly $740,000 of annual revenue the plan expected. Releasing six hotels gives up about $500,000 of hospitality revenue at today's prices, though those accounts carry the lowest margins in the book. None of these is free, and the memo does not choose among them; it shows that the board's sentence already contains a choice the board has not yet made.

What These Figures Leave Out

Two assumptions sit under the exhibit and deserve a sentence each. Healthcare accounts are priced at today's 88 cents, although new clinic contracts are often won at a discount in their first year. And the plant figure treats a pound as a pound, while surgical and isolation linen takes longer to process than hotel sheets. Both would make the target harder to reach, not easier.

Three Readings Management Could Adopt

1. Add a partial second shift for the extra 15,350 pounds a week, about three evening hours a day, keeping the 40 percent target.

2. Accept 37.8 percent as the plan's practical ceiling and restate the goal.

3. Release about six hospitality accounts, the lowest-margin hotels, so healthcare growth fits inside one shift.

Why the Exhibit Comes First

Strategy that is not converted into operating drivers tends to lose value between the plan and the results. Hrebiniak (2006) found managers naming vague strategy and poor links between strategy and resources among the most common obstacles to implementation, and a target with no stated plant, route or staffing consequence is exactly that kind of strategy. The balanced scorecard approach makes the same argument: each strategic objective needs measures and targets that operations can act on (Kaplan & Norton, 1996).

The Decision Needed

Before any forecast model is built, the executive team should choose among the three readings. The model in the next unit will be built around whichever is chosen, and each leads to different capital and staffing plans (Kaplan & Norton, 2008).

References

Hrebiniak, L. G. (2006). Obstacles to effective strategy implementation. Organizational Dynamics, 35(1), 12-31. https://doi.org/10.1016/j.orgdyn.2005.12.001

Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard: Translating strategy into action. Harvard Business School Press.

Kaplan, R. S., & Norton, D. P. (2008). The execution premium: Linking strategy to operations for competitive advantage. Harvard Business Press.