Advanced: Establishing a system of divisional performance measurement in a hospital

(a) Briefly explain how the measurement of divi¬

sional performance differs when assessing the achievement of strategic targets as distinct from operational targets. (5 marks)

(b) J is a hospital which supplies a wide range of healthcare services. The government has created a competitive internal market for healthcare by separating the function of service delivery from purchasing. The govern¬ ment provides funds for local health organisa¬

tions to identify healthcare needs and to purchase services from different organisations which actually supply the service. The service suppliers are mainly hospitals.

J is service supplier and has established contracts with some purchasing organisations. The healthcare purchasing organisations are free to contract with any supplier for the provision of their healthcare requirements.

Previously, J was organised and controlled on the basis of functional responsibility. This meant that each specialist patient function, such as medical, nursing and pharmacy services, was led by a manager who held operational and financial responsibility for its activities throughout the hospital. J now operates a system of control based on devolved financial accountability. Divisions comprising different functions have been established and are responsible for particular categories of patient care such as general medical or general surgical services. Each divi¬ sion is managed by a senior medical officer.

J’s Board recognises that it exists in a competitive environment. It believes there is a need to introduce a system of divisional appraisal. This measures performance against strategic as well as operational targets, using both financial and non-ftnancial criteria. The Board is concerned to develop a system which improves the motivation of divisional managers. This will encourage them to accept responsibility for achieving strategic as well as operational organisational targets. In particular, the Board wishes to encourage more contractual work to supply services to healthcare purchasing organisations from both within and outside its local geographical area. It is a clear aim of the Board that a cultural change in the management of the organisation will result from the implementation of such a system.

Requirement:

Discuss the issues which the Board of J should take into consideration in establishing a system of performance measurement for divisional managers in order to ensure the attainment of its strategic targets. (15 marks)

(Total 20 marks) CIMA Stage 4 Strategic Management Accounting and Marketing