Overcoming Inflationary Pressures: Strategies to Increase Organizational Margins

by Michael Kivov and Toby Shea, Partners at OnePoint Partners

Today, there are external forces at work that make it more challenging than ever to run a senior living community. The cost and complexity of delivering care and services are rising. It’s increasingly harder to recruit and retain staff. Everyone is facing fiercer competition. Technology is rapidly evolving. And customer expectations are changing. In every facet of operations, the pressure is on.

Being creative in reining in current costs and squeezing out additional revenue from existing sources can ease the immediate strain, but you’ll exhaust your options before you fully solve the problems. We have to envision and build a more sustainable future state for our communities.

Start with Understanding Your ‘Why’

So where do you start? We believe it is all about establishing and confirming purpose and process…and this begins with truly understanding your “why.” What problems are you trying to solve? What are you trying to accomplish? Jumping onto a pathway to execution before thinking thoroughly and strategically about your long-term goals may lead you off course.

You could build a new community, expand an existing one, target new markets, or develop new service offerings. And you can plan do any or all of this on your own or seek partners. The decision-making process can be confusing. There are many pathways to consider, and the layers of complexity you uncover can derail the strategic planning process you establish to explore them.

To understand your ‘why,’ we advise developing criteria, a lens through which you can see which are the most important factors to your organization and which are secondary. For some, geography is important. If an organization is bound by an imperative to serve a local market, buying or affiliating with a community 50 miles away won’t work. For another organization, that option could be advantageous.

The ‘why’ you’ve established will be your guidepost as you winnow down the universe of options to find what fits your organization and its mission. Continually circling back to the ‘why’ will keep the process on track, increasing the prospects that you will develop a plan that can be effectively executed and is right for the organization.

What You Want to Do vs. What You Can Do

Once you’ve established the ‘why’ and considered all the options, there comes an inflection point. Your organization has to determine which of the options can be executed and how, and then ask yourselves very honestly, “Are we equipped to do it ourselves, or do we need outside help?”

The size of your organization can be a factor in determining what can and cannot be done. Multi-site organizations have more flexibility and economies of scale. They also have easier access to capital and talent, and they have the bandwidth to help with execution. Often, they’ve had experience with growth and may have a greater understanding of their capabilities. Single-site organizations have to identify not only what needs to be done, but what outside resources they may need to pull in to get it done.

The Positive Potential of Affiliations

Regardless of size, if your organization discovers that its needs don’t align with its capabilities, you may consider partnering or affiliation. If you engage in the process while your organization is strong, you can proactively seek a like-minded partner.

Everyone can benefit from efficient systems and increased depth of resources, but making the leap to a solution without doing the groundwork in identifying what you need to accomplish can result in unintended consequences, like sacrificing elements of your identity or culture.

Engaging in a thoughtful process of determining your needs can reveal creative alternatives. The answer might be a traditional affiliation, or you may find that the needs you identify can be met by a partnership or other solutions that might be less binding.

Underscoring the importance of timely longer-term planning is the unfortunate reality that, if your organization has waited too long and is failing, the partner you get is the one who shows up. Forward-thinking organizations strategize from a position of strength. They don’t wait until they’re in trouble. Being proactive in exploring relationships with like-minded organizations is more likely to produce the results you want, and on your terms.

Position Your Organization for Success

If you work through the process and determine that the longer-term plan points to growth, then leadership, governance and capital need to be set up in a way that enables the organization to be nimble so you can react quickly and with confidence to opportunities, or even be proactive in seeking the right opportunities.

If you haven’t articulated to the board that you want to be ready to evaluate opportunities and set aside capital, you will be too slow to react, and your for-profit competitors will likely beat you to new opportunities. And if you haven’t invested the time in creating a profile of an opportunity that would be a good fit, you might find yourself having to devote resources to slogging through a swamp of poor opportunities.

Boards in the senior living field tend to be very risk-averse and prefer slow and deliberate to fast and nimble. Leadership has a responsibility to help the board understand how risk is managed by carefully defining what you’re looking for, and ultimately answering the question, “Is there more risk to evolving and growing or in doing nothing?”

Doing Nothing Has More Risk Than Doing Something

One of our clients, a Life Plan Community in the Northeast, engaged in a strategic planning process and determined that expansion would ensure long-term success. It was financially and operationally strong and was undertaking the process proactively. Leadership’s plan initially was met with resistance from the board who didn’t see a benefit to taking on the risk. We were able to walk them through the ramifications of doing nothing. While the community would likely be in good shape for ten years or more, its mission is perpetual. We helped them understand how failing to grow would expose them to vulnerabilities in the long term. Our work together also helped to establish that there was a strong sentiment that the community is “very good at what it does”…and therefore leadership felt a duty to expand the umbrella and positively impact more lives. The board could then see the value of doing something, and it moved them from “should we” to action mode. The organization was ultimately able to move forward in the development of its second campus, moving quickly but with confidence on a dynamic opportunity before it passed.

Another client was ready to put a shovel in the ground in March 2020, just as COVID hit. They asked themselves if they should reconsider or delay the project. The board and leadership were so rooted in their ‘why’ that it informed their decision to move forward. Their ‘why’ thoroughly articulated the reasons to grow and the project’s importance to the long-term health of the organization. Even with a last minute pivot in the capital formation plan forced by immediate fallout from the Pandemic, the community’s belief in its why—along with steadfast leadership—ensured that it was successful in executing the expansion, which is now stabilized.

The Roadmap to Your Future

As an organization’s stakeholders face challenges, it’s not always inherently obvious that they should stick to their plan. A big part of what we do is to work with the board and leadership to ensure that their plan is not just a reporting of analysis and strategy, but a roadmap forward. The purpose from which the roadmap is built is something that they can refer to again and again as they move through the process to affirm that the ‘why’ they established still makes sense and is right for the organization, and should still drive their decisions.

There is enormous potential in helping organizations discover what their future state could be. In today’s challenging environment, doing nothing is falling behind, and simply not an option.