Strategy key to sustainability in aged care

A dynamic, strategic market environment for aged care

Porter’s five forces model for analysing an industry has renewed relevance for Australia’s aged care sector as the industry rapidly evolves. Providers must understand the changing forces shaping the sector so they can determine how best to position themselves and this requires constant vigilance. Take your eye off the ball and you could miss the chance to capitalise on the changing external environment.

Figure 1 - Strategic forces of change acting on Australia's aged care system

2) Supplier power

Short term, supplier bargaining power will remain largely unchanged. However, shifts in the broader aged care landscape (think: mergers and acquisitions), could undermine this in the long term.

The main challenge for providers is the supply of qualified workers versus the growing demand for services. Future workforce shortages are forecast, particularly in clinical roles. Here, providers must support their employees, providing opportunities for professional development, career progression and even geographic/employment flexibility. For example, a provider could offer a worker the opportunity to continue to study part time, move to another home in another location as part of their employee value proposition. 

At PwC, we believe there’s an opportunity for the sector to respond to the aged care royal commission in a way that boosts the overall brand of the sector, helping providers attract and retain talent. 

4) Substitution

Substitutions will rise as industry reforms see aged care become a demand-driven system. 

‘Non-aged care’ providers will look to enter the sector, attracted by increasing opportunities to broaden their client base. Likely substitutions include specialised or bespoke services, and these will mostly replace more traditional aged care offerings. Increasingly flexible and supportive home care packages, leveraging remote monitoring/automation and in-home care, may also offer alternatives to residential care.

Regulation, risk and compliance may deter new entrants though, and it might prove easier for existing providers to offer innovative care models. 

6) New entrants

There’s been plenty of prospective investors sitting on the sidelines, waiting for regulatory certainty. It will take some time to understand how the recommendations of the royal commission will be implemented. In the short term, with the changing regulatory and funding landscape over the next four years, it seems likely that new entrants will continue to hold back.

Key strategic areas for long-term sustainability

As the future of the aged care sector becomes clearer with the release of the federal government’s response to the royal commission’s recommendations, providers need to focus on their own sustainability. Those with a true understanding of their organisation and a strong strategic direction are best positioned for success. And whatever success looks like, it’s only achievable if your organisation has a deep awareness of its strengths and weaknesses, plus an unswerving commitment to your aged care strategy.

We have developed six strategic areas for providers to consider:

1) Current and future strategic positioning

Providers that are proactive in assessing their operations in the short-term (following the federal government’s response to the royal commission’s recommendations and budget investments) will get the jump on their peers. Priorities, spanning the full spectrum of the organisation, should be clearly articulated, actively championed, and appropriately funded.

Furthermore, providers may want to consider positioning themselves around specific customer segments (i.e. age, wealth, cultural or care needs) or diversify their breadth of services (i.e. aged care, adult day care, home care) in order to create a name for themselves and stand out from the pack. Associated risks must be carefully managed.

3) Need for differentiation

With consumer expectations on the rise, and care levels being increasingly standardised providers must be able to differentiate themselves. This requires providers to clearly articulate their unique market propositions aligned to consumer preferences for their target segments. 

For instance, is your organisation great at providing clinical care, and also able to offer personalisation of services? Are you responsive to advancements in digital technology underpinning improvements in care and lifestyle? Do you provide online updates to residents’ families via a daily dashboard? Do you cater for a specific sub-population? Define what your unique proposition is, to make it easier for people to find and choose your services.

Here is one example of differentiation to meet a specific community need for residential aged care: The National Aboriginal Community Controlled Health Organisation recommends service delivery partnerships between local Aboriginal providers and larger providers. This would give local providers access to expertise and facilities, while larger providers could contribute to improving health and wellbeing outcomes for Aboriginal and Torres Strait Islanders, who are under-represented as aged care consumers and are a growing market segment. And all while helping providers live their purpose.

5) Financial viability and sustainability

Financial viability is vital to any business, and yet it’s increasingly difficult in the aged care sector. This goes for both private providers and not-for-profit organisations. Sustainability is crucial to maintaining operations (e.g. paying staff wages), as well as future investments (e.g. capital refurbishments and digital technology enhancements).

Lack of scale or competitive capabilities will see a rise in merger and acquisition activity. For some, success will be the continuation of current operations. For others, it will be a change in direction or an exit from the sector completely. Those providers looking towards the exits should consider whether they need support to manage the process.

Is your current strategy best in class?

In light of the aged care royal commission’s recommendations, here are a number of strategic questions aged care providers can ask themselves as they look towards the future:

1. Clarity: Is our strategy clear and easy to understand? Is it understood by everyone in our organisation?

2. Priority: Does our strategy contain a clear list of critical goals? Will these make the organisation successful?

3. Agility: Does our strategy provide options? Does it enable us to be agile when responding to changes in regulations and/or market conditions?

4. Differentiation: What is our point of difference? Why would customers/staff come to our organisation?

5. Sustainability: Will our strategy deliver sustainable financial and non-financial returns?

6. Measurement: Do we have clear measures of success and key milestones along the way? How will we know we’re achieving our strategy?

Focus on strategy to maximise your impact

Is there alignment of your vision, mission, values and strategy throughout your organisation?

True transformation and success stems from solid foundations and clarity of who you are as an organisation. A vision underpinned by governance, driven by the executive, supported by robust systems, designed with staff and looked favourably upon by communities.

Strategic planning must be designed collaboratively to inform technology and operational options that future-proof the delivery of exceptional care of the highest quality and safety.

PwC’s Aged Care Transformed framework can help you to focus on a strategy that is ambitious and compelling, while also agile enough for you to future-proof your vision for your organisation.

_References
^{1 _{Michael E. Porter, How Competitive Forces Shape Strategy, Harvard Business Review, March 1979}}