A typical “healthy” health system has a margin of three to four percent. The status quo, however, is unsustainable. Are such drastic changes necessary? No…if you are content with the status quo. What if your objective was to take out 20 percent of costs? You’d then be forced to ask the tough questions of “What? Where? How? What clinical services should I focus on? Where would I deliver them? How do I redesign my business to deliver care in the most effective way?” This mindset requires you to define what differentiates your organization. Identifying two to five percent of spend as waste probably means you’re optimizing the same processes and operating through the same business model. Maybe don’t construct strategy around old proverbs just yet, but those two are pretty good ones, right?) The point is, taking an incremental approach to cost takeout just leads to more of the same.

We strongly believe all organizations should base their strategies on old proverbs. An effective cost takeout process does not merely improve margins it is transformational and empowering, allowing an organization to chart its own course, instead of being pushed and pulled by broader market dynamics. We believe the imperative to take out costs represents an opportunity for health systems to sharpen their strategy and focus, and to redesign their core business processes. It’s not unusual to see health systems with over 30 percent of investments in capabilities that don’t add value.

Even more important is deciding to discontinue investment in activities that don’t add value. Striking a balance between differentiating capabilities versus table stakes is critical.

A well-run health system puts its investment where its strategy is. Investments must align with the strategic direction, rather than on transaction-based efforts. When everything is on the table, you’re forced to make the right trade-offs. It means deciding where to put your money. Cost, when viewed as an investment, means every choice becomes a strategic decision, rather than just another transaction. These macro trends, along with other deleterious developments, show no sign of abating, forcing executives to take on the Sisyphean task of removing cost from their business. Hospitals are quickly losing their center of gravity, as services migrate away from in-patient settings. Cost growth is outstripping reimbursement increases.

The continued pressure of margin compression unfortunately makes this distressing exercise necessary. Two dreaded words that often strike fear into the hearts of health system executives.Two words meaning the beginning of a painful exercise – one that’s time-consuming, demoralizing, and distracting – to identify wasteful spend.

Fortune favors the brave vs bold