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Aged care leaders must understand the future of the industry to understand the future of their organisation. It might sound like tautology, but the reality is the sector will undergo a transformation in the wake of the Royal Commission into Aged Care Quality and Safety (the aged care royal commission).
With the federal government delivering its response to the royal commission’s recommendations and sector investments in the 2021-22 Federal Budget, providers must now get to grips with the forthcoming changes to make the most of fresh opportunities. One way to do this is to use the classic Porter’s Five Forces framework (‘five forces’) to gauge their starting point. Then, having established a clear sense of where they stand now, providers can start planning for the future. To this end, we have devised a series of strategic questions for aged care providers to ask themselves to test their long-term sustainability.
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
A rise in regulation is coming. Post-royal commission, providers should also prepare for a jump in consumer scrutiny and expectations.
Providers will be asked to demonstrate sophistication and maturity in governance, risk and compliance. We’ve already seen how the Aged Care Quality and Safety Commission has upped the ante in accountability through the Aged Care Quality Standards (particularly Standard 8 ‘Organisational Governance’). Expect more of the same.
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.
Buyer power is set to become supercharged as aged care recipients seek greater choice and control in service delivery. Consumers (and their families and advocates) are more educated than ever about their choices and options – and increasingly selective about the care they receive. As a result, the bar is rising when it comes to service expectations, especially around transparency in care quality and safety.
Several reforms proposed in the aged care royal commission’s final report are aimed at empowering and protecting consumers. Over the past 12 months we’ve seen a surge in the amount of information made available to consumers by the Department of Health, the aged care royal commission, and providers. It’s a trend that will continue.
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.
Currently, the competitive environment is dominated by smaller providers, each offering localised services. Traditionally, competition was ‘place based’ - where local competition/local choice was important. Expect competitive rivalry to grow in future, as people are willing to travel greater distances/move away to ensure that care meets their needs.
Competition for customers will be driven by pressure for providers to do more with less.
In home care, for instance, reforms to residential care will promote demand-driven service provision (rather than license caps, which constrain supply).
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.
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:
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.
Transparency and accountability are in the spotlight. So too are risk and governance measures. Expect less tolerance and greater repercussions in response to regulatory shortfalls.
Providers must respond. Strategic goal setting, measurement of key performance indicators, and rapid interventions to fix/improve deficiencies will be critical to operate in the aged care sector. For example, to meet the accepted minimum staff time quality and safety standards, operators must first have a clear insight into the care currently being provided by different types of team members and to ensure that all training and compliance standards are being met.
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.
To achieve long-term sustainability, some providers will pursue alternative models to leverage their capabilities. Think: targeted demographics, smaller shared living options, digitally connected - and more.
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.
Players need to reflect on their unique differentiated capabilities that allow them to win in the aged care market - and look to continue to invest to leverage these strengths. They also need to reflect honestly on their gaps and where they need to build new capabilities or address weaknesses to succeed in the future. For both, they need a clear implementation plan to execute, underpinned by robust processes, strong governance and efficient systems for monitoring and reporting on performance.
For some providers, undergoing this strategic planning process will point to the need for structural change in the organisation.
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.
Establishing robust governance frameworks will be pivotal to providers’ ongoing success. Systems and structures should be designed to promote safe, quality aged care services, as well as sound business practices. Operators must also be proactive in building a culture that underpins these frameworks to ensure they are truly embedded within the organisation.
The integration of corporate and clinical governance is now front and centre. Meanwhile, proposed reforms cut across providers’ governance frameworks, and require providers to refine how they self-govern.
Governance will continue to be the culmination of a range of interrelated practices, from board responsibility for clinical governance, to periodic skills reviews, to timely and meaningful reporting. A top-shelf governance framework will be proactive, freeing up the organisation to focus on strategy execution. Moreover, strategy, financial sustainability and governance functions will work in synergy.
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:
Priority: Does our strategy contain a clear list of critical goals? Will these make the organisation successful?
Agility: Does our strategy provide options? Does it enable us to be agile when responding to changes in regulations and/or market conditions?
Differentiation: What is our point of difference? Why would customers/staff come to our organisation?
Sustainability: Will our strategy deliver sustainable financial and non-financial returns?
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.
1 Michael E. Porter, How Competitive Forces Shape Strategy, Harvard Business Review, March 1979
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