Corporate resiliency is the ability to withstand adverse changes to the core business model. A critical response factor is the capacity to adapt—to manage the organization to a different place. Adaptation is not possible, however, unless a foundation is in place that can absorb the first shocks of dislocation and then carry the financial burden of adaptation until a new and stable platform is achieved.

Resiliency in a not-for-profit healthcare company is about harnessing and then effectively deploying all available resources. The process we favor starts by breaking the total company into three subsidiary components (which we refer to as companies):

  • Operating Company: Grows and manages the portfolio of clinical and strategic initiatives that drive cash flow and define the charitable mission of the organization
  • Finance Company: Leverages Operating Company and Investment Company resources to secure the liquidity and capital (internal and external) needed to fund the Operating Company
  • Investment Company: Serves as the “resiliency engine” by deploying its resources to:
    1. Hedge Operating and Finance Company exposures (i.e., stabilize the enterprise against cash flow and event shocks)
    2. Pursue independent return
       

Figure 1: The Resilient Healthcare Company

Resiliency hub for healthcare organizations

 

Each of these companies has a distinct “resiliency” profile, meaning that it either contributes to or makes use of the resources available. Typically, the Operating Company uses resiliency resources because of the risk it carries in operating the business. The Finance Company can vary significantly, depending on how much risk is embedded in the debt instruments used to secure external capital.

The Investment Company is a different (and incredibly important) animal because its resources are the most flexible. Gyrating asset allocation is a terrible idea, but asset allocation can be adjusted relatively faster than a debt portfolio (call provisions) or a portfolio of operating and strategic initiatives. This relative flexibility makes Investment Company resources best suited to play the role of corporate stabilizer.

These companies come together in an integrated “resiliency hub” where two powerful things occur. First, claims on resources can be matched against those resources, and a resiliency profile is defined. Second, a road map is developed to guide the deployment of invested assets and transform them from a random resource into a resiliency engine.

We call this process Strategic Resource Allocation (SRA) and its power rests in integrating vertical management (the Operating, Finance, and Investment Companies) and horizontal management (the enterprise-focused resiliency hub). Putting these perspectives together creates the opportunity to establish an interlocking business foundation that can absorb business model dislocation, no matter whether it is positive (e.g., thrust from an aggressive growth strategy) or negative (e.g., COVID-19). This is how corporate and credit resiliency gets built.

 

Reach Eric Jordahl through email or by calling (224) 724-3134.

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eric-jordahl

Eric Jordahl

Managing Director
Eric Jordahl directs Kaufman Hall’s Treasury and Capital Markets practice and focuses on helping healthcare organizations nationwide by providing Treasury-related transactional, strategic, and management support across all financial assets and liabilities.
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