MHA 6500

Session Two

Dr. Burton

“The understanding that underlies the right decision grows out of the clash and conflict of divergent opinions and out the serious consideration of competing alternatives….Unless one has considered alternatives, one has a closed mind.”

Peter Drucker

Strategy Formulation

• Not a single decision• But a series of increasingly more specific

questions.

Strategy Formulation Process

Developing Strategic Alternatives

Evaluating Strategic Alternatives

Strategic Choice

Decision Logic of Strategy Formulation

Directional Strategies

Adaptive Strategies

Market EntryStrategies

CompetitiveStrategies

ImplementationStrategies

Ends Means

Ends Means

Ends Means

Ends Means

StrategyImplementationStrategy Formulation

Exhibit 6-5: Strategic Thinking Map-Hierarchy of Strategic Decisions and Alternatives

Directional Strategies

Adaptive Strategies

Market EntryStrategies

CompetitiveStrategies

ImplementationStrategies

•Mission

•Vision

•Values

•Goals

Expansion of Scope•Diversification•Vertical Integration•Market Development•Product Development•Penetration

Contraction of Scope•Divestiture•Liquidation•Harvesting•Retrenchment

Maintenance Scope•Enhancement•Status Quo

Purchase•Acquisition•Licensing•Venture Capital Investment

Cooperation•Merger•Alliance•Joint Venture

Development•Internal Development•Internal Venture

Strategic Posture•Defender•Prospector•Analyzer

PositioningMarketwide•Cost leadership•Differentiation

Market segment•Focus/ Cost leadership•Focus/ Differentiation

Service Delivery•Pre-service•Point of Service•After-service

Support•Culture•Structure•Strategic Resources

Unit Action Plans•Objectives•Actions•Timelines•Responsibilities

Exhibit 6-6: Related and Unrelated Diversification by a Primary Provider

Related Diversification

HospitalHospitalRadiationTreatment

RadiationTreatment

DiagnosticLab

DiagnosticLab

HospiceHospice

PhysicianGroup

PhysicianGroup

AmbulatoryCare

AmbulatoryCare

Long-termCare

Long-termCare

HomeHealth

HomeHealth

Unrelated Diversification

Health Care Environment•Pharmaceuticals•Medical Supplies•Insurance•Managed Care•Medical Schools•Others

Health Care Environment•Pharmaceuticals•Medical Supplies•Insurance•Managed Care•Medical Schools•Others

General environment•Restaurants•Health and fitness•Parking lots•Shopping Centers•Office Building•Laundry

General environment•Restaurants•Health and fitness•Parking lots•Shopping Centers•Office Building•Laundry

Outside the HealthCare Industry

Within the HealthCare Industry

Exhibit 6-8: Patterns of Vertical Integration Among Health Care Organizations

StrategicBusiness Unit

Upstream DownstreamA

B = primary care unit

B C D E F G

C = urgent care unit

D = hospital (inpatient acute care) unit

E = skilled-nursing unit

F = rehabilitation unit

G = home-health unit

A = Wellness/health promotion unit

1

2

3

4

5

Solid lines depict fullyInternal transfers

Dashed lines depict marketAnd external transfers

Total integration

No integration

Vertically integratedUpstream

Multi-hospitalVertically integrated

Closed System

Perspective 6 – 3: Focused Factory Tools for Providers of Health Care Services p. 228 Ginter

• Pay attention to the Customer• Focus, Focus, Focus• Learn from the Rockettes• Resist the Edifice Complex• Lower your costs, Don’t raise your prices• Use technology wisely• Don’t let the Dogma Grind you down• Be Ethical• Breadth beats depth• Don’t get big for Bigness’s sake• Measure Results: Your own and your competitors’

Positioning StrategiesExhibit 6 – 15: Porter’s Matrix

DifferentiationDifferentiation Overall Cost Leadership

Overall Cost Leadership

Differentiation/FocusDifferentiation/Focus Cost/FocusCost/Focus

Strategic Advantage

StrategicTarget

Uniqueness PerceivedBy the Customer Low Cost Position

Marketwide(broad)

ParticularSegment Only

(narrow)

Exhibit 7 – 1: TOWS Matrix

4 Future Quadrant

•Related diversification•Vertical integration•Market development•Product development•Penetration

4 Future Quadrant

•Related diversification•Vertical integration•Market development•Product development•Penetration

2 Internal Fix-it Quadrant

•Retrenchment•Enhancement•Market development•Product development•Vertical integration•Related diversification

2 Internal Fix-it Quadrant

•Retrenchment•Enhancement•Market development•Product development•Vertical integration•Related diversification

3 External Fix-it Quadrant

•Related diversification•Unrelated diversification•Market development•Product development•Enhancement•Status quo

3 External Fix-it Quadrant

•Related diversification•Unrelated diversification•Market development•Product development•Enhancement•Status quo

1 Survival Quadrant

•Unrelated diversification•Divestiture•Liquidation•Harvesting•Retrenchment

1 Survival Quadrant

•Unrelated diversification•Divestiture•Liquidation•Harvesting•Retrenchment

List Internal Strengths(competitive advantages)1.2.3.4.

List Internal Weaknesses(competitive disadvantages1.2.3.4.

List External Opportunities1.2.3.4.

List External Threats1.2.3.4.

Volu

me

(sal

es a

nd p

rofit

)

Introduction Takeoff Maturation Obsolescence

Stages

Product Life Cycle

Check p. 273

Volu

me

(sal

es a

nd p

rofit

)

Introduction Takeoff Maturation Obsolescence

Stages

Product Life Cycle/Strategic choices

Check p. 273

Market development

Product development

Market development

Product development

Penetration

Vertical integration

Related diversification

Market development

Product development

Penetration

Enhancement

Status quo

Retrenchment

Divestiture

Unrelated diversification

Divestiture

Liquidation

Harvesting

Unrelated diversification

Exhibit 7 – 9: Strategic Position and Action Evaluation (SPACE) Matrix p. 284

CompetitiveAdvantage

Financial Strength

Service CategoryStrength

Environmental Stability

6 ----5 ----4 ----3 ----2 ----1 ----

-6 -5 -4 -3 -2 -1 1 2 3 4 5 6-1 -----2 -----3 -----4 -----5 -----6 ----

Defensive Competitive

AggressiveConservative

Strategic Alternatives for (SPACE) Quadrants p. 289

CompetitiveAdvantage

Financial Strength

Service CategoryStrength

Environmental Stability

6 ----5 ----4 ----3 ----2 ----1 ----

-6 -5 -4 -3 -2 -1 1 2 3 4 5 6-1 -----2 -----3 -----4 -----5 -----6 ----

Defensive•Divestiture•Liquidation•Retrenchment

Competitive•Penetration•Enhancement•Product Development•Market Development•Status quo

Aggressive•Related Diversification•Market Development•Product Development•Vertical Integration

Conservative•Status quo•Unrelated Diversification•Harvesting

Exhibit 8 – 1: The Value ChainPre-ServiceMarket/Marketing ResearchTarget MarketServices Offered/BrandingPricingPromotionDistribution/Logistics

Point-of-ServiceClinical Operations Quality Process InnovationMarketing Patient Satisfaction Product Development Market Development Penetration Enhancement Differentiation

After-ServiceFollow-up Clinical MarketingFollow-on Clinical Marketing

Organizational CultureShared Assumptions Shared Values Behavioral Norms

Organizational StructureFunction Division Matrix

Strategic ResourceFinancial Human Information Technology

Service Delivery

Supp

ort A

ctivi

ties

Source: Adapted from Michael Porter

Exhibit 8 – 2: Decision Logic for the Value Adding Strategies

Ends Means

•Directional Strategies•Adaptive Strategies•Market Entry Strategies•Competitive Strategies Service Delivery

Strategies•Pre-service•Point-of-Service•After-Service

Support Strategies•Organizational Structure•Organizational Culture•Strategic Resources

Value AddingStrategies

Ends

Means Ends

Means

Unit Action Plans•Objectives•Actions•Timelines•Responsibilities

Exhibit 8 – 8: Conceptual Model of Service Quality

Word-of-MouthCommunications

Word-of-MouthCommunications

CONSUMER

MARKETER

Personal NeedsPersonal Needs Past ExperiencePast Experience

Expected ServiceExpected Service

Perceived ServicePerceived Service

Service Delivery(including pre-

and postcontacts)

Service Delivery(including pre-

and postcontacts)

Translation of Perceptions intoService QualitySpecifications

Translation of Perceptions intoService QualitySpecifications

External Communications

to Consumers

External Communications

to Consumers

Management Perceptions of

Consumer Expectations

Management Perceptions of

Consumer Expectations

Gap 5

Gap 3

Gap 4

Gap 1

Exhibit 9 – 1: Consistency in Value Adding Support Strategies

OrganizationalCulture

OrganizationalStructure

StrategicResources

Strategic Leadership

Exhibit 9-2: Strategic Thinking Map for Developing Value Adding Support Strategies

Characteristics/Attributes

Value Adding SupportStrategies

Evaluation

Requirementsof SelectedStrategies

Results of Internal Analysis

Comparison ofStrategy Requirementsand Internal Analysis

Maintain Change

Organizational Culture

Organizational Structure

Strategic Resources

Organizational Culture• Shared assumptions

• Shared values

• Behavioral normsLearned

Shared

Subjective and Objective

Perspective 9 – 2Culture Strategy Leadership Attributes

Control - focused on certainty, predictability, safety, accuracy, and dependability. Value is to preserve, grow, and ensure the well-being and success of the organization. This culture is centered on organizational goal attainment

Collaboration – focused on synergy, unity, close connections with the customer, and intense dedication to the culture is centered on unique customer goal attainment.

Competence – focused on distinction, ensuring the accomplishment of unparalleled, unmatched products and services. This culture is centered on conceptual goal attainment.

Cultivation – focused on enrichment, ensures the fullest growth of the customers, fulfillment of the customer’s potential, the raising up of the customer. This culture is focused on value-centered goal attainment.

•Status quo•Enhancement•Market-share expansion•Market development•Defender posture•Cost/Leadership

•Enhancement – high customization•Enhancement –customer relationships•Vertical integration•Penetration•Differentiation•Alliances•Analyzer posture

•Product development •Differentiation•Prospector posture•Market niche•Enhancement – innovation, quality

•Analyzer posture•Differentiation - focus•Enhancement – innovation, customization

•Authoritative•Directive•Conservative•Cautious•Definitive•Commanding•Firm

•Team builder•First among equals•Coach•Participative•Integrator•Trust builder

•Standard setter•Visionary•Assertive, convincing persuader•Challenger of others

•Catalyst•Cultivator•Harvester•Commitment builder•Steward•Appeal to high-level vision

Structure

• Functional Structure

• Divisional Structure (SBU)

• Matrix

Exhibit 9 – 3: Functional Structure Combined with Process Structure

CEOCEO

MarketingMarketing HumanResources

HumanResources

ClinicalOperations

ClinicalOperations

Finance &Accounting

Finance &Accounting

Maintenance;Housekeeping

Maintenance;Housekeeping

Informationsystems

Informationsystems

MedicineMedicine SurgerySurgery ObstetricsObstetrics PediatricsPediatrics ClinicalServices

ClinicalServices

Functional Structure

Functional Structure

Process Structure Pre-Op

Preparation

Pre-OpPreparation

AnesthesiaPrep & Adm.

AnesthesiaPrep & Adm.

SurgicalProcedure

SurgicalProcedure

Post-opRecovery

Post-opRecovery

Functional Structure Strategic Advantages•Builds a high degree of specialization•Fosters efficiency•Centralizes control and decision making•Develops functional expertise

Functional Structure Strategic Disadvantages•Fosters “silo thinking” – narrow specialization•Slows down decision making•Makes horizontal communication difficult•Makes coordination difficult•Limits the development of general managers

Exhibit 9 – 4: Divisional Structure – Product with Geographic Divisions

CEOCEO

InsuranceInsurance FoundationFoundation HospitalsHospitals AffiliatedServices

AffiliatedServices

ProfessionalServices

ProfessionalServices

MedicalManagement

MedicalManagement

Western Division

Western Division

Southern Division

Southern Division

EasternDivision

EasternDivision

Product Structure

Geographic Structure

Divisional Structure Strategic Advantages•Forces decision making down the organization•Allows different strategies among divisions•Fosters improved local responsiveness•Places emphasis on the geographic region or product/service•Improves functional coordination within the division•Identifies responsibility and accountability•Develops general managers

Divisional Structure Strategic Disadvantages•Makes it difficult to maintain a consistent image/reputation•Adds layers of management•Duplicates services and functions•Requires carefully developed policies and decision-making guidelines•Creates competition for resources

Corporate Services•Legal•Planning•Marketing•Administrative Services

Corporate Services•Legal•Planning•Marketing•Administrative Services

Exhibit 9 – 5: Matrix Structure

CEOCEO

MarketingMarketing HumanResources

HumanResources LegalLegal Finance &

Accounting

Finance &Accounting

Maintenance;Housekeeping

Maintenance;Housekeeping

Informationsystems

InformationsystemsCLINICALCLINICAL

MedicineMedicine

SurgerySurgery

ObstetricsObstetrics

PediatricsPediatrics

ClinicalServices

ClinicalServices

Matrix Structure Strategic Advantages•Develops functional expertise•Allows for a variety of product/project developments•Allows for the efficient use of functional expertise•Encourages rapid product development•Fosters creativity and innovation

Matrix Structure Strategic Disadvantages•Causes difficulties in management•Violates the unity of command principle•Creates coordination and communications problems•Requires negotiation and shared responsibility•Allows for confusion on priorities

Strategic Resources• Financial Resources– Capital acquisition-equity and debt– Other forms of debt acquisition– Fund-raising and philanthropy

• Human Resources• Information Resources• Technologies– Facilities– Equipment

• “A strategy that cannot be evaluated in terms of whether of not it is being achieved is simply not a viable or even useful strategy.”

C. H. Roush and B. C. Ball

Exhibit 11 – 1: Strategic Fit

Strategy•Directional strategies•Adaptive strategies•Market entry strategies•Competitive strategies

Service DeliveryStrategies•Pre-service•Point-of-service•After-service

Support Strategies•Culture•Structure•Strategic Resources

Unit Action Plans•Objectives•Actions•Timelines•Responsibilities•Budgets

StrategicLeadership

StrategicLeadership

Exhibit 11 – 2: The concept of control

MeasureActual

Performance

MeasureActual

Performance

CompareObjectives

WithPerformance

CompareObjectives

WithPerformance

DetermineReasons

ForDeviation

DetermineReasons

ForDeviation

Take Corrective

Action

Take Corrective

Action

Set ObjectivesOr

RedefineObjectives

Set ObjectivesOr

RedefineObjectives

The Characteristics of Control

• Based on accurate, relevant, and timely information• Directed at controlling only the strategy-critical

elements• Flexible• Cost-effective• Simple and easy to understand• Timely• Emphasize the exceptions

Exhibit 11 – 3: The concept of control and a framework for strategic control

Set objectives or redefine objectives

Measure performance

Compare performancewith objectives

Determine reasonsfor deviations

Establish or confirm performanceStandards – Mission, Vision

Values, and Goals

Measure organizationalperformance

Compare performancewith standards

Are strategic assumptions still valid?External factorsInternal factors

Are the Directional Strategiesstill appropriate?

Are the Adaptive Strategiesstill appropriate?

Are the Competitive Strategiesstill appropriate?

Are the Market Entry Strategiesstill appropriate?

Are the Implementation Strategiesstill appropriate?

Take Corrective Action

Concept Control Strategic Control

Take Corrective Action