Strategic Thinking for Hospital CXOs

STRATEGIC THINKING FOR HOSPITAL CXOS

CHIRANTAN CHATTERJEE

DOES STRATEGY MATTER?

2

MAYBE IF WE THINK OF ITS VIEWS

3

VIEW 1: PORTER’S 5 FORCES

4

PORTER’S 5 FORCES

5

GOVERNMENT

COMPLEMENTORS

AN IDEAL INDUSTRY

6

LOWLOW LOWLOW

LOW

DECIDES ATTRACTIVENESS OF INDUSTRIES

7

Profitability Index

-30.00 -20.00 -10.00 0.00 10.00 20.00 30.00 40.00 50.00 60.00

Airlines

Telecom

Liquor

Auto Anciliaries

Information Technology

Iron & Steel

Median

Hotels

Automobile

Cement

Pharma

Toiletries

-25.73

6.61

13.06

13.11

14.17

15.17

15.17

16.05

18.64

19.93

24.91

51.40

ROIC

Weighted Average Return on Invested Capital (in %)

Jaiswal and Nath (2012), CCS, IIMB

OR DOES IT?

8

Do industries make firms or firms make industries?

VIEW 2: THE RESOURCE-BASED VIEW OF THE FIRM

9

EXPLAINS WHY SOME FIRMS MORE SUCCESSFUL THAN OTHERS

Avg. Spread

(1984-2002)

Avg. Equity ($B) (1984-2002)

(80%)

(60%)

(40%)

(20%)

0%

20%

40%

0 5 10 15 20 25 30 35 40 45 50

Merck & Co

Schering-PloughBristol Myers Squibb

Pfizer Inc WyethLilly (Eli) & Co

Barr Laboratories IncNovartis AG - ADR

King Pharmaceuticals Inc

Albany Molecular Resh Inc

Covance Inc

Mylan Laboratories Watson Pharmaceuticals IncForest Laboratories -Cl APharmaceutical Prod Dev Inc

Novo-Nordisk A/S -ADRIdec Pharmaceuticals Corp

Perrigo CoIvax Corp

Andrx Corp

Medicis Pharmaceut Cp -Cl AGenzyme Corp

Parexel International CorpAventis Sa -ADR Chiron Corp

Protein Design Labs IncSicor Inc

Gilead Sciences IncEnzon Pharmaceuticals Inc

Abgenix IncCephalon Inc

Neurocrine Biosciences IncTularik Inc

Medimmune IncMedarex Inc

Celgene Corp Nektar Therapeutics

Quintiles Transnational CorpIcn Pharmaceuticals Inc

Avg. Spread

(1984-2002)

Avg. Equity ($B) (1984-2002)

(80%)

(60%)

(40%)

(20%)

0%

20%

40%

0 5 10 15 20 25 30 35 40 45 50

Merck & Co

Schering-PloughBristol Myers Squibb

Pfizer Inc WyethLilly (Eli) & Co

Barr Laboratories IncNovartis AG - ADR

King Pharmaceuticals Inc

Albany Molecular Resh Inc

Covance Inc

Mylan Laboratories Watson Pharmaceuticals IncForest Laboratories -Cl APharmaceutical Prod Dev Inc

Novo-Nordisk A/S -ADRIdec Pharmaceuticals Corp

Perrigo CoIvax Corp

Andrx Corp

Medicis Pharmaceut Cp -Cl AGenzyme Corp

Parexel International CorpAventis Sa -ADR Chiron Corp

Protein Design Labs IncSicor Inc

Gilead Sciences IncEnzon Pharmaceuticals Inc

Abgenix IncCephalon Inc

Neurocrine Biosciences IncTularik Inc

Medimmune IncMedarex Inc

Celgene Corp Nektar Therapeutics

Quintiles Transnational CorpIcn Pharmaceuticals Inc

Average Economic Profits in the Pharmaceutical Industry, 1984-2002

Ghemawat (2006)

RBV UNPACKED

11

The source of

Capability• Integration of a team of

resources

Does the capability satisfy the criteria of sustainable competitive advantage?

YES

NO

Resources• Inputs to a firm’s production

process

Core Competence• A strategic capability

Capability

SO WHAT ARE RESOURCES?

12

WHAT ARE RESOURCES?

Firm resources

TANGIBLE RESOURCES• Land• Buildings• Materials• Money RELATIONAL RESOURCES

• Relationships`contracts’

• Reputation`brands’

INTANGIBLE RESOURCES

CAPABILITIES• Knowledge(CI, mkt insight)

•NPD (R&D, MktRes, IBS)

•MindsetRBV argues that…..

the heterogeneous market positions of close competitors arise from each firm’s unique bundle of resources and capabilities

How to Choose the RIGHT-SET OF RESOURCES

Is a Resource…

Valuable RareDifficult to Imitate

Without Substitutes

Implications for Competitiveness

No No No No COMPETITIVE DISADVANTAGE

Yes No No No COMPETITIVE PARITY

Yes Yes No No TEMPORARY COMPETITIVE

ADVANTAGE

Yes Yes Yes Yes SUSTAINABLE COMPETITIVEADVANTAGE

BOTH INDUSTRY & FIRM-EFFECTS MATTER

Industry Effects

SCP5-Forces

Within Industry Strategic Groups

Value Position

Cost Position

Generic Strategies

Firm Effects

Competitive AdvantageINSTITUTION

BASED VIEW OF THE FIRM

THIS IS ALL FINE BUT WHAT ABOUT TIME?

16DYNAMICS IN STRATEGY

S-CURVES

Resources Invested, Time

Dominant DesignAdopted

Technological Limit

Period of active competition, oftenin which theincumbent loses

New Technology

Period of incumbentoversight

Era of ferment

Adapted from research by Clay Christensen and Jim Utterback

Performance

SO WHAT IS STRATEGY?

18

https://www.youtube.com/watch?v=R4q6uixp2UY

Common Sense

SO WHERE IS INDIAN HOSPITAL INDUSTRY ON 5-FORCES?

19

LOWLOW LOWLOW

LOW

WHAT ARE YOUR RESOURCES?

Firm resources

Tangible resources• Land• Buildings• Materials• Money Relational resources

• Relationships`contracts’

• Reputation`brands’

Intangible resources

Capabilities• Knowledge(CI, mkt insight)

•NPD (R&D, Mkt Res, IBS)

•Mindset

RBV argues that…..the heterogeneous market positions of close competitors arise from each firm’s

unique bundle of resources and capabilities

HOW MANY OF YOU ARE IN THE GREEN ZONE BELOW?

Is a Resource…

Valuable RareDifficult to Imitate

Without Substitutes

Implications for Competitiveness

No No No No COMPETITIVE DISADVANTAGE

Yes No No No COMPETITIVE PARITY

Yes Yes No No TEMPORARY COMPETITIVE

ADVANTAGE

Yes Yes Yes Yes SUSTAINABLE COMPETITIVEADVANTAGE

Overall Cost Leadership Broad Differentiation

Focused Cost LeaderCost Leadership in Specialized Services

Focused DifferentiationMedical Tourism

Highly Specialized Procedures

Stuck in The Middle w/You

22

STRATEGY IS ALSO ABOUT FOCUS 1/2

23

STRATEGY IS ALSO ABOUT FOCUS 2/2

RELATED & UNRELATED DIVERSIFICATION & PERFORMANCE

(Palich et al. 2000)

THE INNOVATOR’S PRESCRIPTION

https://www.youtube.com/watch?v=tmKqt6jf_H0

WHAT IS DISRUPTIVE INNOVATION?

SOME MORE THOUGHTS ON DISRUPTION 1/6

SOME MORE THOUGHTS ON DISRUPTION 2/6

SOME MORE THOUGHTS ON DISRUPTION 3/6

SOME MORE THOUGHTS ON DISRUPTION 4/6

SOME MORE THOUGHTS ON DISRUPTION 5/6

SOME MORE THOUGHTS ON DISRUPTION 6/6

Is Disruption Already Happening in Indian

Healthcare that you should be aware of?

VATSALYA

PORTEA

COMPETITIVE DYNAMICS W/VATSALYA & PORTEA?

34

• Yes/No?

• If Yes – How & on Which Dimensions?

• If No – Why Not?

• Going Forward?

HERE’S SOME EXAMPLE FROM INDIAN PHARMA

35

OF MANKIND IN INDIA’S STATIN MARKETS

36

Incumbent Pmax

Incumbent P90

Incumbent Pmean

Incumbent PminMankind's Price

Months Before Mankind's Entry After Mankind's Entry

0.0

05.0

1.0

15

May 20

02

May 20

03

May 20

04

May 20

05

Prices in the 20 milligram (x10 tablets) Atorvastatin

CRYING NEED FOR RESEARCH IN INDIA’S HOSPITAL SECTOR

37

http://www.nber.org/papers/w14619http://www.nber.org/papers/w9471http://www.nber.org/papers/w13877

Tejaswi Navadhitamastu

38Thank You