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