Queen Essays

Chapter 3 Service Area Competitor Analysis

Why Service Area Competitor Analysis Is Important

As Bruce Henderson concluded, not all organizations competing in the same broad market are necessarily direct competitors; however, organizations with the same or similar strengths serving a particular market will be rivals – the more similar they are, the greater the rivalry. Diverse competitors may all do well in a single market by focusing on different market dimensions. Organizations that compete in several different markets may find that their competitors in one mar- ket are completely different from those in another market.

The amount of competition varies from market to market as well. Service area competitor analysis helps strategic managers structure their thinking to determine on what market dimensions they desire to compete, the specific organizations that are most like their own organization in a market segment, and what other

“Your most dangerous competitors are those most like you.”

—Bruce D. HenDerSOn, AMericAn enTrepreneur AnD fOunDer Of THe BOSTOn cOnSulTing grOup (Bcg)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

80 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

products or services may be seen as effective replacements or substitutes for a given product or service. identifying direct competitors and understanding the nature of the market itself is essential.

in some markets, competition is quite genteel, whereas in others competition is quite fierce. understanding why competitive intensity in markets varies and what makes a market attractive is profoundly important for strategic managers. Organizational strategy is drawn to attractive markets.

Strategic thinking and structured processes for service area competitor analysis work together to help strategic managers accurately assess their markets (service areas) for their product or service, the nature of the competition, and the attrac- tiveness of the market. further, strategic thinking and its disciplined processes can determine the specific organizations that compete with each other in a given market. The strategy developed by most organizations rests on this analysis.

use the concepts in this chapter to assess and understand competitors and markets!

learning objectives

After completing the chapter you will be able to: 1. Describe the process of service area competitor analysis. Why is it important? 2. Examine the relationship between the general environment, the health care

system, and service area for identification of issues and competitors. 3. Explain the importance of a service area structure analysis for a health care

organization. 4. Develop critical factors for success for a product or service in a service area. 5. Identify strategic groups and map competitors’ strategies along important ser-

vice and market dimensions. 6. Assess likely competitor strategic responses. 7. Synthesize a service area competitor analysis into some strategic conclusions. 8. Validate strategic assumptions to reinitiate strategic thinking concerning the

service area and competitors.

Strategic Management Competency After completing this chapter you will be able to conduct a comprehensive service area competitor analysis for a health care organization.

Further Focus within External Analysis

external analysis involves strategic thinking and strategic planning, focusing on increasingly more specific issues. chapter 2 provided the fundamental approach and strategic thinking frameworks for organizing, scanning,

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 81

monitoring, forecasting, assessing, and mapping issues and trends in the general environment, health care system, and service area. Once these trends and issues have been identified and mapped, a more focused competitor analysis is required. A service area competitor analysis is a more specific process to understand the nature of competition, evaluate competitors, identify criti- cal success factors, and anticipate competitors’ strategic moves in a defined geographic area (neighborhood, city, state, united States, or in the world). Along with the economic, social/demographic, legislative/political, techno- logical, and competitive issues assessed in the general environment, health care system and service area, the service area competitor analysis will pro- vide an understanding of the competitive context in which the strategy of the organization will have to be successful.

clearly a new competitive marketplace is emerging in the health care system and competition is expected to increase over the next decade. As reimbursement incentives move to delivering value, outcomes data become more transparent, and consumers are asked to pay a greater portion of their health care costs, health care organizations will have to develop new, more competitive care-delivery mod- els.1 Health care organizations that attempt to avoid competing or deny industry changes currently underway will find their patients moving to other providers. Therefore, within the health care community there is an understanding that health care organizations must be positioned effectively vis-à-vis their competitors. competitor information is essential for selecting viable strategies that success- fully position the organization in the market. Many health care managers agree that an organized competitor intelligence system is necessary for survival. The system acts like a radar grid constantly monitoring consumer and competitor activity, filtering the raw information picked up by external and internal sources, processing it for strategic significance, and efficiently communicating intelligence to those who need it.2

A Process for Service Area Competitor Analysis

Service area competitor analysis is a process of understanding the market and identifying and evaluating competitors within that market. Together with the results of the general environment, health care system, and service area trends and issues, service area competition will be analyzed and the results synthesized into the strategic issues facing the organization. The synthesis is an explicit input into the formulation of the organization’s strategy. not every potential competitor in a service area is of concern because of targeting differences, posi- tioning differences, quality differences, pricing differences, and so on. The pro- cess for service area competitor analysis is illustrated in the strategic thinking map in exhibit 3–1. The conclusions will provide crucial information for strategy formulation.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

82 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

An Application of Service Area Competitor Analysis

By employing an actual service category (plastic surgery) and service area (charlotte, north carolina), each step of the service area competitor analysis process will be illustrated. first, the general required actions of each step of the service area competitor analysis process will be examined and then the applica- tion of the actions for each of the steps will be demonstrated.

Step 1 – Review External Analysis of the General Environment, Health Care System, and Service Area

Step 2 – Conduct Service Area Structure Analysis

Step 3 – Conduct Competitor Analysis

Step 4 – Analyze the Critical Success Factors

Step 5 – Map Strategic Groups

Step 6 – Assess Likely Competitor Actions or Responses

Step 7 – Synthesize Analyses

EXHIBIT 3–1 Process for Service Area Competitor Analysis

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 83

As an overview of the service category and service area, plastic surgery repre- sents a highly competitive and low market share industry, especially for cosmetic procedures that are rarely covered by health insurance. reconstructive plastic surgery (required because of accidents and disfigurements, birth defects, ravages of disease, and so on) is often covered by insurance; however, reimbursement rates have been declining. Typically, a number of board-certified plastic surgeons have offices in any given service area. These physicians compete not only among themselves; but also against emergent niche providers who are often board certi- fied in a specialty other than plastic surgery – physicians in ophthalmology (eye), dermatology (skin), eenT (eye, ear, nose, and throat), dental (teeth and jaw), and OB/gYn (women’s reproductive system). in addition, laser centers and medi- spas are competition, seeking to capture the lucrative and less invasive sectors of the cosmetic plastic surgery market such as Botox®, injectables, laser peels, cool sculpting, and so on. for an overview of the plastic surgery service category see essentials for a Strategic Thinker 3–1, “What is the plastic Surgery Service category?”

ESSEnTIAlS For A STrATEgIC THInkEr 3–1

What is the Plastic Surgery Service Category?

Plastic surgery is a medical specialty with two major subspecialties: cosmetic plastic surgery and reconstructive plastic surgery. A simple definition of cosmetic plastic surgery is that it involves procedures to modify a person’s natural appearance and is generally (medically) non- essential. Reconstructive plastic surgery may be performed to lessen the physical signs of an accident, disease, or congenital defect, and may be necessary to sustain or improve health. Although cosmetic procedures are not covered by insurance, most reconstructive procedures are. In many states, legislation requires insurance companies to provide coverage for reconstruc- tive plastic surgery for congenital (birth) defects and breast reconstruction after mastectomies.

To become a plastic surgeon, one must earn an MD (Medical Doctor) degree from an accred- ited medical school or college, of which there are 126 in the United States. Most plastic sur- geons have residency and fellowships before

board certification. Members of the American Society of Plastic Surgeons (ASPS) are certified by the American Board of Plastic Surgery or the Royal College of Physicians and Surgeons of Canada. An ASPS Member Surgeon has at least six years of training and experience in surgery, with three years specifically in plastic surgery; is certified by the American Board of Plastic Surgery; operates only in accredited medical facilities; adheres to a strict code of ethics; fulfills continuing education requirements, including patient safety techniques; and works as a part- ner to achieve the patient’s goals.

The American Society for Aesthetic Plastic Surgery (ASAPS) is the leading referral source of board-certified plastic surgeons specializing in cosmetic procedures of the face and body. Active membership in the ASAPS is reserved for American Board of Plastic Surgery certified phy- sicians (or in Canada, physicians certified in plas- tic surgery by the Royal College of Physicians

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

84 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

and Surgeons of Canada), with wide experience in cosmetic surgery and demonstrated commit- ment to aesthetic surgery continuing education.

Plastic surgeons often establish solo prac- tices. Other arrangements include solo practices that share facilities, small group practices (with 2–5 physicians), medium multispecialty group practices (6–20 physicians), and large multispe- cialty group practices (more than 20 physicians). In addition, plastic surgeons may work in mili- tary and academic facilities (with and without private practice).

The majority of plastic surgeons do not offer “spa” services (e.g. wraps, facials, mas- sages) in conjunction with their medical prac- tices. Further, most of these doctors do not work in conjunction with medical spas where non-surgical procedures, such as injections and laser procedures, are performed. Plastic

surgeons generally consider medical spas to be less professional and potentially dangerous if someone other than the surgeon is performing procedures.

According to the American Society of Plastic Surgeons, the top five reconstructive procedures are tumor removal, laceration repair, maxillofa- cial surgery, scar revision, and hand surgery. The top five cosmetic plastic surgical procedures are breast augmentation, lipoplasty (liposuction), rhinoplasty (nose reshaping), blepharoplasty (cosmetic eyelid surgery), and rhytidectomy (facelift). The top five cosmetic minimally inva- sive procedures are Botulinum Toxin Type A (Botox®), soft tissue fillers, chemical peels, laser hair removal, and microdermabrasion.

Sources: ASPS and ASAPS websites; Association for American

Medical Colleges website. Accessed March 2017.

if a plastic surgeon were to consider establishing a practice in charlotte, north carolina, the completion of a service area competitor analysis would be essential to evaluate whether the area represents a potentially profitable location. cosmetic plastic surgery requires a reputation for excellent work that takes some time to establish; selecting the wrong service area could force relocation, causing the sur- geon to begin anew in establishing a reputation. Similarly, established competitors should periodically re-evaluate the competition in their service area as a part of maintaining an effective strategy. in addition, any new entrant to the service area should trigger service area competitor analysis.

plastic surgery can be defined as a service category as it is recognized as a board-certified specialty within medicine; however, there are additional service categories that need to be explored to determine direct and indirect competitors for a given practice. for instance, plastic surgeons may offer a full range of ser- vices or they may specialize on the face (such as congenital deformities and inju- ries due to trauma) or they may focus on cosmetic procedures for purely aesthetic reasons. eye, ear, nose, and throat physicians as well as oral surgeons perform some of the same procedures. furthermore, plastic surgeons may specialize on the basis of procedures they use, such as laser or liposuction. As they often deal with skin, dermatologists may become competitors, especially in terms of the less invasive procedures such as Botox® injections that may be administered by any physician and in many instances by nurses (rns) with physician supervision. Thus, the service category is important to identify and understand because it affects the service area as well.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 85

The general service area for the plastic surgery example is charlotte, north carolina. charlotte is the largest city within north carolina and resides on the border with South carolina. charlotte (also known as the Queen city as it was named after King george iii’s wife, Sophia charlotte, who was born in Mecklenburg, germany) has grown to be a major city with the fifth busiest airport in north America by total aircraft movement and eighth busiest in north America by total passengers in 2017. charlotte’s population is younger, upwardly mobile, educated, and relatively affluent – and it is one of the fastest growing cities in the united States. little need exists to travel outside the city for medical or health care services. The city is sufficiently large with 842,051 in population such that the people in the seven-county, nearly 2.5 million surrounding metropolitan area are pulled to charlotte for medical and health care, including plastic surgery. in 2017, the number of active, board-certified plastic surgeons practicing in the charlotte metropolitan area was 37 (an increase of nine compared to the 28 practicing five years ago; two retirements and two surgeons leaving the area resulted in a net gain of nine board-certified plastic surgeons).3

Step 1: review of External Analysis The results of the general environment, health care system, and services area external analysis, as covered in chapter 2, provide the foundation for the service area competitor analysis. The issues, trends, and events identified in external analysis represent the context in which the organization must operate to be suc- cessful. results of the external analysis were then documented in an external issue map (exhibit 2–5). review of the issue map is critical and will guide decisions made in service area competitor analysis.

Step 1: review of External Analysis – Plastic Surgery in Charlotte, nC

The example of a completed external analysis issue map conducted for the general environment, health care system, and the charlotte, north carolina service area was presented in chapter 2, exhibit 2–11 and provides the context for the service area competitor analysis in this chapter. The health care system analysis indi- cates turmoil. The patient protection and Affordable care Act (often referred to as Obama care) was enacted in 2010; however, most aspects of that law were not effective until 2014 (or later as some parts were “delayed”). no doubt further legislative changes will be forthcoming under president Trump’s administration as legislators weigh costs, coverage, access, as well as impacts on private and government health insurance and health care providers.

Key points from the service area analysis affecting plastic surgery: (1) the population of charlotte is growing (from 730,000 in 2012 to over 840,000 in 2017) and the city is now the 17th largest in the united States; (2) unemployment is down considerably from 2012 (9.6 percent) to a more normal-for-charlotte unemployment rate of 4.5 percent; (3) cost of living remains low at 96.2 percent of the national average; (4) diversity has increased, especially from Hispanics; (5) millennials moving to the city increased by 30 percent; and (6) the recession began later in charlotte and lasted longer (well into 2012) but in 2017 the city had recovered.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

86 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

Step 2: Conduct Service Area Structural Analysis Harvard’s Michael e. porter developed a “five forces” framework for external analy- sis through an examination of the competitive nature of the industry. porter’s frame- work has been applied to a variety of industries; however, because of the nature of competition in health care, it is more appropriate to apply the framework more nar- rowly to the service category/service area. The use of porter’s five forces in health care can be referred to as service area structural analysis. A service area structural analysis assesses the attractiveness of an identified geographic region for a product/ service category. Service area structural analysis provides considerable insight into the attractiveness of a service category in a service area and its competitive dynamics.

porter suggested that the level of competitive intensity within an industry is the most critical factor in an organization’s environment. in porter’s model, inten- sity is a function of the threat of new entrants to the market, the level of rivalry among existing organizations, the threat of substitute products and services, the bargaining power of buyers (customers), and the bargaining power of suppli- ers.4 The strength and impact of these five forces must be carefully monitored and evaluated to determine the viability of the service category and may be used to assess the changes likely to occur in the future. As illustrated in exhibit 3–2, porter’s industry structural analysis can be adapted to service areas to understand the competitive forces for health care organizations.

EXHIBIT 3–2 Service Area Structural Analysis: Forces Driving Service Area Competition

Potential Entrants

Threat of New Entrants

Service Area Competitors

Rivalry Among Existing Firms

Threat of Substitute Products or Services

Substitutes

BuyersSuppliers

Bargaining Power

of Suppliers

Bargaining Power

of Buyers

Source: Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors. Copyright © 1980 by the Free Press. All rights Reserved. Adapted with the permission of the Free Press, a division of Simon & Schuster Adult Publishing Group.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 87

Threat of New Entrants new entrants into a market are typically a threat to existing organizations because they increase the intensity of competition. new entrants may have substantial resources and often attempt to rapidly gain market share. Such actions may force prices and profits down. The threat of a new competitor entering into a market depends on the industry or service area barriers. Barriers to entry are factors that make entering a new market difficult or expensive for an organization therefore limiting competition. if the barriers are substantial, the threat of entry is low. porter identified several barriers to entry that may protect organizations already serving a market:

● existing organizations’ economies of scale – cost advantages made possible by increased volume.

● existing product or service differentiation. ● capital requirements needed to compete. ● Switching costs – the one-time economic, logistic, and emotional costs for

consumers in selecting and adopting an alternative product/service over their present product/service.

● Access to distribution channels. ● cost advantages (independent of scale) of established competitors. ● government and legal constraints.

These barriers should be assessed to determine the current or expected level of competition within an industry or service area. in health care markets, the barriers to entry for new “players” may be substantial. consolidation (creation of large health care systems) and system integration (the level of control by physicians and insurers) may make entry into a particular service area difficult because existing organizations have built economies of scale and cost advantages making it diffi- cult for a newcomer. in an effort to create cost efficiencies, managed care has had the effect of limiting the ease of market entry. in areas where managed care pen- etration is high, market entry by new competitors will be more difficult because switching costs for some populations are prohibitive. However, the difficulty of adding new service categories for existing organizations in an established man- aged care market may be lessened; such service categories may be added to better serve a captured (managed care) market.

certificate of need (cOn) laws and regulations, for example, can present significant barriers to entry for providers (see essentials for a Strategic Thinker 3–2, “What is cOn?”). cOn laws are the reason some specialty hospitals in cardi- ology and orthopedics were built in states in the southwestern united States and the Midwest, where there were no cOn barriers or the cOn laws were much less restrictive than other areas of the nation.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

88 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

ESSEnTIAlS For A STrATEgIC THInkEr 3–2

What is Con?

Certificate of Need (CON) legislation encompasses federal/state authorizations to acquire, expand, or create facilities and is used to regulate supply of services relative to demand by eliminating overspending or limiting (pro- tecting) access. As of 2017, 36 states retain some type of certificate of need (CON) program, law, or agency. CON programs originated to regulate the number of beds in hospitals and nursing homes and to prevent overbuying of expen- sive equipment. In 1964, New York became the first state to enact a statute granting the state government power to determine whether there was a need for a new hospital or nursing home before it was approved for construction. In 1972, an amendment to the Public Health Service Act included withholding of Medicare and Medicaid funds for facilities and projects – which in effect became the first CON legislation, although a version was incorporated into the Hill-Burton Act (1946) that provided federal funds for new hospital construction completed through state planning and evaluation. The National Health Planning and Resources Development Act in 1974 strengthened CON regulations by requir- ing all 50 states to implement such regulations to receive funds through the federal govern- ment; however, sanctions from this law were not imposed.

Statutory criteria were often created to help planning agencies determine what was necessary for a given location (number of new beds, new technologies, etc.). By reviewing the activities and resources of hospitals, the agen- cies made judgments about what needed to be improved. Once need was established, the applicant (corporation, not-for-profit, partner- ship, or public entity) was granted permission to

begin a project. These approvals are generally known as “Certificates of Need.”

In 1986, Congress repealed the mandate requiring states to have CON programs, along with elimination of the federal funding for the program. In 2017, California, Colorado, Idaho, Indiana, Kansas, Michigan, New Hampshire, New Mexico, North Dakota, Pennsylvania, South Dakota, Texas, Utah, and Wyoming (14 states) have no CON requirements; three other states (Arizona, Minnesota, and Wisconsin) have CON- like state-developed requirements; and the other states maintain CONs for various types of facilities (building a new hospital or adding beds to a nursing home) and dollar amounts for technology (a physician’s office request for a sec- ond MRI machine). Although the CON process across states is similar, no two states are exactly alike, and the scope of regulation varies a great deal by state. Some states require providers to document the community need for all regulated services regardless of cost, whereas others do not require CON approval for any project under certain cost thresholds; however, the capital expenditure thresholds range from hundreds of thousands to millions of dollars. Recently, Florida (2017) and Maine (2013) have attempted repeal of CON laws. Maine was unsuccessful and Florida had to remove nursing homes and hospices, but has maintained its charge to avoid CONs in hospitals for the state.

CON regulations attempt to protect access to safety net hospitals in urban areas and access to care in rural areas, either by requiring the provision of a specified amount of charity care or by hav- ing applicants address the potential impact of the CON on charity care. Enforcement is challenging because penalties for not meeting the standard are

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 89

frequently not included; however, in a few states an organization’s failure to meet its charity care com- mitment requires the organization to pay the differ- ence to the state (a sort of tax on the organization that does not provide enough charity care).

CONs have been plagued by providers attempting to game the process, which rep- resents a deterioration of state health plan- ning over time because of inadequate funding, reduction of public interest, and a broader move toward deregulation. When the federal man- date for CON programs was repealed in 1986, funding for state health planning dropped sub- stantially. State agencies responsible for issuing CONs cite insufficient staffing and training and an often overwhelming workload. An enduring challenge for CON review boards is maintaining meaningful competition while ensuring access to care without allowing excess capacity.

CONs have been used as a way for organiza- tions to claim territory. Such situations are typically contentious and require a significant amount of time to resolve and finalize. Applications can be challenged at various stages, and decisions can be overturned by hearing officers, courts, or some- times state legislatures. CON boards generally include appointed state officials, physicians, hos- pital representatives, and other stakeholders. The substantial scrutiny, coupled with a lack of enforce- ment power to uphold decisions, has made the role of CON boards increasingly challenging.

Clearly hospitals use the process to protect existing market share – either geographic or by service line – and block competitors. CON approval from the hospital perspective is usu- ally viewed as a license to claim ownership of a service line or geographic area. In addition, hos- pitals track CON applications as a way to “keep tabs” on current competitors and impede new entrants. Smaller community hospitals often lack the financial resources to go through an extended CON process. Large hospitals, which

often have ample financial resources and politi- cal clout, have kept smaller hospitals out of a market by simply tying them up in CON litiga- tion for years.

CON has been used by hospitals to prevent the founding of new physician-owned facilities. Physicians interested in establishing for-profit facilities (especially surgery centers) view CON programs as overly restrictive and support repeal of the regulations. Reflecting physician views, medical societies tend to support repeal of CONs as well. Physicians view CONs as barriers to inno- vation, since the process may take up to 18 months, delaying facilities from offering the most advanced equipment to patients and limiting providers’ ability in some states to recruit top-tier specialist physicians who want to work in facili- ties equipped with the newest technologies.

SuggeSted Reading

Karen Garloch, “Piedmont Medical Center Wins

Right to Build Fort Mill Hospital,” Charlotte

Observer, April 1, 2014, p. A-2.

David Grabowski, “Nursing Home Certificate-Of-

Need Laws Should Be Repealed.” Health Affairs

blog, June 9, 2017. http://healthaffairs.org/

blog/2017/06/09/nursing-home-certificate-of-

need-laws-should-be-repealed/.

Clark C. Havighurst, “Monopoly Is Not the Answer,”

Health Affairs (August 5, 2005), pp. 373–375.

Joe Marusak and Karen Garloch, “Piedmont

Medical Center Wins Appeal to Build Ft. Mill’s

First Hospital,” Charlotte Observer, January 12,

2017, p. A-4. National Conference of State

Legislatures (January 2011; material added

March 2012). Website: www.ncsl.org/issues-

research/health/con-certificate-of-need-state-

laws.aspx. Section: Certificate of Need State

Health Laws and Programs.

Lisa Schencker, “State Certificate of Need Laws

Weather Persistent Attacks,” Modern Healthcare

(January 23, 2016), pp. 14–15.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

90 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

Intensity of Rivalry among Existing Organizations Organizations within an industry are mutually dependent because the strategy of one organization affects all relevant competitors. rivalry is the intensity of competition for a product/service category in a service area. rivalry occurs because competitors attempt to improve their position. Typically, actions by one competitor foster reactions by others. intense rivalry is the result of the following factors:

● numerous or equally balanced competitors. ● Slow industry (service area) growth. ● High fixed or storage costs. ● A lack of differentiation or switching costs. ● capacity augmented in large increments. ● Diverse competitors – diverse objectives, personalities, strategies,

and so on. ● High strategic stakes – competitors place great importance on achieving

success within the industry. ● High exit barriers.

Often, consolidation has created several balanced large health care systems in a service area. for example, in the portland, Oregon market, consolidation has resulted in three large integrated systems – a large academic medical center university hospital with a large children’s hospital ranked first in the portland market and two other systems – providence and legacy – all within four miles of each other, resulting in extremely high strategic stakes. for some markets, consolidation has resulted in competition between large for-profit and not-for-profit systems. Additionally, because of managed care, switching costs for consumers are high. Because many markets have supported too many providers in the past, the strategic stakes are great. Most experts agree that further consolidations are likely, rivalry will intensify, and still more providers will not survive.

Threat of Substitute Products and Services for many products and services various substitutes are available that perform the same function as the established products. Substitute products limit returns to an industry because at some price point consumers will switch to alternative products and services. usually, the more diverse the industry, the higher the likelihood that there will be substitute products and services. A major substitution taking place in health care has been the switch from inpatient care to outpatient alternatives as well as the use of drugs that keep individuals out of hospitals. in addition, alternative therapies such as chiropractic, massage therapy, acupuncture, biofeedback, and so on are increasingly substituted for traditional health care (see essentials for a Strategic Thinker 3–3, “What Are complementary and Alternative Medicine?”).

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 91

ESSEnTIAlS For A STrATEgIC THInkEr 3–3

What Are Complementary and Alternative medicine?

Complementary and alternative medicine (CAM) is a group of diverse medical and health care systems, practices, and products used for medi- cal interventions, health promotion, or disease prevention that are generally not considered to be part of conventional medicine nor gener- ally underwritten by health insurance plans.1 CAM includes acupuncture, herbal medicine, homeopathy, massage, osteopathy, biofeed- back, chiropractic, hypnotherapy, meditation, aromatherapy, yoga, tai chi, guided imagery, and naturopathy. CAM systems are characterized by a holistic and highly individualized approach to patient care with an emphasis on using the body’s inherent healing ability and involving patients as active participants in their own care.

Integrative medicine incorporates elements of CAM with traditional western medicine and over time some CAM therapies have become mainstream. Integrative medicine provides a new paradigm that incorporates core CAM val- ues in contemporary medicine; however, the extent to which integration occurs depends on the attitudes of physicians.

A national survey of hospitals that offer com- plementary services found a number of significant barriers for CAM therapies: lack of evidence-based research (39 percent), physician resistance (44 per- cent), and budgetary constraints (65 percent). In addition, hospitals that are considering use of integrative medicine have a number of legal/liabil- ity hurdles to overcome. A hospital’s basic duty is to ensure that those who treat patients within its facilities are qualified and competent to do so. Reasonable steps must be taken to control and supervise practitioners by appropriate credential- ing. In addition, the hospital has a duty to create a safe environment for patients that includes going

to reasonable lengths to allow CAM – at least evidence-based therapies that current evidence indicates could improve patients’ health or help manage their symptoms.2

In 1998, Congress expanded the Office of Alternative Medicine (renamed in 1992; previ- ously known as the Office of Unconventional Therapies) by creating the National Center for Complementary and Alternative Medicine (NCCAM). NCCAM was renamed the National Center for Complementary and Integrative Health (NCCIH) in 2015. NCCIH’s mission is: “to define, through rigorous scientific investigation, the usefulness and safety of complementary and integrative health inter- ventions and their roles in improving health and health care.”3

The NCCIH’s strategic plan focuses primarily on researching, advancing, and disseminating information concerning CAM, and the Director, Josephine P. Briggs M.D., stated concerning the NCCIH 2016 strategic plan:

We remain committed to making invest- ments in research areas that show sci- entific opportunity and promise, are amenable to rigorous scientific inquiry, foster discovery and innovation, and have an impact on public health and health care. The burden of a disease or chronic condition on people’s lives is another important consideration when setting research priorities. Some complementary and integrative health approaches have shown promise for managing some of these conditions and their associated symptoms. Chronic pain will remain an important emphasis.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

92 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

Going forward, the Center will continue to work to build the evidence base on symptom management, including pain, but also depression and anxiety. In addi- tion, we will continue to build our dis- ease prevention research portfolio and focus more on pragmatic clinical trials to test complementary and integrative health interventions in “real world” set- tings. The evidence base is growing in these areas, and I am eager to explore these research opportunities as we map the path forward.4

CAM is expected to increase substantially in the future. More than 70 percent of adults state that they have tried some form of integrative

medicine. Involvement in integrative medicine has become so widespread that the Food and Drug Administration has issued guidelines that threaten new, costly regulation of complemen- tary and alternative medicine.

RefeRenceS

1. www.verywell.com/what-is-complementary-

and-alternative-medicine-88205.

2. J. Gilmour, C. Harrison, L. Asadi, M. H. Cohen,

and S. Vohra, “Hospitals and Complementary

and Alternative Medicine: Managing

Responsibilities, Risks, and Potential Liability,”

Pediatrics 128, no. 4 (2011), pp. S193–199.

3. https://nccih.nih.gov/about/ataglance.

4. https://nccih.nih.gov/about/strategic-

plans/2016/A-Message-From-the-Director.

Bargaining Power of Customers Buyers of products and services attempt to obtain the lowest price possible while demanding impeccable quality and superior service for health care. if buyers are powerful, then the competitive rivalry will be high. A buyer group is powerful if it:

● purchases large volumes. ● concentrates purchases in an industry (service area). ● purchases products that are standard or undifferentiated. ● Has low switching costs. ● earns low profits (low profits force lower purchasing costs). ● poses a threat of backward integration (an organization taking on

ownership of its supply chain). ● Has low quality requirements (the quality of the products purchased by the

buyer is unimportant to the final product’s quality). ● Has enough information to gain bargaining leverage.

perhaps the greatest change in the nature of the health care system in the past decade has been the growing power of the buyers. Managed care organizations (McOs) purchase services in large volume and control provider choices. The increasing power of those buyers has fueled system integration as well as blurring of providers and insurers. large employers as buyers have power because they determine whether the McO will be on the list that employees have to choose from for their health care.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 93

Bargaining Power of Suppliers Much like the power of buyers, suppli- ers can affect the intensity of competition through their ability to control prices and the quality of materials they supply. Through these mechanisms, suppliers can exert considerable pressure on an industry. factors that make suppliers powerful tend to mirror those making buyers powerful. Suppliers tend to be powerful if:

● There are few suppliers. ● There are few substitutes. ● The suppliers’ products are differentiated. ● The product or service supplied is important to the buyer’s business. ● The buyer’s industry is not considered an important customer. ● The suppliers pose a threat of forward integration (entering the industry).

Traditionally, physicians and other health care professionals have been impor- tant and powerful “suppliers” to the industry because of their importance to health care institutions. The physician or the insurance plan remains the “gate- keeper” to the system and plays a crucial role in controlling consumer choice. This supplier power has added pressure for hospital systems to purchase primary care individual and group practices. Other suppliers, such as those who supply general medical needs (e.g. bandages, suture materials, thermometers), have tended not to exercise a great deal of control over the industry. Still others who supply equipment with new, patented technology (e.g. software, new type scan- ner) could have moderate to high supplier power, especially in the short run.

Step 2: Service Area Structural Analysis – Plastic Surgery

Michael porter’s five forces analysis is used to evaluate the viability of cosmetic plastic surgery within the charlotte service area. competitive intensity and ulti- mately the profitability of the service category in the service area is determined by a number of favorable factors. As described in exhibit 3–3, the five forces model suggests that it would be somewhat challenging to enter this market of 37 board- certified plastic surgery practices when these existing competitors face increased competitive pressure. The cosmetic plastic surgery segment will remain competi- tive because there are few barriers to entry for new competitors (one barrier to entry is high: participants generally have some form of medical or dental degree). However, 76 physicians list plastic surgery as their primary area or a secondary area of practice but only 37 of the 76 physicians (49 percent) practicing plastic sur- gery in charlotte are board-certified plastic surgeons. Many of the non-certified doctors have performed plastic surgery for many years and tout their experience, expertise, and great outcomes over “paper credentials.” for the less invasive plastic surgery procedures, such as Botox® and other injectables, face peels, etc., barriers to entry are not very high as they are often administered by rns under physician supervision.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

94 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

EXHIBIT 3–3 Service Area Structural Analysis – Plastic Surgery, Charlotte, NC

five forces forces driving Service area competition conclusion

Intensity of Rivalry

Approximately 41 practices with 23 having one or more board-certified plastic surgeons (56 percent of practices board certified in 2017 vs. 45 practices with 24 having at least one board- certified plastic surgeon for 53 percent in 2012) actively advertise that they have physicians who perform procedures or provide products for plastic surgery in the Charlotte, NC area.

Diverse competitors – mostly solo and a few small group practices employing distinctly different strategies (also diverse personalities).

All strategic competitors are plastic surgeons and members of one of the professional plastic surgery associations: the American Plastic Surgery Association (APSA), the American Cosmetic Plastic Surgery Association, or the American Board of Plastic Surgery; however, not all patients know to look for board-certified surgeons.

Other competitors are in different specialties: ophthalmology (eye), dermatology (skin), dentistry (oral-maxillofacial surgery), etc. and are willing to perform “plastic surgery” on patients.

Still others like to state they are “board eligible,” meaning they have training or experience in plastic surgery but have not passed the boards or have not attempted board certification.

High

Rivalry is likely to remain intense in this market as the competitors are more numerous relative to the “need” for plastic surgeons, strategic stakes are high, and it is moderately difficult to exit the market (hard to find and establish a practice in a new, better market); establishing referral relationships and credentialing at new hospital(s); some investment in equipment).

Threat of New Entrants

Existing providers have established reputations and been in practice in the Charlotte area for a number of years. Experience, artistic ability, “good hands,” and great personality to easily and confidently interact with patients are important in maintaining a successful cosmetic plastic surgery practice.

Board certification is a major hurdle; however, many consumers do not understand that when an MD states on his/her website that they are “board certified” it does not necessarily mean that it is in the plastic surgery specialty.

Capital requirements are not high. For example, the cost of new equipment that may be used in the office is less than $50,000; however, used equipment is readily available to purchase or lease. Equipment is generally upgraded before it becomes obsolete to maintain cutting-edge technology.

Most single practices operate on a 3+1 office: one doctor and three staff (operating room nurse, office administrator, office nurse).

Medium

Threat of new entrants (new plastic surgeons) into the Charlotte market is medium, primarily because of growth in the population and the economy; however, the existing service area already has numerous competitors.

To obtain board certification in plastic surgery is a major hurdle to accomplish by the physician; however, consumers’ lack of awareness of the meaning of certification in plastic surgery dilutes it as a hurdle. In Charlotte, 23 practices (37 physicians) are board certified; 18 practices identify “plastic surgery” as their medical specialty using non-board-certified plastic surgeons.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 95

five forces forces driving Service area competition conclusion

Threat of New Entrants

Many of the procedures are performed in a hospital or surgery center setting that can be used by physicians who are credentialed by that hospital or surgery center (costs are passed on to the patient).

Existing service differentiation – perceived differentiation (high image) for high-end providers through referral from “stars” who freely discuss the procedures they have had.

Market leaders have a strong market position given their experience and consistency in providing great outcomes.

Financial barriers for setting up an office are low.

Threat of Substitutes

Cosmetics that can enhance appearance at a fraction of the cost.

Injectables, face peels, etc. by any MD – internist, general practitioner, primary care physician, or other non-board-certified plastic surgeons.

New, strong chins by oral-maxillofacial surgeons.

For most patients, cosmetic plastic surgery is elective.

Cosmetic plastic surgery is expensive.

High

There are a number of low-cost, non- surgical substitutes provided over-the- counter (OTC).

Less invasive procedures are considerably less expensive, less painful, less time (to no time) for recovery, and less intimidating.

Bargaining Power of Customers

The elective procedure of cosmetic plastic surgery is rarely covered by insurance and is a cash business, although some credit is offered – using MasterCard, VISA, or a medical procedure credit card, CareCredit® which is a subsidiary of GE Capital (has a reputation for aggressive collections and charges 29.5 percent to carry a balance).

Consumers can easily defer purchase to a later time – or never – after numerous sessions with a number of surgeons.

Patients/consumers have the ability to negotiate the price, but many of them are embarrassed to do so; most physicians are uncomfortable with a negotiation.

Patients/consumers may prefer to travel away from Charlotte to keep the procedures confidential; others may travel to exotic destinations where the costs for cosmetic surgery are considerably lower and a vacation “recovery” period is enjoyable.

Word-of-mouth referral is very powerful.

High

Consumers have high bargaining power because of the elective nature of the procedure and its out-of-pocket cost.

Consumers can opt for a much less expensive substitute, shop price, wait for prices to decline, or forego the procedure.

Brazil has an international reputation for excellent outcomes with plastic surgery, offering a more affordable price (including air fare and top-tier hotels for recovery), plus greater confidentiality.

Bargaining Power of Suppliers

A significant number of suppliers of laser, liposuction, etc. equipment compete in the market space.

Rent-to-own, purchase, or lease – equipment is essential to the business. Many procedures can be performed in the office or in surgery centers.

Low

There are multiple major suppliers of professional-grade equipment for cellulite reduction and more than ten suppliers of laser equipment.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

96 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

competitive rivalry is high as more board-certified plastic surgeons than would be expected are located in charlotte and are already established in practice in the service area. given the rule-of-thumb of one plastic surgeon for every 50,000–75,000 in population, charlotte exceeds the number of plastic sur- geons needed (and is considerably over the number when both board-certified and non-board-certified physicians with practices in this medical specialty are considered). in addition, most of the board-certified physicians in the area have practices that are long established (average: 19 years, 12 physicians have prac- ticed in charlotte for over 25 years, six physicians have been in the area for five years or less).

consumers (buyers) wield a great deal of choice power because aesthetic plastic surgery in particular is a cash business (no insurance company to dic- tate choices, little to no integration of these services in a health care system) and a number of substitutes exist – the most important of which is to choose not to elect any of the procedures. Suppliers of medical devices, such as lasers and cellulite reduction (liposuction) machines, are relatively stable with few new entrants and a number of manufacturers. lumenis, Sharplight, Syneron- candela, cynosure, Alma lasers, Solta Medical, Hoya combio, Sciton, and cutera were the top ten companies manufacturing laser medical devices for plastic surgery. cellulite reduction (liposuction) machine manufacturers include (in alphabetical order): Alma lasers, Ambicare, Bruker corporation, carl Zeiss Meditec inc, cutera inc, cynosure/Deka, ellex Medical, ellipse A.S., Hamilton Thorne, invasix, niKOn, Olympus, Sciton, WellsJohnson, and Zeltiq Aesthetics. The power of these suppliers has decreased somewhat because plastic surgeons no longer purchase a line of products from the same company (such as the market leader), rather, they purchase the best product for the processes desired by consumers or the product that the surgeon is most comfortable with or has used the most in training.

Thus, for cosmetic plastic surgery in the charlotte service area, only one of porter’s five forces is favorable (power of suppliers) and four are unfavorable, resulting in thin profit margins and intense competition. in the future, the five forces for this service category, in this service area, are not likely to change dra- matically. Barriers to entry for new competitors will remain consistent, rivalry will remain high, the consumer will be able to shop on price and defer purchase, and substitutes will likely increase, such as home cellulite reduction machines that are widely available in 2017 (and prices have been falling). At the same time, the reconstructive plastic surgery market overall remains stable and not greatly affected by swings in the economy; however, the cosmetic plastic surgery market is subject to swings in the economy as the consumer pays out-of-pocket for nearly all procedures.

Step 3: Conduct Competitor Analysis The next step in service area competitor analysis (refer to exhibit 3–1) is to evalu- ate the strengths and weaknesses of competitors. in assessing the rivalry of the service area, the competitors are identified. next, the strengths and weaknesses of each competitor should be specified and evaluated. Organizations have a unique

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 97

resource endowment and a comparison with a given competitor will help to illu- minate the relationship between them and to predict how they compete with (or respond to) each other in the market.5 evaluation of competitors’ strengths and weaknesses provides clues as to their future strategies and to areas where competi- tive advantage might be achieved.

Both quantitative and qualitative information may be used to identify strengths and weaknesses. competitor information is not always easy to obtain, and it is often necessary to draw conclusions from sketchy information. A list of possible competitor strengths and weaknesses is presented in exhibit 3–4.

EXHIBIT 3–4 Potential Competitor Strengths and Weaknesses

Potential Strengths Potential Weaknesses

● Distinctive competence ● Financial resources ● Good competitive skills ● Positive image ● Acknowledged market leader ● Well-conceived functional area

strategies ● Achievement of economies of scale ● Insulated from strong competitive

pressures ● Proprietary technology ● Cost advantages ● Competitive advantages ● Product/service innovation abilities ● Proven management ● Ahead on experience curve

● Lack of clear strategic direction ● Deteriorating competitive position ● Obsolete facilities ● Subpar profitability ● Lack of managerial depth and talent ● Missing key skills or competencies ● Poor track record in implementing strategies ● Plagued with internal operating problems ● Vulnerable to competitive pressures ● Falling behind in R&D ● Too narrow a product/service line ● Weak market image ● Below-average marketing skills ● Unable to finance needed changes in strategy ● Higher overall costs relative to key

competitors

relevant information may be obtained through multiple sources such as local newspapers, trade journals, websites, focus groups with customers and stakeholders, consultants who specialize in the industry, securities analysts, or outside health care professionals. identification of competitor strengths and weaknesses will aid in speculating on competitor strategic moves. The range of possible competitive actions available to organizations varies from tactical moves such as price cuts, promotions, and service improvements that require few resources, to strategic moves, such as service category/area changes, facil- ity expansions, strategic alliances, and new product or service introductions that require more substantial commitments of resources and are more difficult to reverse. Such competitive actions represent clear, offensive challenges that invite competitor responses.6 See essentials for a Strategic Thinker 3–4 “What is Medical Tourism?”

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

98 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

ESSEnTIAlS For A STrATEgIC THInkEr 3–4

What is medical tourism?

Medical tourism is the practice of travelling to a country, other than one’s own, for the purpose of obtaining medical treatment. The most com- mon procedures that people undergo on medical tourism trips include cosmetic surgery, dentistry, and heart surgery. The term “medical tourism” is evolving based on increasing specialization and heterogeneity in services, thereby leading to the use of more specific terms such as reproductive tourism, organ transplant tourism, and abortion tourism. It excludes health or wellness tourism, which generally refers to all the non-invasive (external) treatments including visits to spas, homeopathy treatments, or traditional therapies that improve the health or the mind of the patient.1

In 2017, medical tourism accounted for 11 million people travelling annually (valued at $100 billion); approximately 4 percent of the world’s population travelled internationally for medical care. Along with the United States, the most popu- lar destinations for medical tourism are Canada, United Kingdom, Israel, Singapore, India, Germany, France, South Korea, Italy, and Colombia.

Health care consumers today are motivated to engage in medical tourism because of lower overall costs, high copay insurance plans, high deductible insurance plans, treatments and medications not approved or available in their home country, the availability of higher quality care and services, increased comfort of return- ing to their home country, or the opportunity for medical treatment combined with an attrac- tive destination. The primary factors driving the cost differential in many medical tourism destinations are lower labor costs, the lack of malpractice insurance costs, and lower pharma- ceutical costs. Of course, each of these factors suggests additional risks such as quality of care,

counterfeit medications, and security and purity of blood supplies.2

The main risk is quality of care although this risk is being alleviated by the number of global hospitals, centers, and clinics being accredited by the Joint Commission International (JCI). Even though hospitals may be accredited by the JCI, other critical activities such as clinical analy- sis laboratories, radiology centers/departments, medical imaging and interpretation, plus the differences in malpractice laws and lack of post- operative follow-up care may cause problems.

With medical tourism expected to grow at 25 percent per year, there are implications for defining service areas and identifying competi- tors. Clearly the service area boundaries for cat- egories such as gall bladder surgery, orthopedic surgery – such as full hip replacement surgery – and numerous other procedures extend well beyond the boundaries of the United States to Thailand, India, Mexico, Hungary, and Singapore. In addition, medical tourism presents a business model in itself. With reasonably inexpensive air travel costs, globalization of markets and providers, the availability of information online, frequency of international travel, potentially long waits for local care, and more people taking responsibility for their own health care, strategi- cally positioning as a “destination” and utilizing the medical tourism business model appears to be viable for many institutions.

RefeRenceS

1. Naiade Anido Freire, “The Emergent Medical

Tourism: Advantages and Disadvantages of

the Medical Treatments Abroad,” International

Business Research 5, no. 2 (2012), pp. 41–50.

2. www.medicaltourismindex.com/2016-medical-

tourism-industry-valuation/.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 99

Step 3: Conduct Competitor Analysis – Plastic Surgery The strengths and weaknesses may be assessed for providers of plastic surgery procedures. for this analysis, a few representative plastic surgery providers are profiled in exhibit 3–5. Assessing strengths and weaknesses of competitors is often difficult for outsiders and, as suggested in the exhibit, weaknesses (in particular those not manifest in the market) are often difficult to identify and assess. However, careful observation, data gathering through websites and media, and a local resource can make this somewhat speculative process fairly accurate. in addition, the understanding of competitors’ strengths and weaknesses can be refined and improved as data gathering and analysis continue and new infor- mation is used to update the competitive analysis.

The Abner center, run by the only black female plastic surgeon in charlotte, closed as did the lifestyle lift center (a franchised experiment that failed).

EXHIBIT 3–5 Competitor Strengths and Weaknesses**

competitor* Strengths Weaknesses

Aesthetic Surgery of Charlotte

Board certification in plastic surgery + otolaryngology.

Plastic and reconstructive surgery.

Contributes to science with journal articles.

Uses TouchMD® for education, illustrating on a photo of the patient’s own face/body part any proposed/desired changes, and offers a patient portal for post-op communication.

Each patient is authenticated along with the photography of before/after.

Tech savvy.

Financing though Alphaeon or CareCredit®.

Accepts Medicare.

Plastic surgery board certification 2013.

Quite new to Charlotte; practice established in 2015.

Photo gallery is excellent but not all procedure types have photos (supports authenticity of photos, but also an indication of a not-quite-two-year-old practice).

Criswell & Criswell Husband/wife team allowing choice of male or female surgeon.

15 percent off skin care products and sunscreens during July.

Opened a new office in a very upscale area of the city.

Website suggests artistry; they state talented, passionate, artistic, and experienced physicians. Both doctors have art backgrounds (undergraduate major/minor).

Both speak Spanish.

Committed to both cosmetic and reconstructive surgery. Many research papers and lectures on reconstructive surgery.

Both are children of physician parents.

Consultation fee is applied to surgical procedures.

Use CareCredit®, a subsidiary of GE Capital which has a reputation for aggressive collections; reconstructive plastic surgery is typically paid for by private or public insurance.

(Continued)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

100 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

competitor* Strengths Weaknesses

Matthews Plastic Surgery

In practice for over 25 years.

Cosmetic and significant amount of reconstructive surgery.

Serves on the local hospital ethics board.

Performs medical mission trips every year to Third World countries to perform reconstructive surgery; donates supplies as well.

Board certified in cosmetic and reconstructive plastic surgery.

Informative website.

Initial consultation fee will be credited to patient’s bill if procedure is performed within six months.

Cosmetic is cash basis; however, major credit cards accepted, financing provided by CareCredit®, a subsidiary of GE Capital which has a reputation for aggressive collections; reconstructive is private or public insurance.

Premier Plastic Surgery Center

Many videos about procedures.

Over 10,000 patients.

24/7 access to the doctor.

Promotions (price and additional services).

Wrote a book: Body by Ferrari.

Some international reconstructive work.

Incredible number of typos on the website.

Not easy to find information on the website about financing: cost (or not) of initial consultation nor any info about financing for procedures.

Website is difficult to navigate: too many clicks to find desired information.

Charlotte Plastic Surgery

Established 1951, five from Charlotte Plastic Surgery among “15 Best Plastic Surgeons” selected by NC Business.

Photo gallery very realistic.

Complimentary consultations.

Financing through CareCredit® and Prosper.

“Member” program (for a fee) to obtain specials and reduced prices.

Staff is RitzCarlton trained.

AAAASF (American Association of Accredited Ambulatory Surgical Facilities) certified.

BOB (Best of the Best) award winner, a Charlotte regional award voted on by the area population.

Not all physicians are board certified.

Online store loads very slowly or not at all.

Web design likely meant to be “classic” but comes across as old-fashioned.

Voci Center Upscale spa services – aromatherapy, soothing organic candles, calming essential oils, fine lip balms, facial moisturizers, and massage. Also supply an assortment of herbal teas, juices, and purified water.

Updated website with excellent photography and realistic before and after photos; informative on financing, procedures, etc.

Computerized imaging to determine what would look best for an individual.

May be too pricey for many Charlotteans.

Consultation fee of $50 charged; however, four or more open house events per year.

EXHIBIT 3–5 (Continued)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 101

competitor* Strengths Weaknesses

Voci Center Focus on face, breast, and body.

Private office operating room suites, accredited for general anesthesia by the AAAASF (American Association of Accredited Ambulatory Surgical Facilities) with a board-certified anesthesiologist.

Private overnight rooms for patients after surgery are staffed all night by an RN with ACLS training.

More than 32 years of experience.

As of June 15, 2017 the open house events listed were for November and December 2016 (newspaper ads have been current).

*All physicians are board-certified plastic surgeons. Board certifications are tracked by accessing the North Carolina Board of Medicine’s database and the American Board of Plastic Surgery database, February 2017. **The Charlotte, North Carolina plastic surgery service area competitor analysis is based on secondary sources and interviews with plastic surgery practices in the Charlotte area. Opinions and conclusions presented are those of the authors and are intended to be used as a basis for class discussion rather than to illustrate effective or ineffective business practices.

Step 4: Analyze Critical Success Factors Critical success factor analysis is the identification of a limited number of activities for a service category within a service area for which the organization must achieve a high level of performance if it is to be successful. The rationale behind critical success factor analysis is that there are five or six areas in which the organization must perform well (a critical success factor) and they are identifi- able through careful external analysis. in addition, critical success factor analysis may be used to examine new market opportunities by matching an organization’s strengths with critical success factors.

Typically, once the service category critical success factors have been identified, several goals may be developed for each success factor. At that point, a strategy may be developed around the goals. important in critical success factor analysis is the establishment of linkages among the external environment, the critical success factors, the goals, and the strategy. in addition, it is important to evaluate competi- tors on these critical success factors. indeed, excellence in any (or several) of these factors may be the basis of competitive advantage. further, these factors form the fundamental dimensions of strategy.

Organizational strategies may differ in a wide variety of ways. Michael porter identified several strategic dimensions that capture the possible differences among an organization’s strategic options in a given service area.

Specialization The degree to which the organization focuses its efforts in terms of the number of product categories, the target market, and size of its service area.

Reputation The degree to which it seeks name recognition rather than competition based on other variables.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

102 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

Service/product quality The level of emphasis on the quality of its offering to the marketplace.

Technological leadership The degree to which it seeks superior technology in medical, health care, and information systems advances in diagnostics or therapeutic software, equipment, and procedures.

Vertical integration The extent of value added as reflected in the level of forward and backward integration.

Cost position The extent to which it seeks the low-cost position through efficiency programs and cost-minimizing facilities and equipment.

Service The degree to which it provides ancillary services in addition to its main services.

Price policy its relative price position in the market (although price positioning will usually be related to other variables such as cost position and product quality, price is a distinct strategic variable that must be treated separately).

Relationship with the parent company requirements concerning the behavior of the unit based on the relationship between a unit and its parent company (the nature of the relationship with the parent will influence the objectives by which the organization is managed, the resources available to it, and perhaps determine some operations or functions that it shares with other units).7

The organization can determine the strategic dimension or dimensions that it will use to compete – however, these decisions cannot be made in a vacuum. consideration must be given to the dimensions competitors have selected and how well they are meeting the needs of customers.

Step 4: Analyze Critical Success Factors – Plastic Surgery from the service area competitor analysis conducted thus far, the critical success factors may be inferred for plastic surgery in charlotte: 1. Surgical and aesthetic expertise in procedures performed:

● expertise in initial consultation to set expectations and build a good relationship with the consumer (personality, time investment in a potential patient, “bedside manner”).

● extensive practice (high number of procedures performed with satisfactory results – such as performing intricate surgeries with minimal scarring).

● Medical service – pre-screening, pre-op, post-op. ● pleasing results for the consumer.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 103

2. competitive pricing (secondary to #1) for cosmetic plastic surgery procedures. free consultation is expected by consumers but this is time consuming for the physician and often not productive. Some doctors require an upfront consultation fee which is used to reduce the cost of the procedure(s) if the consumer chooses his/her practice.

3. Managing and meeting consumers’ expectations, whether from surgery or less invasive techniques:

● patient’s satisfaction with the new look. ● no complications (such as infections or scarring that calls for further

procedures).

4. positive word-of-mouth; estimates are that a satisfied patient refers an average of five others (a somewhat lower average than other medical recommendations because some cosmetic plastic surgery patients want to keep procedures secret):

● Satisfaction of the clients. ● latest procedures and products, newest technologies.

5. non-surgical products for surgical after care/appearance.

6. use of less invasive cosmetic plastic surgery as a gateway to more intense surgical procedures:

● Botox® and other injectables. ● Medical spa.

7. Knowledge and profile development of desired specific target market (whether female/male, young/older, single/multiple procedures, cosmetic/reconstructive, etc.).

8. Office environment: ● Aesthetically attractive physical space; appropriate look and feel for the

target market identified. ● Adoption of new office technologies. ● Three-person staff (minimum) for solo practitioner.

Step 5: Map Strategic groups Strategic group analysis concentrates on the characteristics of the strategies of the organizations competing within a given service area. Strategic groups have been studied in many different industries and several strategic groups often exist within a service area. A strategic group is a number of organizations within a service area that are similar and compete directly against each other on the same competi- tive dimensions and, therefore, make similar strategic decisions. Members of a strategic group have similar “recipes” for success or core strategies.8 Therefore,

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

104 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

members of a strategic group primarily compete with each other and do not compete with organizations outside their strategic group – although there may be other organizations outside offering similar products or services. These other organizations are not considered competition because they focus on different cus- tomers, products/services, quality, price, and so on. for example, members of one strategic group may base strategies on appealing to a specific group of customers; organizations basing strategy on something else, such as low cost, may offer the same services but will not be in the same strategic group.

external stakeholders have an image of the strategic group and develop an idea of the group’s reputation. The reputation of each strategic group differs because the identity and strategy of each group differ.9 Organizations within a strategic group use similar resources to serve similar markets. However, leadership in an individual organization must find ways (sometimes subtle) to have its organiza- tion stand out from the group (differentiation) to develop competitive advantage over other group members.10

reputation has been defined as an organization’s true character and the cor- responding emotions held by its stakeholders. Strategic group reputation may be a mobility barrier leading to increased performance. if reputation does lead to increased performance, individual organizations within the strategic group may need to consider the impact of their actions on the collective reputation of  the group.11 Thus, if several nursing home organizations in a service area are in the same strategic group, the action of one influences the reputation of them all. The grouping of organizations according to strategic similarities and differences among competi- tors can aid in understanding the nature of competition and facilitate strategic decision making. There are four major implications for the strategic group concept: 1. Organizations pursue different strategies within service categories and

service areas. creating competitive advantage is often a matter of selecting an appropriate basis on which to compete.

2. Organizations within a strategic group are each other’s primary or direct competitors.

3. Strategic group analysis can indicate alternative formulas for success for a service category; such insight may broaden a manager’s view of important market needs.

4. Strategic group analysis may surface important market dimensions or niches that are not being capitalized on by competitors. lack of attention to critical success factors by other competitive organizations offering the same or similar service may provide an opportunity for creation of competitive advantage.

Strategic group membership defines the essential characteristics of an organiza- tion’s strategy. Within a service category or service area there may be only one stra- tegic group (if all the organizations follow the same strategy) or there may be many different groups. usually, however, there are a small number of strategic groups that capture the essential differences among organizations in the service area.12

The analysis of competitors along key strategic dimensions can provide considerable insight into the nature of competition within the service area. Such an analysis complements porter’s structural analysis and provides additional insights. As a means of creating a broad picture of the types of organizations

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 105

within a service area and the kinds of strategy that have proven viable, stra- tegic group analysis can contribute to understanding the structure, competitive dynamics, and evolution of a service area as well as the issues of strategic manage- ment within it.13 More specifically, strategic group analysis:

● can be used to preserve information characterizing individual competitors that may be lost in studies using averaged and aggregated data.

● Allows for the investigation of multiple competitors concurrently. ● Allows assessment of the effectiveness of competitors’ strategies over a

wider range of variation than a single organization’s experience affords. ● captures the intuitive notion that “within-group” rivalry and

“between-group” rivalry differ.14

When analyzing strategic groups, care must be taken to ensure that they are engaging in market-based competition. Many organizations may not be direct or primary competitors because of a different market focus. Organizations will have little motivation to engage each other competitively if they have limited markets in common. it is not unusual for organizations that serve completely different markets yet have similar strategic postures to be grouped together and assumed by analysts to be direct competitors when in fact they are not.15 for example, a pediatric group practice affiliated with a children’s hospital and a community health clinic emphasizing preventive and well care may serve the same population but not be direct competitors because of a different market focus.

Mapping competitors is the classifying of competitors within a service area that most directly compete with each other (the strategic groups). Mapping competi- tors for any service category (broadly or narrowly defined) within a service area may be based on the critical success factors or important strategy dimensions. The mapping of competitors helps to identify competitors that are most similar and therefore most dangerous to each other. competitors in the same strategic group are competing directly with each other and only indirectly with members of other strategic groups.

The best approach to mapping competitors is to select two critical factors for success and evaluate each competitor according to whether it is high or low on these dimensions. competitors may then be plotted on the basis of these two dimensions (see exhibit 3–6). competitors that are similar on these dimensions will cluster together (strategic groups) and are thus competing directly against each other. Several strategic maps may be constructed demonstrating different strategic views of the service area. in addition, a single dimension may be so important as a critical factor for success that it may appear on several strategic maps.

Step 5: Map Strategic groups – Plastic Surgery All plastic surgery practices within the charlotte service area are not the same – products/services offered, emphasis, and patient focus differ greatly. for example, there are numerous single practice surgeons who have built their practices on

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

106 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

word-of-mouth (WOM) referrals and reputation focusing on certain segments of the service category (such as specialization in rhinoplasty). These practices may offer other services to their primary patients but undertake little new patient pro- motion. in contrast, some practices within the service area offer specialty cosmetic treatments, patient pampering, and luxurious surroundings in full-scale medi- cal spas and focus on recruiting new patients. These two types of practices are generally not competing for the same patients.

A number of characteristics differentiate plastic surgeons in the charlotte ser- vice area – practice size, number of ancillary procedures offered, medical spa incorporated with the practice, and focus purely on reconstructive or cosmetic plastic surgery. in addition, plastic surgery credentialing (board certification) identifies surgeons who have specific, additional training in the field. However, many consumers are not aware of the meaning of board certification and will allow eye, ear, nose, and throat (eenT) physicians, dermatologists, or dentists to perform the desired plastic surgery. it may be the comfort level they have with a specific doctor (“i love my eenT doctor and he/she takes great care of me …”) or it may be price that causes them to use a non-board-certified surgeon or they simply may not be familiar with board certification.

There are 39 physicians in 18 practices in charlotte who promote plastic surgery as their area of specialization who are not board certified in plastic (cosmetic or reconstructive) surgery. Some of them are board certified in other specialties such as dermatology, general surgery, obstetrics/gynecology, or eenT, and some have had residencies or fellowships in plastic surgery, but they are not board certified. This analysis only considers the board-certified plastic surgeons in the service area.

four major strategic groups make up the competitive landscape in plastic sur- gery in the charlotte service area. considering practice size, costs, number and types of procedures, extent of marketing, and other provider information, the strategic groups are:

Strategic Group 1 – Single practitioners who focus on cosmetic plastic surgery This strategic group comprises providers that only offer cosmetic procedures and are paid out-of-pocket (they do not accept medical insurance). These practices provide traditional cosmetic plastic surgery procedures. Many provide service in their own offices as well as operating in hospitals or surgery centers. if they advertise, it is primarily through the internet (all have websites), social media, and WOM communication – patients recommending a surgeon based on the great experience and outcome they had. Most common (and most valuable) is WOM which the physician can stimulate but cannot control. Some patients do not want anyone to know they have had a plastic surgery procedure.

Strategic Group 2 – Single practitioners who perform both reconstructive and cosmetic plastic surgery Members of this strategic group provide cosmetic procedures as well as recon- structive procedures. They are typically reimbursed from insurance for the reconstructive portion of their practice and often accept Medicare and Medicaid patients as a result. These practices often work “on call” and are provided emerg- ency cases or patients referred by other physicians. reimbursement rates have declined significantly over the past few years for reconstructive plastic surgery.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 107

A number of the physicians in this group are dedicated to maintaining recon- structive surgery in their practice despite the low reimbursement. for the cosmetic portion of their practice, they rely on some advertising, the company website, and WOM. The cosmetic portion of the practice is similar to group 1; however, these surgeons do not have to rely solely on a cash business.

Strategic Group 3 – Cosmetic Medical Spas Members of this strategic group provide full-service cosmetic plastic surgery as well as medical spas with luxurious surroundings and a wide variety of pro- cedure and product options. They provide ancillary services to support patient convenience, charge high prices, and rely on WOM referral as well as sophisti- cated marketing campaigns that include advertising in newspapers and other paid media as well as excellent websites. More attention is paid to the details of product and procedure offerings, as well as office aesthetics and holistic care. prices of the procedures and products for members of this strategic group are higher than those in the other strategic groups, but pampering is desired by this target market. in addition, these practices may offer discounts on specific services (such as complementary fat grafting). competitive rivalry is most intense within this group and members compete primarily on reputation, hours of operation, website information, and a great deal of advertising.

Strategic Group 4 – Multispecialty Practices Only three practices have more than two plastic surgeons in the charlotte area. They offer full-service plastic surgery – both reconstructive and cosmetic using a variety of technologies. One of the practices is associated with a teaching hospital and many patients are referrals from within the hospital system.

Although multispecialty group practices or even single-focus multiphysician group practices are not common in plastic surgery, it was forecasted that devel- oping larger practices would become more common over time because of the pressures to have iT systems and electronic health care records (very expensive for a solo practitioner). This new technology is costly and physicians may need to share the expenses; however, before that could occur, the “great recession” caused some changes in the charlotte marketplace.

exhibit 3–6 shows a map of the strategic groups with 24 practices in the charlotte plastic surgery market in 2012. The market has split into four distinc- tive groups that, for the most part, do not engage in between-group competition. Strategic groups 1 and 2 have some overlap, but the commitment to perform reconstructive plastic surgery is such that a number of the physicians in group 2 participate in medical missionary trips to Third World countries to perform sur- gery on cleft palates and other congenital deformities as well as disfigurement caused by diseases such as cancer. They tackle some of the most challenging plas- tic surgery work and are proud of what they do to help others.

Outliers to this 2012 strategic map are one plastic surgeon who devoted his practice to reconstructive surgery; two physicians who are board certified in both otolaryngology and plastic surgery and work at charlotte eye, ear, nose, and Throat; and one physician who is board certified in both ophthalmology and plas- tic surgery and advertises his lasik practice continuously.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

108 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

The “great recession” caused challenging times for plastic surgeons in charlotte from 2009 until 2013. Other areas of the country felt the recession as early as 2007 or 2008, but charlotte entered into the recession later and struggled with it longer than other places in the united States. it was a major disruption to the status quo of the plastic surgery strategic groups and caused some practices to make signifi- cant moves from one strategic group to another (see exhibit 3–7 where these moves are illustrated by the arrows to show the shifts from 2012 to 2017).

One solo practitioner who focused on reconstructive surgery joined with two other non-board-certified plastic surgeons to form a larger practice, joining Strategic group 3 and one of the practices in group 3 downsized, moving into group 2. The other change was that a solo practitioner in group 2 combined with two other board-certified plastic surgeons and hired in four others who are not board certified and began competing with plastic surgeons in group 3 who pro- vide high-end medi-spa services engaging in many forms of advertising to attract patients to the practice. Two more mature plastic surgeons gave up their surgical practices and now focus on the more cosmetic procedures such as Botox® injec- tions and providing skin care.

considerable within-group competition occurs in all the groups but particu- larly within Strategic group 3 where a number of non-surgical procedures are offered in luxurious surroundings with a great deal of personal attention to attract consumers to the practice along with extensive marketing and advertising to build awareness of the procedures offered.

note that the practices without board-certified plastic surgeons are in different categories (not shown on this map) and tend to engage in significantly more marketing.

EXHIBIT 3–6 Competitor Analysis – Mapping Competitors 2012

1

Cosmetic Spa + Cosmetic

2

3

4

5

Range of Procedures/Services

Reconstructive

P ra

ct ic

e S

iz e

• CMC Cosmetic & Plastic Surgery

• Piedmont Plastic Surgery

• Charlotte Plastic Surgery

• Christenbury Eye Center

• Criswell & Criswell

• Hunstad • Diaz

• Ferrari • Graper

• Kulbersh • Voci

• Lifestyle Lift Center

• Matthews

• Charlotte

EENT

• Calabrella

• Nowicky

• Bednar• Liszke • Ditesheim • Freeman

• Abner• Bullard

• Bickett • Capizzi Hennessy •

Group 1Group 2

Group 4

Group 3

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 109

Step 6: Assess likely Competitor Actions or responses Strategy formulation is future oriented, requiring that management anticipate the strategic moves of competitors. These moves may be projected through an evaluation of competitor strengths and weaknesses, membership in strategic groups, and the characterization of past strategies. in many cases competitor stra- tegic goals are not difficult to project, given past behaviors of the organization. Strategic thinking is a matter of anticipating what is next in a stream of consistent decisions. Strategic behavior is the result of consistency in decision making, and decision consistency is central to strategy. Therefore, in determining competitors’ future strategies, strategic managers must look for the behavioral patterns that emerge from a stream of consistent decisions concerning the positioning of the organization in the past.

A thorough analysis of the key strategic decisions of competitors may reveal their strategic intent. A strategic decision timeline can be helpful in showing the stream of decisions. Strategic response includes the likely strategic objectives and next strategic moves of competitors. These may be anticipated by identifying strengths and weaknesses, studying past strategies, or strategic group member- ship. if an organization is planning an offensive move within a service area, an evaluation of competitor strengths and weaknesses, past strategies, strategic group membership, and assumed strategic objectives can anticipate the likely

• Graper (2)

• Riam (1)

• Hennessy (1)

• Appel (1)

Dropped out:  Group 2: Abner (left the area)  Bullard (retired)

Group 1: Callabretta (retired), Norwicky (left the area)

1

PlasticBoth Spa/Cosmetic Plastic Surgery

2

3

4

5+

Reconstructive

N u

m b

er  o

f  B

o ar

d  C

er ti

� ed

 P la

st ic

 S u

rg eo

n s

• Carolinas Health Care System 5+

• Matthew’s Plastic Surgery (3)

• Charlotte Plastic Surgery (4+)

• Criswell & Criswell (2)

• Piedmont Plastic Surgery (2)

• Diaz & Gulater (2) • Ferrari (1)

• Kulbersh (1)

• Voci (1)

• Evapar & Harper (2)

• Hunsted &  Kertesis (3)

•

• Liszka (1)

• Argenstein (1)

• Bednar (1) • Ditesheim (1)

• Freeman (1)

• Gurein (1)

• Bicket (1)

• Shearer (1) • Capizzi (1) • Gear (1)

Group 1Group 2

Group 4

Group 3

EXHIBIT 3–7 Competitor Analysis – Mapping Competitors 2017

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

110 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

strategic response. for example, HcA’s analysis of the strategic response of competitors for potential new markets that they are contemplating is an important variable in HcA’s own expansion strategy.

Step 6: Assess likely Competitor Actions or responses – Plastic Surgery

new or existing competitors must realize the following:

● price decreases will likely be matched by competitors, particularly within strategic groups. consumers do some “shopping” for a cosmetic plastic surgeon.

● competition within Strategic group 1 is likely to remain based on cosmetic plastic surgery; however, when finances are tight more lower- cost procedures (more spa-like products and services) are introduced into the practice and non-medical treatments/products will be offered. people may not be able to afford surgical procedures but will continue to purchase products/services they feel they can afford to look their best. This modification in the practice strategy places the surgeons into greater competition with Strategic group 3; however, in 2017 most of those practices have reverted back to surgical procedures dominating their practices.

● competition within Strategic group 3 is likely to remain intense. The practices within this group will continue to invest resources in better and more upscale facilities to try to maintain differentiation from Strategic group 1.

● Members of Strategic group 2 will continue to be the early adopters of new products and procedures and will compete on the basis of cutting-edge procedures and products with an increasing emphasis on reconstructive surgery. Members of this strategic group will likely match competitors’ upgrades in procedures and products very quickly so as to maintain focus on “doing good.”

● Strategic group 4 will continue its intergroup competition and its members will focus on maintaining parity within the group. practice size is not likely to change very much, despite the national data that verifies a number of larger, multispecialty practices for physicians (who specialize in specific conditions or disease states and often make inter-group referrals). Because most plastic surgeons deal with a cash business, they may be more prone to go it alone, making their own decisions to control costs and attempt to generate revenues to increase personal income.

● The wild card in trying to forecast likely response to a new competitor in the service area is the potential retirement of a number of currently practicing plastic surgeons. As in other specialties and subspecialties, physicians may decide to retire rather than adopt more aggressive activities to maintain profitability, opening the door to additional young physicians. Skill in plastic surgery comes with practice; however, most consumers do not want to be the patient who provides the practice! providers have to gain enough experience to avoid complications and generate positive word-of-mouth.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 111

Step 7: Synthesizing the Analyses To be useful for strategy formulation, external analysis (see chapter 2) and ser- vice area competitor analysis (as covered in this chapter) must be synthesized and then conclusions drawn. it is easy for strategic decision makers to become over- whelmed by information. To avoid paralysis by analysis, external analysis should be summarized into key issues and trends, including their likely impact, and then service area competitor analysis summarized.

Step 7: Synthesizing the Analyses – Plastic Surgery Although once the domain of the rich and famous, plastic surgery today is more accessible to the public. One website (realself.com) provides feedback from ordi- nary people (who personally feel they have benefited from plastic surgery) con- cerning various physicians by specialty and by city. The out-of-pocket costs for plastic surgery are high and a deterrent to many; however, financing by regular credit cards (Mastercard, ViSA, Amex) or carecredit® (carecredit® works as a health care credit card enabling patients to pay off the cost of plastic surgery over time) or Alpheon credit has enabled many middle-class charlotteans to find their real self through cosmetic plastic surgery.

The charlotte plastic surgery service area is saturated with a number of pro- viders offering a wide range of procedures, products, and prices. The number of plastic surgeons needed is generally estimated to be 1 to 50,000–75,000 in popu- lation. given the charlotte region’s population, around 25 plastic surgeons are needed; 37 board-certified plastic surgeons have offices in the area plus there are another 39 practitioners who present themselves as plastic surgeons. Thus, signifi- cant competition exists for patients.

There are four distinct strategic groups, all of which achieved the hurdle of board certification in plastic surgery to enter the market. There is high competitive rivalry as well as high customer power, and there are myriad substitutes for the services offered. Therefore, competition in all four strategic groups is intense and providing excellent service and maintaining the latest technology is always an issue.

There is limited competition across strategic groups and members of one stra- tegic group do not view members of other strategic groups as serious competitors. The surgical practices of each group tend to be distinct to the group, with Strategic group 1 increasing its focus on a more upscale, well-appointed office; Strategic group 2 maintaining more traditional practices and office environments; and Strategic group 3 focusing on elite surroundings with an extremely upscale spa environment that exudes personal attention. Strategic group 4 represents more traditional medical practices today with multiple physicians: office space is more limited and a budget set by the group is followed.

Market share is dominated by Strategic groups 1 and 3 that more aggressively market their cosmetic surgery services. The basis for competition for Strategic groups 1 and 3 is cosmetic plastic surgery services whereas Strategic groups 2 and 4 incorporate reconstructive surgery into their product mix. Members of Strategic group 4 focus on offering any type of plastic or reconstructive surgery needed by having specialists on various body parts. if a hand specialist is needed, one is available down the hall in the office. if a hand and face specialist is needed, the practice covers those subspecialties, as well.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

112 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

The market is covered and any new entrant is very likely to have a challenging time carving out much market share; most new entrants will probably do so as junior members in someone else’s practice. A new provider would have to have some experience with the various plastic surgery procedures, be willing to invest heavily in advertising to develop awareness, use the latest technology (which is typically the most expensive), and be willing (and able) to have low volume for some time. given the risks, high barriers to entry, competitive rivalry, and so on, it appears that charlotte would not be a new plastic surgeon’s first choice to set up a practice. On the other hand, the charlotte market is growing, its population is younger than average, its citizens possess higher discretionary spending ability, and a number of the solo practitioners are approaching retirement.

obstacles to Effective Service Area Competitor Analysis

Monitoring the actions and understanding the intentions of competitors is often difficult. Health care executives agree that it is necessary and growing in impor- tance, yet many are still not engaged in effective competitor analysis. Six common obstacles slow an organization’s response to its competitors’ moves or cause the selection of the wrong competitive approach. flawed competitor analysis, result- ing from these blind spots, weakens an organization’s capacity to seize oppor- tunities or interact effectively with its rivals, ultimately leading to erosion in the organization’s market position and profitability.16 Obstacles to effective competi- tor analysis include:

● Misjudging industry and service area boundaries. ● poor identification of competitors. ● Overemphasis on competitors’ visible competencies. ● Overemphasis on where, rather than how, to compete. ● faulty assumptions about the competition. ● paralysis by analysis.17

A major contribution of competitor analysis is the development of a clear defi- nition of the industry, industry segment, or service area. The service area is the geographic area from which an organization draws the majority of its customer/ patients. Traditionally, health care managers have focused their analysis on locally served markets. patients were treated by the local doctor, in a local hospital (or the closest one available). There was little travel for medical or health care. Thus, doctors and hospitals were insulated from other health care organizations outside their geographic service area; however, that is no longer the case. Market entry by competitors from outside the metropolitan area, the region, the state, and from around the world, is now quite common (refer back to essentials for a Strategic Thinker 3–4, “What is Medical Tourism?”). To avoid a focus that is too narrow, the industry, industry segment, and service area must be defined in the broadest

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 113

terms that are useful. in addition, in today’s health care environment, competition may come from non-traditional competitors (outside the health care system). As competition increases from non-traditional competitors, social activities, décor, meals, and housekeeping may become more important competitive factors.

in the past, only cursory attention has been given to other segments of the health care system. for example, hospitals traditionally focused on acute care. Management was not concerned with intermediate care, home care, or hospice care as a competing segment. Today, all of those segments are commonly incor- porated into the continuum of care. With length-of-stay issues, and the increasing emphasis on quality of care and unnecessary readmissions, hospitals want to control the flow of patients (integrated delivery systems) and assure the care is appropriate (continuum of care) to increase revenues, provide seamless care, and promote customer satisfaction with the quality of care received. As a result there are fewer but more direct competitors in many market areas. clearly, misjudging how the industry, industry segments, or service area is defined will lead to poor competitor analysis.

Another possible flaw of competitor analysis is the improper or poor iden- tification of precisely which organizations are the competitors. in many cases, health care executives focus on a single established major competitor and ignore emerging or lesser-known potential competitors.18 Such myopia is especially true when the perceived strengths of competitor organizations do not fit traditional measures or there is an inflexible commitment to historical critical success fac- tors (traditional inpatient services instead of outpatient approaches). Academic medical centers (AMcs), with their focus on research, have traditionally viewed only other AMcs as competitors; however, with lowered reimbursements and increased numbers of charity care, AMcs are struggling to increase revenues and have had to redesign their business model. for example, the louisiana State university (lSu) hospitals and its medical clinics are the state’s predominant provider of health care for the poor and uninsured. Because of reduced financial allocations, lSu is seeking public–private partnerships to deliver care. The dis- cussions with community hospitals in several areas are coming down to dollars and cents and how to preserve uninsured care. The talks are just the beginning of lSu’s exploration of potential cooperative endeavor agreements, leases, or the possible sale of some facilities.19

Another problem in performing competitor analysis is the tendency to be concerned only with the visible activities of competitors. less visible attributes and capabilities such as organizational structure, culture, human resources, service features, intellectual capital, management acumen, and strategy may cause misinterpretation of a competitor’s strengths or strategic intent. certainly the Mayo clinic’s strong culture of excellence has played an important role in shaping its strategic decisions. Operating from only one location for 135 years, Mayo expanded carefully first to Scottsdale/phoenix, Arizona (1998) and then to Jacksonville, florida (2008) to make sure the Mayo culture could be maintained in dispersed locations. Similarly, in an environment of rapid change, intellec- tual capital represents a primary value-creation asset for the organization.20 competitor analysis requires predicting how competitors plan to position them- selves. Although difficult, determining competitors’ strategic intent is at the heart of competitor analysis. An effective competitor analysis should focus on what

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

114 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

rivals can do with their resources, capabilities, and competencies – an extension of what competitors are currently doing – and include possible radical departures from existing strategies.21 See essentials for a Strategic Thinker 3–5, “What is a Black Swan event?”

ESSEnTIAlS For A STrATEgIC THInkEr 3–5

What is a Black Swan event?

Portraying different types of external change by the nature of their predictability is an established strategic management practice – for example, predictable and inevitable surprises and gray rhinos (see Essentials for a Strategic Thinker 2–3). Similarly, a Black Swan Event is a metaphor for major impact events that are a complete surprise and are often then rationalized as explainable and predicable. Black swans have three impor- tant characteristics: (1) they are “outliers” mean- ing outside the realm of expectations; (2) they have extreme impact; and (3) although they are outliers, human nature causes us to generate explanations that, after the fact, make the events explainable and even predictable.1 The concept of the black swan comes from the old story that only white swans had been seen, therefore people naturally assumed all swans were white. Then, in Australia explorers saw a black swan. That discovery highlighted the “fragility of our knowledge – one single observation can invali- date a general statement derived from millennia of confirmatory sightings of millions of white swans. All you need is a single black bird.”2

Consider a global pandemic influenza out- break. Although outbreaks of influenza are not unheard of, pandemics do not happen often and are rightfully considered outliers; for gener- ations they exist outside of normal expectations. If a pandemic occurs, the impact is devastating. For example, the 1918 influenza pandemic is

estimated to have killed 50 million or more people world-wide. Should a pandemic happen, scientists would be quick to remind us that such events have occurred throughout human his- tory and some might even say that we should have expected an outbreak since pandemics occurred with some regularity in the past.

Strategic thinkers must beware of black swans and the kind of attitudes that lead to their emergence. Nassim Nicholas Taleb, the author of the book The Black Swan, calls these attitudes the “triplet of opacity”3 that involves:

● The illusion of understanding. Experienced decision makers sometimes believe they understand the situation better than is the case in reality. Human beings tend to create categories to simplify an external analysis to make it more organized and logical.

● Retrospective distortion. Decision makers assess events after the fact and in doing so are tempted to see the external environment as more orderly and less complicated.

● Overvaluation of factual information. The more experienced and learned the decision maker the more likely he or she is to overvalue factual information. Experience and education encourage us to rely on information and data often to the exclusion of more subjective feelings and intuition.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 115

Black swans have important implications for strategists. First, be careful not to assume that the only situations that the organization faces are those that have been seen before and are under- stood. Second, when unique events do occur, resist the temptation to insist that this is nothing new by forcing the events into pre-established categories and classifications. Third, embrace out- lier events as opportunities to innovate.

RefeRenceS

1. Nassim Nicholas Taleb, The Black Swan: The

Impact of the Highly Improbable (New York:

Random House, 2007).

2. Ibid., p. 1.

3. Ibid., p. 8.

Accurate and timely information concerning competitors is extremely impor- tant in competitor analysis. Misjudging or underestimating competitors’ resources, capabilities, or competencies is a serious misstep. faulty assumptions can suggest inappropriate strategies for an organization. poor external scanning perpetuates faulty assumptions.

Because of the sheer volume of data that can be collected concerning the external environment and competition, paralysis by analysis can occur. in environments undergoing profound change, huge quantities of data are gen- erated and in today’s world with the internet, access to information becomes easier. under such conditions, information overload is possible and separating the essential from the non-essential is often difficult. As a result, the intent of competitor analysis should be emphasized. Over-analysis or “endless” analysis should be avoided. competitor information must be focused and contribute to strategy formulation.

Strategic Momentum: Validating the Strategic Assumptions

As with the general environment and health care system, the initial analysis of the service area provides the basic beliefs or assumptions underlying the strat- egy. Once the strategic plan has been developed, managers will attempt to carry it out; however, as implementation proceeds, new insights will emerge and new understanding of the competitive services will become apparent. changes within (and perhaps outside) the service area or from new competitor strategies will directly affect performance of the organization and therefore must be monitored and understood. competitive awareness and analysis are ongoing activities. The strategic thinking map presented in exhibit 3–8 provides a series of ques- tions designed to surface signals of new perspectives regarding the service area assumptions.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

116 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

EXHIBIT 3–8 Strategic Thinking Questions Validating the Strategic Assumptions

1. Is the strategy consistent with the competitive environment? 2. Do we have an honest and accurate appraisal of the competition? 3. Have we underestimated the competition? 4. Has the rivalry in the service category/service area changed? 5. Have the barriers to entering the service category/service area changed? 6. Does the strategy leave us vulnerable to the power of a few major customers? 7. Has there been any change in the number or attractiveness of substitute products or services? 8. Is the strategy vulnerable to a successful strategic counterattack by competitors? 9. Does the strategy follow that of a strong competitor? 10. Does the strategy pit us against a powerful competitor? 11. Is our market share sufficient to be competitive and generate an acceptable profit?

The Use of External Analysis and Competitor Analysis in health care organizations today there is a real understanding that not every organization will survive; that no one health care organization can be “everything to everybody.” understanding the external environment – including the general, health care, and service area/competitor environments – is fundamental to strategic management and survival. A comprehensive general and health care environmental analysis and service area competitor analysis, combined with an assessment of competitive advantages and disadvantages (chapter 4), and establishment of the directional strategies (chapter 5) provide the basis for strategy formulation.

Chapter Summary

Service area competitor analysis focuses on the nature of competition and competi- tors within a defined service area and provides an understanding of the competi- tive context in which the strategy of the organization will have to be successful. Specifically, service area competitor analysis is the process of evaluating competition in the service area, identifying competitors, assessing the strengths and weaknesses of rivals, determining the critical success factors for the product/service category in the service area, determining the strategic groups, and anticipating competitors’ strategic moves. The synthesis of the results of this process provides a foundation for determining competitive advantage and subsequent strategy formulation.

Service area competitor analysis can be accomplished through a seven-step process. Step 1 is the identification of the issues in the general environment, health care system, and service area, which provides a foundation for the competitor analysis. in Step 2, a service area structural analysis is used to evaluate the nature and level of competition. Service area structural analysis may be accomplished through a porter five forces analysis: evaluating the threat of new entrants into the market, the service area rivalry, the power of the buyers, the power of the sup- pliers, and the threat of substitute products or services. in Step 3, a comprehensive competitor analysis is undertaken that includes an identification and evaluation of competitor strengths and weaknesses. in Step 4, critical success factors are

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 117

identified and analyzed – the limited number of activities that competitors in a service category in a service area must perform well within a strategic group to be successful (includes reputation, quality, low cost, or others). from the critical success factors, strategic groups may be classified and mapped in Step 5. Strategic groups are made up of competitors that most directly compete with each other. in Step 6, competitors’ likely future strategies or strategic moves (and the organiza- tion’s likely responses to strategic moves made by strategic competitors) must be considered for strategy development. finally, service area and competitor infor- mation should be synthesized and strategic conclusions drawn to enable better recommendations to be made.

Health care organizations engage in service area competitor analysis to gather information and to make important offensive and defensive decisions. However, analysts must be careful not to misjudge the service area boundaries – incorrectly identifying strategic competitors, focus only on visible competence, overempha- size where – rather than how – to compete, create faulty assumptions, or be para- lyzed by analysis.

chapter 4 explores how an organization examines its own strengths and weak- nesses to understand competitive advantages and disadvantages as a basis for strategy formulation.

Practical lessons for Health Care Strategic Thinkers

1. Specifying the service category frames the scope of service area competitor analysis. The service category may be defined very broadly such as hospital services or defined very narrowly such as pediatric hematology–oncology, depending on the intent of the strategic planning process.

2. generally, competitively relevant issues in the service area will impact the organization more directly than issues in the general environment and broader health care system except for “game changing” policy shifts or major issues such as large shifts in the economy.

3. The service area structural analysis reveals the attractiveness of a service category in a service area and provides insight into the desirability of entering the market as well as how best to compete within the market.

4. The process of mapping competitors on important market dimensions shows which competitors are most similar to the organization and therefore the most dangerous. use the critical factors for success for the product category in the service area to map competitors. Those critical factors determine the “winners” and “losers.”

The LANGuAGe oF STRATeGiC MANAGeMeNT: Key TeRMS AND CoNCePTS

Black Swan event competitive Advantage critical Success factor Analysis

Mapping competitors Service Area competitor Analysis Service Area Structural Analysis

Strategic group Strategic response

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

118 StrAtegiC mAnAgement of HeAltH CAre orgAnizAtionS

1. leemore S. Dafny and Thomas H. lee, “Health care needs real competition,” Harvard Business Review 94, no. 12 (2016), pp. 76–87.

2. Sumantra ghoshal and D. eleanor Westney, “Organizing competitor Analysis Systems,” Strategic Management Journal 12, no. 1 (1991), pp. 17–31.

3. Data was analyzed from the north carolina Board of Medicine’s list of practicing physicians in the charlotte nc, area with “plastic Surgery” included by the phys- ician as an area of practice (february 1, 2017) and the American Board of plastic Surgery (includes plastic and reconstructive Surgeons who are Board-certified in plastic and reconstructive Surgery) (accessed february 12, 2017).

4. Michael e. porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (new York: free press, 1980), pp. 3–33; Benoit Mandelbrot and richard l.

Hudson, The (Mis) Behavior of Markets (new York: Basic Books, 2004).

5. Ming-Jer chen, “competitor Analysis and interfirm rivalry: Toward a Theoretical integration,” Academy of Management Review 21, no. 1 (1996), p. 101.

6. Joel A. c. Baum and Helaine J. Korn, “competitive Dynamics of interfirm rivalry,” Academy of Management Journal 39, no. 2 (1996), p. 257.

7. Adapted from porter, Competitive Strategy, pp. 127–128. 8. r. K. reger and A. S. Huff, “Strategic groups: A

cognitive perspective,” Strategic Management Journal 14, no. 2 (1993), pp. 103–123.

9. Tamela D. ferguson, David l. Deephouse, and William l. ferguson, “Do Strategic groups Differ in reputation?” Strategic Management Journal 21, no. 12 (December 2000), pp. 1195–1214.

Questions for Class Discussion

1. What is entailed in service area competitor analysis? Why should health care organizations engage in competitor analysis? Should not-for-profit organizations perform such a competitor analysis?

2. What is the relationship between external analysis and service area competitor analysis?

3. What competitor information categories are useful in competitor analysis? Are these categories appropriate for health care organizations? How can these categories provide focus for information gathering and strategic decision making?

4. explain the steps and logic of service area competitor analysis.

5. How does the use of porter’s five forces framework help to identify the major competitive factors in the service area?

6. Why is an identification and evaluation of competitors’ strengths/weaknesses and strategy essential in service area competitor analysis?

7. What are the benefits of strategic group analysis and strategic mapping?

8. How are the critical success factors for a strategic group determined?

9. Why should a health care organization attempt to determine competitors’ strategies and likely strategic responses?

10. What is the purpose of the synthesis stage of service area competitor analysis?

11. What are some obstacles to effective competitor analysis? How may these obstacles be overcome?

notes

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 3 ServiCe area Competitor analySiS 119

10. M. peteraf and M. Shanley, “getting to Know You: A Theory of Strategic group identity,” Strategic Management Journal 18, Special Summer issue (1997), pp. 165–186.

11. c. J. fombrun, Reputation (Boston, MA: Harvard Business School press, 1997).

12. porter, Competitive Strategy, p. 129. 13. robert M. grant, Contemporary Strategy Analysis, 5th edn

(Malden, MA: Blackwell publishing, 2005), pp. 124–126. 14. Karel cool and ingemar Dierickx, “rivalry, Strategic

groups and firm profitability,” Strategic Management Journal 14, no. 1 (1993), pp. 47–59.

15. chen, “competitor Analysis and interfirm rivalry,” p. 102. 16. Baum and Korn, “competitive Dynamics of interfirm

rivalry,” p. 256.

17. Shaker A. Zahra and Sherry S. chaples, “Blind Spots in competitive Analysis,” Academy of Management Executive 7, no. 2 (1993), pp. 7–28; Witold J. Henisz and Bennet A. Zelner, “The Strategic Organization of political risks and Opportunities,” Strategic Organization 1, no. 4 (2003), p. 9.

18. Zahra and chaples, ibid., p. 22. 19. Marsha Shuler, “lSu Seeks Hospital partners,” The

Advocate (August 14, 2012), p. 1. 20. Mayo clinic website: www.mayoclinic.org. 21. Hubert Saint-Onge, “Tacit Knowledge: The Key to the

Strategic Alignment of intellectual capital,” Strategy & Leadership 24, no. 2 (1996), pp. 10–14.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:41:50.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal Analysis and Competitive Advantage

Why Internal Analysis and Competitive Advantage Are Important

As defined by Professor Kotler, enhancing and leveraging competitive advantage is central to strategy. Organizations are constantly trying to “distance themselves” from competitors; responding to the demands of their situation in unique ways enables them to be separated from their competitors. Competitive advantage is created inside the organization through the development of a unique bundle of resources, exclusive technology, access to the market, or new product/service characteristics, that competitors “cannot or will not match.” Differentiation is typically the basis for competitive advantage.

“Competitive advantage is a company’s ability to perform in one or more ways that competitors cannot or will not match.”

—PhiliP KOtler, AMeriCAn MArKeting AuthOr AnD DistinguisheD PrOfessOr

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

122 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Competitive advantage is found in the strengths of the organization; however, these strengths must be relevant to the markets served. Moreover, competi- tive advantage does not exist in a vacuum – there is no one universal competitive advantage. Competitive advantage occurs in context – what is a competitive advantage in one market may not be a competitive advantage in another market. finally, competitive advantage must differentiate the organization enough from its competitors to make a meaningful difference in the mind of the buyer. if com- petitive advantages are easy to copy, they do not remain competitive advantages for long.

An organization’s self-examination is difficult – strengths are sometimes over estimated and weaknesses difficult to acknowledge. therefore, methods to help strategic managers objectively surface their organizational strengths and weak- nesses as well as assessment guidelines for determining sustainable current and potential competitive advantages are essential. An organization’s external analysis, service area analysis, and internal analysis are the basis for identifying competitive advantage.

use the concepts in this chapter to appraise internal strengths and weaknesses, identify unique characteristics, and create competitive advantages for a health care organization!

learning objectives

After completing the chapter you will be able to: 1. Explain how external analysis creates the context for internal analysis and the

development of competitive advantage. 2. Discuss the ways in which value can be created at various places in the

organization. 3. Articulate the rationale of using the organizational value chain to conduct inter-

nal analysis. 4. Use the value chain to identify organizational strengths and weaknesses. 5. Determine the competitive relevance of each organizational strength and

weakness. 6. Describe how competitively relevant strengths and weaknesses can be used as

the basis for developing strategic plans. 7. Discuss the importance of identifying and developing competitive advantage for

a health care organization.

Strategic Management Competency After completing this chapter you will be able to perform an internal analysis and determine the competitive advantages and competitive disadvantages for a health care organization.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 123

The Process for Internal Analysis and the Search for Competitive Advantage

Although an understanding of an organization’s external environment is criti- cal and provides the context for strategic planning, it is the organization’s strengths that provide the foundation for creating a competitive advantage. Competitive advantage is derived from organizational strengths that are valu- able to external stakeholders, relatively rare among competitors, difficult to duplicate by competitors, and can be sustained by the organization. typically, these strengths are directed toward achieving a cost advantage or differentiat- ing the organization from its competitors. therefore, a detailed understanding of the organization’s internal strengths and weaknesses relative to the changes taking place externally is a necessary element for developing a viable strategic plan. the search for competitive advantage consists of five steps as shown in exhibit 4–1.

EXHIBIT 4–1 The Process for Internal Analysis

Step 1 – Review Results of External Analysis and Service Area Competitor Analysis

Step 2 – Organize the Internal Analysis Process – Using the Value Chain

Step 3 – Identify Organizational Strengths and Weaknesses

Step 4 – Determine Competitive Advantages and Disadvantages

Step 5 – Synthesize and Determine the Implications of the Competitive Advantages and Disadvantages

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

124 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Step 1: Review Results of External Analysis and Service Area Competitor Analysis

to this point, situational analysis has concentrated on external factors in an attempt to answer the first of three strategic questions – “What should the organi- zation do?” Before undertaking an internal analysis, it is important to understand the external analysis – the legislative/political forces, economic trends, social/ demographic changes, and technological issues affecting the organization, as well as competitors’ abilities to be successful in the marketplace. therefore, at a mini- mum, the issue map (Chapter 2, exhibit 2-5) and the synthesis of the service area competitor analysis (Chapter 3, step 7) should be reviewed.

After external analysis, the emphasis of situational analysis shifts to the organiza- tion itself and the ways in which competitive advantage may be established – the inter- nal analysis. successful organizations “focus relentlessly on competitive advantage … [they] strive to widen the performance gap between themselves and competitors. they are not satisfied with today’s competitive advantage – they want tomorrow’s.”1 As essentials for a strategic thinker 4–1, “What is the red Queen effect?” illustrates, obtaining and maintaining a competitive advantage is a difficult challenge.

ESSEnTIAlS foR A STRATEgIC THInkER 4–1

What Is the red Queen effect?

The Red Queen appeared in Lewis Carroll’s Through the Looking Glass with Alice running hand-in-hand with the Red Queen who keeps telling her to run faster and faster. To Alice’s amazement, no matter how fast they run every- thing around them remains in the same place. Alice says to the Red Queen, “Well, in our country you’d generally get to somewhere else – if you ran very fast for a long time, as we have been doing.” The Queen responds, “A slow sort of country. Not here, you see, it takes all the running you can do, to keep in the same place, if you want to get somewhere else, you must run twice as fast as that!”

William Barnett in his book, Red Queen among Organizations: How Competitiveness Evolves, demonstrates what many health care executives know intuitively – “you have to run as fast as you can just to stay where you are” in a highly competitive environment.1 Consider the

case of a long-term care facility in a prosperous retirement market that decides to seek a com- petitive advantage by providing a number of ancillary services to its residents not offered in the general market. The facility builds a state-of- the-art wellness center, an on-site Olympic size swimming pool, and provides on-demand trans- portation services to local health care offices and shopping malls.

Initially the facility gains a competitive advantage by offering these services. Retirees move from other facilities and a larger percent- age of prospective residents select the facility because of the enhanced services. Rivals, rec- ognizing they are operating at a disadvantage, upgrade their facilities and add more amenities such as an on-site chef, customized menus, and a spa. This competitor becomes the recipient of transfers from other facilities and acquires a larger market share for a while.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 125

the task of establishing competitive advantage is sometimes perplexing, and not always successful. Developing a better product, establishing a cost advantage, or delivering superior service does not necessarily guarantee success. Competitive advantage requires an organization to develop a distinctiveness that is valued by customers, not offered by competitors, and cannot easily be imitated. identifying this distinctiveness requires an introspective view that enables the organization to answer the second strategically relevant question of situational analysis – “What can the organization do?” to answer this question, a method of internal analysis must be adopted that will enable the strategist to effectively determine what cus- tomers value.

Step 2: organize the Internal Analysis Process – Using the Value Chain

internal analysis can be accomplished by evaluating the strengths and weak- nesses of the functional areas such as clinical operations, information systems, marketing, clinical support, human resources, financial administration, and so on. With such an approach, each function or organizational subsystem is care- fully analyzed. Although this approach has been successful in some instances, by itself it does not adequately address strategic issues. A better approach is to evaluate the various ways that organizations create value for stakeholders. Value is defined as the degree of satisfaction received relative to the price and the expected outcome or results.2 for example, a patient may go to a plastic surgeon and pay an extremely high price to correct scarring from an automobile accident. Despite the high price, the perception of social acceptance, increased self-esteem, and improved self-confidence may provide so much satisfaction that the patient perceives a very high value. By contrast, patients may go to a free family practice clinic where services are provided in a rude and disrespectful manner and per- ceive that they have received little or no value. Value is the perceived relationship between satisfaction and price; it is not based solely on price.3 the organizational value chain is a useful tool for identifying and assessing how health care organiza- tions create value through service delivery and organizational support activities.

Barnett notes that although it appears every- one is staying in the same relative place, it is really an illusion to the insiders.2 The Red Queen effect, viewed from the perspective of the customer or patient, is that competition has forced both organizations to learn and grow. Organizations that rest on their past offerings and insist on doing things the “way we have always done them” fail to improve and eventu- ally lose their competitive advantage. Constantly “running faster” leads to innovation, learning, and continuous improvement. Strategic leaders

must embrace competition and change – the pathways to improvement.

SourceS 1. William P. Barnett, Red Queen among

Organizations: How Competitiveness Evolves

(Princeton, NJ: Princeton University Press, 2008).

2. Claudio Giachetti, Joseph Lampel, and Stefano

Li Pira, “Red Queen Competitive Imitation in

the UK Mobile Phone Industry,” Academy of

Management Journal, 60, no. 5 (2017),

pp. 1882–1914.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

126 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Organizational Value Chain health care organizations have numerous opportunities to create value for patients and other stakeholders.4 for example, efficient appointment systems, courteous doctors and nurses, “patient-friendly” billing systems, easy-to-navigate physical facilities, and the absence of bureau- cratic red tape can greatly increase satisfaction.5 the organizational value chain is an effective means of determining how and where value may be created.6

the value chain illustrated in exhibit 4–2 has been adapted from the value chain used in business organizations to more closely reflect the value-adding com- ponents for health care organizations. the value chain utilizes a systems perspec- tive; value may be created in the service delivery subsystem (upper portion of the value chain) and by effective use of the support activities (lower portion). Service delivery is the primary way organizations create value for the customer/patient through pre-service, point-of-service, and after-service activities. service deliv- ery activities are placed above the support activities, as they are the fundamental value creation activities; however, they are buttressed (supported) by activities that facilitate and improve service delivery.

the three elements of service delivery – pre-service, point-of-service, and after-service – incorporate the production or creation of the service (product) of health care and include primarily operational processes and marketing activities. Organizational culture, organizational structure, and strategic resources are support activities that may add value to service delivery by ensuring an inviting and sup- portive atmosphere, an effective organization, and sufficient use of resources such

EXHIBIT 4–2 The Value Chain

PRE-SERVICE Market/Marketing Research Target Market Services Offered/Branding Pricing Distribution/Logistics Promotion

POINT-OF-SERVICE Clinical Operations

Quality Process Innovation

Marketing Patient Satisfaction

AFTER-SERVICE Follow-up

Clinical Marketing

Billing Follow-on

Clinical Marketing

ORGANIZATIONAL CULTURE Shared Assumptions Shared Values Behavioral Norms

ORGANIZATIONAL STRUCTURE Function Division Matrix

STRATEGIC RESOURCES Financial Human Information Technology

A dd

V al

ue A

dd V

al ue

S up

po rt

A ct

iv iti

es S

er vi

ce D

el iv

er y

Source: Adapted from Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985), p. 37.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 127

as finances, highly qualified staff, information systems, and appropriate facilities and equipment. Although not always apparent, such support systems and the value they add are critical for an effective and efficient organization. the value chain as a strategic thinking map provides the health care strategist with a frame- work for internal analysis of the organization (see exhibit 4–2 and exhibit 4–3).

EXHIBIT 4–3 Description of Value Chain Components

Value chain component Description

Service Delivery Activities

Creation of value that is directly involved in ensuring access to, provision of, and follow-up for health care services.

Service Delivery – Pre-Service

These activities create value prior to the actual delivery of health care.

Market/Marketing Research

Identification of recognizable groups (segments) that make up the market; information gathering to improve quality, how to meet consumers’ needs.

Target Market Determination of the appropriate segment(s) to satisfy with specific health care services.

Services Offered/ Branding

Dissemination of information to prospective patients and other stakeholders regarding the prices, range of products, and location of available services by an identified health care organization; promotional information; brand-quality relationship.

Pricing Determination of the charge schedule (prices) for available services.

Distribution/Logistics Actions that aid patient/customer entry into the health care delivery system, including appointments, registration, and parking.

Promotion Communication of information to customers concerning the health care offering; includes advertising, events (health fairs, 10K sponsorships), social media, and so on.

Service Delivery – Point-of-Service

These activities create value at the point where health care is actually delivered to the patient.

Clinical Operations Delivery of health care to patients.

Quality Improvements in the efficiency and effectiveness of health care services as perceived by the patient.

Process Innovation Improvements in existing or new operational processes.

Marketing Determination of new products and prices; identification of new customers; provision of information to customers; convenience of access.

Patient Satisfaction Enhancement of the patient/customer health care experience.

(Continued)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

128 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Value chain component Description

Service Delivery – After-Service

These activities create value after the patient/customer has received the initial health care.

Follow-up Determination of additional services needed to supplement the initial health care need.

Clinical Tracking of subsequent procedures and appointments.

Marketing Actions that provide information, assessment of patient/customer satisfaction, and continuous improvement in quality of care.

Billing Implementation of clear, easy to understand billing procedures and documents.

Follow-on Facilitation of patient/customer entry into another health care setting.

Clinical Referrals to the proper clinical settings.

Marketing Provision of information concerning follow-on clinical settings for further (extended) care, tracking of outcomes of care.

Support Activities The activities in the value chain that are designed to aid in the efficient and effective delivery of health services.

Support Activity – Culture

Values, norms, artifact, and assumptions that serve as a guide for behavior.

Shared Assumptions The assumptions employees and others share in the organization regarding all aspects of service delivery (e.g. needs of patients, goals of the organization).

Shared Values The guiding principles of the organization and its employees. The understandings people in the organization have regarding excellence, risk taking, etc.

Behavioral Norms Understandings about behavior in the organization that can create value for patients.

Support Activity – Structure

Those aspects of organization structure that are capable of creating value for customers/patients.

Functional Structure based on processes or activities used by employees (e.g. surgery, finance, human resources).

Divisional Major units operate relatively autonomously subject to overarching policy guidelines (e.g. hospital division; outpatient division; northwest division).

Matrix Two-dimensional structure where more than one authority operates simultaneously (e.g. interdisciplinary team with representatives from medicine, nursing, administration).

EXHIBIT 4–3 (Continued)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 129

Value chain component Description

Support Actiivty – Strategic Resources

Value-creating financial, human, information resources, and technology necessary for the delivery of health services.

Financial Financial resources required to provide the facilities, equipment, and specialized competencies demanded by the delivery of health services.

Human Individuals with the specialized skills and commitment to deliver health services.

Information Hardware, software, and information-processing systems needed to support the delivery of health services.

Technology The facilities and equipment required to provide health services.

Service Delivery Activities health care organizations can create value and significant advantages over competitors in all three of the service delivery sub- systems. for example, in late summer and early fall, public health officials begin to remind citizens that it is time for immunization against influenza. numerous methods are available for a provider to create value even before the patients arrive for their flu shot. Pre-service is a key area in the value chain where value can be cre- ated for the customer/patient before the service is actually delivered. A provider that views administering flu shots as an effective way to build a caring, quality image might do considerable research to determine which patients need flu shots (or would benefit most from having flu shots); where those patients live or work and where they might find it convenient to go for the immunization; how much they might be willing to pay; and how they might best find out about the benefits, convenience, and affordability (promotion). in this manner the clinic develops a distinctive market orientation that is not common in public health or many pri- vate health care organizations.7

Once the patient arrives, point-of-service activities occur. regarding the actual delivery of health care, there are multiple ways to create value for the customer. Point-of-service is the key area in the value chain where the service is actually deliv- ered and value can be created through clinical operations and marketing. Point-of- service value might be added if the physical surroundings are clean and attractive, there is no waiting time, the nurse is courteous, and information is received concerning the possible side effects of the services to be provided. numerous public and private organizations have attempted to improve point-of-service by ensuring the delivery of higher-quality services. however, there continues to be considerable controversy as to how effective service improvements alone can lead to sustainable competitive advantage.8 At the same time, when patient services are enhanced through innovation that results in an improvement in perceived outcomes, a competitive advantage may result – at least in the short run.9 Perhaps the most important single area of the point-of service evaluation relates to patient satisfaction. essentials for a strategic thinker 4–2, “What is Patient satisfaction?” illustrates one of the established survey methodologies for assessing patient

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

130 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

satisfaction, and a more recently developed effort to evaluate and make available to the public the patient satisfaction scores for hospitals.

ESSEnTIAlS foR A STRATEgIC THInkER 4–2

What Is Patient satisfaction?

Patient satisfaction is the individual’s percep- tion of the quality of his or her care experience, including such factors as care outcomes, com- munication with and attitudes of nurses and doctors, responsiveness of staff, facility cleanli- ness, communicating about medicines, discharge information, overall rating of the facility, pain management, and so on. Assessment of patient satisfaction enables comparisons of care to be made longitudinally for a single provider as well as across a number of providers or facilities and, thus, provides a basis for tracking the quality of care and determining where improvements may be made. Patient satisfaction measures may or may not reflect the actual quality (technical exper- tise) of care as the patient may not be awake, may not have any medical procedure experience, nor be realistic in terms of pain management.

The most recognized name in health care patient satisfaction is Press Ganey – a company that has provided consulting services for more than 30 years to more than 26,000 health care organizations.1 Many people who visit their doc- tors are familiar with the follow-up Press Ganey surveys that appear a few days after the visit. Patients are asked to assess the quality of care from providers as well as the treatment afforded by office personnel, laboratory technicians, and health educators where appropriate.

The Cleveland Clinic became concerned about its patient satisfaction scores when it discovered its physician communication scores were among the lowest when compared to 15 other top hospitals such as the Mayo Clinic, Johns Hopkins Hospital, and Massachusetts General

Hospital. Through the collection of quantitative and qualitative data, the Cleveland Clinic deter- mined that patients’ top three concerns were: respect, good communication among staff, and happy employees during their stay.

When the Clinic implemented a pilot program in its emergency department to improve patient satisfaction, patient experience scores began to rise when employees at all levels were encour- aged to communicate with each patient during their wait. For example, a receptionist might ask, “Is there anything I can get you? I know you have been waiting a long time …” Doctors, nurses, and all other employees were trained in com- municating with patients. The Cleveland Clinic’s doctor communication scores are now in the top percentile of all reporting hospitals.2

In 2002 the Centers for Medicare & Medicaid Services (CMS), working with the Agency for Healthcare Research and Quality (AHRQ) and the Department of Health and Human Services (HHS), began developing a patient satisfaction survey for hospitals.3 This survey is called the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey. This instrument has three major goals:

1. To produce data from a patient perspective that will allow objective and meaningful comparisons of hospitals.

2. To enable public reporting of data to provide an incentive for hospitals to improve patient care.

3. To improve health care accountability by increasing transparency of the quality of services provided by hospitals.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 131

finally, value can be created through effective after-service activities. After- service activities can add value through subsequent patient interactions. A friendly call (follow-up) from someone the next day to check that there were no adverse side effects of the treatment is a thoughtful gesture and can create considerable consumer/patient satisfaction. Billing may provide assistance in filing the neces- sary insurance papers or assuring payment methods. Patient satisfaction surveys at a later date can serve to remind the consumer of the outstanding care received or can identify areas that need improvement. follow-on activities may be as sim- ple as setting up the post-hospital stay check-up with the physician or assistance in determining a rehab facility for after surgery to repair a broken hip.

Support Activities Value creation in service delivery can be greatly enhanced by support activities. if the organizational culture is service oriented, patients feel it when they walk through the door.10 the organizational structure increases patient satisfaction by effectively and efficiently facilitating the service delivery. the structure should have enough standardization to ensure consistent qual- ity yet enough flexibility to allow for responding to special needs. strategic resources are important to the overall perception of value received at the health care organization. such resources will have a positive impact on a patient’s satisfaction with the visit and can include employees with the proper skills, an up-to-date information system, an accessible parking lot, well-maintained build- ings and grounds, and up-to-date diagnostic and treatment equipment. it is also important to have modern and responsive administrative and financial manage- ment systems.11 financial systems that produce bills that are too complex for patients to understand or lost patient records may imply to some that the facility provides poor quality care.

there are a number of opportunities for health care organizations to create value even when patients come for a service as simple as immunizations. it is important to recognize that opportunities for value creation may be missed within each subsystem just as easily as they may be created.12 therefore, the goals,

Utilizing this instrument, consumers/patients are able to compare and assess participating hospitals and gain valuable information about the quality of services.

The HCAHPS survey includes 27 questions addressed to discharged patients regarding their hospital stay. The survey is administered to patients within 48 hours to six weeks after they are discharged. The survey is available in English, Spanish, Chinese, Russian, and Vietnamese. CMS publishes the participating hospital results on its “Hospital Compare” website (https://www. medicare.gov/hospitalcompare/search.html?).

referenceS

1. www.pressganey.com/about.

2. James Merlino, “How to Improve Patient

Satisfaction Scores By Using Data,”

HealthCatalyst, www.healthcatalyst.com/how-

cleveland-clinic-improve-patient-satisfaction-

scores-data-analytics.

3. Source of information on the HCAHPS

survey obtained from www.cms.gov/

Medicare/Quality-Initiatives-Patient-

Assessment-Instruments/HospitalQualityInits/

HospitalHCAHPS.html.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

132 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

values, and behaviors of all employees must be integrated toward the common objective of patient satisfaction and service.

Step 3: Identify organizational Strengths and Weaknesses

An organizational strength is an attribute or characteristic (resource, competency, capability) that the organization believes it possesses and utilizes successfully. in the past, a stable environment allowed static strategies based on one or two strengths to be successful for years, particularly for large, dominant organizations. A particular location may be a visible strategic strength because it prohibits other organizations from occupying that specific space and cannot be exactly replicated. some strengths that health care organizations possess are clear and easily recognizable; however, organizational characteristics that appear to represent key strengths to strategists may have little importance to patients or other key stakeholders. further, it may be a strength possessed by competitors. in today’s health care market, strengths can quickly become weaknesses as competitors challenge successful strategies.

Comparatively, a weakness is an attribute or characteristic (resource, competency, capability) that the organization assesses that it needs to improve. Weaknesses may be easy to recognize as well. to be competitively relevant, the weakness must be of value to stakeholders, relatively rare among competitors, difficult for the organization to fix, and sustainable by competitors. Dominant organizations may become complacent, rest on their laurels, and refuse to consider that the factors that made them a success may become a liability in the future.13

strengths and weaknesses are subjective in that they represent the opinions of evaluators. for example, employees stating that the long-term care facility offers a caring environment would be a subjective strength. employees may believe they provide a caring environment, but do the patients? some strengths and weak- nesses are relative – they are not obvious and can only be determined in relation- ship to the strengths and weaknesses of primary competitors.14 for example, a world-renowned academic health center may lose a famous surgeon to a local hospital that is attempting to build more strength in the clinical area of the sur- geon’s specialty. the health center may remain very strong in terms of the services it provides, but have a relative weakness with regard to the facility where the surgeon is now located. finally, strengths or weaknesses may be objective in that most everyone recognizes that the organization possesses the strength or weak- ness. A pharmaceutical company that wins a patent for an important new drug has an objective or absolute strength (at least until the patent runs out or another company wins a patent that is superior).

Competitive advantage of an organization may be based on having rare or abundant resources, special competencies or skills, or superior management or logistical capabilities. similarly, competitive disadvantages may result from a lack of resources, competencies, or capabilities. in most cases the search for competitive advantages begins with an assessment of organizational strengths followed by an assessment of organizational weaknesses. essentials for a strategic thinker 4–3, “What is the resource-Based theory of Competitive Advantage?” illustrates one view of competitive advantage, based on the tangible and intangible resources possessed by the organization.

.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 133

ESSEnTIAlS foR A STRATEgIC THInkER 4–3

What Is the resource-Based theory of Competitive Advantage?

The resource-based theory argues that sus- tained competitive advantage is a function of the organization’s tangible and intangible resources. Tangible resources include capital facilities, human, informational, financial, and similar types of observable resources. Resources such as reputation, goodwill, and so on are intan- gible. Although not directly observable, they are real none the less. How much goodwill does St. Jude’s Research Hospital for Children possess? What is the reputation of the Cleveland Clinic worth? How can anyone put a true value on the name Mayo Clinic?

Although the roots of resource-based the- ory can be traced to early economic thought, researchers indicate that the most direct ori- gins of the theory emerged in the early 1980s.1 Although resource-based theory might appear logical, even self-evident, notable exceptions to the argument are identifiable. In almost all industries some examples of relatively weak companies (resource wise) exist that effectively compete against their richer industry neigh- bors. In 1968, how could Hospital Corporation of America (HCA) expand by building new hospitals, acquiring and upgrading existing facilities, and building one of the first national hospital companies in the midst of so many well-established and successful hospitals and health care organizations? Perhaps the best explanation for this seemingly contradictory evidence is that HCA was able to develop cer- tain intangible resources such as leadership and managerial capabilities that enabled it to

muster and combine its limited resources in innovative ways.

An entrepreneurial spirit might be a unique resource possessed by an organization with less tangible resources that allows it to be effective against larger and more resource rich competitors. Titan Spine, which produces only a small number of products used in back surgeries, offers a five-year warranty on the devices it manufactures shielding some of the risk of product failure from its customers.2 In a highly litigious society even the removal of a small amount of risk might provide a competi- tive edge.

Sometimes an organization can convert a resource weakness into an advantage. Younger, smaller, and more creative organizations can react to and take advantage of developing opportunities faster than large, complex, and bureaucratic competitors. Moreover, smaller and more nimble organizations are often closer to their customers/patients and increase the value of their products and services by listening more carefully to user preferences.

The resource-based theory provides an important insight for strategic thinkers. To some extent, the thinking prior to the emergence of this theory was for organizations to adapt similar strategies and do the same things bet- ter or at a lower cost/price than competitors. The resource-based theory altered this view by suggesting that a more productive approach is to leverage unique resources and exploit the dif- ferences among competitors.3

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

134 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Resources Resources include factors that are available for use in produc- ing goods and services. resources may be tangible, as in the case of land and capital, or they may be intangible, as in the case of intellectual property, repu- tation, and goodwill.15 the importance of intangible resources should not be underestimated. robert Kaplan and David norton, co-creators of the “Balanced scorecard” strategy performance tool, point out that unlike financial and physi- cal resources, intangible resources are hard for competitors to imitate, making them a powerful source of sustainable competitive advantage.16 furthermore, according to a harris interactive health Care Poll, a good reputation and a trusted physician’s recommendation are two of the most important indicators of the quality of medical care as perceived by patients. these factors ranked above more tangible indicators of resources, including location, appearance, and con- dition of physical facility.17

the resource-based theory of strategy argues that valuable, expensive, or difficult- to-copy resources provide a key to sustainable competitive advantage.18 Although the resource-based viewpoint has been an integral part of strategic thinking for more than two decades, it has consistently evolved and matured into a com- prehensive theory in more recent years. the basic assumption is that “resource bundles” used by health care organizations to create and distribute services are unevenly developed and distributed, explaining – at least to some extent – the ability of each organization to compete effectively. Organizations with marginal resources may break even; those with inferior resources might disappear; and those with superior resources typically generate profits. interestingly, some researchers suggest that the deployment of unique resources does not necessarily increase profits or explain the difference between the deploying firm’s profit and that of competitors.19

Basing strategy on the resource differences between organizations should be automatic rather than noteworthy; however, appropriate utilization of this basis for strategy is far from evident, especially in light of the overwhelming attention given to external analysis in strategy formulation.20 in addition, there are many different types of resources. More recently the issue of resource orchestration has emerged, calling for an increased focus on the amount of resources an organiza- tion possesses as well as the effectiveness of health care managers in structuring, bundling, and leveraging resources.21

Competencies Competency includes intellectual and skills-based knowl- edge or know-how and may be a powerful source of sustained competitive advantage. for a growing number of health care organizations, competitive

referenceS

1. Jay Barney and Delwyn Clark, Resource-Based

Theory: Creating and Sustaining Competitive

Advantage (New York: Oxford University Press,

2007).

2. Larry Myler, “What Does Entrepreneurship

Look Like in Healthcare? Forbes – Entrepreneurs,

March 14, 2016.

3. Robert M. Grant, Contemporary Strategy

Analysis: Concepts, Techniques, Applications

(Malden, MA: Blackwell Publishers, 2002).

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 135

advantage lies in the ability to create an economy driven not by cost efficiencies but by ideas.22 for example, some researchers have suggested that intellectual capital is the single most important factor in the development of competitive advantage.23

in many cases, competencies are socially complex and require large numbers of people engaged in coordinated activities.24 generally, to enter a particular market or deliver specific services, the organization must possess threshold con- ditions – the minimally required resources, competencies (knowledge and skills), or capabilities necessary to compete in a particular area. for example, to offer cardiac services, an acute care hospital must have a minimum number of clinical personnel with specific knowledge and skill in cardiac care. Although all organi- zations offering cardiac services presumably possess threshold competencies, only one or two will develop a particular type of knowledge or specific skill to the point that it becomes a distinctive competency. this type of competency is a highly developed strength that can be critical in developing a competitive advantage.

Capabilities A health care organization’s ability to muster, coordinate, and deploy resources and competencies, usually in combination, to produce desired services is known as its capability. the capability to purposefully coordinate resources and competencies is another potential source of competitive advantage. the ability to effectively and efficiently coordinate resources and competencies to achieve integrative synergies through leadership and management is a strategic capability. for example, some assets almost never create value by themselves, and need to be combined with other assets – investments in it (a resource) have little value unless complemented with effective hr training (competencies). Conversely, many hr training programs have little value unless complemented with modern technology and managerial tools. Another example involves the effective manage- ment of the health care organization’s supply chain.25 individuals who are capable of building and maintaining relationships with suppliers can develop significant advantages over competitors.26

Capabilities fall into one of the two following categories – dynamic capabilities or disruptive capabilities:

1. the ability to make ongoing improvements to the organization’s activities through learning, renewal, and change over time is referred to as a dynamic capability and relates to an organization’s skill at adapting its resources, or competencies, or both to external changes.27

2. the ability to develop strategic insights, recognizing and arranging or rearranging resources and competencies to develop novel strategies before or better than competitors is a disruptive capability.28

Capabilities, therefore, are integrating and coordinating abilities (bonding mechanisms) of managers and leaders to bring together resources and competen- cies in ways superior to those of competitors.29

the stock of resources, knowledge, and integrative skills contained in a health care organization may not be sufficient to ensure a competitive advantage over time. it is likely that two or more organizations competing in the same health care

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

136 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

market could have essentially the same resources and similar competencies. When this is the case, the competitive advantage is likely to be the result of different capabilities – a unique culture, strategic leadership, or a set of processes.30

health care organizations that do not have superior resources or unique compe- tencies may still develop competitive advantages if they are extraordinarily com- petent at converting ordinary resources and skills into genuine strategic assets.31 for example, effective management of technology is more important than new computers and software. effective it management results in services that respond uniquely to customer needs and, thereby, provide a competitive advantage. the development of this type of capability is based on four interrelated principles:

1. the building blocks of strategy may be processes as well as people, products, services, and markets.

2. Competitive success depends on transforming an organization’s key processes into services that consistently provide superior value to customers.

3. Organizations create these capabilities by making strategic investments in a support infrastructure that link together and transcend traditional functions of any single component of the value chain.

4. Because capabilities necessarily cross functions and value chain components, the champion of capabilities-based strategy must be the chief executive.32

Step 3: Identify organizational Strengths and Weaknesses – Hill-Rom

using an actual organization, hill-rom, inc., the steps in the process of deter- mining competitive advantage will be illustrated. the first action of step 3 is to carefully assess the activities that hill-rom does well and the activities it does not do as well within each component of the value chain (exhibit 4–2). After the organization’s strengths and weaknesses have been identified, each is assessed (step 4) to determine whether it is – or could become – a competitive advantage or competitive disadvantage.

hill-rom, headquartered in Chicago, is the dominant manufacturer of hospi- tal beds in the united states – some observers estimate the company controls 70–90 percent of the hospital bed market. hill-rom, however, is much more. it is a leading global technologies company with three major global businesses: Patient support systems, surgical solutions, and front line Care. With more than 10,000 employees and partners in more than 100 countries world-wide, the com- pany states that its focus is on improving clinical and economic outcomes in eight core areas: advancing mobility, wound care and prevention, patient monitoring and diagnostics, surgical safety and efficiency, respiratory health, patient support systems, surgical solutions, and front line care.

hill-rom pioneered in making hospitals safer and more comfortable for patients. the company has expanded its portfolio through acquisitions by pur- chasing Allen Medical, the world’s leading manufacturer of accessories for operat- ing room tables; liko, a swedish firm specializing in products for the safe lifting

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 137

and transferring of patients in health care settings; Aspen, a British company that makes surgical blades and scalpels (Aspen’s successful Bard-Parker scalpel sells more than a 115 million units per year); Völker, a german company that is a leader in the production of long-term care beds; trumpf Medical, a german company specializing in the production of advanced operating room products and services as well as innovative lighting technologies, cameras, and surgical assistance systems; and its largest acquisition, Welch Allyn, the company that developed the first direct illuminating hand held ophthalmoscope and manufactures other instruments to assist physicians in examining patients. today, hill-rom is a fully integrated medical technologies company with revenues of $2.7 billion and has virtually doubled its revenues since 2009.33

Service Delivery Activities hill-rom possesses both important value-creating strengths and value-reducing weaknesses in service delivery for the medical device industry. incorporated into that is a large and diversified industry segment with some exceptionally powerful competitors (see essentials for a strategic thinker 4–4, “What is the Medical Device industry?”). Yet, hill-rom, or its antecedents, has existed for more than 90 years. Because of its market share in the hospital bed indus- try, it enjoys considerable name recognition, although it is a relatively small company compared to the overall market leaders (Johnson & Johnson, ge, Medtronic, Baxter). hill-rom has a diverse but remarkably interrelated portfolio ranging from hospital beds to operating room beds, patient mobility equipment, physician exam equip- ment, and medical supplies.

ESSEnTIAlS foR A STRATEgIC THInkER 4–4

What Is the medical Device Industry?

The World Health Organization defines a medi- cal device as an “article, instrument, apparatus or machine used in the prevention, diagnosis or treatment of illness or disease, or for detecting, measuring, restoring, correcting or modifying the structure or function of the body for some health purpose. Typically, the purpose of a medi- cal device is not achieved by pharmacological, immunological or metabolic means.”1 The pri- mary customers for medical device firms are physicians or hospitals (acting on behalf of phy- sicians). These firms typically receive payments directly from insurance companies.

The Food and Drug Administration (FDA) divides the types of medical devices into

17 medical specialty panels. These include ortho- pedic instruments, surgical instruments, diag- nostic apparatus, stents and catheters, syringes and hypodermic needles, blood transfusion and IV equipment, and others. The American medi- cal device industry represents almost half of the sales world-wide. The industry includes 7,000 companies, employs 400,000, and is expected to grow 6 percent per year over the next five years.

The market is dominated by five mega corporations, including Johnson & Johnson, General Electric, Medtronic, Baxter International, and Cardinal Health. These five companies alone account for over $91 billion in revenues. Johnson & Johnson has revenue of almost $30  billion;

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

138 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

hill-rom’s scale of operations makes it a formidable competitor in the special- ized markets where it operates. hill-rom’s reputation for exceptional products and services is backed up by an extensive service operation – it has more than 160  service centers in north America and 45 more internationally, employing more than 1,600 service personnel.

Although hill-rom was forced to eliminate a number of jobs in 2014 and closed two manufacturing facilities because of the uncertainties associated with the hos- pital industry, 2016 was recognized as a “record-setting year” by the President and CeO. Of particular importance were the integration of its $2 billion acquisition of Welch Allyn and its development of the enterprise Account teams that resulted in several major contracts. these teams work with the largest health systems in an effort to identify customers’ needs across the entire hill-rom portfolio.

As with all organizations, hill-rom has some apparent service delivery weak- nesses. the company competes in eight core areas and faces competition from well-known firms. some of its powerful competitors specifically in the hospital bed component of the health care device industry include stryker Corporation, invacare, electromed, and linet.

Whereas large-scale and global operations represent great strengths, hill- rom’s geographic footprint subjects the company to complex and diverse fDA and international regulations. the diversity of the product and service portfolio presents the usual challenges of managing diversified operations. in addition, the company is obliged to deal with group Purchasing Organizations (gPOs) that frequently require discounts and strongly resist price increases.

although growing rapidly, Hill-Rom, has annual revenues of $2.7 billion. Aside from the five behemoths, 80 percent of the firms in the medi- cal device industry are small to medium size businesses with less than 50 employees.

Medical devices benefit from an aging pop- ulation; thus the outlook for the industry is favorable. As the population ages, more fre- quent injuries, required surgeries, and more chronic diseases occur. One of the most inter- esting opportunities in new technology is the introduction of 3D printers. The medical device industry is finding multiple ways to use this technology, including pre-surgery planning, hearing aids, prosthetics, and dental implants.2

Threats include value-based reimburse- ment (versus volume-based reimbursement) becoming more prevalent and the increase in

regulation. The degree of government regula- tion in this industry depends a great deal on the nature of the device. The FDA does not require a lot of premarket regulation if the device is simple and does not pose a significant risk to human beings; however, other devices such as cardiac defibrillators, are high risk and highly regulated. Congress imposed taxes on many medical devices, effectively raising the price for patients; however, because of industry pressure and patient outrage, the tax was suspended after one year and is expected to be repealed.

referenceS

1. http//who.int/medical device/full_definition/

en/.

2. Market Realist.com at Marketrealist.com/11/

must-read-overview-medical-device-industry/.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 139

hill-rom faces potential quality control problems if raw material supplies do not comply with quality standards. furthermore, the dominant market share relative to hospital beds suggests the danger of antitrust actions. One of the most serious operational risks is the limited number of manufacturing locations; the loss of any single location would present a major challenge to meet customer needs. some important financial issues include the company’s pension plan being underfunded by about $80 million and that hill-rom self-insures up to a stop-loss level, representing considerable financial risk with regard to its products’ associ- ated liabilities.

Support Activities Despite the fact that hill-rom was faced with a reduction in force in 2014, the company appears to enjoy supportive human resources – it has not experienced a work stoppage in over 40 years despite 6 percent of its manufacturing workforce being covered under collective bargaining agreements; another 18 percent of employees are covered by various collec- tive bargaining agreements or national agreements outside the united states. in addition, hill-rom has gone on record with a strong statement of socially responsible operations.

Virtually all of hill-rom’s executive team have experience in the health care system as well as other areas, such as management consulting. As a pioneer in the hospital bed industry, the company holds a number of patents enabling it to continue its industry leadership; however, none of the pat- ents are considered to materially affect the value of the business. in recent years hill-rom has made significant investments in information technology, although it faces a number of challenges trying to integrate the systems of its various acquisitions.

As expected, there are some weaknesses in hill-rom’s support activities. international operations present the challenge of managing individuals from such a variety of cultures. With the company’s diverse product portfolio, culture clash among the existing and acquired firms is an ever-present potentiality.

financially, it has to be noted that much of the growth in recent years has come from acquisitions. Continuing to locate and acquire related firms at its present rate is doubtful. Moreover, the acquisitions have had both positive and negative effects. Acquisitions primarily accounted for the over 200 percent increase in total assets since 2014, plus a 33 percent increase in total revenues and a 150 percent increase in net income during the 2016 fiscal year. Although total long term obliga- tions have been reduced over the past year, they remain significantly higher than they were in 2014.

With the constantly evolving health care system, it is reasonable to assume that hill-rom will be required to maintain and even accelerate its rate of innovation with regard to its core areas. During 2016, the company spent about four percent of its revenues on research and development which, although significant, is not particularly impressive when compared with other companies in health care. in addition, almost all of its research and development is internal.

finally, the impressive record of acquisitions has associated problems of increasing debt. for example, the Welch Allyn acquisition added substantial debt to hill-rom’s balance sheet in 2015; however, operating profits showed a signifi- cant increase in 2016.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

140 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

After carefully searching through the value chain of an organization and reflecting on its resources, competencies, and capabilities to develop value, a more detailed look must be undertaken to evaluate the competitive relevance of each strength and weakness. exhibit 4–4 categorizes value-creating strengths and value-reducing weaknesses for hill-rom, inc.

EXHIBIT 4–4 Value-Creating Strengths and Value-Reducing Weaknesses for Hill-Rom, Inc.

Value chain component Value-creating Strength* Value-reducing Weakness*

Service Delivery – Pre-Service

1. 90-year history of delivering quality products (reputation).

2. Strong market position; dominant market share in hospital beds.

3. Diverse but related product portfolio.

4. Innovative sales approach – Enterprise Account Teams.

1. Undifferentiated products in competitive markets.

2. Diverse product line presents management challenges.

Service Delivery – Point-of-Service

5. Scale of operations – 10,000 employees and over 100 global partners.

6. Integrated strategy focusing on patient care solutions and economic outcomes.

7. Executive team with significant health care and management consulting expertise.

3. Quality products offered to Group Purchasing Organizations (GPOs) that seek discounts and resist price increases.

4. Management of diversified companies involves unique challenges.

5. No backup for limited manufacturing facilities.

Service Delivery – After-Service

8. Extensive service operation with 160 service centers in North American and 45 more world-wide with 1,600 service personnel.

6. Litigation in areas of product liability, environment, and employment.

Support Activities – Culture

9. Favorable human resources; no work stoppages in over 40 years.

10. Published and circulated social responsibility statement.

11. Aggressive growth strategy based on acquisitions.

7. Culture clashes among acquired companies.

8. Difficulties in coordinating global operations.

Support Activities – Structure

None None

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 141

Value chain component Value-creating Strength* Value-reducing Weakness*

Support Activities – Strategic

Resources

12. Numerous patents and registered trademarks.

13. Significant increase in total assets.

14. Significant increase in research and development expenditures.

9. Significant reductions in net revenue, net income, and operating profit during the 2015 fiscal year. Although substantial turnaround occurred in 2016, significant demands on operations.

10. Substantial long-term debt. 11. Self-insured and underfunded

pension plan. 12. Difficulty integrating

information systems of acquired companies.

*Opinions and conclusions presented are those of the authors and are intended to be used as a basis for class discussion rather than to illustrate effective or ineffective business practices.

Step 4: Determine Competitive Advantages and Disadvantages

Assessing an organization’s current and potential competitively relevant strengths and weaknesses is the goal of internal analysis. Competitively relevant strengths are those that are valued by the external stakeholders, are relatively rare among competitors, relatively difficult to duplicate by competitors, and can be sustained by the organization. they are the pathways to sustained competitive advantage.34

in today’s competitive and dynamic health care environment, the ability to develop a sustained competitive advantage is increasingly difficult. Sustained competitive advantage is the result of an enduring value differential between the services of one organization and that of its competitors in the minds of patients, physicians, and other stakeholders.35 health care organizations must consider how their resources, competencies, and capabilities – strengths and weaknesses – relate to those of competitors.

Competitively Relevant Strengths strengths must have value, be rare, be difficult to imitate, and be sustainable to create competitive advantage. strengths that are merely present do not represent competitive advantages in themselves. to be competitively relevant, the specialized resources and competencies must be marshaled in a way that enables them to become genuine strategic assets, result- ing in the accumulation of economic returns greater than could be achieved with any alternative use.

Competitive relevance is determined by critically considering four important questions:

1. Question of value. is the resource, competency, or capability of value to customers?

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

142 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

2. Question of rareness. is this organization the only one that possesses the resource, competency, or capability or do many or all of its competitors possess it?

3. Question of imitability. is it easy or difficult to duplicate the resource, competency, or capability?

4. Question of sustainability. Can the resource, competency, or capability be maintained over time?36

A judgment must be made as to whether the strength is of high (h) or low (l) value in the marketplace. Value is a critically important question because if a strength does not have high value in the marketplace there is no reason to ask the other three questions. A strength that does not have value is simply not relevant in a competitive sense.

the second question requires that a judgment be made as to whether the strength is rare or commonly found among competitors. if the strength is rare, an answer of “yes” (Y) is appropriate. if it is possessed by many or all competitors, the answer is “no” (n). Combined with value, the relative rareness of a strength is key to competi- tive advantage. even critically valuable strengths when not rare (meaning they are common) among competitors, do not create a competitive advantage.

Question 3 attempts to determine whether it would be difficult (D) or easy (e) for competitors to obtain or imitate the strength. the rareness of a strength becomes even more important if the strength is difficult to imitate. if a valuable and rare strength is easy to imitate, it may be the basis for a competitive advan- tage in the short run but is not a good bet for long-term strategy formulation as competitors will likely imitate it as soon as possible.

finally, the fourth question involves a judgment as to whether the organiza- tion can sustain the resource, competency, or capability. A “yes” (Y) or “no” (n) answer is required to this question. if the strength cannot be sustained it will pro- vide, at best, only a short-term advantage over competitors. the difficulty or ease with which competitors can imitate the strengths and the organization’s ability to sustain them determines the extent of its long-term or short-term advantage. exhibit  4–5 provides a strategic thinking map for possible combinations of the four questions regarding strengths and the implications for strategic leaders.

EXHIBIT 4–5 Strategic Thinking Map of Competitive Advantages Relative to Strengths

Is the Value of the Strength High or Low? (H/L)

Is the Strength Rare? (Y/n)

Is the Strength easy or Difficult to Imitate? (e/D)

can the Strength be Sustained? (Y/n) Implications

H N E Y No competitive advantage. Most competitors have the strength and those that do not can develop it easily and sustain it. Because the strength is widely possessed and can be sustained, it is likely that it already has become a threshold condition for success.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 143

Is the Value of the Strength High or Low? (H/L)

Is the Strength Rare? (Y/n)

Is the Strength easy or Difficult to Imitate? (e/D)

can the Strength be Sustained? (Y/n) Implications

H N E N No competitive advantage. Most competitors have the strength and it is easy to develop; however, the strength generally is not sustainable. If the organization is the only organization in the service area that cannot sustain the strength, it will become a short-term competitive disadvantage.

H N D Y No competitive advantage. Many competitors possess the strength but it is difficult to develop, so care should be taken to maintain this strength. Because the strength is widely possessed and can be sustained, it is likely that it already has become a threshold condition for success.

H N D N No competitive advantage. Many competitors possess the strength yet it is difficult to develop, and those who do possess it will not be able to sustain the strength. If the organization is the only organization that cannot sustain the strength, it will become a long-term competitive disadvantage.

H Y E Y Short-term competitive advantage. Because the strength is valuable and rare, competitors will do what is necessary to develop this easy-to-imitate strength. The organization should exploit this short-term advantage but should not base long-term strategies on this type of strength. Over time, this strength is likely to become a threshold condition for success.

H Y E N Short-term advantage but not a source of long-term competitive advantage. The strength is easy to imitate but cannot be sustained. The organization should not base long-term strategies on this type of strength but may obtain benefits for a short-term advantage.

(Continued)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

144 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Is the Value of the Strength High or Low? (H/L)

Is the Strength Rare? (Y/n)

Is the Strength easy or Difficult to Imitate? (e/D)

can the Strength be Sustained? (Y/n) Implications

H Y D Y Long-term competitive advantage. This strength is rare in the service area, difficult to imitate by competitors, and can be sustained by the organization. If the value is very high, it may be worth “betting the organization” on this strength.

H Y D N Short-term competitive advantage but not a strength that can be sustained over the long run. Although rare and difficult to imitate, the strength cannot be sustained. This strength should be exploited for as long as possible.

EXHIBIT 4–5 (Continued)

Competitively Relevant Weaknesses the strategic relevancy of each weak- ness can be determined by asking questions similar to those used to evaluate strengths. Weaknesses are serious competitive disadvantages if they have high value to patients and other stakeholders (h), are not possessed by competitors (n), cannot be easily eliminated or corrected (D), and competitors can sustain their strengths (Y). exhibit 4–6 provides a strategic thinking map listing the suggested actions of strategic leaders relative to possible combinations of weaknesses.

EXHIBIT 4–6 Strategic Thinking Map of Competitive Disadvantages Relative to Weaknesses

Is the Weakness of High or Low Value? (H/L)

Is the Weakness Common (not rare) Among competitors? (Y/n)

Is the Weakness easy or Difficult to Correct? (e/D)

can competitors Sustain their Advantage? (Y/n) Implications

H Y E Y No competitive disadvantage. Although a weakness of the organization, most other competitors are also weak in this area; however, the weakness is easy to correct and competitors will likely work to correct the weakness. If the organization fails to correct it, competitors could achieve a short-term competitive advantage. Over time, correction of this weakness is likely to become a threshold condition for the market.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 145

Is the Weakness of High or Low Value? (H/L)

Is the Weakness Common (not rare) Among competitors? (Y/n)

Is the Weakness easy or Difficult to Correct? (e/D)

can competitors Sustain their Advantage? (Y/n) Implications

H Y E N No competitive disadvantage. Although a weakness of the organization, most other competitors are also weak in this area; however, the weakness is easy to correct. It is likely that most competitors will work to correct it and therefore no organization will be able to sustain an advantage; likely to become a threshold condition for the market.

H Y D Y No competitive disadvantage. Although a weakness of the organization, most other competitors are also weak in this area and it is difficult to correct; however, this situation is dangerous and should be addressed to ensure that competitors do not overcome this difficulty and correct it first. If competitors correct the weakness and continue to sustain their advantage, the weakness could become a long-term competitive disadvantage.

H Y D N No competitive disadvantage. Although a weakness of the organization, most other competitors are also weak in this area and it is difficult to correct. It is likely this weakness is chronic among competitors in the service area as corrections in the weakness tend to erode over time.

H N E Y Short-term competitive disadvantage. Most competitors are not weak in this area; however, the weakness is easy to correct. The organization should move quickly to correct this type of weakness. Correcting this weakness is likely to become a threshold condition for the market.

H N E N Short-term competitive disadvantage. Competitors are not weak in this area; however, the weakness is easy to correct. The organization should move quickly to correct the weakness. It is likely that all competitors will correct the weakness and therefore cannot sustain any advantage.

(Continued)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

146 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Is the Weakness of High or Low Value? (H/L)

Is the Weakness Common (not rare) Among competitors? (Y/n)

Is the Weakness easy or Difficult to Correct? (e/D)

can competitors Sustain their Advantage? (Y/n) Implications

H N D Y Serious competitive disadvantage. The weakness is valuable, most competitors do not have it, it is difficult for the organization to correct, and competitors can sustain their advantage. If the weakness is of very high value, it may threaten the survival of the organization.

H N D N Short-term competitive disadvantage. The weakness is valuable, most competitors do not have it, it is difficult for the organization to correct; however, competitors cannot sustain their advantage. Until this area becomes a weakness for most competitors in the service area or the weakness is corrected by the organization, it will continue to be a serious disadvantage.

Step 4: Determine Competitive Advantages and Disadvantages – Hill-Rom

identification of the strengths in the various components of the value chain in an organization such as hill-rom inevitably results in a lengthy list of activities in which the organization excels. As noted, not all of the strengths will necessarily be sources of competitive advantage for the organization and only a few may be competitively relevant. for example, executives often believe that “our reputation is our greatest asset.” however, in the medical device industry, there are numer- ous firms with excellent reputations (e.g. Boston scientific, general electric, st. Jude Medical), so it is unlikely that reputation alone would constitute a significant competitive advantage. similarly, an identified weakness may not necessarily be a competitive disadvantage if it is not competitively relevant (others share the same or similar weaknesses).

Competitively Relevant Strengths – Hill-Rom to further illustrate how this process may be used, the strengths of hill-rom, inc. as listed in exhibit 4–4, are evaluated with regard to the four questions (found in exhibit 4–5) to generate exhibit 4–7: Competitive relevance of the strengths of hill-rom, inc. from the initial assessment, hill-rom, inc. has 14 potentially important strengths that have high value in the marketplace. these strengths with high value are assessed using

EXHIBIT 4–6 (Continued)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 147

the remaining three characteristics (rare, easy to imitate, and can be sustained) to determine which strengths may become the basis for competitive advantage. the last column in exhibit 4–7 indicates the implications for hill-rom’s identified and analyzed strengths.

(Continued)

EXHIBIT 4–7 Competitive Relevance of the Strengths of Hill-Rom, Inc.

Strengths*

Is the Value of the Strength High or Low? (H/L)

Is the Strength Rare? (Y/n)

Is the Strength easy or Difficult to Imitate? (e/D)

can the Strength be Sustained? (Y/n) Implications

Service Delivery – Pre-Service 1 90-year history

of delivering quality products (reputation).

H Y D Y Long-term competitive advantage.

2 Strong market position; dominant market share in hospital beds.

H Y D Y Long-term competitive advantage.

3 Diverse but related product portfolio (one-stop shop for many medical devices).

H Y D Y Long-term competitive advantage especially for large-scale customers.

4 Innovative sales approach – Enterprise Account Teams.

H N E Y Threshold condition.

Service Delivery – Point-of-Service 5 Scale of operations

– 10,000 employees and over 100 global partners.

H Y D Y Long-term competitive advantage.

6 Integrated strategy focusing on patient care solutions and economic outcomes.

H N E Y Threshold condition.

7 Executive team with significant health care and management consulting expertise.

H N E Y Threshold condition.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

148 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

EXHIBIT 4–7 (Continued)

Strengths*

Is the Value of the Strength High or Low? (H/L)

Is the Strength Rare? (Y/n)

Is the Strength easy or Difficult to Imitate? (e/D)

can the Strength be Sustained? (Y/n) Implications

Service Delivery – After-Service 8 Extensive service

operation with 160 service centers in North America; 45 in other countries; 1,600 service employees.

H Y D Y Long-term competitive advantage; 160 centers for fast service.

Support Activities – culture 9 Favorable human

resources with no work stoppages in 40 years.

H N D Y Threshold condition.

10 Published and circulated social responsibility statement.

H N E Y Threshold condition.

11 Aggressive growth strategy based on acquisitions.

H N D N No competitive advantage unless sustained.

Support Activities – Structure

None apply.

Support Activities – Strategic resources 12 Numerous patents

and trademarks. H N D Y Threshold condition.

13 Significant increase in total assets.

H N D N No competitive advantage unless sustained.

14 Significant increase in research and development expenditures.

H N E N No competitive advantage.

*Opinions and conclusions presented are those of the authors and are intended to be used as a basis for class discussion rather than to illustrate effective or ineffective business practices.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 149

strengths that are valuable, but not rare, easy or difficult to imitate, and can be sustained (hneY or hnDY) should be maintained by hill-rom because they are possessed by others and represent a threshold condition for success. they include: no. 4 innovative sales approach; no. 6 integrated strategy – patient care solutions and economic outcomes; no. 7 executive team experience; no. 9 favorable hr – no work stoppages; no. 10 Published/circulated social responsibility statement; and no. 12 Patents and trademarks. these strengths are necessary to be competi- tive in the market but are unlikely to become a competitive advantage.

hill-rom has one strength that, although valuable, is not rare, is easy to imitate, and cannot be sustained (hnen) – no. 14 increase in r and D; however, it offers no competitive advantage as most competitors spend 4 percent of revenue on r and D; thus it needs to be sustained or could become a competitive disadvantage.

five strengths offer potential as competitive advantages (hYDY): no. 1 established reputation; no. 2 Domination of hospital beds market; no. 3 related and diverse product portfolio; no. 5 large scale operations; and no. 8 extensive service operation.

Competitively Relevant Weaknesses – Hill-Rom An assessment of the value chain for hill-rom revealed a number of weaknesses as first included in exhibit 4–4. using the questions and implications found in exhibit 4–6, exhibit 4–8 “Competitive relevance of the Weaknesses of hill-rom, inc.” was developed to list and assess hill-rom’s weaknesses.

(Continued)

EXHIBIT 4–8 Competitive Relevance of the Weaknesses of Hill-Rom, Inc.

Weaknesses*

Is the Weakness of High or Low Value? (H/L)

Is the Weakness Common (not rare) Among competitors? (Y/n)

Is the Weakness easy or Difficult to Correct? (e/D)

can competitors Sustain Their Advantage? (Y/n) Implications

Value chain component Service Delivery – Pre-Service 1 Undifferentiated

products in competitive markets.

H Y D N No competitive disadvantage; for all competitors, differentiation is difficult.

2 Diverse product line presents management challenges.

H N D Y Could be serious competitive disadvantage.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

150 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

EXHIBIT 4–8 (Continued)

Weaknesses*

Is the Weakness of High or Low Value? (H/L)

Is the Weakness Common (not rare) Among competitors? (Y/n)

Is the Weakness easy or Difficult to Correct? (e/D)

can competitors Sustain Their Advantage? (Y/n) Implications

Service Delivery – Point-of-Service 3 Quality products

offered to Group Purchasing Organizations (GPOs) that seek discounts and no price increases.

H Y D N No competitive disadvantage; industry problem.

4 Management of diversified companies involves unique challenges.

H N D N Short-term competitive disadvantage.

5 No backup for limited manufacturing facilities.

H N D Y Serious competitive disadvantage.

Service Delivery – After-Service 6 Litigation in

areas of product liability, the environment, and employment.

H Y D N No competitive disadvantage; industry problems.

Support Activities – culture 7 Culture clashes

among acquired companies.

H N D Y Could be serious competitive disadvantage; major distraction.

8 Difficulties in coordinating global operations.

H N D N Short-term competitive disadvantage.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 151

three of hill-rom’s weaknesses (hYDn): no. 1 undifferentiated products; no. 3 Quality products offered to group Purchasing Organizations (gPOs) that seek deep discounts; and no. 6 litigation in the areas of product liability, environ- ment, and employment are serious issues – but they are not unique to hill-rom. Management must be aware of these challenges but they do not constitute a competitive disadvantage.

Weaknesses*

Is the Weakness of High or Low Value? (H/L)

Is the Weakness Common (not rare) Among competitors? (Y/n)

Is the Weakness easy or Difficult to Correct? (e/D)

can competitors Sustain Their Advantage? (Y/n) Implications

Support Activities – Strategic resources 9 Significant

reductions in net revenue, net income, and operating profit during the 2015 fiscal year. Although substantial turnaround occurred in 2016, significant demands on operations.

H N D Y Could be serious competitive disadvantage; strains growth.

10 Substantial long-term debt.

H N D Y Serious competitive disadvantage.

11 Self-insured and underfunded pension plan.

H N D Y Serious competitive disadvantage.

12 Difficulty integrating information systems of acquired companies.

H N D N Could be short- term competitive disadvantage.

*Opinions and conclusions presented are those of the authors and are intended to be used as a basis for class discussion rather than to illustrate effective or ineffective business practices.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

152 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

the more serious weaknesses are primarily the result of hill-rom’s con- scious strategy to diversify its product lines and grow through acquisitions. these include six weaknesses in the form of (hnDY): no. 2 Diverse product line challenges management; no. 5 no backup for limited manufacturing facilities; no. 7 Culture clashes among acquired companies; no. 9 significant reductions in net revenues/income/profit in 2015 pressures operations; no. 10 significant increase in long-term debt; and no. 11 self-insured, underfunded pension plan are serious disadvantages. it should be pointed out that these competitive disadvantages occurred because management is betting in the long run that these very same weaknesses will provide competitive advan- tages for the company.

three additional short-term weaknesses are oriented around him-rom’s rapid growth: no. 4 Management of diversified companies involves unique challenges; no. 8 Difficulties in coordinating global operations; and no. 12 Difficulty integrat- ing information systems of acquired companies. these weaknesses represent high value areas, are not shared by all competitors, and are difficult to correct; however, the advantages may not be sustainable by others in the industry (hnDn). they are short-term competitive disadvantages but must be addressed based on hill- rom’s expansion strategy through acquisition.

Step 5: Synthesize and Determine the Implications of the Competitive Advantages and Disadvantages

As illustrated in exhibit 4–1, the final step in exploiting competitive advan- tage is to determine how each competitively relevant strength and weakness is likely to affect an organization’s ability to compete in the marketplace. Competitively relevant strengths are those that are valued in the marketplace, are rare, are difficult to imitate, and can be sustained (hYDY) providing the basis for long-term competitive advantage and should be developed to the greatest extent possible. Competitively relevant weaknesses relate to areas that are valued in the marketplace, are not common weaknesses among competitors, are dif- ficult for organizations to correct, and offer advantages that can be sustained by others (hnDY), are serious competitive disadvantages and may threaten the survival of the organization. results of the determination of both long- and short-term competitive advantages and disadvantages are a part of situational analysis and provide one part of the basis for strategy formulation (what an organization can do).

Step 5: Synthesize and Determine the Implications of the Competitive Advantages and Disadvantages – Hill-Rom

exhibit 4–9 lists each of hill-rom’s competitively relevant strengths and weak- nesses that have been identified (those displaying the pattern hYDY for strengths and hnDY for weaknesses from exhibit 4–7 and exhibit 4–8) and speculates as to whether or not hill-rom has the potential to differentiate itself from competitors or to provide a cost advantage over competitors.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 153

EXHIBIT 4–9 Strategic Implications of Hill-Rom’s Competitively Relevant Strengths and Weaknesses

competitively relevant Strengths* (from exhibit 4–7) Strategic Implications

1 90-year history of delivering quality products; reputation.

Brand recognition and institutional history.

2 Strong market position; dominant market share in hospital beds.

Leadership position in hospital beds provides entrée to selling many other products to large hospital systems.

3 Diverse but related product portfolio. Name recognition and superior reputation in health care system.

5 Scale of operations; 10,000 employees and over 100 global partners.

Market domination in hospital beds and economies of scale.

8 Extensive service operation with 160 service centers in North America and 45 more world-wide with 1600 service personnel.

Ability to provide prompt and continuing after service.

competitively relevant Weaknesses* (from exhibit 4–8) Strategic Implications

2 Diverse product line presents management challenges.

Although the diverse product portfolio is a strength, coordination challenges occur for management.

5 No backup for limited manufacturing facilities.

Majority of manufacturing taking place in only one location. Facility shutdown because of severe weather, labor shut-down, or terrorism could have catastrophic impact.

7 Culture clashes among acquired companies.

Merging cultures is challenging, takes time, and impacts the bottom line.

9 Significant reductions in net revenue, net income, and operating profit during 2015; substantial turnaround in 2016, however, demands on financial resources remain.

Growth by acquisition is over without infusion of capital to continue the strategy.

10 Substantial long-term debt. Current long-term debt obligation will limit acquisitions.

11 Self-insured and underfunded pension plan.

May lose talented people to other organizations that have a fully funded pension program or disaster might cause a plant shutdown.

*Opinions and conclusions presented are those of the authors and are intended to be used as a basis for class discussion rather than to illustrate effective or ineffective business practices.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

154 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

for hill-rom, the strengths have been collected into exhibit 4–9 “strategic implications of hill-rom’s Competitively relevant strengths and Weaknesses” to determine competitive advantages. the company's strengths, no. 1 90-year reputation; no. 2 strong market position, dominant market share in hospital beds; no. 3 Diverse but related product lines; no. 5 scale of operations; and no. 8 extensive aftermarket service support organization in north America and around the globe, represent potential long-term sustainable competitive advantages. Of particular significance is the company’s carefully selected range of associated products ranging from hospital beds, patient mobility machines, operating room supplies and equipment, and medical instrumentation. it will be very difficult for any competitor to imitate this product portfolio.

note that the assessment indicates that hill-rom’s strategic leadership has the ability to differentiate the organization and its services through its long-term market presence, dominance in the hospital bed industry, diversity of its present product line, and the breadth of its service centers and personnel. leaders must be careful, however, because competitors have the potential for a substantial advantage if the expansion through acquisitions strategy is not successful. hill- rom is stretched to the limit financially and faces considerable risk in successfully managing diverse, although related, companies.

A final Challenge

Careful internal analysis provides a better understanding of where strategic lead- ers should focus their efforts to compete effectively and where they should be careful to avoid vulnerability relative to competitors. it is not possible to be every- thing to everyone; an organization must focus its efforts.

the basic endowment of resources, competencies, and capabilities in a health care organization and the way they are allocated are critical determinants of the organization’s ability to compete effectively. Arguably, the essential character of strategic thinking is the acceptance of “an aspiration that creates, by design, a chasm between ambitions and resources.” it is further argued that spanning the chasm and encouraging stretch “is the single most important task senior manage- ment faces.”37

Stretch is significantly moving the organization toward its strategic goals and is accomplished through resource leveraging or systematically achieving the most customer-satisfying products and services possible from the available resources. stretch enables smaller health care organizations that are less rich in resources, competencies, and capabilities to compete against large, powerful, national and regional health networks and managed care organizations. leveraging is usually thought of in terms of financial leveraging through the use of debt; however, other resources may be leveraged as well.

Leveraging may be accomplished by concentrating, accumulating, complement- ing, conserving, and recovering resources.38 Prioritizing goals and focusing on no more than a few things at one time aids the concentration of limited resources. successful concentration of resources, competencies, and capabilities requires not only focusing on relatively few things but also focusing on the right things – those

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 155

activities that make the greatest impact on patients’ perceived value. nurses, receptionists, therapists, maintenance employees, and others come into con- tact with patients and observe organizational realities in ways that are different from physicians, CeOs, and management personnel. the stockpiles of experi- ence accumulated by the individuals with extensive patient contact are valuable competitive resources if properly mined.

Complementary resources, competencies, and capabilities can be combined to create synergy – where value and performance combined will be greater than the sum of the separate individual parts. in the value chain, linking activities will provide unique opportunities to integrate functions such as service delivery, organizational culture, and strategic resources. in other words, there is a cre- ative interweaving of different types of skills that assists in creating competitive advantage.

the potential for effectively leveraging a particular resource, competency, or capability becomes greater the more often they are used. the ability to quickly switch knowledge from delivering one service to another conserves service development resources and reduces the learning curve in introducing and perfecting service delivery. Conserving and recovering resources by restricting their exposure to unnecessary risks is essential to the conservation of limited resources. An aspiring competitor in a health care market should think care- fully before attacking the dominant player at the point of that competitor’s greatest strength. Challenging a stronger competitor requires creativity and innovation.

expediting success – increasing the resource multiplier by reducing the time between expenditure of resources and their recovery through revenue gen- eration – is an important means to leverage resources. reducing the payback period of technological improvements in health care organizations is a substan- tial resource recovery challenge. On the one hand, high-quality service delivery depends on state-of-the-art technology. On the other hand, this type of technol- ogy is expensive and usually has a relatively short economic life. Careful plan- ning is required to ensure that paybacks are evaluated and accelerated in every possible way.

essentials for a strategic thinker 4–1, “What is the red Queen effect?” illustrated the importance of not allowing a competitive advantage to lead to complacency. Competitive advantage can be lost faster than it can be gained, requiring vigilance on the part of strategic leaders. resource leveraging is a matter of attitude and willingness to take reasonable risks, to do things in new and innovative ways, to learn from the experiences of others, and generally pursue excellence in all aspects of organizational performance. Management consultants hamel and Prahalad note that traditional strategic, as well as behavioral, factors may lead to competitive advantage: “Cross-functioning teams, focusing on a few core competencies, strategic alliances, programs of employee involvement, and consensus are all parts of stretch.”39 these factors are relevant to all type of health care organizations including public health and community health organizations. see essentials for a strategic thinker 4–5, “What Are federal health Centers?” for an understanding of this important industry segment.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

156 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

ESSEnTIAlS foR A STRATEgIC THInkER 4–5

What Are federal Health Centers?

The Health Resources and Services Administration (HRSA) of the U.S. Department of Health and Human Services (HHS) awards grants to four types of Federal Health Centers (FHCs): (1) Community Health Centers (CHCs); (2) health centers for the homeless; (3) health centers for public housing residents; and (4) health centers for migrants. FHCs are governed by community boards with a majority of members (at least 51 percent) being patients. FHCs provide direct access to health care services as part of the health safety net.

More specifically:

Health centers are community-based and patient-directed organizations that deliver comprehensive, culturally competent, high-quality primary health care services. In addition, health centers often integrate access to pharmacy, mental health, sub- stance abuse, and oral health services in areas where economic, geographic, or cul- tural barriers limit access to affordable health care services. Health centers deliver care to the Nation’s most vulnerable indi- viduals and families, including people experiencing homelessness, agricultural workers, residents of public housing, and the Nation’s veterans.1

Most FHCs are CHCs, i.e. public, not-for-profit entities that provide primary, preventive, and emergency services to the general population of low-income individuals. CHCs also receive grants from state and local sources, private foundations, and other federal programs. CHCs are required to provide health care to all indi- viduals regardless of ability to pay and are

located in medically underserved areas. Most CHC patients have incomes at or below the fed- eral poverty level.

Although CHC Patients with incomes at or below 100 percent of the federal poverty level (FPL) pay only nominal fees, patients with incomes greater than 200 percent FPL pay full charges. CHCs are required to collect reimbursement from third-party payers (e.g. private insurance plans, Medicare, Medicaid, CHIP) for insured patients. CHCs are also eligible for designation as Federally Qualified Health Centers (FQHCs) and as such par- ticipate in the Medicare and Medicaid programs.

In addition to providing medical services (e.g. diagnosis and treatment), CHCs provide preven- tive health services including immunizations, free vaccines for children, family planning, pre- natal care, and preventive dental care. Further, CHCs provide behavioral health treatments and services including mental health services, sub- stance abuse treatment, and diabetes self-man- agement training. CHCs are required to have arrangements with outside providers for emer- gency medical services and after-hours care.

CHCs employ physicians and physician extend- ers to provide services for patients; its workforce includes many primary care clinicians from the National Health Services Corps that work in medi- cally underserved areas in return for student debt reduction. Physicians must be licensed and are ordinarily required to have admitting privileges at a local hospital. CHC physicians are not required to carry medical malpractice insurance coverage because under the Federal Tort Claims Act (FTCA) they are immune from liability for care provided within the scope of employment; however, the Federal government may still be subject to liability for patients injured by malpractice in these cases.2

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 157

sustained competitive advantage does not necessarily lead to continuous value creation; yet long-term success requires ongoing satisfaction of ever-increasing expectations. success builds the expectation of continued success. Ongoing value creation requires an organization to have a theory or a consistent means of choos- ing among all the options with regard to activities, resources, etc. in other words, it requires not just a strategy but a “strategy for strategies.”40 in the end, deter- mination of competitive advantage requires an integration of what health care strategists know about the external forces with a sophisticated understanding of competitively relevant strengths and weaknesses.

Strategic Momentum

for sustained competitive advantage, strategic momentum must be maintained. After the strategy has been initiated, internal analysis must be continuous to stay informed and current regarding the organization’s competitively relevant strengths and weaknesses. sustaining a competitive advantage is difficult in a dynamic market, and what might be a competitive advantage today may not be an advantage tomorrow. Carefully evaluating the strengths and weaknesses allows the strategist to focus on the relatively few aspects of the value chain that have the potential for building and sustaining competitive advantage. Care must be exercised, however, to ensure that new and emerging strengths or weaknesses are adequately considered in the continuous internal analysis.

the questions presented in exhibit 4–10 provide for such an ongoing evalua- tion of the effectiveness of the internal analysis. ensuring appropriate strategic fit requires that the internal as well as the external analysis be continuously evaluated.

EXHIBIT 4–10 Questions for Evaluating the Internal Strategic Assumptions

1. Have the strengths and weaknesses been correctly identified?

2. Is there a clear basis on which to compete?

3. Does the strategy exploit the strengths and avoid the major weaknesses of the organization?

4. Are the competitive advantages related to the critical success factors in the service area?

5. Are short- and long-term competitive advantages protected?

6. Has the competition made strategic moves that have weakened the organization’s competi- tive advantages?

7. Is the organization creating new competitive advantages?

referenceS

1. What is a Health Center? https://bphc.hrsa.gov/

about/what-is-a-health-center/index.html.

2. “Federal Health Centers: An Overview,”

Congressional Research Service, Jan. 6, 2016.

Source: Leonard J. Nelson, III, Adjunct Professor at UAB School of

Public Health and Professor Emeritus at Samford University.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

158 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Chapter Summary

Competitive advantage resides within the organization, whether it is a hospital, physician’s office, or health maintenance organization. understanding competi- tive advantage requires a careful internal analysis of the organization through its value chain. the value chain provides a framework for analysis, identifying and focusing on areas in a health care organization where value may be added or created. the value chain is divided into two major components – the delivery of health services and support activities. service delivery includes pre-service activities, point-of-service activities, and after-service activities. support activities include organizational culture, organizational structure, and strategic resources.

By investigating all systems and subsystems of the value chain and evaluat- ing the resources, competencies, and capabilities, strategic thinkers are better able to identify possible strengths and weaknesses. each strength or weakness is evaluated in terms of its value, rareness, imitability, and sustainability to deter- mine those that are competitively relevant. Competitively relevant strengths and weaknesses provide the bases for developing strategies to achieve competitive advantage.

Although understanding competitive advantage is important to health care strategists, more is required. successful health care organizations must always insist on stretching their resources, competencies, and capabilities while crea- tively looking for new opportunities. sustaining competitive advantage requires that leaders understand what the marketplace demands of successful health care organizations, configuring competitively relevant strengths to the organization’s greatest advantage, eliminating or minimizing the adverse effects of competi- tively relevant weaknesses, and establishing demanding aspirations that require strategic assets to be synergistically pursued while constantly searching for new opportunities. Chapter 5 examines the development of directional strategies that set strategic direction and create buy-in among stakeholders.

Practical lessons for Health Care Strategic Thinkers

1. external analysis indicates what the organization should do; internal analy- sis indicates what the organization can do.

2. finding strengths that are competitively relevant involves more than a list- ing of strengths. each strength must be evaluated to ensure it is of value to stakeholders, is something rare that the organization possesses, is difficult for competitors to copy, and can be sustained.

3. leaders must evaluate the organization’s weaknesses to ensure they do not constitute a competitive disadvantage. Competitive disadvantages, without corrective action, place the organization in danger of extinction.

4. Competitive advantage is not an excuse for complacency; the things that made an organization great in the past may be the very things that will cause problems in the future.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 159

THE LAnguAgE of STRATEgIC MAnAgEMEnT: KEy TERMS AnD ConCEPTS

Questions for Class Discussion

1. it has been said that the rules for success are written outside the organization but com- petitive advantage must be found within the organization. explain this statement.

2. Why is value creation an important concept for health care organizations? is value crea- tion more or less important in health care than in other industries?

3. Which activities, service delivery or support, are more important in the organizational value chain? explain your answer.

4. Why is the value chain consistent with systems concepts discussed in Chapter 1? Why is a systems approach to internal analysis important?

5. Why is the concept of competitively relevant strengths and weaknesses so important to internal analysis?

6. What is the difference between an objective and subjective strength and weakness? give examples of each type of strength and weakness in a health care organization.

7. Discuss the resource-based view of competitive advantage. Why is it important to understand organizational differences when using this approach?

8. Briefly define what is meant by competitive advantage. Are competitive advantage and sustained competitive advantage identical concepts? Why or why not?

9. What are the differences between capabilities and competencies? how are capabilities related to both resources and competencies?

10. When searching for competitive advantage, which characteristic of a strength or weak- ness (value, rareness, imitability, sustainability) is the most important in health care organizations? Discuss your response.

After-service Capability Competency Competitive Advantage Competitively relevant strength Competitively relevant

Weakness Disruptive Capability Dynamic Capability leveraging

Objective strength or Weakness Point-of-service Pre-service red Queen effect relative strength or Weakness resource-Based theory resources service Delivery strength stretch

subjective strength or Weakness

support Activities sustained Competitive

Advantage synergy threshold Condition Value Value Chain Weakness

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

160 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

notes

1. george stalk Jr. and rob lachenauer, “hardball: five Killer strategies for trouncing the Competition,” Harvard Business Review 82, no. 4 (2004), p. 64.

2. David Bovet and Joseph Martha, Value Nets: Breaking the Supply Chain to Unlock Profits (new York: John Wiley & sons, 2000).

3. stuart l. hart and Mark B. Milstein, “Creating sustainable Value,” Academy of Management Executive 17, no. 2 (2003), pp. 56–69.

4. eric Almquist, John senior, and nicholas Bloch, “the elements of Value: Measuring – and Delivering – What Customers really Want,” Harvard Business Review 9, no. 3 (2016), pp. 47–53.

5. stephen D. Mallard, terri leakeas, W. Jack Duncan, Michael e. fleenor, and richard J. sinsky, “same-Day scheduling in a Public health Clinic: A Pilot study,” Journal of Public Health Management and Practice 10, no. 2 (2004), pp. 152–157.

6. Michael e. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (new York: free Press, 1985), Chapter 2. for some limitations of the conven- tional “linear value chain,” see frits K. Phil and Mattias holweg, “evolving from Value Chain to Value grid,” MIT Sloan Management Review 47, no. 4 (2006), pp. 72–80.

7. V. Kumar, eli Jones, rajkumar Venkatesan, and robert P. leone, “is Market Orientation a source of sustained Competitive Advantage or simply the Cost of Competing?” Journal of Marketing 75, no. 1 (2011), pp. 16–30.

8. heiko gebauer, Anders gustafsson, and lars Witell, “Competitive Advantage through service Differentiation by Manufacturing Companies,” Journal of Business Research 64, no. 12 (2011), pp. 1270–1280; Daniel i. Prajogo and Peggy McDemott, “examining Competitive Priorities and Competitive Advantage in service Organizations using importance–Performance Analysis Matrix,” Managing Service Quality 21, no. 5 (2011), p. 465.

9. ing-long Wu and Pi-Jung hsieh, “understanding hospital innovation enabled Customer-Perceived Quality of structure, Process, and Outcome Care,” Total Quality Management and Business Excellence 22, no. 2 (2011), pp. 227–235.

10. Corinne M. Karuppan, nancy e. Dunlap, and Michael r. Waldrum, Operations Management in Health Care: Strategy and Practice (new York: springer Publishing, 2016), p. 156.

11. Michael e. nugent, “Managing Your Margin after reform with the strategic Margin Plan,” Healthcare Financial Management 65, no. 1 (2011), pp. 40–45.

12. stan galser, “the Value of the Manager in the Value Chain,” Management Decision 44, no. 3 (2006), pp. 442–447.

13. nicholas Argyris and romel Moatafa, “Knowledge integration, Vertical integration, and entrant survival in the early Automobile industry,” Academy of Management Journal 59, no. 4 (2016), pp. 1474–1492.

14. nag rajiv and Dennis A. gioia, “from Common to uncommon Knowledge: foundations of firm- specific use of Knowledge as a resource,” Academy of Management Journal 56, no. 2 (2012), pp. 421–457.

15. richard hall, “A framework for linking intangible resources and Capabilities to sustainable Competitive Advantage,” Strategic Management Journal 14, no. 6 (1993), pp. 607–618.

16. robert s. Kaplan and David P. norton, “Measuring the strategic readiness of intangible Assets,” Harvard Business Review 82, no. 2 (2004), pp. 52–64.

17. Anonymous, “Americans rank good reputation, Doctor’s recommendation as top indicators of Quality Care,” Health Care Strategic Management 21, no. 11 (2003), p. 8.

18. Michael A. hitt, leonard Bierman, Klaus uhlenbruch, and Katsuhiko skimiju, “the importance of resources in the internationalization of Professional service firms: the good, the Bad, and the ugly,” Academy of Management Journal 49, no. 6 (2006), pp. 1137–1157.

19. luis Costa, Karel Cool, and ingemar Dierickx, “the Competitive implications of the Deployment of unique resources,” Strategic Management Journal 34, no. 4 (2013), pp. 445–454.

20. glen r. Carroll, “A sociological View on Why firms Differ,” Strategic Management Journal 14, no. 4 (1993), pp. 237–249.

21. Jay Barney, “the future of resource-Based theory,” Journal of Management 37, no. 5 (2011), pp. 1299–1315. David g. sirmon, Michael A. hitt, r. Duane ireland, and Brett Anitra gilbert, “resource Orchestration to Create Competitive Advantage: Breadth, Depth, and life Cycle effects,” Journal of Management 37, no. 5 (2011), pp. 1390–1412.

11. Why are some strengths and weaknesses that are not competitively relevant deserving of attention by health care strategists? Provide one example of a strength and weakness that are not competitively relevant but deserve attention.

12. Why is resource leveraging an important concept in internal analysis?

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Chapter 4 Internal analysIs and CompetItIve advantage 161

22. rob goffee and gareth Jones, “leading Clever People,” Harvard Business Review 85, no. 3 (March 2007), p. 72.

23. nixon Kamukama, “intellectual Capital: Company’s invisible source of Competitive Advantage,” Competitiveness Review 23, no. 3 (2013), pp. 260–283.

24. raphael Amit and Paul J. h. schoemaker, “strategic Assets and Organizational rent,” Strategic Management Journal 14, no. 1 (1993), pp. 33–46; Juan florin, Michael lubatkin, and William schulze, “A social Capital Model of high-growth firms,” Academy of Management Journal 46, no. 3 (2003), pp. 374–386.

25. hakan Aronsson, Mats Abrahamsson, and Karen spens, “Developing leAn and Agile health Care supply Chains,” Supply Chain Management 16, no. 3 (2011), pp. 176–185.

26. gilbert n. nyaga and Judith M. Whipple, “relationships Quality and Performance Outcomes: Achieving a sustainable Competitive Advantage,” Journal of Business Logistics 32, no. 4 (2011), pp. 345–360.

27. Oliver schilke, “On the Contingent Value of Dynamic Capabilities for Competitive Advantage: the nonlinear Moderating effect of environmental Dynamism,” Strategic Management Journal 35, no. 2 (2014), pp. 179–188.

28. Kaplan and norton, “Measuring the strategic readiness,” p. 54.

29. Manish K. srivastava and Devi r. gnyawli, “When Do relational resources Matter? leveraging Portfolio technological resources for Breakthrough innovations,” Academy of Management Journal 54, no. 4 (2011), pp. 797–810.

30. george stalk, Philip evans, and lawrence shulman, “Competing on Capabilities: the new rules of Corporate strategy,” Harvard Business Review 70, no. 2 (March–April 1992), p. 62.

31. ray gautam, Jay B. Barney, and Waleed A. Muhanna, “Capabilities, Business Processes, and Competitive Advantage: Choosing the Dependent Variable in empirical tests of the resource-Based View,” Strategic Management Journal 25, no. 1 (2004), pp. 23–31; Dovev lavie, “Capability reconfiguration: An Analysis of incumbent responses to technological Change,” Academy of Management Review 31, no. 1 (2006), pp. 153–174.

32. stalk, evans, and shulman, “Competing on Capabilities,” p. 62.

33. the hill-rom overview used a variety of sources includ- ing funding universe for the historical information. www.fundinguniverse.com/company-histories/hillen- brand-industries-inc-history/. see also “Casket Maker evolves into Major Manufacturer,” Cincinnati Reporter (December 30, 2012) and “hillenbrand industries to split into two independent Companies,” http//ir.hill- rom.com/releasedetail/cfm?. financial information taken from Annual Reports hill-rom 2016 and 2015. note: the illustration of hill-rom is used for educational purposes only and is not to be considered an assessment of effective or ineffective management.

34. Manuel espinoza, “turning Diversity into a Competitive Advantage,” Financial Executive 23, no. 3 (2007), pp. 43–46.

35. Amit and schoemaker, “strategic Assets and Organizational rent,” p. 35. see also Danny Miller, “An Asymmetry-Based View of Advantage: towards an Attainable sustainability,” Strategic Management Journal 24, no. 10 (2003), pp. 961–972; Margaret A. Peteraf and Mark e. Bergen, “scanning Dynamic Competitive landscapes: A Market-Based and resource-Based framework,” Strategic Management Journal 24, no. 10 (2003), pp. 1027–1035.

36. Jay B. Barney, “looking inside for Competitive Advantage,” Academy of Management Executive 9, no. 4 (1995), pp. 49–61. note that Barney added an additional question, that of an organization not included in this discussion.

37. gary hamel and C. K. Prahalad, “strategy as stretch and leverage,” Harvard Business Review 71, no. 3 (1993), pp. 75–84.

38. this discussion has been adapted from gary hamel and C. K. Prahalad, Competing for the Future (Boston, MA: harvard Business school Press, 1994), Chapter 7.

39. gary hamel and C. K. Prahalad, “Competing in the new economy: Managing Out of Bounds,” Strategic Management Journal 17, no. 1 (1996), pp. 237–242.

40. todd Zenger, Beyond Competitive Advantage: How to Solve the Puzzle of Sustaining Growth while Creating Value (Boston, MA: harvard Business school Press, 2016), p. 12.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

C op

yr ig

ht ©

2 01

8. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.