MHA 6500

1. MHA 6500 Session Two Dr. Burton

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

3. Strategy Formulation • Not a single decision • But a series of increasingly more specific questions.

4. Strategy Formulation Process Strategic Choice Evaluating Strategic Alternatives Developing Strategic Alternatives

5. Directional Strategies Competitive Strategies Implementation Strategies Adaptive Strategies Market Entry Strategies Ends Ends Ends Ends Means Means Means Means Decision Logic of Strategy Formulation Strategy Implementation Strategy Formulation

6. Directional Strategies Competitive Strategies Implementation Strategies Adaptive Strategies Market Entry Strategies Exhibit 6-5: Strategic Thinking Map-Hierarchy of Strategic Decisions and Alternatives • Expansion of Scope • Diversification • Vertical Integration • Market Development • Product Development • Penetration • Purchase • Acquisition • Licensing • Venture Capital • Investment • Strategic Posture • Defender • Prospector • Analyzer • Service Delivery • Pre-service • Point of Service • After-service • Mission • Vision • Values • Goals • Positioning • Marketwide • Cost leadership • Differentiation • Market segment • Focus/ • Cost leadership • Focus/ • Differentiation • Support • Culture • Structure • Strategic • Resources • Cooperation • Merger • Alliance • Joint Venture • Contraction of Scope • Divestiture • Liquidation • Harvesting • Retrenchment • Unit Action Plans • Objectives • Actions • Timelines • Responsibilities • Development • Internal • Development • Internal Venture • Maintenance Scope • Enhancement • Status Quo

7. Physician Group Hospice Ambulatory Care Diagnostic Lab Long-term Care Radiation Treatment Home Health • General environment • Restaurants • Health and fitness • Parking lots • Shopping Centers • Office Building • Laundry • Health Care Environment • Pharmaceuticals • Medical Supplies • Insurance • Managed Care • Medical Schools • Others Related Diversification Unrelated Diversification Exhibit 6-6: Related and Unrelated Diversification by a Primary Provider Hospital Outside the Health Care Industry Within the Health Care Industry

8. 1 2 3 4 5 Exhibit 6-8: Patterns of Vertical Integration Among Health Care Organizations Strategic Business Unit Upstream Downstream A B C D E F G No integration Total integration Vertically integrated Upstream Multi-hospital Vertically integrated Closed System A = Wellness/health promotion unit B = primary care unit Solid lines depict fully Internal transfers C = urgent care unit D = hospital (inpatient acute care) unit Dashed lines depict market And external transfers E = skilled-nursing unit F = rehabilitation unit G = home-health unit

9. Perspective 6 – 3: Focused Factory Tools for Providers of Health Care Services p. 228 Ginter • Pay attention to the Customer • Focus, Focus, Focus • Learn from the Rockettes • Resist the Edifice Complex • Lower your costs, Don’t raise your prices • Use technology wisely • Don’t let the Dogma Grind you down • Be Ethical • Breadth beats depth • Don’t get big for Bigness’s sake • Measure Results: Your own and your competitors’

10. Positioning StrategiesExhibit 6 – 15: Porter’s Matrix Strategic Advantage Uniqueness Perceived By the Customer Low Cost Position Differentiation Overall Cost Leadership Marketwide (broad) Strategic Target Differentiation/Focus Cost/Focus Particular Segment Only (narrow)

11. Exhibit 7 – 1: TOWS Matrix List Internal Strengths (competitive advantages) 1. 2. 3. 4. List Internal Weaknesses (competitive disadvantages 1. 2. 3. 4. • 4 • Future Quadrant • Related diversification • Vertical integration • Market development • Product development • Penetration • 2 • Internal Fix-it Quadrant • Retrenchment • Enhancement • Market development • Product development • Vertical integration • Related diversification List External Opportunities 1. 2. 3. 4. List External Threats 1. 2. 3. 4. • 3 • External Fix-it Quadrant • Related diversification • Unrelated diversification • Market development • Product development • Enhancement • Status quo • 1 • Survival Quadrant • Unrelated diversification • Divestiture • Liquidation • Harvesting • Retrenchment

12. Product Life Cycle Volume (sales and profit) Introduction Takeoff Maturation Obsolescence Stages Check p. 273

13. Product Life Cycle/Strategic choices Market development Product development Penetration Enhancement Status quo Retrenchment Divestiture Unrelated diversification Volume (sales and profit) Market development Product development Penetration Vertical integration Related diversification Market development Product development Divestiture Liquidation Harvesting Unrelated diversification Introduction Takeoff Maturation Obsolescence Stages Check p. 273

14. Exhibit 7 – 9: Strategic Position and Action Evaluation (SPACE) Matrix p. 284 Financial Strength 6 ---- 5 ---- 4 ---- 3 ---- 2 ---- 1 ---- Conservative Aggressive Competitive Advantage Service Category Strength -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 -1 ---- -2 ---- -3 ---- -4 ---- -5 ---- -6 ---- Defensive Competitive Environmental Stability

15. Strategic Alternatives for (SPACE) Quadrants p. 289 Financial Strength • Conservative • Status quo • Unrelated Diversification • Harvesting 6 ---- 5 ---- 4 ---- 3 ---- 2 ---- 1 ---- • Aggressive • Related Diversification • Market Development • Product Development • Vertical Integration Competitive Advantage Service Category Strength -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 -1 ---- -2 ---- -3 ---- -4 ---- -5 ---- -6 ---- • Competitive • Penetration • Enhancement • Product Development • Market Development • Status quo • Defensive • Divestiture • Liquidation • Retrenchment Environmental Stability

16. Exhibit 8 – 1: The Value Chain Pre-Service Market/Marketing Research Target Market Services Offered/Branding Pricing Promotion Distribution/Logistics Point-of-Service Clinical Operations Quality Process Innovation Marketing Patient Satisfaction Product Development Market Development Penetration Enhancement Differentiation After-Service Follow-up Clinical Marketing Follow-on Clinical Marketing Service Delivery Organizational Culture Shared Assumptions Shared Values Behavioral Norms Organizational Structure Function Division Matrix Support Activities Strategic Resource Financial Human Information Technology Source: Adapted from Michael Porter

17. Exhibit 8 – 2: Decision Logic for the Value Adding Strategies Ends Means • Directional Strategies • Adaptive Strategies • Market Entry Strategies • Competitive Strategies Value Adding Strategies • Service Delivery • Strategies • Pre-service • Point-of-Service • After-Service Ends • Support Strategies • Organizational Structure • Organizational Culture • Strategic Resources Means Ends • Unit Action Plans • Objectives • Actions • Timelines • Responsibilities Means

18. Exhibit 8 – 8: Conceptual Model of Service Quality CONSUMER Word-of-Mouth Communications Personal Needs Past Experience Expected Service Gap 5 Perceived Service MARKETER Service Delivery (including pre- and postcontacts) External Communications to Consumers Gap 3 Translation of Perceptions into Service Quality Specifications Gap 1 Gap 4 Management Perceptions of Consumer Expectations

19. Exhibit 9 – 1: Consistency in Value Adding Support Strategies Organizational Culture Organizational Structure Strategic Resources Strategic Leadership

20. Exhibit 9-2: Strategic Thinking Map for Developing Value Adding Support Strategies Characteristics/Attributes Evaluation Value Adding Support Strategies Results of Internal Analysis Requirements of Selected Strategies Comparison of Strategy Requirements and Internal Analysis Maintain Change Organizational Culture Organizational Structure Strategic Resources

21. Organizational Culture • Shared assumptions • Shared values • Behavioral norms Learned Shared Subjective and Objective

22. Perspective 9 – 2 Strategy Leadership Attributes Culture Control - focused on certainty, predictability, safety, accuracy, and dependability. Value is to preserve, grow, and ensure the well-being and success of the organization. This culture is centered on organizational goal attainment • Status quo • Enhancement • Market-share expansion • Market development • Defender posture • Cost/Leadership • Authoritative • Directive • Conservative • Cautious • Definitive • Commanding • Firm Collaboration – focused on synergy, unity, close connections with the customer, and intense dedication to the culture is centered on unique customer goal attainment. • Enhancement – high customization • Enhancement –customer relationships • Vertical integration • Penetration • Differentiation • Alliances • Analyzer posture • Team builder • First among equals • Coach • Participative • Integrator • Trust builder Competence – focused on distinction, ensuring the accomplishment of unparalleled, unmatched products and services. This culture is centered on conceptual goal attainment. • Product development • Differentiation • Prospector posture • Market niche • Enhancement – innovation, quality • Standard setter • Visionary • Assertive, convincing persuader • Challenger of others • Catalyst • Cultivator • Harvester • Commitment builder • Steward • Appeal to high-level vision Cultivation – focused on enrichment, ensures the fullest growth of the customers, fulfillment of the customer’s potential, the raising up of the customer. This culture is focused on value-centered goal attainment. • Analyzer posture • Differentiation - focus • Enhancement – innovation, customization

23. Structure • Functional Structure • Divisional Structure (SBU) • Matrix

24. Exhibit 9 – 3: Functional Structure Combined with Process Structure CEO Functional Structure Marketing Human Resources Clinical Operations Finance & Accounting Information systems Maintenance; Housekeeping Functional Structure Medicine Surgery Obstetrics Pediatrics Clinical Services Process Structure Pre-Op Preparation Anesthesia Prep & Adm. Surgical Procedure Post-op Recovery • Functional Structure Strategic Advantages • Builds a high degree of specialization • Fosters efficiency • Centralizes control and decision making • Develops functional expertise • Functional Structure Strategic Disadvantages • Fosters “silo thinking” – narrow specialization • Slows down decision making • Makes horizontal communication difficult • Makes coordination difficult • Limits the development of general managers

25. Exhibit 9 – 4: Divisional Structure – Product with Geographic Divisions CEO • Corporate Services • Legal • Planning • Marketing • Administrative Services Product Structure Insurance Foundation Hospitals Affiliated Services Medical Management Professional Services Geographic Structure Western Division Southern Division Eastern Division • Divisional Structure Strategic Advantages • Forces decision making down the organization • Allows different strategies among divisions • Fosters improved local responsiveness • Places emphasis on the geographic region or product/service • Improves functional coordination within the division • Identifies responsibility and accountability • Develops general managers • Divisional Structure Strategic Disadvantages • Makes it difficult to maintain a consistent image/reputation • Adds layers of management • Duplicates services and functions • Requires carefully developed policies and decision-making guidelines • Creates competition for resources

26. CEO CLINICAL Marketing Human Resources Legal Finance & Accounting Information systems Maintenance; Housekeeping Medicine Surgery Obstetrics Pediatrics Clinical Services Exhibit 9 – 5: Matrix Structure • Matrix Structure Strategic Advantages • Develops functional expertise • Allows for a variety of product/project developments • Allows for the efficient use of functional expertise • Encourages rapid product development • Fosters creativity and innovation • Matrix Structure Strategic Disadvantages • Causes difficulties in management • Violates the unity of command principle • Creates coordination and communications problems • Requires negotiation and shared responsibility • Allows for confusion on priorities

27. Strategic Resources • Financial Resources • Capital acquisition-equity and debt • Other forms of debt acquisition • Fund-raising and philanthropy • Human Resources • Information Resources • Technologies • Facilities • Equipment

28. “A strategy that cannot be evaluated in terms of whether of not it is being achieved is simply not a viable or even useful strategy.” C. H. Roush and B. C. Ball

29. Exhibit 11 – 1: Strategic Fit • Strategy • Directional strategies • Adaptive strategies • Market entry strategies • Competitive strategies • Service Delivery • Strategies • Pre-service • Point-of-service • After-service • Support Strategies • Culture • Structure • Strategic Resources Strategic Leadership • Unit Action Plans • Objectives • Actions • Timelines • Responsibilities • Budgets

30. Exhibit 11 – 2: The concept of control Set Objectives Or Redefine Objectives Measure Actual Performance Compare Objectives With Performance Determine Reasons For Deviation Take Corrective Action

31. The Characteristics of Control • Based on accurate, relevant, and timely information • Directed at controlling only the strategy-critical elements • Flexible • Cost-effective • Simple and easy to understand • Timely • Emphasize the exceptions

32. Exhibit 11 – 3: The concept of control and a framework for strategic control Strategic Control Concept Control Establish or confirm performance Standards – Mission, Vision Values, and Goals Set objectives or redefine objectives Measure performance Measure organizational performance Compare performance with objectives Compare performance with standards Determine reasons for deviations Are strategic assumptions still valid? External factors Internal factors Are the Directional Strategies still appropriate? Are the Adaptive Strategies still appropriate? Are theMarket Entry Strategies still appropriate? Are the Competitive Strategies still appropriate? Are the Implementation Strategies still appropriate? Take Corrective Action Take Corrective Action