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Chapter One Basic Strategy Concepts

Chapter One Basic Strategy Concepts. What is Strategy?. Strategy is the overall plan for deploying resources to establish a favorable position. Tactic is a scheme for a specific maneuver. The Concept of “Strategy” . Overall direction Long time horizon Organization-wide impact

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Chapter One Basic Strategy Concepts

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  1. Chapter One Basic Strategy Concepts

  2. What is Strategy? Strategy is the overall plan for deploying resources to establish a favorable position. Tactic is a scheme for a specific maneuver.

  3. The Concept of “Strategy” • Overall direction • Long time horizon • Organization-wide impact • Fully utilizes all assets • Matches organization to environment

  4. The Concept of “Strategy” • Major resource commitments • Seeks advantage over competitors • Pursue few strategies at one time • Rarely changed

  5. The Concept of “Strategy” • Requires change throughout the organization • Requires collaboration throughout the organization • Future-oriented • Marked by uncertainty and risk

  6. Types of Health-Related Organizations • Large for-profit corporations • Small for-profit corporations • Mom-and-pop small businesses • Entrepreneurial startups or new ventures • Large not-for-profit corporations • Small not-for-profit corporations • Federal government agency • State government agency • Municipal government agency

  7. The Corporate Planning Hierarchy

  8. Strategic Plan • Three to five years to implement • Wide range of organizational activities • Covers broad geographic area • Large number of employees • High monetary cost

  9. Operational Plan • Extends for no more than a year • Narrower range of activities • Impacts subgroups of employees • Lower level of expenditure

  10. Tactical Plan • Few days or weeks to complete • Quite modest expenditures • Participation of just a few people • Affects smaller units of the organization

  11. Purposes of Strategic Planning • Satisfy and reward stakeholders • Pursue and fulfill the mission • Survive

  12. Stakeholders of a Health Care Organization • Shareholders/bondholders/lenders/creditors • Customers/patients • Payers • Suppliers • Employees • Government regulators • Competitors • Media • Politicians

  13. THE FIRM The Firm and Its Stakeholders Stakeholders Groups who are affected by a firm’s performance and who have claims on its wealth The firm must maintain performance at an adequate level in order to retain the participation of key stakeholders

  14. The Firm and Its Stakeholders Stakeholders Capital Market Stakeholders • Shareholders • Major suppliers of capital • Banks • Private lenders • Venture capitalists

  15. The Firm and Its Stakeholders Stakeholders Capital Market Stakeholders Product Market Stakeholders Primary customers Suppliers Host communities Unions

  16. The Firm and Its Stakeholders Stakeholders Capital Market Stakeholders Product Market Stakeholders Organizational Stakeholders Employees Managers Nonmanagers

  17. Values • Johnson & Johnson’s credosets its responsibilities to: • J&J product users. • J&J employees. • Communities in which J&Jemployees live and work. • J&J stockholders. Source: Courtesy of Johnson & Johnson.

  18. Johnson & Johnson Credo* • First Responsibility Is to Those Who Use J&J Products • Next Come Its Employees • Next, the Communities in Which the Employees Live and Work • Its Final Responsibility Is to Its Stockholders

  19. Competition in Health Care • Does it take place? • Among FPs • Among NFPs • Between FPs and NFPs • Among public agencies • Between NFPs and public agencies

  20. Competition in Health Care • Should it take place? • Public good vs market good • Positive effects of competition • Alternatives to competition

  21. Competition in Health Care • In what forms does it take place? • For customers/clients • For revenues and profits • For financial capital • For funding • For space • For policy support • For public and media attention

  22. The Essence of Competition • Doing the same things “better” doesn’t work • What does work: • Performing activities that are “different” from competitors • Performing same activities in different ways • Performing same activities at lower cost

  23. Strategy Variations • Incremental • Substantial • Revolutionary

  24. Incremental vs Revolutionary • Incremental encounters less resistance than revolutionary • Only revolutionary will achieve sustainable competitive advantage • Well-conceived incremental better than poorly-conceived revolutionary • Consistent with organization’s risk culture • Supported by sufficient resources

  25. Strategy Variations • Intended • Actual implemented • Failed • Emergent

  26. Emergent and Deliberate Strategies IntendedStrategy DeliberateStrategy RealizedStrategy EmergentStrategy UnrealizedStrategy From “Strategy Formation in an Adhocracy” by Henry Mintzberg and Alexandra McHugh, Administrative Science Quarterly, Vol. 30, No. 2, June 1985. Reprinted by permission of Administrative Science Quarterly.

  27. Strategic Management Process for Intended Strategies Missionsand Goals InternalAnalysis Strategic Choice ExternalAnalysis INTENDED STRATEGY Organizing forImplementation

  28. InternalAnalysis ExternalAnalysis Missionsand Goals Strategic Choice Does It Fit? EMERGENT STRATEGY OrganizationalGrassroots Strategic Management Process for Emergent Strategies

  29. Intended vs Actual • Strategy-making is not always successful • Intended outcomes not always realized • Assumptions about environment no longer valid • Stakeholder support not forthcoming

  30. Intended vs Actual • Small activities move in unintended directions • Inappropriate resource allocation • Culture-driven actions distort strategic intention • Organization politics confound strategic plans

  31. Organizational Levels of Strategy • Corporation or organization-wide • Strategic business unit or product/service line • Functional area • Department (?) • Task force (?) • Individual employee (?)

  32. Strategic Business Unit (SBU) • Serves a unique market niche (different from other SBUs) • Offers unique product or service lines (different from other SBUs) • Separate structural component (within parent organization) • Operates as profit center (like an independent business)

  33. Strategic Thinking • View organization in broad situational and environmental context • View organization with long time perspective • Project analysis and conclusions far into future and far outside the organization

  34. Strategic Thinking • A form of “systems thinking” • Becomes more important, the higher one moves in the organization • Balance with operational issues and thinking

  35. General Global Political/Legal Demographic Economic Sociocultural Technological Environment I/O Model of Above-Average Returns 1. External Environments • Strategy dictated by the external environment of the firm (what opportunities exist in these environments?) • Firm develops internal skills required by external environment (what can the firm do about the opportunities?) Industry Environment Competitor Environment

  36. Four Assumptions of the I/O Model • The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns • Most firms competing within a particular industry or within a certain segment of it are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources

  37. Four Assumptions of the I/O Model • Resources used to implement strategies are highly mobile across firms • Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests, as shown by their profit-maximizing behaviors

  38. The External Environment I/O Model of Above-Average Returns Industrial Organization Model • Study the external environment, especially the industry environment • economies of scale • barriers to market entry • diversification • product differentiation • degree of concentration of firms in the industry

  39. The External Environment An Attractive Industry I/O Model of Above-Average Returns Industrial Organization Model • Locate an attractive industry with a high potential for above-average returns Attractive industry: one whose structural characteristics suggest above-average returns

  40. The External Environment An Attractive Industry Strategy Formulation I/O Model of Above-Average Returns Industrial Organization Model Identify the strategy called for by the attractive industry to earn above-average returns Strategy formulation: selection of a strategy linked with above-average returns in a particular industry

  41. The External Environment An Attractive Industry Strategy Formulation Assets and Skills I/O Model of Above-Average Returns Industrial Organization Model • Develop or acquire assets and skills needed to implement the strategy Assets and skills: those assets and skills required to implement a chosen strategy

  42. The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation I/O Model of Above-Average Returns Industrial Organization Model Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy Strategy implementation: select strategic actions linked with effective implementation of the chosen strategy

  43. The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns I/O Model of Above-Average Returns Industrial Organization Model Superior returns: earning of above-average returns

  44. The Firm Resource-based Model of Above Average Returns 1. Firm’s Resources • Strategy dictated by the firm’s unique resources and capabilities • Find an environment in which to exploit these assets (where are the best opportunities?)

  45. Resources Resource-based Model of Above Average Returns Resource-based Model • Identify the firm’s resources-- strengths and weaknesses compared with competitors Resources: inputs into a firm’s production process

  46. Resources Capability Resource-based Model of Above Average Returns Resource-based Model • Determine the firm’s capabilities--what it can do better than its competitors Capability: capacity of an integrated set of resources to integratively perform a task or activity

  47. Resources Capability Competitive Advantage Resource-based Model of Above Average Returns Resource-based Model • Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage Competitive advantage: ability of a firm to outperform its rivals

  48. Resources Capability Competitive Advantage An Attractive Industry Resource-based Model of Above Average Returns Resource-based Model Locate an attractive industry An attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities

  49. Resources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl Resource-based Model of Above Average Returns Resource-based Model • Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment Strategy formulation and implementation: strategic actions taken to earn above average returns

  50. Resources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl Superior Returns Resource-based Model of Above Average Returns Resource-based Model Superior returns: earning of above-average returns

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