HSAD 7302 / PBHL 7203HEALTH ADMINISTRATION

STRATEGIC MANAGEMENT

THREE BASIC STRATEGIC MANAGEMENT QUESTIONS

1. Where are we going and why?

2. How are we going to get there?

3. How will we know if we have arrived?

Strategic Assumption: Resources are limited

10 STEP STRATEGIC PLANNING PROCESS

1. EXTERNAL ENVIRONMENTAL ASSESSMENT

What are the key external changes impacting on the organization?

2. INTERNAL ENVIRONMENTAL ANALYSIS

SWOT analysis

3. DEVELOP THE ORGANIZATIONAL MISSION, VISION AND VALUES

What are the values of the organization? What will we look like in 5-10 years? How will we impact on the community we serve?

SWOT ANALYSIS

• STRENGTHS OF ORGANIZATION

• WEAKNESSES OF ORGANIZATION

• OPPORTUNITIES FOR THE ORGANIZATION

• THREATS TO THE ORGANIZATION

MISSION, VISION, VALUESMISSION:

GENERAL STATEMENT OF THE PURPOSE AND FUNCTION OF THE ORGAIZATION IN THE COMMUNITY IT SERVES

VISION:

GENERAL STATEMENT OF WHAT THE ORGANIZATION IS TRYING TOBECOME

VALUES:

GENERAL STATEMENT OF THE MORAL BASIS FOR DECISION MAKINGAND BEHAVIOR WITHIN THE ORGANIZATION

SAMPLE MISSION STATEMENTS

St. Vincent, Little Rock:The mission of St. Vincent Health System and Catholic Health Initiatives (CHI) is to nurture the healing ministry of the Church by bringing it new life, energy and viability in the 21st Century.

Baptist Health System, Little Rock:Baptist Health exists to provide quality patient-centered services, promote and protect thevoluntary not-for-profit healthcare system, provide quality health education and respond to changing needs of the citizens of Arkansas with Christian compassion and personalconcern consistent with our charitable purpose.

Methodist Health Care System, Houston, Texas:

To provide high quality, cost-effective health care that delivers the best value to the people we serve in a spiritual environment of caring in association with internationally recognized teaching and research.

Texas Health Resources, Dallas, Texas:To improve the health of the people in the communities we serve

SAMPLE MISSION STATEMENTS

Southwest Regional Medical Center, Little Rock To meet and, whenever possible, exceed the healthcare expectations of our

customers. To provide excellence in healthcare To provide an environment in which our people work together towards

continuously improving the quality of services for patients, physicians and employees.

To support continuing education activities and training of staff to maintain a high level of performance.

Henry Ford Health System, Detroit: To improve human health through excellence in the science and art of health

care and healing.Saline Memorial Medical Center, Benton: Saline County Medical Center is the health care leader for Saline County

that provides quality services for our customers to enhance health and quality of life.

Rebsamen Medical Center, Jacksonville To promote good health in our community and support healthcare

expectations of our customers.

SAMPLE VALUE STATEMENTSSt. Vincent, Little Rock: Reverence, Integrity, Compassion, ExcellenceBaptist Health System, Little Rock: Service, Honesty, Respect, Stewardship, PerformanceMethodist Health System, Houston, Texas: Integrity, Compassion, Accountability, Respect, ExcellenceHenry Ford Health System, Detroit Respect for people, High performance, Learning and

continuous improvement, A social conscienceRebsamen Medical Center, Jacksonville Do the right thing for the right reason, Operational excellence, Value to the health system, Equal respect among team members, Serve our customers.

SAMPLE VISION STATEMENTSBaptist Health System, Little Rock

Shared Christian values of service, honesty, respect, stewardship and performance, combined with a commitment to customers satisfaction through continuous improvement, allows Baptist Health to unitePhysicians, Nurses, Employees, Technology and Access into the most comprehensive healthcare provider, delivering total health services to the citizens of Arkansas. Serving the spiritual, emotional and physical needs of patients from the inception of life to support at life’s end means compassionately providing total health from prevention to long-term care.

SALINE MEMORIAL HOSPITAL, BENTON

Saline County Medical Center, while maintaining a sense of community and as a partner in a healthcare system, commits its resources to meet the needs of our community, which includes education, state-of-the art service in a caring environment and promotion of wellness and quality of life.

HENRY FORD HEALTH SYSTEM, DETROIT

To put patients first by providing each patient the quality of care and comfort we want for our families and for ourselves.

REBSAMEN MEDICAL CENTER, JACKSONVILLE

To be an innovative health system composed of an empowered, skilled staff, working as a team, whose passion is caring.

10 STEP STRATEGIC PLANNING PROCESS

4. DEVELOP AND EVALUATE A SET OF GOALS AND OBJECTIVES TO IMPLEMENT THE VISION AND MISSION.

GOALS = BROAD STATEMENTS GOAL 1: EXPAND HOME HEALTH SERVICES

OBJECTIVES = QUANTIFIED GOALS OBJECTIVE 1.1: ADD FIVE RN’S BY 12/31/04 OBJECTIVE 1.2: CONTRACT WITH TWO ADDITIONAL MANAGED CARE ORGANIZATION BY 12/31/04.

BOSTON CONSULTING GROUP(RESOURCE PRODUCING OR RESOURCE CONSUMING PRODUCTS AND SERVICES)

MARKET GROWTH

HIGH STARS QUESTION

MARKS

LOW CASH

COWS

DOGS

(HOGS)

HIGH LOW

MARKET SHARE

10 STEP STRATEGIC PLANNING PROCESS

5. DEVELOP AND EVALUATE A SET OF ALTERNATIVE STRATEGIES (TACTICS) TO IMPLEMENT THE OBJECTIVES.

Objective 1.1: ADD FIVE RN’S BY 12/31/04

Alternatives:

STRATEGY1. Hire new RN’s

STRATEGY2. Agency staffing

STRATEGY3. Part-time contracts

STRATEGY4. Move current employees

OFFENSIVE-DEFENSIVE STRATEGIES – SPORTS & GAMES

BASKETBALLFOOTBALLSOCCERCHECKERSPOKERAUTO RACINGBASEBALLWATER POLOMONOPOLY

10 STEP STRATEGIC PLANNING PROCESS6. SELECT THE BEST ALTERNATIVE

DEFINE YOUR DECISION RULES FOR SELECTING ALTERNATIVES AND APPLY TO ALTERNATIVES.

7. DEVELOP AN IMPLEMENTATION PLAN OBJECTIVE 1.1 HIRE 5 NEW RN’S BY 12/31/04 STRATEGY 1: HIRE RN’S ACTION 1: ADVERTISE IN REGIONAL MEDIA ACTION 2: PROVIDE RECRUITMENT BONUS FOR CURRENT STAFF

8. IMPLEMENT THE PLAN WHO? WHEN? HOW? FROM IMPLEMENTATION PLAN

10 STEP STRATEGIC PLANNING PROCESS

9. EVALUATE PERFORMANCE TOWARDS THE VISION, MISSION, GOALS AND OBJECTIVES.

HOW WILL WE KNOW IF WE HAVE ARRIVED?

DID WE HIRE THE 5 NEW RN’S BY 12/31/04?

10. REVIEW AND REVISE PLAN AS NEEDED

Strategy Approaches

PRESCRIPTIVE APPROACH:1. Design School – CEO can design the strategic

plan2. Planning School – Department of Planning

designs the strategic plan3. Positioning School – Focus of planning is on

positioning organization in market

DESCRIPTIVE APPROACH: Strategy is the outcome of organizational

learning rather than careful planning

STRATEGY TERMS

COMPETITIVE ADVANTAGE: Achieve market advantage as provider of first

choiceCOOPERATIVE ADVANTAGE: Achieve market advantage by the network of

relationships formedVALUE ADDED: For customers, outcomes are greater than costs VALUE = OUTCOME/COST

HEALTH CARE MARKET STRUCTURE

• ATOMISTIC - MANY SMALL SELLERS

• OLIGOPOLISTIC – FEW LARGE

SELLERS

• MONOPOLISTIC – MAJOR SELLER

MARKET SHARE

BREATH OF MARKET SHARE

15% MARKET SHARE IN THE

TARGETED MARKET

DEPTH OF MARKET SHARE

80% MARKET SHARE FOR

HEALTH SERVICES USED BY

THE 15% MARKET SHARE

STAGES OF MARKET GROWTH

Emerging Growth Mature Decline

STAGES OF MARKET GROWTH

STAGES OF MARKET GROWTH

MILES AND SNOW TYPOLOGY

PROSPECTORSFrequently search for new market opportunities and regularly engage in experimentation and innovation. May not be the most efficient competitors.

ANALYZERSMaintain stable operations in some areas, usually their core product or business, but also search for new opportunities and engage in market innovations. Characteristically they watch competitors and rapidly adopt those strategic ideas that appear to have the greatest potential.

DEFENDERSOrganizations that engage in little search for additional opportunities for growth and seldom make adjustments in existing technologies, structures or strategies. They devote primary attention to improving the efficiencies of existing operations.

REACTORSOrganizations that perceive opportunities and turbulence but are not able to adapt effectively. They lack consistent approaches to strategy and structure and make changes primarily in response to environmental pressures.

MICHAEL PORTER COMPETITIVE ADVANTAGE

DEGREE OF COMPETITIVENESS IN A MARKET

INDUSTRYCOMPETITORS

INTENSITY OF RIVALRY

SUBSTITUTES

BUYERS

NEW ENTRANTS IN MARKET

SUPPLIERS

INTENSITY OF RIVALRY

• NUMEROUS COMPETITORS• EQUALLY BALANCED• DIVERSE• LIMITED DIFFERENTIATION• HIGH FIXED COST• SLOW INDUSTRY GROWTH• HIGH EXIT BARRIERS• LACK SWITCHING COST

NEW ENTRANTS IN MARKET

MAJOR ENTRY BARRIERS

• REGULATORY REQUIREMENTS

• CAPITAL REQUIREMENTS

• BRAND IDENTITY

• ECONOMIES OF SCALE

• PRODUCT DIFFERENCES

• COST ADVANTAGE

BUYER(HEALTH INSURANCE, EMPLOYER, PATIENT,

HOSPITALS)

MAJOR BUYER FACTORS

1. BUYER CONCENTRATION

2. PRICE SENSITIVITY

3. BUYER SWITCHING COST

4. BUYER INFORMATION

5. BRAND IDENTITY

6. BUYER LEVERAGE

SUPPLIER FACTORS(INPUTS FOR PRODUCTION OF HEALTH SERVICES)

MAJOR SUPPLIER FACTORS

1. SUPPLIER CONCENTRATION

2. SWITCHING COST

3. IMPORTANCE OF VOLUME

4. FEW SUBSTITUTES

5. DIFFERENTIATION OF INPUTS

SUBSTITUTES(CAN REPLACE EXISTING CARE MODALITY)

SUBSTITUTE THREATS

1. TECHNOLOGICAL DEVELOPMENT2. PRICE3. SWITCHING COST LOW4. BUYER PROPENSITY TO

SUBSTITUTE5. PROXIMITY

MICHAEL PORTER

GENERIC STRATEGIES:

• COST

• DIFFERENTIATION

• FOCUSED COST

• FOCUSED DIFFERENTIATION

PORTER’S COMPETITIVE ADVANTAGE

LOWER COST DIFFERENTIATION

BROAD

TARGET

MARKET

COST

LEADERSHIP

DIFFERENTIATION

NARROW

TARGET

MARKET

COST

FOCUS

DIFFERENTIATION

FOCUS

PORTER’S VALUE CHAIN FRAMEWORK

MICHAEL PORTERFOUR CORPORATE STRATEGIES

PORTFOLIO MANAGEMENT• DIVERSIFICATION THROUGH ACQUISITIONRESTRUCTURING• RESTRUCTURE BUSINESS UNITS• CHANGE MANAGEMENT, ADD TECHNOLOGY, TRIM

FATTRANSFERRING SKILLS• DEVELOP INTERRELATIONSHIP AMONG UNITS• TRANSFER SKILLS AMONG UNITSSHARING ACTIVITIES• SHARE ACTIVITIES THAT ENHANCE THE PRODUCT• COLLABORATION ENCOURAGED AND REINFORCED

GENERIC STRATEGIES

1. SPECIALIZATION / NICHE BY SERVICE/PRODUCT, BY MARKET OR BOTH

2. VERTICAL INTEGRATION, BOTH BACKWARD AND FORWARD

3. HORIZONTAL INTEGRATION

4. DIVERSIFICATION ( CONCENTRIC OR CONGLOMERATE)

5. RETRENCHMENT OR DIVESTITURE

6. STRATEGIC ALLIANCES

HORIZONTAL INTEGRATION

LATERAL LINKING OF ORGANIZATIONS WITH SIMILARFUNCTIONS TO:

1. IMPROVE OPERATING EFFICIENCY-ECONOMY OF SCALE (LOWER AVERAGE COST CURVE)

2. JOINT PURCHASING POWER3. JOINT MARKETING-MARKET POWER4. MANAGEMENT EXPERTISE5. GEOGRAPHICAL INTEGRATION6. POLITICAL POWER -SIZE

HORIZONTAL INTEGRATION

HOSPITALA

HOSPITALB

HOSPITALC

NURSINGHOME

A

NURSING HOME

B

NURSING HOME

C

VERTICAL INTEGRATION

BACKWARD VERTICAL INTEGRATION

INCORPORATING WITHIN THE ORGANIZATION THE

STAGES OF PRODUCTION TO:

1. INCREASE OPERATING EFFICIENCY (REDUCE AVERAGE PRODUCTION COST)

2. CAPTURE MARKETS

3. INCREASE COORDINATION OF CARE

BACKWARD VERTICAL INTEGRATION

HOSPITAL

MEDICAL GROUP

NURSINGSCHOOL

ALLIED HEALTHSCHOOL

DURABLE MEDICAL EQUIPMENT

FORWARD VERTICAL INTEGRATION

FORWARD VERTICAL INTEGRATION(PRODUCTS OR SERVICES ARE INPUTS TO OR OUTPUTS FROM OTHER COMPONENTS OF THE ORGANIZATION)

INCORPORATION OF CHANNELS OF DISTRIBUTIONINTO THE ORGANIZATION TO:

1. INCREASE MARKET SHARE2. INCREASE COORDINATION OF CARE3. INCREASE OPERATING EFFICIENCIES4. INCREASE COMPREHENSIVENESS

FORWARD VERTICAL INTEGRATION

HOSPITAL

REHAB FACILITY

HOME HEALTH

NURSING HOME

HOSPICE

INTEGRATED DELIVERY SYSTEM

A SINGLE ORGANIZATION THAT PROVIDES A COMPREHENSIVE RANGE OF HEALTH SERVICES AND PROVIDING INSURANCE/FINANCING FOR THOSE SERVICES. THE ORGANIZATION GENERALLY HAS ELEMENTS OF HORIZONTAL AND VERTICAL INTEGRATION.

INTEGRATED DELIVERY SYSTEM

INFORMATIONSYSTEM

HOSPITAL

HOMEHEALTH

SNF

REHAB MENTAL HEALTH

PHYSICIANS

MCO/HMOFINANCING

OUTPATIENT

RURALCLINICS

DME

LAB

ORGANIZATIONAL STRATEGIES

• MARKET SHARE BUILDING

• MARKET SHARE HOLDING

• DIVERSIFICATION/PORTFOLIO

• VERITICAL INTEGRATION

• HORIZONTAL INTEGRATION

• DIVESTITURE

OWNERSHIP STRATEGIES

• PURCHASE

• LEASE

• JOINT VENTURE

• CONTRACT

• NETWORK

• ALLIANCE

THREE BASIC STRATEGIC MANAGEMENT QUESTIONS

1. Where are we going and why?

2. How are we going to get there?

3. How will we know if we have arrived?

Strategic Assumption: Resources are limited