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
Decision Logic of Strategy Formulation
Strategy Implementation
Strategy Formulation
6
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
Exhibit 6-6 Related and Unrelated
Diversification by a Primary Provider
Hospital
Outside the Health Care Industry
Within the Health Care Industry
8
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, Dont raise your prices
• Use technology wisely
• Dont let the Dogma Grind you down
• Be Ethical
• Breadth beats depth
• Dont get big for Bignesss sake
• Measure Results Your own and your competitors

10
Positioning StrategiesExhibit 6 15 Porters
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 U
nrelated 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
6 ---- 5 ---- 4 ---- 3 ---- 2 ---- 1 ----

• Aggressive
• Related Diversification
• Market Development
• Product Development
• Vertical Integration

• Conservative
• Status quo
• Unrelated Diversification
• Harvesting

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
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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
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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
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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
Requirements of Selected Strategies
Results of Internal Analysis
Comparison of Strategy Requirements and Internal
Analysis
Maintain
Change
Organizational Culture Organizational
Structure Strategic Resources
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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 customers potential, the raising up of the
customer. This culture is focused on
value-centered goal attainment.

• Analyzer posture
• Differentiation - focus
• Enhancement innovation, customization

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Structure

• Functional Structure
• Divisional Structure (SBU)
• Matrix

24
Exhibit 9 3 Functional Structure Combined
with Process Structure
CEO
Marketing
Human Resources
Clinical Operations
Finance Accounting
Maintenance Housekeeping
Information systems
Functional Structure
Medicine
Surgery
Obstetrics
Pediatrics
Clinical Services
Functional Structure
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

Insurance
Foundation
Hospitals
Affiliated Services
Professional Services
Medical Management
Product Structure
Western Division
Southern Division
Eastern Division
Geographic Structure

• Divisional Structure Strategic Advantages
• Forces decision making down the organization
• Allows different strategies among divisions
• Fosters improved local responsiveness
• Places emphasis on the geographic region or
  product/service
• Improves functional coordination within the
  division
• Identifies responsibility and accountability
• Develops general managers

• Divisional Structure Strategic Disadvantages
• Makes it difficult to maintain a consistent
  image/reputation
• Adds layers of management
• Duplicates services and functions
• Requires carefully developed policies and
  decision-making guidelines
• Creates competition for resources

26
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

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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

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• 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
Measure Actual Performance
Compare Objectives With Performance
Determine Reasons For Deviation
Take Corrective Action
Set Objectives Or Redefine Objectives
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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 the Market Entry Strategies still appropriate?
Are the Competitive Strategies still appropriate?
Are the Implementation Strategies still
appropriate?
Take Corrective Action
Take Corrective Action