Competitive Advantage
HCA 541: Strategic Management of Health Care Organizations
Dr. Michelle Reece
Department of Public Health
College of Health and Human Services
NOTE: These slides contain information taken directly from the text book, unless otherwise indicated.
Ginter, P. M, Duncan, W. J, and Swayne, L. E. (2013). Strategic Management of Health Care Organizations, 7th Edition. Wiley-Blackwell. ISBN-13: 978-1118466469
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Chapter 4: Internal Environmental Analysis and Competitive Advantage
Chapter 4 Learning Objectives
Understand the role of internal environmental analysis in identifying the basis for sustained competitive advantage.
Describe the organizational value chain, including the components of the service delivery and support activities.
Understand the ways in which value can be created at various places in the organization with the aid of the value chain.
Use the value chain to identify organizational strengths and weaknesses.
Determine the competitive relevance of each strength and weakness with the aid of a series of carefully formulated questions.
Describe how competitively relevant strengths and weaknesses can be used to suggest strategic actions.
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Develop a Strategy
Strategy
of the Organization
External
Environment
Internal
Environment
Directional
Strategies,
Leadership
Should
Do
Can
Do
Wants
To Do
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The Strategic Planning Process
Strategic Planning
Situation Analysis
Strategy Formulation
Planning the Implementation
External Analysis
Internal Analysis
Directional Strategies
Service Delivery Strategies
Support Strategies
Action Plans
Directional Strategies
Adaptive Strategies
Market Entry Strategies
Competitive Strategies
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Internal Analysis
Whereas external analysis asked “what should we do?”, internal analysis addresses “what can we do?”
Identify strengths (competitive advantages) and weaknesses (competitive disadvantages)
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The Health Care Value Chain
Pre-Service
Market Research
Target Market
Services Offered/
Banding
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
Service Delivery
Add Value
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The Health Care Value Chain
Organizational Culture
Shared Assumptions Shared Values Behavioral Norms
Organizational Structure
Function Division Matrix
Strategic Resources
Financial Human Information Technology
Support Activities
Add Value
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The Health Care Value Chain
Pre-Service
Market Research
Target Market
Services Offered/
Banding
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
Support Activities
Service Delivery
Add Value
Add Value
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Description of Value Chain Components Service Delivery
| Value Chain Component | Description |
| Service Delivery | The activities in the value chain that are directly involved in ensuring access to, provision of, and follow-up for health services |
| Pre-Service | |
| Market/Marketing Research | Determine the services that create value prior to the actual delivery of health services, determine appropriate target market |
| Target Market | The process of identifying recognizable groups (segments) that make up the market and selecting appropriate groups upon which to focus |
| Services Offered/Branding | Information dissemination to present to prospective patients and other stakeholders regarding the range and location of available services |
| Pricing | Charge schedule for available services |
| Distribution/Logistics | Activities and systems that facilitate patient/customer entry into the service delivery system, including appointments and registration |
| Promotion | Activities that ensure all the elements needed to deliver health services are available at the appropriate place at the appropriate time |
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Description of Value Chain Components Service Delivery
| Value Chain Component | Description |
| Point-of-Service | |
| Clinical Operations Quality Process Innovation | Those service delivery activities that create value at the point where services are actually delivered The activities that convert the human and non-human resources into health services Actual provision of health services to the individual patient |
| Marketing Patient Satisfaction | Activities and groups of activities that are designed specifically to improve the quality and quantity of health services Activities to offer new products, seek new customers, provide better services delivery, and cause services to be perceived as higher value |
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Description of Value Chain Components Service Delivery
| Value Chain Component | Description |
| After-Service | |
| Follow-up Clinical Marketing | Activities that create value after the patient has received the health services Activities designed to determine the effectiveness of or the patient’s satisfaction with health services received |
| Billing | Activities that assist in determining what other services need to be delivered Value creating activities that ensure more understandable and efficient billing procedures |
| Follow-on Clinical Marketing | Activities that facilitate entry into another value chain (from hospital to home care, etc.) |
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Description of Value Chain Components Support Activities
| Value Chain Component | Description |
| Support Activities | The activities in the value chain that are designed to aid in the efficient and effective delivery of health services |
| Organizational Culture Shared Assumptions Shared Values Behavioral Norms | The overarching environment within which the health services organization operates The assumptions employees and others share in the organization regarding all aspects of service delivery (e.g., needs of patients, goals of the organization) The guiding principles of the organization and its employees The understandings people in the organization have regarding excellence, risk taking, etc. Understandings about behavior in the organization that can create value for patients |
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Exhibit 4-2: Description of Value Chain Components Support Activities
| Value Chain Component | Description |
| Organizational Structure Function Division Matrix | Those aspects of organization structure that are capable of creating value for customers/patients Structure based on process or activities used by employee (e.g., surgery, finance, human resources) Major units operate relatively autonomously subject to overarching policy guidelines (e.g., hospital division; outpatient division; northwest division) Two-dimensional structure where more than a single authority structure operates simultaneously (e.g., interdisciplinary team with representatives from medicine, nursing, administration) |
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Exhibit 4-2: Description of Value Chain Components Support Activities
| Value Chain Component | Description |
| Strategic Resources Financial Human Information Technology | Value-creating financial, human, information resources, and technology necessary for the delivery of health services Financial resources required to provide the facilities, equipment, and specialized competencies demanded by the delivery of health services Individuals with the specialized skills and commitment to deliver health services Hardware, software, and information processing systems needed to support the delivery of health services The facilities and equipment required to provide health services |
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Identifying Current and Potential Competitive Advantage
Resources
Resource-based View: Valuable, expensive or difficult-to-copy resources Non-human Factors
Competencies
Knowledge and skill based Human Factors
Socially complex and require large numbers of people engaged in coordinated activities
Capabilities
Organization’s ability to deploy resources and competencies to produce its capability
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Strategic Thinking Map – Step 1
Identify Strengths and Weaknesses
Pre-Service
Point-of-Service
After-Service
Culture
Structure
Strategic Resources
Service Delivery
Strengths & Weaknesses
Support Activities
Strengths & Weaknesses
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Strategic Thinking Map – Step 2
Evaluate Competitive Relevance of Strengths and Weaknesses
Value
Rare
Imitable
Sustainable
Competitively Relevant Strengths
Competitively Relevant Weaknesses
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Strategic Thinking Map – Step 3
Focus on Competitive Strengths and Competitive Weaknesses
Competitive Advantages
Competitive Disadvantages
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Some Sources of Competitive Advantage
Tangible
Intangible
Strong financial holdings or backing
Desirable location
State-of-the-art facilities or equipment
Difficult to obtain information
Intellectual property
Especially when protected by patents
Reputation
Positive image
Name recognition
Goodwill
Strong leadership/competent management
Effective communication
A positive organizational culture
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Strategic Thinking
What strengths can be considered competitive advantages?
| Is the Value of the Strength High or Low? | Is the Strength Rare? | Is the Strength Easy or Difficult to Imitate? | Can the Strength be Sustained? |
| High/Low | Yes/No | Easy/Difficult | Yes/No |
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| Is the Value of the Strength High or Low? (High/Low?) | Is the Strength Rare? (Yes/No) | Is the Strength Easy or Difficult to Imitate? (Easy/Difficult) | Can the Strength Be Sustained? (Yes/No) | 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 minimum condition for long-term success. |
| 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 minimum condition for long-term success. |
Strategic Thinking Map of Competitive Advantages Relative to Strengths in General
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| Is the Value of the Strength High or Low? (High/Low?) | Is the Strength Rare? (Yes/No) | Is the Strength Easy or Difficult to Imitate? (Easy/Difficult) | Can the Strength Be Sustained? (Yes/No) | Implications |
| H | N | D | N | No competitive advantage. Many competitors possess the strength but 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 can not 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 may become a minimum condition for long-term 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 of short-term advantage. |
Strategic Thinking Map of Competitive Advantages Relative to Strengths in General
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Strategic Thinking Map of Competitive Advantages Relative to Strengths in General
| Is the Value of the Strength High or Low? (High/Low?) | Is the Strength Rare? (Yes/No) | Is the Strength Easy or Difficult to Imitate? (Easy/Difficult) | Can the Strength Be Sustained? (Yes/No) | 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. |
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Strategic Thinking
What weaknesses can be considered competitive disadvantages?
| Is the weakness of High or Low Value? | Is the Weakness Common (Not Rare) Among Competitors? | Is the Weakness Easy or Difficult to Fix? | Can Competitors Sustain Their Advantage? |
| High/Low | Yes/No | Easy/Difficult | Yes/No |
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| Is the Weakness of High or Low Value? (High/Low?) | Is the Weakness Common (Not Rare) Among Competitors? (Yes/No) | Is the Weakness Easy or Difficult to Correct? (Easy/Difficult) | Can Competitors Sustain Their Advantage? (Yes/No) | 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 the weakness, competitors could achieve a short-term competitive advantage. Over time, correcting this weakness is likely become a minimum condition for long-term success. |
| 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 most competitors will work to correct the weakness and therefore no organization will be able to sustain their advantage. |
Strategic Thinking Map of Competitive Disadvantages Relative to Weakness
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| Is the Weakness of High or Low Value? (High/Low?) | Is the Weakness Common (Not Rare) Among Competitors? (Yes/No) | Is the Weakness Easy or Difficult to Correct? (Easy/Difficult) | Can Competitors Sustain Their Advantage? (Yes/No) | Implications |
| 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 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 a 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. |
Strategic Thinking Map of Competitive Disadvantages Relative to Weakness
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| Is the Weakness of High or Low Value? (High/Low?) | Is the Weakness Common (Not Rare) Among Competitors? (Yes/No) | Is the Weakness Easy or Difficult to Correct? (Easy/Difficult) | Can Competitors Sustain Their Advantage? (Yes/No) | Implications |
| 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 because most other competitors are not weak in this area. Correcting this weakness is likely to become a minimum condition for long-term success. |
| 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 all competitors will correct the weakness and therefore cannot sustain any advantage. |
Strategic Thinking Map of Competitive Disadvantages Relative to Weakness
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| Is the Weakness of High or Low Value? (High/Low?) | Is the Weakness Common (Not Rare) Among Competitors? (Yes/No) | Is the Weakness Easy or Difficult to Correct? (Easy/Difficult) | Can Competitors Sustain Their Advantage? (Yes/No) | 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 corrected by the organization, it will continue to be a serious disadvantage. |
Strategic Thinking Map of Competitive Disadvantages Relative to Weakness
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Questions for Evaluating the Internal Strategic Assumptions
Have the strengths and weaknesses been correctly identified?
Is there a clear basis on which to compete?
Does the strategy exploit the strengths and avoid the major weaknesses of the organization?
Are the competitive advantages related to the critical success factors in the service area?
Have we protected our short- and long-term competitive advantages?
Has the competition made strategic moves that have weakened our competitive advantages?
Are we creating new competitive advantages?
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Chapter 4 Conclusions
After reading Chapter 4, you should be able to define the following terms:
| Key Terms | Key Terms |
| After-Service | Service Delivery |
| Capability | Strategic Capability |
| Competency | Strength |
| Competitive Advantage | Stretch |
| Competitive Relevant Strength | Support Activities |
| Competitive Relevant Weakness | Sustained Competitive Advantage |
| Point-of-Service | Value |
| Pre-Service | Value Chain |
| Resource-Based-View | Weakness |
| Resources |
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Bonus Point Assignment (Max 5 points on final grade)
For ABC Long-Term Care Facility presented in the following slides, determine their competitive advantages and competitive disadvantages by completing the “Determining Competitive Advantage” and “Determining Competitive Disadvantage” Tables.
In a separate table of your design, provide your conclusions and rationale for your competitive advantages and competitive disadvantages.
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External Issues, Competitor Analysis and Critical Success Factors
| External Issues | Competitor Strengths and Weaknesses | Critical Success Factors |
| Medicaid and Medicare reimbursement declining Increasing penetration of managed care Capitation on the horizon CON laws disappearing Systems of care forming (Integrated systems) Changing medical technology Group practices growing Aging population Mergers and alliances increasing Some horizontal integration Changing social structure and family roles Established HMOs and PPOs Increasing Competition | Competitor 1 S – part of a viable system of care S – good information system S – patient base mostly HMO S – good image S – new facility W – new in the market W – poor location W – no internal continuum of care (nursing only) W – shortage of technical staff W – not currently efficient Competitor 2 S – low cost provider (efficient) S – strong management S – developing many alliances with other providers W – independent free standing facility W – patient base mostly Medicaid and Medicare W – shortage of technical staff | High quality service/image Low Cost Provider Part of an Integrated System |
ABC Long-Term Care Facility
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Strengths and Weaknesses
| Strengths | Weakness |
| S – highly skilled and caring clinical staff S – recent financial turnaround S – facilities/campus remodeled S – good patient base (many referrals through informal alliances) S – good reputation/image S – excellent dietary department S – good location S – strong internal continuum of care (three levels of care) S – religious affiliation | W – shortage of technical staff W – many problems with patient records W – lack of management depth W – many billing problems W – information system is out-of-date W – no strategic planning W – some supply/inventory problems W – aging facility W – narrowing financial margins W – independent facility W – some turnover of staff |
ABC Long-Term Care Facility
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Identifying Competitive Advantage
Questions for Strengths: Can we build a competitive advantage based on this strength? If we have a strength that is valuable, rare in the service area, difficult to imitate and one that we can sustain, then this factor provides competitive advantage. Lack of real value, rareness in the industry or those strengths that are easy to imitate or that can not be sustained create less of an advantage.
Questions for Weaknesses: Can our competitors build a competitive advantage against us because we are weak in this area? Weaknesses must be evaluated in terms of importance in the service area. Even though we are weak in an area, we must ask if these factors are important in creating competitive advantage for others. Thus, is the weakness valuable in the service area, is it rare among competitors, etc. If valuable but not rare, difficult to imitate and easy to sustain, we will have a significant competitive disadvantage.
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Determining Competitive Advantage
| Possible Results for a Long-term Care Organization | Value? High/Low | Rare? Yes/No | Imitate? Hard/Easy | Sustain? Yes/No |
| S – highly skilled and caring clinical staff | ||||
| S – recent financial turnaround | ||||
| S – facilities/campus remodeled | ||||
| S – good patient base (many referrals through informal alliances) | ||||
| S – good reputation/image | ||||
| S – excellent dietary department | ||||
| S – good location | ||||
| S – strong internal continuum of care (three levels of care) | ||||
| S – religious affiliation |
ABC Long-Term Care Facility
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Determining Competitive Disadvantage
| Possible Results for a Long-term Care Organization | Value? High/Low | Common? Yes/No | Able to Correct? Hard/Easy | Competitors can Sustain? Yes/No |
| W – shortage of technical staff | ||||
| W – problems with patient records | ||||
| W – lack of management depth | ||||
| W – many billing problems | ||||
| W – information system out-of-date | ||||
| W – no strategic planning | ||||
| W – supply/inventory problems | ||||
| W – aging facility | ||||
| W – narrowing financial margins | ||||
| W – independent facility (not part of a continuum) | ||||
| W – some turnover of staff |
ABC Long-Term Care Facility
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