Business Healthcare questions

9 Value-Adding Support Strategies

“On the surface VCE (value chain evolution) theory is breathtakingly simple. The theory suggests that companies ought to control any activity or combination of activities within the value chain that drive performance along dimensions that matter most to customers.”

—CLAYTON M. CHRISTENSEN, SCOTT D. ANTHONY, AND ERIK A. ROTH

Introductory Incident

Increasing Payer Infl uence Over the Delivery of Health Care

Large insurers are expanding, diversifying, and strategically acquiring diff erent businesses. One of the more signifi cant diversifi cations involves insurers acquiring medical practices. A few exam- ples include:

● Humana acquired Concentra, a company that provides occupational medicine, urgent care, and physical therapy at more than 300 medical centers in 42 states.

● WellPoint, although insisting the transaction should not be called an acquisition, struck a deal with CareMore, a company that owns an insurance plan and operates 26 clinics spe- cializing in elder care. WellPoint prefers to refer to the transaction as “a unique care model.”

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

346 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

● Optum-Health purchased Monarch HealthCare ’s management unit (California prohibits insurers from employing physicians directly). Monarch is a 2,300 physician group that closely follows two other Optum purchases. These include AppleCare Medical Group and Memorial Healthcare IPA (independent physician association).

● Highmark announced its intent to purchase West Penn Allegheny Health System, a physi- cian-led health care organization.

The aim of these new relationships centers on “controlling the utilization of health services, rooting out excesses, and preventing wasteful spending via the coordination of care” according to an executive at Gorman Health Group. These acquisitions are strategies for creating effi cient physi- cian networks that will receive performance-based payments and pre-empt hospitals from gaining control of doctors. Many hospitals are, in fact, purchasing medical practices. From the perspective of physicians, acquisition by an insurer provides advantages because there is a belief that the future is linked to access to covered lives and that a specifi c plan can bring in the needed volume.

Several years ago, the reduction in the number of primary care physicians caused Peoples Health (a Medicare Advantage plan with 47,000 members) to consider buying its own clinics. When Stanocola Clinic fi led for bankruptcy, Peoples Health bought the clinic out of bankruptcy for $1 million and invested an additional $2 million to fund an electronic health record with a new management system. Peoples Health plans to add clinics in an eff ort to overcome the shortage in primary care. In addition, it added mid-level providers, social workers, and registered nurses to Stanocola and contracted with hospitalists to foster a patient-centered medical home model.

The prospect of health care reform has encouraged payers to acquire providers as part of the larger strategy to remain competitive in the future. Owning providers can allow the umbrella company to infl uence effi ciency upgrades such as electronic medical records and other opera- tional measures that individual providers may not be able to aff ord. To remain profi table, insurers have to lower administrative costs by investing in technologies and possibly by purchasing and managing medical practices.

Source: Mari Edlin, “What the Doctor Ordered: How Payer Acquisition of Practices and their Increasing Infl uence over the Delivery of Health Care Will Aff ect Your Practice,” Medical Economics 88, no. 24 (2011), pp. 76–78.

Learning Objectives

After completing the chapter you will be able to: 1. Understand that the value-adding support strategies are important elements in

the implementation of strategy. 2. Appreciate the importance of aligning the value-adding support strategies to

ensure they point the organization toward achieving its mission, vision, and goals.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 347

Implementing Support Strategies

As indicated in Chapter 8, implementation strategies take a decidedly internal focus. Effective and effi cient operations make strategies work. Along with the pre-service, point-of-service, and after-service strategies, the value-adding support strategies should be developed and specifi ed. Similar to the service delivery strategies, the value-adding support strategies are implementation strategies directed toward accomplishment of all the other strategies includ- ing the directional, adaptive, market entry, competitive, and service delivery strategies. As introduced in the strategic thinking map of the value chain shown in Exhibit 8–1 , the value-adding support strategies are based on the elements of the lower portion of the value chain and are the means for accomplishing the decisions made in strategy formulation. Once the support strategies are determined, more specifi c action plans may be developed (see Chapter 10).

Value-Adding Support Strategies

The lower portion of the value chain contains the value-adding support activi- ties and includes the organization ’s culture, structure, and strategic resources. More specifi cally, the support strategies concern areas such as the behavioral norms, organization structure and fl exibility, human resources, fi nance, informa- tion systems, and technology, and will play a major role in the implementation of the organization ’s overall strategy. Each area adds value in the organization. Thus, strategies are required to maintain or enhance the organization ’s competi- tive advantages and to strengthen areas where the organization has competitive disadvantages.

3. Link the results of internal environmental analysis of the support activities to the implementation of value-adding support strategies.

4. Understand how the culture, structure, and strategic resources of an organiza- tion must be explicitly linked to directional, adaptive, market entry, and competi- tive strategies, as well as the value-adding service delivery strategies.

5. Understand that through the value-adding support strategies the organization itself is changed, creating or solidifying competitive advantages and strengthen- ing weaknesses to overcome competitive disadvantages.

6. Understand that the value-adding support strategies provide guidance for the development of organizational objectives and action plans.

7. Create value-adding support strategies that help to accomplish directional, adaptive, market entry, and competitive strategies, as well as value-adding ser- vice delivery strategies.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

348 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

As with the service delivery strategies, value-adding support strategies must be consciously aligned. Strategic managers should take care to ensure that the support strategies are consistent and compatible with each other as well as con- tribute to the accomplishment of the organization ’s overall strategy. Therefore, the support strategies for each area cannot be developed or evaluated in iso- lation. It is the strategic manager ’s responsibility not only to make decisions concerning each support strategy but also to ensure that these elements are aligned and coordinated to help achieve the overall strategy of the organization. Strategic thinking, strategic planning, and managing strategic momentum are central to this process.

Decision Logic for the Value-Adding Support Strategies Once the service delivery strategies (the primary value-adding activities) are formulated, support strategies that provide the appropriate organizational con- text and resources to carry out the organization ’s strategy may be developed. As with the value-adding service delivery strategies, the results of the internal environmental analysis identify the competitively relevant strengths and weak- nesses for the support activities. Each of these value chain support areas was evaluated in situational analysis (Chapter 4) and the conclusions used in strategy formulation. Similarly, the appropriate directional, adaptive, market entry, and competitive strategies have been discussed in Chapters 5 through 7. Depending on the results of this comparison, the support areas may need to be maintained or changed to carry out the selected strategy. A strategic thinking map depicting this rationale in the form of a table is shown in Exhibit 9–1 . In this chapter each of the value-adding support strategies will be examined and key decision areas identifi ed to suggest support strategies.

Organizational Culture as a Value-Adding Support Strategy

Culture permeates the organization and successful strategic managers under- stand its importance. Studies have demonstrated that in addition to strategy,

EXHIBIT 9–1 Strategic Thinking Map for Developing Value-Adding Support Strategies

Value-Adding Support Strategies

Results of Internal Analysis

Requirements of Selected Strategies

Comparison of Strategy Requirements and Internal Analysis

Maintain or Change

Organizational culture

Organizational structure

Strategic resources

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 349

execution, and structure, the proper culture was imperative for organizations that outperformed their industry peers. 1 After careful study, organizational cul- ture has been recognized as much more complex than originally thought. In the case of health care delivery, cultural factors such as excellence in health care delivery, ethical values, involvement, professionalism, value for money, cost of care, commitment to quality, and strategic thinking have been shown to be important determinants of the quality of care. 2 To successfully implement strat- egy, strategic managers must know how to maintain as well as change organi- zational culture. Organizational culture may be supportive of strategic efforts and, thus, there is no requirement to change the culture. In this case, a policy of maintaining the culture is necessary. On the other hand, the current culture may inhibit changes that alter the accepted ways of doing things. If this situa- tion occurs, the implementation process will require modifi cation of the culture. Although culture change is diffi cult, it is often an important factor in moving the organization toward realizing its vision.

A Defi nition of Organizational Culture Organizational culture is defi ned as the “implicit, invisible, intrinsic, and infor- mal consciousness of the organization that guides the behavior of individuals and shapes itself out of their behavior.” 3 Therefore, organizational culture may be thought of as:

● shared assumptions,

● shared values, and

● behavioral norms.

Assumptions and values are the basis for an informal consciousness of the organization and persist over time even when the membership of the organization changes. Shared assumptions include a common understanding of “who we are” (mission) and “what we are trying to accomplish” (vision and strategic goals) and the belief in the values of the organization. Shared values represent the understand- ing of “the way we do things” and may or may not refl ect the organization ’s “stated” values – it is the actual members’ values that create the organization ’s culture. The behavioral expectations or behavioral norms that are common among the members of a group are the visible consequences resulting from the informal consciousness.

Culture and the Bottom Line Some organizational cultures have the potential to inspire aggressive and calcu- lated managerial action, whereas other cultures do little more than encourage managers to be mere caretakers. Cultures build group cohesiveness and when members of the group insist on high levels of performance, each individual is encouraged to do his or her best. 4 A surgical team performing complex opera- tions is a good example of how the culture of the group demands that each indi- vidual performs at the highest possible level if membership is to be maintained.

Unfortunately, cohesive cultures can discourage change. When organiza- tions become too committed to “how we do things around here” and “what we

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

350 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

believe in,” it may be diffi cult, at least in the short run, to change the culture. Opportunities can be missed and competitive advantages can be lost simply because the culture is so strong that it will not tolerate new ideas and directions. However, organizational cultures, when they encourage mission-critical factors such as patient-centered care, can be positive contributors to the overall success of an organization. As pointed out in Perspective 9–1 , standardized processes, such as clinical pathways, may be a powerful force in shaping health care organizational cultures over the next several years where the emphasis often has been on unilat- eral decision making.

PERSPECTIVE 9–1

Enhancement of Health Care Quality Using Clinical Pathways

Health care organizations are increasingly being asked (sometimes required) to reduce costs and simultaneously increase quality. For almost two decades, clinical pathways have been used as a tool for optimizing health care resources and enhancing quality of care. Clinical pathway analy- sis applies critical-path methods used in indus- trial process control to clinical processes. These methods can lead to optimal interdisciplinary patient care. Clinical pathways involve all health care professionals – physicians, nurses, social workers, pharmacists, and so on. A clinical path- way can be thought of as a visualization of the patient ’s health care process and a multifaceted, resource-intensive process involving all con- cerned parties. Because health care is a knowl- edge-intensive industry, any attempt to reduce costs and increase quality will require eff ective knowledge management across a diversity of disciplines, interdisciplinary teamwork, and man- agement of the culture.

The sharing and integrating of the knowl- edge of diverse professionals are important to the implementation of a successful health care process using clinical pathways. Knowledge management is a business concept that can facilitate the application of clinical pathways

because it relates to an organization ’s ability to acquire and disseminate new and existing knowledge. One theory of knowledge manage- ment that relates well to health care is the “com- munity of practice.” Communities of practice galvanize knowledge sharing and adaptation to change. Communities of practice are defi ned as groups of people bound together by shared experience and a passion for joint enterprise. It is a cross-functional group brought together to capture and spread ideas and know-how. The disadvantage of communities of practice is that the knowledge shared is often infor- mal in nature. Clinical pathways are developed informally through the cooperative eff orts of physicians, nurses, and other professionals to improve the quality and value of patient, yet formally captured pathways are designed using clinical guidelines based on evidence-based management and visualized knowledge.

Additionally, pathways benefi t from eff ective interdisciplinary teamwork or they may suff er from poor teamwork. Interdisciplinary team- work can bring diff erent professional points of view to bear on a patient ’s problem(s); how- ever, teamwork may not be suffi cient to ensure integrative knowledge. Integrative knowledge

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 351

Matching Culture and Strategy Mission, vision, values, and strategic goals (discussed in Chapter 5) provide the linkage between strategy and culture. Just as these directional strategies were a major input to the selection of the adaptive, market entry, and competitive strate- gies, they play a major role in shaping the appropriate organizational culture. How the organization defi nes itself, what it wants to be, how it accomplishes its tasks, and what it wants to achieve, shape the culture of the organization. The directional strategies can be powerful forces in maintaining or changing the culture.

Strategic mangers must decide if the organizational culture can help to achieve the strategy. Therefore, they must assess what assumptions, values, and behav- ioral norms are necessary to most effectively carry out the strategy. Attributes of the current assumptions, values, and behavioral norms must be compared with the assumptions, values, and behavioral norms required by the strategy. For example, if a market development strategy is being pursued, strategic managers may have to maintain the current culture; for new entrepreneurial ventures or product develop- ment, however, the culture may have to change. As discussed in Chapter 6, strate- gies that involve acquisitions, mergers, and alliances usually have organizational culture implications. Incompatible cultures may contribute to failure of the strategy.

During the situational analysis of the strategic management process, the mission, vision, values, and strategic goals (the directional strategies) were evaluated. The leader must assess whether these directional strategies are still appropriate and are actually refl ected in the culture of the organization. Results of this assessment will determine whether the leader needs to create implemen- tation strategies to maintain or change organizational culture.

In addition to the comparison of the requirements of the overall strategy to current culture, results of the internal analysis itself may suggest action. The

sharing among knowledge workers is critical for the application of new knowledge to health care phenomena.

One of the major barriers to eff ective team- work in health care is poor communication among diverse health care professionals. Poor communication occurs because of inher- ent diff erences in cultures and experiences. Miscommunication is especially likely to arise in emergency situations where events are unpre- dictable and a high level of cooperation among professionals is mandatory.

For eff ective clinical pathways, health care professionals have to understand and appreciate

diff erences in cultures and the results these dif- ferences have on the attitudes of colleagues. Most culture is based on context-specifi c knowl- edge unique to each profession. Sharing of diff erent knowledge is important for the con- tinuous implementation of knowledge man- agement in health care organizations. Clinical pathways have the eff ect of promoting com- munication among health care professionals because they express clearly that tacit knowl- edge is a part of all health care processes

Source: Tomoyoshi Yamazaki, Mitsuru Ikeda, and Katsuhiro Umemoto, “Enhancement of Healthcare Quality Using Clinical-

Pathways Activities,” VINE 41, no. 1 (2011), pp. 63–71.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

352 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

internal analysis specifi es whether the organization ’s culture is a strength or weakness and whether it might create a competitive advantage or disadvantage. Therefore, the results of the internal analysis must also be considered in the decision to maintain or change the culture. The culture of an organization will greatly infl uence the extent to which individuals are willing to share decision making, how open individuals are to ideas from patients, and the quality of cooperation among diverse organizational units. 5

Maintaining Organizational Culture Despite a good match between the attributes of the current culture and requirements of the strategy, the work of management is not complete. Maintaining culture often requires a great deal of hard work. In internal environmental analysis, if aspects of culture are evaluated as strengths having high value (H), being rare (Y), easy or diffi cult to develop (E or D), and sustainable (Y) – resulting in HYEY or HYDY – maintaining cul- ture is particularly important because culture can be a source of short-term or long-term competitive advantage. Culture can be a powerful weapon in recruit- ing, effi ciency, and innovation. Allowing this strength to deteriorate will lead to competitive disadvantage, particularly when it is common (not rare) among competitors.

Therefore, in maintaining culture, managers should:

● Communicate often the mission, vision, values, and goals – verbally and in writing.

● Behave in ways that are consistent with the values and vision – fi rst through their personal behavior, and then through who they hire, who they promote, and what they reward.

● Review and discuss the values and behavioral norms periodically.

Changing Organizational Culture Changing organizational culture can be diffi cult and requires a great deal of planning, time, and energy. Michael Beer and Russell Eisenstat noted that, “We ’ve become convinced that the most powerful way for leaders to realign their organization is to publicly confront the unvarnished truth about the barriers blocking strategy implementation. Typically this involves looking closely at the roles and decision rights of various parts of the business, as well as changing the behavior of people at all levels.” 6

When culture is viewed as a weakness (from internal environmental analysis) or the requirements of the strategy call for a different culture, culture-change strategies should be initiated. In cases where ineffective culture is assessed as a common weakness but easy to correct (HYEY or HYEN), competitors may be moving to build their own organizational culture to create competitive advantage; therefore, culture-change actions are warranted. When effective culture is a weakness, the weakness is not common among competitors and is diffi cult to develop (HNDY and HNDN), change strategies should be initiated, particularly where competitors may act and achieve a signifi cant competitive advantage. The most serious situation, of course, is where an organization has a weak culture and other organizations have effective cultures (weak culture is not common), and it is diffi cult to develop a new culture (HNDY and HNDN)

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 353

resulting in a signifi cant competitive disadvantage. Strategic managers who want to create culture change should focus their energies on a few critical activities:

● Clarify the mission and vision and discuss the types of values and behav- iors that would best achieve the vision.

● Discuss and codify the values and behavioral norms.

● Live by the values from the very beginning.

● Review and discuss the values and behavioral norms periodically.

● Create an atmosphere of perceived “crisis” in the organization. Without dissatisfaction with the current state, there is little incentive for managers to change familiar patterns of behavior.

● Clarify the vision and indicate what changes are necessary to achieve the vision. People need a clear sense of where the organization is going and where they should be headed.

● Communicate the mission, vision, values, and goals widely and repeatedly. Strategic managers should use simple, powerful, and consistent language.

● Model the kinds of behaviors and practices that management wants infused into the organization through actions. “Walking the talk” gives credibility to the words and provides examples to others in the organiza- tion of what behavior is expected.

● Empower other people to start acting in ways that are consistent with the desired values, and to implement new behaviors and practices. Part of empowering others is removing barriers within the organization that are in the way of the desired behavior.

● Look for some quick but sustainable successes. Short-term successes are critical to provide the change effort with some credibility, keep people motivated, and demonstrate positive results to the organization.

● Demonstrate patience and persistence. Major culture change takes a long time – years not months – and the willingness to persist in the face of obstacles and setbacks is critical. 7

Organizational Structure as a Value-Adding Support Strategy

Similar to culture, the organizational structure must facilitate rather than impede the implementation of the overall strategy. As Alfred Chandler observed, “Matching organization structure to the strategy is a fundamental task of the strategist.” 8 A long-standing, although not universally accepted, tradition in strat- egy research is known as confi guration theory. This theory argues that in specifi c cases (e.g., industries, locations, and so on) certain organizational structures are more effective in accomplishing the mission than others. 9 This view has been confi rmed in a number of settings and reinforces Chandler ’s argument. 10

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

354 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

Once the directional, market entry, competitive, and service delivery strate- gies have been developed, management must determine what organizational structure will best facilitate the strategy. This strategic thinking activity matches the requirements of strategy with the advantages and disadvantages of vari- ous organizational structural options. In addition, it should be acknowledged that an organization ’s current organizational structure might limit the strategic options or at least their initiation in the short run. Over time, the structure can be changed to meet the needs of the proposed strategy. At some point, the strategist must decide if the present structure should be maintained or changed.

Organizational Structure Building Blocks Organizational hierarchy remains the basic structure of most, if not all, large organizations. As Harold Leavitt has written, “. . . just about every large organiza- tion remains hierarchical.” 11 Organizations, whether loosely coupled, networked, or divisionalized, seem to be no more than modifi cations of the same basic design. Leavitt concludes that, “. . . hierarchies remain the best available mecha- nism for doing complex work.” 12 There are three fundamental organizational hierarchical designs that form the basic building blocks for organizations:

● functional structure,

● divisional structure (strategic business or service units), and

● matrix structure.

Functional Structure Functional structures organize activities around the mission-critical activities or processes of the organization and are the most prev- alent structures for single product/service and narrowly focused organizations. A functional structure might include departments such as clinical operations, marketing, fi nance, information systems, and so on. However, activities will vary from one organization to another. Often parts of an organization are structured around processes. For example, in health care organizations, clinical operations are mission critical and the clinical function may be at the center of a functional structure. The clinic may then be organized around separate clinical processes such as registration, testing, examination, lab, and so on.

A functional structure builds a high degree of specialization and expertise within the functions or processes and can foster effi ciency, particularly when tasks are routine and repetitive (such as in clinics). Moreover, in this type of organizational structure, control of strategic decisions is highly central- ized. However, functional structures sometimes foster “silo thinking,” slowing down decision making and inhibiting horizontal communication. As a result, it becomes a major task of strategic management to keep functional managers focused on the broader mission and the organization ’s vision (beyond their own functions) and to ensure coordination and communication across the functions. Exhibit 9–2 illustrates a functional organizational structure for clinical operations (organized around processes) and summarizes the advantages and disadvantages of functional structures.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 355

Divisional Structure Divisional structures are common in organizations that have grown through diversifi cation, vertical integration, and aggressive mar- ket or product development. As organizations grow and become more diverse, divisional organizational structures are used to break the organization down into more manageable and focused parts. Therefore, a divisional structure cre- ates several smaller, more focused, semi-autonomous strategic business/service units (SBUs/SSUs). Typical divisions might be based on geography (markets), products/services, or customers.

Structures with geographic divisions allow each division to tailor strategy and differentiate products/services based on the unique needs or characteristics of the geographic area or market. Local responsiveness will usually result in enhanced performance because communication and coordination with a target market will be improved. When organizations have multiple unique products/ services, a divisional structure that places organizational emphasis on these products/services may be most appropriate. This structure gives the product division managers authority and responsibility to formulate and implement a product/service strategy. In addition, the structure allows functional areas to specialize around each product/service, thus increasing the coordination and communication. Divisions based on products/services increase the focus on products, markets, and quick response to change.

Divisional structures are not without problems. Divisional structures make it diffi cult to maintain a consistent image or reputation, add layers of management because of duplicate services and functions, and require carefully developed policy guidelines for the SBU/SSU. In addition, divisional structures may create

CEO

Maintenance; Housekeeping

Information Systems

Finance & Accounting

Clinical Operations

Human Resources

Marketing Functional Structure

Functional Structure

Medicine Surgery Obstetrics Pediatrics Clinical

Services

Post-Op Recovery

Surgical Procedure

Anesthesia Prep & Adm.

Pre-Op Preparation

Process Structure

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

EXHIBIT 9–2 Functional Structure Combined with Process Structure

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

356 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

competition for resources among the divisions. Exhibit 9–3 illustrates an organi- zational structure with product divisions (organized geographically) and sum- marizes the advantages and disadvantages of divisional structures.

Matrix Structures A matrix structure may be most appropriate when organizations have numerous products or projects that draw on common func- tional expertise. The fundamental rationale underlying a matrix structure is to organize around problems to be solved rather than functions or products or geography. Matrix organizations develop expertise and allow product areas or projects to use that expertise as needed. Therefore, in this structure, func- tional specialists may work on a number of different projects and with a number of project managers over time. Matrix structures foster creativity and innovation in the organization and, therefore, the structure is particularly effective for rapid product development and can accommodate a wide variety of product or project activities.

As illustrated in Perspective 9–2 , matrix structures are diffi cult to manage – no one disputes that fact. The structure violates the “unity of command” (people report to only one boss) principle and, as a result, employees are often confused on priorities and “who is the boss.” Therefore, this type of structure requires a great deal of coordination and communication and some degree of negotiation

EXHIBIT 9–3 Divisional Structure – Product with Geographic Divisions

CEO

Professional Services

Product Structure

Eastern Division

Southern Division

Western 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

Medical Management

Affiliated Services

HospitalsFoundationInsurance

Corporate Services

• Legal • Planning • Marketing • Administrative Services

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 357

PERSPECTIVE 9–2

Challenges of Matrix Management

Managing a matrix organization is not an easy task. A survey of almost 300 top and mid-level managers in six industries identifi ed fi ve chal- lenges of the matrix form of organization: (1) misaligned goals; (2) unclear roles and responsibilities; (3) ambiguous authority; (4) lack of a matrix guardian; and (5) silo-focused employees.

Misaligned goals. Often there are competing or confl icting goals between the dimensions (functions, regions, services, customers) of the matrix. A project working toward a specifi c deadline date may have goals that are diff er- ent from the functional units supporting the project. Usually inadequate processes to align goals or detect possible misalignments exist. Moreover, communication between projects and functional areas is frequently strained and fragmented. Some managers suggest that mis- alignment can be reduced by constantly com- municating and reinforcing the organization ’s mission and vision.

Unclear roles and responsibilities. Confusion over roles and responsibilities is a challenge for virtually all matrix organizations. The lack of clarity results from unclear job descriptions, confusion over who is boss, and lack of a sense of direction or determining who to contact for information. Ambiguous goals and responsi- bilities create tension and can become dysfunc- tional. Four basic requirements are necessary to minimize the lack of clarity: (1) clear guidelines and descriptions of roles and responsibilities; (2) specifi c assignments for the accomplish- ment of business goals; (3) a single point of contact for information or approval for areas of responsibility; and (4) a set plan for communica- tion and information sharing.

Ambiguous authority. In the matrix structure, decision makers sometimes have responsibil- ity without authority. In a hospital, the human resources (HR) department, for example, might be charged with the responsibility of develop- ing a policy but the department might not have the authority to implement the policy. The head of medicine may be able to ignore or violate the HR policy with few adverse consequences. In the matrix structure, confusion over fi nal author- ity is common and there is a lack of clarity in areas of accountability, which may lead to delays in decision making.

Organizational culture plays an important role in resolving authority problems in matrix organizations. In organizations with collabora- tive cultures, managers are more focused on problem solving and are able to resolve author- ity issues through informal negotiation. When the culture is more political, managers tend to focus more on maintaining their status and power than on resolving issues.

Matrix guardian. In most organizations “what gets measured, gets done.” For this reason, per- formance measures for functional, geographical, and related units are well established. It is less likely that organizations carefully measure the performance of projects. Top-level executives, especially, may be unaware of project perfor- mance. A matrix guardian responsible for matrix performance can correct many of the apparent problems. Research has shown that: (1) lack of consequences and rewards for matrix perfor- mance fails to motivate employees to make the matrix work; (2) establishing a monitoring pro- cess to detect and identify matrix performance problems overcomes employees’ reluctance to divulge problems associated with their units;

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

358 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

and shared responsibility between project managers and functional managers. Exhibit 9–4 illustrates a matrix structure and summarizes the advantages and disadvantages.

Combination Structures Determining the most effective basic structure that will carry out the strategy is critical for all organizations, however, most health care organizations are rarely organized using just a single structural build- ing block. Rather, health care organizations fi nd it necessary to mix and often supplement the basic design. These designs are combination structures . For example, functional organizations are often supplemented with cross-functional teams to improve coordination and communication. Geographic divisions may be organized around functions or products. Product divisions may have geo- graphic divisions as well as functional components. Organizational structure should enable the strategy; managers should select the most appropriate set of organizational structure building blocks.

Although the organizational structure building blocks set the basic design of the organization, seldom is it adequate alone for carrying out the strategy and work of the organization. Therefore, most organizations modify their basic struc- ture with some type of coordinating structures. These coordinating structures are sometimes referred to as the collateral organization – a system of task forces, committees, and ad hoc groups used to bring different perspectives on issues to the table for discussion and resolution. No organization can function for long without an effective collateral organization. 13 Collateral structures include:

● Project and product teams – created to undertake well-focused projects (typically short term) or to develop new products.

(3) the matrix guardian must have senior-level support and authority to make decisions and act; and (4) the objectivity of the guardian must be preserved and protected from political pressure.

Silo-focused employees. Most people in most organizations tend to be silo-focused. Organizational membership and loyalty is often directed toward the functional unit (e.g., nurs- ing, nutrition, administration, etc.) rather than a project to which they are assigned. There are two primary reasons for silo-focused behav- ior. First, most people spend the majority of their careers in a particular function. They tend to interact with other professionals like themselves

and over time develop allegiances to the group. Second, matrix organizations require high degrees of cooperation when compared with single hier- archies. Most employees have not developed the interpersonal and negotiating skills necessary to make matrix organizations work effi ciently and eff ectively. Research suggests that people need diff erent types of training targeted at spe- cifi c matrix challenges and programs rarely focus on the development of this type of skill.

Source: Thomas Sy and Laura Sue D ’Annunzio, “Challenge and Strategies of Matrix Organizations: Top-Level and Mid-Level

Managers’ Perspectives,” Human Resource Planning 28, no. 1 (2005),

pp. 39–48.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 359

EXHIBIT 9–4 Matrix Structure

CEO

Maintenance; Housekeeping

Information Systems

Finance & Accounting

LegalHuman Resources

MarketingClinical

Clinical Services

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

Medicine

Surgery

Obstetrics

Pediatrics

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

● Cross-functional task forces – created to bring together specialists from several functional areas and address threats or opportunities. Typically, task forces take on a major project such as reorganization or the building of new facilities.

● Venture teams – created outside the normal organizational structure, they are not bound by the normal “rules” of the organization. Because they develop new products or processes, the creation of venture teams is sometimes called “intrapreneuring.”

● Re-engineering teams – created to evaluate and reconfi gure an organiza- tional process (such as service delivery). Such teams are asked to disregard the current way of doing things and to redesign a process from scratch.

● Executive and standing committees – created to make organization- wide decisions. Executive and standing committees provide wide representation for key decisions and facilitate communication of the organization ’s direction and strategy implementation.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

360 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

Matching Structure and Strategy Strategic managers should strive to keep their structures (and processes) as sim- ple as possible and trim every vestige of unnecessary bureaucracy – for example, extra layers of management. 14 Fundamentally, the structural decision is one of prioritizing standardization versus fl exibility and selecting the basic structure that best achieves the required priority. Therefore, strategic managers must evaluate the advantages and disadvantages of each of the structural building blocks and match them with the requirements of the strategy. For example, a different struc- ture may be required to carry out a defender/cost leadership competitive strategy than that for a prospector/differentiation strategy. Defender strategies require a high degree of structural standardization to create cost effi ciencies while prospec- tor strategies require a great deal of structural fl exibility to develop new technolo- gies and innovative products and services. The strategic thinking map shown in Exhibit 9–5 provides guidance concerning the most appropriate organizational structure based on the strategy requirements of standardization or fl exibility.

Maintaining the Structure If there is a good match between the charac- teristics of the current organizational structure and the requirements of the strat- egy, then the present basic structure should be maintained; although additional coordinating mechanisms may be required. It is not often that organizational structure alone will create long-term competitive advantage; however, structure is a key implementation area (especially when coupled with an effective culture). When it is viewed as a competitively relevant strength, efforts should be made to keep it effective – whether it is or is not rare among competitors. In maintaining the present structure, management should:

● Evaluate the present level of communication and coordination and discuss needed additional communication channels and coordinating mechanisms.

● Evaluate the present structure to ensure that there are opportunities for innovation where appropriate.

● Evaluate the management team to ensure that the leadership skills match their positions.

● Inventory the present skills to ensure that they are matched to the struc- ture and strategy.

Changing the Structure If the comparison of the present structure and requirements of the strategy suggest a need to change the basic organizational structure, then management must develop a plan and move very carefully. Ineffective or inappropriate organizational structure can debilitate the organi- zation ’s strategy – such as might be the case with too many organizational layers, thus delaying decision making – but by itself structure is not generally seen as a signifi cant long-term competitive disadvantage. However, where the organizational structure is viewed as a competitive disadvantage, action must be taken. Reorganization represents a signifi cant change for employees and is often viewed as threatening. To help managers think through reorganization, a re-engineering approach may be taken. Re-engineering reconsiders and changes how tasks connect to each other to produce more effi cient overall systems of work. 15 Therefore, when changing the structure, management should:

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 361

EXHIBIT 9–5 Strategy Requirements and Organizational Structure

Strategy Requirements Functional High Standardization Divisional

Matrix High Flexibility

High level of coordination X

High level of standardization X

Area/functional expertise X

Main goal of effi ciency X

High level of control X

Develop general managers X X

High degree of operating autonomy

X

Decentralized decision making geared to market

X

High need to customize product or services to market

X

Consistent image X

Need local coordination X

Many projects using similar technologies

X

Need high level of creativity and innovation

X X

Need high level of stability X

Need to develop new technologies

X

Need to be a cost leader X

Need to have service diversity X

Large organization X

● Develop a fl ow chart of the total process, including its interfaces with other value chain activities.

● Simplify fi rst, eliminating tasks and steps where possible and analyzing how to streamline the performance of what remains.

● Determine which parts can be automated (usually those that are repeti- tive, time consuming, and require little thought or decision).

● Introduce advanced technologies that can be upgraded to achieve next- generation capability and provide a basis for further productivity gains in the future.

● Evaluate each activity to determine whether it is strategy critical (strategy- critical activities are candidates for benchmarking to achieve best-in- industry performance status).

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

362 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

● Weigh the pros and cons of outsourcing activities that are non-critical or that contribute little to the organizational capabilities and core competencies.

● Compare the advantages and disadvantages of the organizational building blocks regarding standardization and fl exibility.

● Design a structure for performing the activities that remain, then reorgan- ize the personnel and groups who perform these activities into the new structure. 16

Changing the organizational structure can be a diffi cult task and may require some new thinking and new approaches to old problems. Re-engineering efforts that have been undertaken by health care organizations indicate that the use of integrating mechanisms, such as codifying the process, and the use of internal teams and committees during implementation appear to be most effective. 17 In addition, as they undertake restructuring, strategic managers need to evaluate what competitive benefi ts are actually accruing to ensure that managers are not just reorganizing to be like everyone else, but for improved outcomes – they must understand how re-engineering affects their competitive position. 18

Strategic Resources as Value-Adding Support Strategies

Effective development and use of key organizational resources are critical in car- rying out the selected strategies. Key strategic resources (resources, competencies, and capabilities) include fi nancial, human, information systems, and technology.

Financial Resources The fi nancial resources of the organization are evaluated during internal envi- ronmental analysis and contribute to strategy formulation. Therefore, to this point the fi nancial resources have provided a framework for developing a real- istic strategy. Once the strategy has been selected, fi nance becomes a way to implement the strategy. All organizational strategies have fi nancial implications and most likely will require an assessment of needed capital and a method to access capital. In addition, strategies require an understanding of the relation- ship between the organization ’s business model, reimbursement methods, and the mission. 19 Expansion, contraction, or maintenance of scope-adaptive strate- gies will require a fi nancial implementation strategy.

Expansion and maintenance of scope strategies frequently make it necessary for health care organizations to enter the capital market or make arrangements to borrow money from one or more fi nancial institutions. Expansion of scope, such as market development, may be realized through acquisition of a competitor (horizontal integration) and involve hundreds of millions of dollars. Expansion carried out through cooperation strategies similarly may require additional fi nan- cial resources. For example, joint ventures are often fi nanced by attracting other

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 363

individuals, such as physicians, to invest in promising ideas or equipment along with the hospital. Organizations with suffi cient fi nancial resources may even act as venture capitalists for new ideas. Similarly, maintenance of scope strategies directed toward enhancement of facilities, equipment, quality of services, and so on will often require new capital and operating funds. For example, an organiza- tion may have to acquire new property and relocate in its efforts to change the image held by physicians who might join its staff and the patients who might use its facilities. New technology may be demanded as well for this change in image or for signifi cant improvement of services.

Contraction of scope strategies require equally challenging fi nancial deci- sion making. Divestiture, liquidation, harvesting, and, in some cases, retrench- ment all convert fi nancial resources, at least temporarily, into cash or near cash assets. An infl ow of cash forces strategic managers to consider alternatives for the funds to ensure that they are appropriately invested until they are needed for other uses. Contraction requires careful re-evaluation and possible redirec- tion of the use of fi nancial resources. For example, a hospital experiencing fi nancial distress, after careful analysis, might decide that its emergency room is too expensive to continue to operate in view of limited demand by the com- munity. The high level of specialized staffi ng for around-the-clock operations is a fi nancial burden that cannot be justifi ed economically. The decision to close the emergency room would temporarily free fi nancial resources that could be allocated to more profi table areas and relieve some of the cost pressure on the hospital.

In developing fi nancial strategies to carry out the organization ’s overall strat- egy, two issues typically predominate – increasing fi nancial resources (equity and debt capital acquisition and fund raising) and better management of the organization ’s current fi nancial resources including cash fl ow management, budgeting, and fi nancial planning. Analysis of these issues as well as other bal- ance sheet and income statement issues is reviewed in Appendix B – Financial Analysis for Health Care Organizations.

Human Resources It is clear that a successfully implemented strategy is inextricably connected with having committed, high-performing employees. 20 It takes strong leadership and a positive organizational culture to keep employees motivated and produc- tive. Motivated employees are the key to any strategy; however, human resource requirements of the selected strategies will vary considerably depending on whether the organization is expanding, contracting, or maintaining scope. For example, expansion strategies, such as related diversifi cation, will make it nec- essary to recruit new personnel with skills and talents similar to those already in the organization. On the other hand, unrelated diversifi cation and backward and forward vertical integration will create the need for human resources with skills and talents quite different from those presently employed. The necessity of recruiting, hiring, and leading individuals with different skills and talents is a major reason that these strategies are “riskier” than related diversifi cation. Any one of these strategies requires the merger of similar or dissimilar organizational cultures, presenting yet another human resources challenge.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

364 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

Diversifi cation and integration are two very different strategic choices, but they require similar types of organizational and human resources management responses. When diversifi cation or integration is selected as a strategic alterna- tive, the potential exists that organizational size and diversity will increase, as will the demand for more specialized human resources management services.

Although the problems are diffi cult and demanding, expansion is always more fun to manage than maturity and decline. During maturity, the emphasis is on effi ciency. Human resources management practices must be constantly refi ned and improved to ensure that things are done in the best way at the least cost. However, organizations do not always successfully manage maturity, and mar- kets erode and even disappear. Therefore, it is important for the strategic health care manager to understand how to manage the organizational and human resources aspects during market contraction.

Contraction involves different human resources management skills. Incentives must be devised to encourage employees to fi nd other jobs or to retire earlier than anticipated. For some, layoffs may be necessary, and the organization will be forced to determine its responsibility in assisting displaced employees to fi nd alternative employment opportunities. At times, health care organizations may assist employees by retraining them for different tasks that will be needed as contraction takes place.

In Chapter 6, several contraction strategies, such as divestiture and liquida- tion, were discussed. Although terms such as “divestiture” and “liquidation” imply fi nancial actions, they have important human resources implications in the form of restructuring and reorganizing, early retirements, layoffs, and so on.

The benefi ts of systematically managing the human resources dimension under expansion and contraction strategies are somewhat obvious. The need for carefully managing maintenance of scope strategies is equally important, if not as obvious. Maintenance strategies almost always require training and devel- opment activities. Enhancement strategies through total quality management programs involve signifi cant commitments to continuous learning on the part of the individual and the organization. Status quo requires the challenging task of keeping people motivated in the face of career plateaus.

When an organization reaches a point in its life cycle where it is no longer growing, it must work extremely hard to keep from contracting. Strategic deci- sion makers may adopt a conservative strategy, such as managing the steady state or status quo. As was noted in Chapter 6, the assumption underlying this strategy is that the expansion phase of the organization ’s evolution is over, maturity has been achieved, and acceptable market shares have been attained. The organiza- tion attempts to replace personnel with employees of similar skills and training, and works to keep existing personnel up-to-date and technologically prepared to perform their jobs at high levels of effectiveness.

Maintaining scope can present an opportunity to enhance current levels of operation. This stage of organizational development can be thought of as a temporary “breather,” allowing preparation to commence for the next period of growth. Or, decision makers may simply think of maintaining scope in a dynamic sense and recognize that they must work hard just to hold their current position. In this case, they may choose to enhance their facilities, improve the quality of their services, increase the speed with which they respond to patients and make

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 365

decisions, and create new and better ways of doing things. Human resources strategies are important to support any attempt at enhancement because ulti- mately it is the employees that must improve quality, innovate, and work faster if things are to improve. 21 As pointed out in Perspective 9–3 , a key component of a human resources enhancement strategy is to use evidence-based approaches that are known to be successful.

PERSPECTIVE 9–3

Building People Stewardship

There are many things organizations cannot control, such as economic conditions. There is, however, one proven way for decision makers to achieve better fi nancial outcomes – by using evidence-based approaches eff ectively to man- age the workforce.

About 60 percent of hospital and health system budgets are allocated to human capital. This makes “people stewardship” very impor- tant. People stewardship involves playing to an organization ’s strengths in human capital, plan- ning to better control costs, and investing most intelligently. Human capital planning should be approached similar to other strategic plan- ning and budgeting processes. Decision makers should set goals and priorities and maintain standards for excellent performance.

Health care fi nance executives have skills to help lead the eff ort toward people steward- ship. They have the analytical skills needed to help determine rates of turnover, variations in performance, and dips in employee satisfac- tion. In evaluating their organization ’s work- force hiring and promotion patterns, decision makers should consider several questions. These are:

1. Does our organization have an appropri- ate mix of internal promotions and exter- nal hires? It is important to get the right person in the right job at the right time.

2. If the organization is searching outside to fi ll a leadership position, is the external candidate clearly stronger than internal candidates? Too often we assume that outsiders will come in and be perfect fi ts. Then reality sets in.

3. How well does the organization track its average length of service? The longer the average length of service, the harder it will be for outsiders to penetrate the organization.

4. What is the organization ’s tolerance for risk? Some believe the safest action is to always select the internal candidate even if an outsider appears more qualifi ed.

Consistent hiring and promotion successes are diffi cult to obtain because naturally the “best” indication we have of future performance is an individual ’s past performance. Sometimes, however, the highest performers of specifi c tasks do not make the best managers because of a tendency to continue to do what is comfortable. Eff ective management requires delegation skills. Good managers learn to assign tasks to others, motivate and coach them, and measure their performance instead of handling operational tasks themselves.

Eff ectively utilizing existing talent depends on four critical components. First, there must be objective performance expectations for each

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

366 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

position. Health care executives should have pre- cise ideas about the activities and competencies required for each job – not only for today but for the future as well. Second, organizations need a robust performance appraisal system. This involves having accurate and in-depth evaluations for each person, a framework for identifying leadership talent, and the creation of a leadership pipeline that successfully feeds the succession plan. Third, performance appraisal is not enough; organiza- tions need individualized development plans as well. Finally, a fl uid succession planning process is needed to accommodate the variable business needs of the organization over time.

To most eff ectively leverage their workforce, health care executives should employ the fol- lowing strategies:

● Commit to creating and implementing a for- mal program. When any type of human cap- ital strategy is too informal and unplanned, job incumbents tend to identify and groom successors remarkably similar to themselves.

● Incorporate values in the appraisal of staff work requirements and competencies. With- out this, individuals may be equipped with the competencies and skills but lack the ethical dimension needed for leadership in the future.

● Appraise individual performance. It takes courage and emotional fortitude for those doing appraisals to be forthright.

● Assess future requirements. Evaluation sys- tems should not only look backward, focus- ing on what people have accomplished today, but look forward as well to consider the individual ’s potential.

● Assess future individual potential. Organizations should consider develop- ing their own set of critical success factors to include things such as past experi- ences or personal characteristics that are linked to and correlated with successful advancement.

● Close the developmental gap. Keep people engaged and build the appropriate condi- tions so that the hospital or health system has “just in time people” who are prepared to move into a role rather than a mass of stagnated people.

● Evaluate the success of your workforce plan- ning program. Make an eff ort to evaluate how well your program is working in terms of patient satisfaction, eff ective placements, and organizational results.

Source: Kenneth R. Cohen, “The Case for Evidence-Based Human Capital Management,” Healthcare Financial Management 65, no. 8

(2011), pp. 102–107.

Information Resources Information systems (IS) are an essential competitive resource for health care organizations and are critical in supporting strategic decision making, admin- istrative operations, and patient care in an increasingly information-intensive industry. Information systems in health care may be divided into four general categories: clinical, management, strategic decision support, and electronic networking and e-health applications. 22 Competitive advantage may be cre- ated in each of these areas, and strategic managers should therefore play a key decision-making role in defi ning and shaping these systems, as illustrated in the Introductory Incident. Such systems draw on both internal data from clinical and

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 367

administrative systems in the organization as well as external data on community health, market demography, and activities of competitors. 23 To meet strategic objectives and develop high-priority applications, the health care organization must make decisions about hardware confi gurations (architecture), network communications, degree of centralization or decentralization of computing facili- ties, and types of computer software required to support the network. 24 The strategic information system may be used effectively to consider and help imple- ment adaptive, market entry, and competitive strategies. See Perspective 9–4 .

PERSPECTIVE 9–4

Information Technology and Health Care Organizational Performance

Health care information technology (HIT) – such as computerized physician order entry systems, electronic health records, and electronic pre- scriptions – is believed to be instrumental in reducing medical errors, enhancing staff pro- ductivity, and lowering health care costs. This belief arises from the resource-based view that suggests organizations compete on the basis of unique organizational resources that are valu- able, rare, non-substitutable, and diffi cult to imitate. Information technology is an important resource that has the potential to deliver long- term operational and strategic benefi ts to an organization. IT can become an important tool for improving decisions, lowering costs, improv- ing quality, and increasing effi ciency.

In other industries where there has been a long and established history of investments in IT (e.g., banking, airlines), IT may not be a source of competitive advantage, rather a requirement to compete because most fi rms have certain basic IT capabilities. Because IT adoption in health care organizations lags behind other major industries, robust HIT capabilities can lead to a short-term com- petitive edge. Recognizing the lag in IT adop- tion in health care, the Health Information

Technology for Economic and Clinical Health (HITECH) Act of 2009 allocated billions of dol- lars to incentivize widespread adoption and use of electronic medical records among doc- tors and hospitals.

Much research has been conducted that has linked the use of HIT to improved patient and organizational outcomes; however, prior to the incentives embedded in the HITECH Act, there was misalignment of incentives. Traditionally, providers would incur the full cost of HIT imple- mentation even though much of the fi nancial benefi ts would accrue to third-party payers in the form of reduced redundant test orders, reduced lengths of stay, and improved error rates and quality. Although the HITECH Act is expected to greatly infl uence the adoption of HIT among hospitals and medical practices, it is still unclear to what extent it will success- fully overcome the traditional misalignment of incentives.

Another challenge is that to fully appreci- ate the fi nancial benefi ts of HIT investments, expanded models of analyses are needed because many of the benefi ts expected are not easy to quantify in dollars (e.g., lives saved, errors averted, etc.). Many of the traditional

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

368 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

methods for evaluating fi nancial performance do not work well in not-for-profi t settings and, of course, many hospitals are non-profi t. Moreover, these institutions ordinarily pro- vide large amounts of charitable care to the uninsured, underinsured, and indigent popu- lations. Thus, measures such as revenue per patient per day are not as meaningful as in the for-profi t environment. In addition, fi nan- cial performance depends on many extrane- ous factors such as geography (rural versus

urban), payer mix (Medicare, Medicaid, etc.), and other factors beyond the control of hospital decision makers. At the same time, the objective of HIT in health care is to improve operations and service delivery by focusing on operational performance rather than maximiz- ing profi ts and revenues. In this light, it should be emphasized that not all investments in HIT have similar eff ects on performance.

Source: Nir Menachemi, PhD, Professor of Health Care Organization and Policy, University of Alabama at Birmingham.

A strategic information system (SIS), sometimes referred to as a decision support system , attempts to take vast quantities of unorganized data and turn them into useful information to enable managers to make better decisions. Such information systems involve organizing the data, selecting the models that will be used to analyze the data, and interpreting the output; nevertheless it is not suffi cient simply to provide the reports to the strategist. Sometimes there is a need to interpret and clarify the data relative to the assumptions that were used. Because decision support systems attempt to investigate future activities, the assumptions are critical. The organization that can design a strategic IS that is pertinent, relatively accurate, and timely will have developed a competitive advantage. “Inappropriate use and interpretation of decision support models can be dangerous, but appropriate use of these models can be a powerful tool in the hands of an informed decision maker.” 25 For example, as explained in Perspective 9–5 , a geographic information system (GIS) is increasingly being used in health care to provide decision support.

Administrative information systems support areas other than direct patient care and include fi nancial information systems, human resources systems, pay- roll, billing, purchasing, materials and facilities management, outpatient clinic scheduling, offi ce automation, and so on. Clinical information systems support patient care and include computerized patient records systems, automated medi- cal instrumentation, patient monitoring systems, nursing information systems, laboratory information systems, pharmacy information systems, clinical decision support systems, and information systems that support clinical research and education. Most information systems in the health care industry focus on the fi nancial and administrative aspects of the practice of medicine and much less on the clinical decision making. 26 However, clinical information systems are grow- ing in importance, creating signifi cant competitive advantage through increased effi ciency and effectiveness in patient care. Basic clinical information systems provide a “dictionary” of health problems for clinicians or display background information on specifi c patients. More sophisticated systems, often referred to as

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 369

PERSPECTIVE 9–5

Strategic Decision Making Using a Geographic Information System

Poor geographical distribution of health services is an important reason for inadequate access to care and disparities in health outcomes. Using geographical information system (GIS) technology, spatial analysis can be used to examine the relation- ships between access, community resources, and disease burden in order to tailor strategic plans that improve the quality of health service delivery in a particular region. In addition, a GIS functions as a strategic tool for planning, implementing, and eval- uating market availability, viability, and penetration.

GIS is an automated system for the capture, storage, retrieval, analysis, and display of spatial data. The integration of data with spatial informa- tion allows for more complex data processing, analysis, and modeling. Layered information, dis- played as maps, can assist in the understanding of complicated strategic, spatial, and informational relationships. For example, GIS can be used to:

● determine geographic distribution of diseases, ● analyze spatial and temporal demographic

trends, ● map populations at risk, ● stratify risk factors, ● assess resource allocation, ● plan and target interventions, ● inform the selection of clinical trial sites ● evaluate and prepare areas at risk for disasters, ● analyze referral patterns, ● monitor diseases and interventions over

time, and ● evaluate marketing campaigns.

GIS technology was used to analyze spatial data to inform the selection of clinical trial sites for a biopharmaceutical company (see the map). Traditionally, clinical trial sites have been selected based on past experience of the company,

Selection of Clinical Trial Sites using GIS

MT

IDOR

NV

CA UT

AZ NM

Hospital Sites

Statistically significant clustered area

Area of High Clustering

CO

WY

ND

SD

OK AR

MS AL

TN

KY

IN OH

MI WI

IA PA

NY

VT

MD DE

NJ

MA

NH

CT

ME

WV VA

NC

SC

GA

FL

MO

NE

KS

TX LA

WA

MN

Source: Medical Marketing Services, Inc. American Hospital Association, Annual Survey Database, 2007.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

370 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

expert or knowledge-based systems, can actively assist clinicians in the decision- making process. 27 Such functions include:

● assistance with diagnosing a patient ’s condition;

● assistance in determining proper drug dosage;

● reminders to administer preventive services to patients at specifi c times; and

● assistance in carrying out diagnostic or therapeutic procedures, such as recommending specifi c treatments, reminders to perform procedures, alerts regarding potential adverse events, feedback based on previous orders, and prompts for testing or treatment options. 28

In today ’s information-intense environment, seamless integration and informa- tion sharing are becoming increasingly important. Most health care organizations interchange electronic data within their own organizations as well as with other organizations for insurance billing and claims processing, accessing clinical infor- mation from regional and national databases, online purchasing, and communica- tions between affi liated providers. 29 Telemedicine is a part of such systems and has the potential to create competitive advantage for health care organizations.

Strategic Technologies The technologies selected by the organization are dictated by the chosen strat- egies. Broadly, strategic technologies concern the type of facilities, type and sophistication of equipment, and management of technology employed within

relationships with top faculty, or through net- works set up by clinical research organizations. Based on these and other factors, sites are then validated for resources and experience to imple- ment the necessary trial protocol. However, many of these methods are ineffi cient and can often lead to longer trial times and lower than expected recruitment rates. These challenges were over- come using GIS as a novel approach to select trial sites for a biopharmaceutical company. Using mul- tiple sources of data including prescribing data, hospital location, past clinical trial experience, and hospital characteristics, 65 locations were selected from 2,400. The selected locations represented a potential of over 1,000 investigators, much more than their traditional methods yielded. Based on the GIS analysis, the biopharmaceutical company was able to effi ciently validate the sites and train

the sites on the study protocol, thereby increasing patient recruitment and reducing the length of the trial, which in the pharmaceutical business translates to greater market potential.

Historically, spatial information has been used in the health care arena for epidemiological research, such as determining cancer mortality or food ill- ness outbreaks by zip code, county, or census tract. However, given the power of GIS and the massive amounts of collected data in health care organiza- tions, spatial analysis can provide valuable insight and become an eff ective tool for decision makers. The challenges of planning, implementing, and evaluating strategies can be greatly enhanced by applying GIS technology to prepare for disasters and terrorism events, increase health care access, and improve market positioning. Source: Maziar Abdolrasulnia, PhD, CE Outcomes LLC.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 371

the organization. Each of these activities is critical to the successful implementa- tion of the organization ’s strategy.

Facilities Facilities is the broad term used to delineate the physical environment of the health care organization. It is the “shell” in which health care is delivered. It generally includes such diverse areas as design and construction of new facilities and renovation of older facilities, key equipment, clinical engineering, environ- mental services, safety and security, materials management, and food service. Each component affects the health care organization ’s ability to implement its strategy.

Facilities management is an area of increasing concern to strategic managers of health care organizations for a variety of reasons. One of the most important is changing technology that has fostered tremendous growth in the number and kind of alternative delivery systems requiring different strategies for suc- cess. Free-standing outpatient clinics, ambulatory (same-day) surgery centers, diagnostic and imaging centers, and others, are challenging traditional inpatient health care delivery. To survive, hospitals have altered their strategies to expand vertically and horizontally or to diversify into these new delivery systems; how- ever, each type is subject to different regulatory guidelines as well as entirely different design needs for buildings – a challenge for the facilities manager.

A variety of components should be considered in the design of a health care facility: medical technology, the full range of medical procedures from routine exams to complicated life-saving activities, medical staff, sanitation, prevention of injury, economics, patients, and visitors. From the patients’ perspective, the facility includes “curb appeal,” ease of access to the main entrance, ease of park- ing, ease of wayfi nding (fi nding the department, room, diagnostic area, or other area where the patient is expected), comfort, and convenience. Designing the facility with the human experience in mind recognizes that people ’s perceptions of health care are multidimensional; the facility helps them to defi ne the care they receive. Sending a “we care” message cannot stop with the staff but must be designed into the facility itself. 30

When the health care organization decides on a high-tech, high-touch, or some other strategy, the facility provides the fi rst impression. The design, lay- out, color scheme, and so on should refl ect the desired image to improve the implementation of the strategy. “Unlike the quality of medical care, health facil- ity design is something that can readily be understood and judged, for better or worse, by the public.” 31

Equipment Closely associated with facilities is the choice of the type and sophistication of equipment and effective management of technology; integral parts of strategic management and should be approached in a systematic way. Because health care technology changes rapidly, is costly, and often requires changes in the facility, it must be assessed and planned for carefully to operate the facility to its greatest potential. Physicians generally want the latest technol- ogy – using the “latest” equipment or newest procedure provides prestige with colleagues and patients and may save more lives or provide less discomfort to patients. The decision concerning the use of the latest technology must fi t with the strategy (differentiation based on high-technology image).

Technology decisions involve technology assessment, planning, acquisition, and management. 32 Strategists advocate that a committee assess requests for

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

372 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

new and emerging technology alongside the capital budget requests for new and replacement technology. The committee should report to senior manage- ment and should set mission-based, strategic priorities for new, emerging, and replacement technologies. Many hospitals do not incorporate into the budget the costs of redesign and “space” for new technology; nor do they investigate ways to reduce maintenance, insurance, and outside service contract costs. The planning process has to take into account what the competition is planning to acquire in terms of new and emerging technology as well as assessing the ser- vices offered by competitors.

Clinical engineering (sometimes called biomedical engineering) is a relatively new area in most health care organizations. Its responsibilities include: applying engineering technology to diagnostic and treatment devices used by health care facilities through testing, maintaining, and repairing equipment; training; con- sultation with clinical staff concerning the capabilities, effi ciencies, and accuracy of the equipment; environmental testing; and incident and recall investigations that involve diagnostic or treatment equipment. The number and sophistication of technologies within health care institutions has increased signifi cantly in the past decade. Because of the expertise required for such a large variety of equip- ment, some health care organizations use outside service contracts for some or all of their technological equipment.

Maintaining Strategic Resources If there is a match between the present level of strategic resources and the require- ments of the strategy, then efforts should be made to maintain the fi nancial, human, information, and technology resources. These areas may represent key competitive advantages or disadvantages for an organization. Care should be taken to maintain those areas that are valued by customers and are a strength of the organization. In maintaining strategic resources the leader should do the following:

Financial

● Evaluate whether current fi nancial resources are being used effi ciently.

● Determine whether the liquidity is appropriate for meeting ongoing expenses.

● Seek ways to increase profi tability without sacrifi cing other mission- critical factors.

● Assess the current level of leverage to determine if there is an appropriate level of risk.

● Determine whether asset activity can be improved.

● Assess cash-fl ow management.

● Consider investment opportunities for idle cash.

Human Resources

● Develop training programs to maintain the current human expertise and capabilities.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 373

● Develop a management succession plan.

● Develop a job market network.

Information Systems

● Assess information systems growth needs.

● Develop information systems plans for operations and upgrades.

Technologies

● Make sure there is a plan for facilities and equipment maintenance.

● Develop a facilities and equipment replacement schedule.

● Periodically review the operating procedures, policies, and rules to keep them “lean.”

● Review environmental services activities and procedures.

● Evaluate current security procedures.

● Evaluate food service activities.

● Evaluate operation and maintenance procedures.

Changing Strategic Resources If there is a poor match between the present level of strategic resources and the requirements of the strategy, the goal should be to change the fi nancial and human resources, information systems, and strategic technologies to meet the needs of the strategy. As with the service delivery strategies and other support strategies, the organization must be particularly sensitive to situations where it is easy to build a strength (its own or the competition ’s) because the competition may create a short-term competitive advantage. For example, evidence suggests that the early adoption of technology is often driven by technological competition where competitive rivalry is high (thus the need to eliminate competitive disadvantage). On the other hand, late adoption of technology may be more a result of revenue considerations (the threat of los- ing revenue). 33

Changing the type or nature of the fi nancial and human resources, informa- tion systems, or facilities and equipment can be a diffi cult and long-term project. To change these strategic resources, the leader should do the following:

Financial

● Assess whether the current revenue can fi nance the change.

● Investigate the opportunities to fi nance the change through the issuance of stock and the infusion of additional equity.

● Investigate the opportunities to fi nance the change through bonds, mort- gages, bank loans, fund raising, or philanthropy.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

374 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

Human Resources

● Assess job markets to determine the availability of individuals possessing the new required skills.

● Begin recruiting for new skills.

● Develop training programs to retrain individuals with skills no longer needed.

Information Systems

● Consider outsourcing needed changes in information systems.

● Assess the impact of needed changes on the current information systems.

● Assess needs of information systems in pre-service, point-of-service, and after-service activities.

Technologies

● Identify the exact specifi cations of the need for facilities, equipment, or processes, including space needs.

● Perform cost analysis on the required changes.

● Develop timelines for changing the technologies.

● Investigate the fi nancing alternatives for the required changes.

● Investigate any new required skills or experience to operate or maintain the new facilities or equipment.

● Specify any new required processes or ways of doing things.

● Initiate the facilities, equipment, and technology management renewal.

Extending the Strategic Thinking Map

There are many ways to add value in organizations. The value-adding support strategies provide a powerful means to change the organization and create com- petitive advantage, especially because some of the value-adding support activities are less visible to those outside the organization, making the competitive advan- tage much more diffi cult to imitate or duplicate. Decisions concerning the organi- zation ’s culture, structure, and resources are strategic in nature and should be made by strategic thinkers. The effectiveness of the organization ’s overall strategy may be infl uenced or even determined by the effectiveness of these implementa- tion strategies. Exhibit 9–6 shows a completed strategic thinking map that com- pares the results of an internal environmental analysis and the selected strategy requirements and proposed value-adding support strategies for a long-term care organization. This map extends and further articulates the strategic thinking maps developed in strategy formulation and the development of the value-adding ser- vice delivery strategy. In addition, as with the service delivery strategies, guidance for managing the strategic momentum is provided so that unit managers may develop effective action plans that are tied directly to the organization ’s strategy.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

EXHIBIT 9–6 Strategic Thinking Map for Value-Adding Support Strategies for a Long-Term Care Organization: An Example

Adaptive strategy: Vertical integration – enter into a system of care. Market entry strategy: Enter into an alliance with hospital to assure referral network. Strategic posture: Move from defender posture to analyzer posture. Positioning strategy: Diff erentiation based on quality, upscale image.

Characteristics/Attributes Evaluation

Maintain Change

Support Strategy

Value-Adding Support Strategies

Results of Internal Analysis

Requirements of Selected Strategies

Comparison of Strategy Requirements and Results of Internal Analysis

Guidance for Organizational Units (Basis for Unit Action Plan Development)

Organizational culture ● Assumptions ● Values ● Behavior ● Norms

Strong, positive culture based on religious affi lia- tion, caring environment with appropriate behav- ioral norms (seen as competitive advantage: valuable, rare, diffi cult to imitate, and sustainable).

Culture refl ects upscale diff eren- tiation positioning strategy.

Good match. However, culture (values and behavior norms) will need to be transferred to alliance partner (requires major organi- zation eff ort to maintain competitive advantage).

X

HR – Emphasize importance of the organization ’s culture and image, review and discuss the values/behavior norms, discuss mission, vision, values, and strategic goals with new alliance partner.

Organizational structure

● Function ● Division ● Matrix

Strong functional struc- ture (some communica- tion problems across functions, seen as short- term competitive disad- vantage: valuable but fairly easy to fi x).

Strategy requires specialization, ver- tical integration through alliance moves organiza- tion toward more decentralization.

Fairly good match. However, need to increase coordination and communication, improve communica- tions and coordination through executive and standing committees. Cross-functional task force needed to plan and facilitate alliance.

X

All units – more discussion at executive and departmen- tal meetings, create cross- functional task force to plan and implement alliance with appropriate hospital, initiate training program on commu- nication and coordination.

(Continued)

375Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

Adaptive strategy: Vertical integration – enter into a system of care. Market entry strategy: Enter into an alliance with hospital to assure referral network. Strategic posture: Move from defender posture to analyzer posture. Positioning strategy: Diff erentiation based on quality, upscale image.

Characteristics/Attributes Evaluation

Maintain Change

Support Strategy

Value-Adding Support Strategies

Results of Internal Analysis

Requirements of Selected Strategies

Comparison of Strategy Requirements and Results of Internal Analysis

Guidance for Organizational Units (Basis for Unit Action Plan Development)

Strategic resources ● Human resources ● Information

systems ● Strategic

technologies ● Financial resources

Shortages of clinical per- sonnel, reward system not tied to performance (not seen as competitive disadvantage because the problems are com- mon in the industry). Little management depth, information system weak, many billing problems (competitive disadvan- tages). Excellent facili- ties, recently remodeled, equipment is state of-the- art, eff ective management facilities and technology (competitive advantage: valuable, rare, diffi cult to imitate, and sustainable). Strong fi nancially.

Strong staff to pro- vide long-term con- tinuity of care and maintain image.

Superior IS to sup- port diff erentiation strategy. Positioning strategies (upscale diff erentiation) requires quality facil- ities and technology.

Poor match in the areas of HR and IS. Need to be improved to imple- ment strategy. Most problems in HR concern personnel shortages, lack of management depth, and the reward system. Need major emphasis on recruit- ment of management and technical staff .

Information system out- dated. Need develop- ment of patient record and billing system. IS critical to the selected positioning strategy. Good match: facili- ties and technology, continual upgrade and maintenance needed. Finances available to support the strategy.

X

X

X

X

HR – create recruitment pack- age to attract and retain key management personnel and technical personnel, develop performance/reward proposal tied to behavior norms identi- fi ed in internal analysis.

IS – purchase new billing system, create overall informa- tion systems strategy.

Technologies – install mainte- nance and upgrade schedule, ensure state-of-the-art facili- ties and equipment, ensure housekeeping keeps appear- ances up to high standards, state-of-the-art facilities and equipment in promotional materials, continue image promotions that emphasize diff erentiation strategy.

Finance – budget for facilities and equipment upgrades uti- lizing current revenues.

EXHIBIT 9–6 (Continued)

376Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 377

Managing Strategic Momentum – Support Strategies

The actual management of the support strategies includes the managerial pro- cesses, procedures, style, and technologies of the organization and is an inher- ent part of the organization and the way it operates. Strategic thinking and strategy evaluation should be regarded as normal and necessary parts of what the organization and its managers do. Through the setting of objectives, the per- formance appraisal process, the compensation program, and so on, managers’ actions are coordinated toward agreed-upon organizational objectives. Strategic thinking and strategic evaluation become part of the operating procedures and culture (shared values) of the organization. Additional questions to aid strategic managers in managing the support strategies and evaluating their progress and appropriateness are presented in Exhibit 9–7 .

Lessons for Health Care Managers

The value chain activities provide the basis for strategy implementation. After the value-adding service delivery strategies have been developed, the value-adding support strategies should be formulated. The value-adding support strategies are important in implementing the overall strategy and include organizational culture, organizational structure, and strategic resources. These strategies work together with the service delivery strategies to effectively implement the organi- zation ’s strategy.

EXHIBIT 9–7 Strategic Thinking Map for Evaluation – Support Strategies

1. Is the organization ’s culture appropriate for the overall strategy? 2. Are the organization ’s values refl ected in the service delivery? 3. Are the behavioral norms appropriate for the strategy? 4. Are the management processes (the way we do things) appropriate for the strategy? 5. Does the organizational structure help to facilitate the overall strategy? 6. Is there a balance between standardization and fl exibility? 7. Are additional coordinating or collateral structures required? 8. Does the organization have the fi nancial resources to carry out the strategy? 9. Does the organization have the appropriate human resources, skills, policies, and proce-

dures for the strategy? 10. Is the management talent appropriate? 11. Do the information systems help to facilitate the strategy? 12. Are the facilities and equipment up to date and appropriate to carry out the overall strategy?

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

378 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

As with the service delivery strategies, the results of the internal environ- mental analysis for each of the support activities in the value chain must be compared with the requirements of the strategies selected in the strategy for- mulation stage of the strategic management process. Results of that comparison indicate whether there needs to be a strategy that maintains the current status of the support activity or a strategy that changes the support area. Value-adding support strategies typically maintain current strengths or build new ones, or cor- rect weaknesses in the support activities. For each of the value-adding support areas, actions for maintaining or changing the area are recommended as a way to initiate strategic thinking.

The organizational culture permeates the organization and is defi ned in terms of the shared assumptions, shared values, and accepted behavioral norms. Strategic managers must decide if the organization ’s culture will contribute to the accomplishment of the strategy or must change over time. Therefore, the current assumptions, values and norms must be compared with the requirement of the selected strategy.

The organizational structure should help to implement the strategy. The fundamental building blocks of organizational structure are functional, divi- sional, and matrix designs as well. Each structure has its advantages and dis- advantages, and the decision concerning which structure is best to carry out the strategy is based on the need for standardization versus fl exibility. Where a high degree of standardization is required, functional structures are desirable. Where a high level of fl exibility is required because of diversity of product or markets, or where markets are rapidly changing, divisional or matrix structures may work best. Most organizations use a combination of designs supplemented with coordinating structures such as project teams and cross-functional task forces.

An organization ’s strategic resources are critical for most strategies – direc- tional, adaptive, market entry, and competitive. Adequate resources allow for a number of strategic alternatives, whereas having few strategic resources inhibits strategy implementation. Strategic resources include fi nancial, human, informa- tion, and technological resources. People are always key and different strategies require different human talents. Responsibility for recruiting and developing the right human resources for the strategy falls to leadership. Strategic information systems and decision support systems can create competitive advantage for organizations through improved customer service and more effi cient and effec- tive service delivery. The selection of the strategic technologies is a decision of the strategic leader and is central to strategy implementation. Strategic technolo- gies include the type of facilities and the type and sophistication of equipment. The strategic technologies decisions set the physical context and level of sophis- tication for service delivery and affect everything from the organization ’s image to patient satisfaction.

An example of value-adding support strategies developed through a compari- son of the results of an internal analysis and the requirements of the selected strategies for each are presented to extend strategic thinking. Chapter 10 dem- onstrates how individual organizational units must set objectives and develop action plans based on the value-adding service delivery strategies and support strategies selected to achieve directional and adaptive strategies.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 379

Health Care Manager ’s Bookshelf

Thomas H. Davenport and Jeanne G. Harris, Competing on Analytics: The New Science of Winning (Boston, MA: Harvard Business School Press, 2007)

Many of the historical bases for competitive advantage are no longer signifi cant advan- tages. For example, geographical or location advantage is less important in today ’s global society, proprietary technologies are rapidly duplicated, and breakthrough innovations are increasingly diffi cult to achieve. Today, competitive advantage lies more in operating effi ciently and eff ectively and making consist- ently smart business decisions. Analytics can inform these decisions.

Analytics is defi ned as the extensive use of data, statistical and quantitative analy- sis, exploratory and predictive models, and fact-based management to drive decisions and actions (p. 9). Analytics can be useful in supporting almost any business process; however, to take advantage of analytics and ultimately achieve a competitive advantage, organizations must have an attribute at which they are better than other organizations in their strategic group – they must have a dis- tinctive resource, competence, or capability. Analytical competitors are organizations that have identifi ed and selected a few distinc- tive resources, competencies, or capabilities on which to base their strategies and then applied extensive data, statistical and quanti- tative analysis, and fact-based decision mak- ing to support their decisions. Analytics are not strategies but rather aids in achieving the strategy.

Much of the research on operations in health care concerns fi nding better evi- dence-based medicine and treatment strategies for specifi c diseases. Despite the scientifi c nature of medicine, studies reveal that only one-quarter to one-third of medical decisions are based on science (p. 76). Increasingly, health care organi- zations are using analytics to predict the likelihood that members of a health plan will develop a higher risk for diseases over time. Healthways uses data for predictions and to identify ways to improve health outcomes, thereby reducing the cost to insurers. Healthways collects data on mem- bers’ demographics, claims, prescriptions, and so on. For the companies that employ Healthways, the information provided rep- resents analytical capabilities that are hard to duplicate, unique, adaptable, renewable, and better than what competitors have for decision making. 1 Businesses have pio- neered the application of analytics to pre- dict who will be at highest risk for higher medical bills in the future (p. 77). Partners HealthCare in Boston has several initiatives to improve health care outcomes through clinical support systems to aid physicians and other health care providers.

Analytical competitors are organizations that use analytics extensively and system- atically to out-think and out-execute com- petitors. These organizations possess the following four characteristics: (1) analytics is used to support a distinctive resource, com- petence, or capability; (2) the approach to and management of analytics is enterprise wide; (3) senior leaders are committed to the

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

380 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

use of analytics; and (4) the organization has made a signifi cant strategic bet on analytics- based competition (p. 23).

Organizations that compete on the basis of analytics pass through fi ve stages. In Stage 1 they are analytically impaired. These organ- izations usually have negligible distinctive resources, competencies, or capabilities and virtually no metrics or measurements. Stage 2 organizations use localized analytics. The ana- lytics are opportunistic and may not signifi - cantly support the organization ’s distinctive attributes. Familiar metrics include conven- tions that might include return on invest- ment, for example. Stage 3 organizations have analytical aspirations. These organiza- tions begin eff orts for more integrated infor- mation and analytics. Future performance and market value are frequently used metrics. Stage 4 organizations are analytical organiza- tions with an enterprise-wide perspective and are able to use analytics to successfully

compete. Analytics are important drivers of performance and value. Finally, Stage 5 organizations are analytical competitors. These organizations gain signifi cant results and achieve a sustainable competitive advan- tage. Analytics are the primary drivers of per- formance and value in these organizations.

Winning by competing with analytics is not easy; organizations that compete suc- cessfully must have decision making. Health care, however, has many opportunities to learn from what business has accomplished using analytics for new and important areas in service industries.

REFERENCE

1. “Competing on Analytics,” Computerworld 41,

no. 38 (2007), pp. 52–54.

Source: Thomas H. Davenport and Jeanne G. Harris, Competing on Analytics: The New Science of Winning (Boston, MA: Harvard

Business School Press, 2007).

KEY TERMS AND CONCEPTS IN STRATEGIC MANAGEMENT

Behavioral Norms

Collateral Organization

Combination Structure

Culture

Decision Support System (DSS)

Divisional Structure

Facilities

Functional Structure

Matrix Structure

Shared Assumptions

Shared Values

Strategic Information System (SIS)

Strategic Resources

Strategic Technologies

Value-Adding Support Strategies

Questions for Class Discussion

1. What part does internal environmental analysis play in the development of value- adding support strategies? What part does strategy formulation play?

2. How do the value-adding support strategies create the “context” for strategy implementation?

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

CHAPTER 9 VALUE-ADDING SUPPORT STRATEGIES 381

3. What is organizational culture? How does it implement strategy?

4. What are the basic building blocks of structure? What are the advantages and disad- vantages of each?

5. In what circumstances might a high level of standardization be required? A high level of fl exibility?

6. Which do you think changes fi rst, strategy or structure? After formulating your answer and making your case, argue the opposite position.

7. What are the primary differences in the fi nancial strategies needed for expansion, contraction, and maintenance of scope?

8. What are the primary differences in the human resources strategies needed for expansion, contraction, and maintenance of scope? Which type of adaptive strategy is most diffi cult to implement from a human resources perspective? Why?

9. How can information systems be used to develop competitive advantage?

10. What changes are information systems bringing to health care?

11. Why is facilities management an increasing concern for strategic management?

12. How do facilities affect a health care organization ’s strategy?

13. How can the equipment–technology decision create competitive advantage?

14. How might future internal analyses be affected by the value-adding support strategies?

Notes 1. Nitin Nohria, William Joyce, and Bruce Roberson,

“What Really Works,” Harvard Business Review 81, no. 7 (2003), p. 47.

2. Marie Carney, “Infl uence of Organizational Culture on Quality Healthcare Delivery,” International Journal of Health Care Quality Assurance 24, no. 7 (2011), pp. 523–533.

3. Ralph Stacey, “Strategy as Order Emerging from Chaos,” Long Range Planning 26, no. 1 (1993), pp. 10–17. See also Harry C. Triandis, “The Many Dimensions of Culture,” Academy of Management Executive 18, no. 1 (2004), pp. 88–93.

4. D. R. Denison, “Bringing Corporate Culture to the Bottom Line,” Organizational Dynamics 12, no. 12 (1984), pp. 5–22.

5. Liz Gill, Leslie White, and Ian Douglas Cameron, “Service Co-Creation in Community-Based Aged Healthcare,” Managing Service Quality 21, no. 2 (2011), pp. 152–160.

6. Michael Beer and Russell A. Eisenstat, “How to Have an Honest Conversation About Your Business Strategy,” Harvard Business Review 82, no. 2 (2004), p. 83.

7. James M. Higgins and Craig McAllister, “If You Want Strategic Change, Don ’t Forget to Change Your Culture,” Journal of Change Management 4, no. 1 (2004), pp. 63–74.

8. Alfred C. Chandler, Strategy and Structure (Cambridge, MA: MIT Press, 1962).

9. Jungyoon Kim, “Organizational Structure and Change Process in Long-Term Care: A Confi gurational Study,” Journal of Healthcare Management 56, no. 6 (2011), pp. 419–430.

10. Nir Menachemi, Valerie A. Yeager, W. Jack Duncan, Charles R. Katholi, and Peter M. Ginter, “A Taxonomy of State Public Health Preparedness Units: An Empirical Examination of Organization Structure,” Journal of Public Health Management Practice 18, no. 3 (2010), pp. 250–258; W. J Duncan, P. M. Ginter, A. C. Wingate, and L. C. McCormick, “Organization of Emergency Preparedness in State Health Departments,” Public Health 121, no. 4 (2007), pp. 241–251; E. W. Ford, W. J. Duncan, and P. M. Ginter, “The Structure of State Health Departments,” Medical Care Research & Review 60, no. 1 (2003), pp. 31–57; T. C. Reeves, W. J. Duncan,

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.

382 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS

and P. M. Ginter, “Strategic Confi gurations in Health Service Organizations,” Journal of Business Research 56, no. 3 (2011), pp. 31–43.

11. Harold J. Leavitt, “Why Hierarchies Thrive,” Harvard Business Review 81, no. 3 (2003), p. 98.

12. Ibid., p. 102. See also Andrew B. Whitford, “Unitary, Divisional, and Matrix Forms as Political Governance Systems,” Journal of Management Governance 10, no. 2 (2006), pp. 435–454.

13. John R. Griffi th and Kenneth R. White, The Well- Managed Healthcare Organization , 5th edn (Chicago: Health Administration Press, 2002), p. 163; M. C. Moldeveanu and Robert M. Bauer, “On the Relationship between Organizational Complexity and Organizational Structuration,” Organization Science 15, no. 1 (2004), pp. 98–119.

14. Nohria, Joyce, and Roberson, “What Really Works,” p. 49; Bruce A. Waters and Shahid N. Bhuian, “Complexity Absorption and Performance: A Structural Analysis of Acute-Care Hospitals,” Journal of Management 30, no. 1 (2004), pp. 97–122.

15. Stephen L. Walston and Richard J. Bogue, “The Effects of Reengineering: Fad or Competitive Factor?” Journal of Healthcare Management 44, no. 6 (1999), pp. 456–474.

16. Judy Wade, “How to Make Reengineering Really Work,” Harvard Business Review 71, no. 6 (1993), pp. 119–131.

17. Stephen Lee Walston, Lawton Robert Burns, and John R. Kimberly, “Does Reengineering Really Work? An Examination of the Context and Outcomes of Hospital Reengineering Initiatives,” Health Services Research 34, no. 6 (2000), pp. 1363–1388.

18. Ibid. 19. Per Nikotaj Bukh and Christian Nielsen, “Understanding

the Health Care Business Model: The Financial Analysts Point of View,” Journal of Health Care Finance 37, no. 2 (2010), pp. 8–27.

20. Joseph F. Michlitsch, “High-Performing, Loyal Employees: The Real Way to Implement Strategy,” Strategy & Leadership 28, no. 6 (2000), pp. 28–33; Barry A. Colbert, “The Complex Resource-Based View: Implications for Theory and Practice in Strategic Human Resource Management,” Academy of Management Review 29, no. 3 (2004), pp. 341–358.

21. Bryan Dieter and Doug Gentile, “Improving Clinical Practices Can Boost the Bottom Line,” Healthcare

Financial Management 47, no. 9 (1993), pp. 38–40; Lynda Gratton and Catherine Truss, “The Three- Dimensional People Strategy: Putting Human Resources Policies into Action,” Academy of Management Executive 17, no. 3 (2003), pp. 74–86.

22. Gerald L. Glandon, Detlev H. Smaltz, and Donna J. Slovensky, Austin and Boxerman ’s, Information Systems for Health Services Administration , 7th edn (Chicago: Health Administration Press, 2003); Alan H. Williams and Richard A. Cookson, “Equity–Effi ciency Trade-Offs in Health Technology Assessment,” International Journal of Technological Assessment in Health Care 22, no. 1 (2006), pp. 1–9.

23. Ibid. See also Johanna Gummerus, “E-Services as Resources in Customer Value Creation: A Service Logic Approach,” Managing Service Quality 20, no. 5 (2010), pp. 425–434.

24. Ibid. 25. Homer H. Schmitz, “Decision Support: A Strategic

Weapon,” in Marion J. Ball, Judith V. Douglas, Robert I. O ’Desky, and James W. Albright (eds), Health Information Management Systems (New York: Springer-Verlag, 1991), p. 47; Paul Morton, “Using Critical Realism to Explain Strategic Information Systems Planning,” Journal of Information Technology Theory and Application 8, no. 1 (2006), pp. 1–20.

26. Holly J. Wong, “The Diffusion of Decision Support Systems in Healthcare: Are We There Yet?” Journal of Healthcare Management 45, no. 4 (2000), pp. 240–249.

27. Ibid. 28. Offi ce of Technology Assessment, Bringing Health

Care Online: The Role of Information Technologies (Washington, DC: US Government Printing Offi ce, 1995).

29. Glandon, Smaltz, and Slovenski, Information Systems. 30. Janet R. Carpman and Myron A. Grant, Design That

Cares: Planning Health Facilities for Patients and Visitors , 2nd edn (Chicago: American Hospital Publishing, 1993).

31. Ibid., p. 19. 32. David A. Berkowitz and Melanie M. Swan, “Technology

Decision Making,” Health Progress 74, no. 1 (1993), pp. 42–47.

33. Leonard H. Friedman and James B. Goes, “The Timing of Medical Technology Acquisition: Strategic Decision Making in Turbulent Environments,” Journal of Healthcare Management 45, no. 5 (2000), pp. 317–330.

Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-05-20 20:46:24.

C op

yr ig

ht ©

2 01

3. J

oh n

W ile

y &

S on

s, In

co rp

or at

ed . A

ll rig

ht s

re se

rv ed

.