Corporate Strategic Goals

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Chapter 2 External Analysis

Why External Analysis Is Important

President Kennedy’s quote reminds us that organizational failure is often the result of failing to look to the future. Organizations fail to anticipate significant external changes and subsequently do not make the necessary adjustments in strategy that might save them. Organizational success is predicated on tailoring strategy – not to the past or even the present – but rather to well-informed, cred- ible assumptions about the future.

Looking to the future is both an art and a science. The art involves strategic think- ing and the science involves rigorous external analysis. Together, strategic think- ing and external analysis processes enable the generation of realistic strategic

“Change is the law of life. And those who look only to the past or present are certain to miss the future.”

—JOhn F. KenneDy, 35Th PresiDenT OF The UniTeD sTATes

Ginter, Peter M., et al. The Strategic Management of Health Care Organizations, John Wiley & Sons, Incorporated, 2018. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/franklin-ebooks/detail.action?docID=5228460. Created from franklin-ebooks on 2023-09-29 01:09:17.

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38 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

assumptions about the future for strategy building. Both the art and science are critical for envisioning the future.

The art of looking into the future requires a strategic manager who is informed about and perceptive to an organization’s external changes – requiring an external orientation and inquisitive awareness. strategic managers must be able to see the big picture, understand relationships, and use systems thinking. They have to use critical thinking to determine the consequences and implications of what they see. These leaders need creativity to transform change signals into actions as well as create visions and strategic goals. As introduced in Chapter 1, strategic thinking is an art made up of awareness, anticipation, analysis, interpretation, synthesis, and reflection driven by a passion to know, understand, and succeed.

The science of anticipating the direction of change involves using structured processes for understanding an organization’s external conditions – the general (macro-environment), health care system, and service area changes – utilizing the processes of a number of external analysis tools and techniques. These processes help organize and structure information, aid in focusing on what is important, and provide a foundation for integrative strategic thinking. external analysis coupled with strategic thinking will generate new perspectives and insights to provide a plausible glimpse of tomorrow.

Use the concepts in this chapter to see into the future!

learning objectives

After completing the chapter you will be able to: 1. Discuss the significance of external analysis for health care organizations. 2. Articulate the specific goals of external analysis. 3. Point out some limitations of external analysis. 4. Describe how various types of organizations in society (the macro-environment),

the health care system, and the service area influence the delivery of health care. 5. Identify major general environment, health care system, and service area trends

affecting health care organizations. 6. Describe the utilization of key sources of external information. 7. Discuss important techniques used to identify and analyze external issues, trends,

and events. 8. Suggest several questions to initiate strategic thinking that focus on identifying

and responding to external change.

Strategic Management Competency After completing this chapter you will be able to map and analyze external issues, trends, and events in the general environment, the health care system, and the service area for a health care organization.

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Chapter 2 external analysis 39

The External Nature of Strategic Management

external analysis requires strategic managers who search for ways to radically alter the status quo, create something totally new, or revolutionize processes. They search for opportunities to do what has never been done or to do known things in a new way. Therefore, the fundamental nature of strategic management requires awareness and understanding of outside forces. strategic managers encourage adoption of new ideas in the system, maintain receptivity to new ways of operating, and expose themselves to broad views. More specifically, leaders must have an understanding of the current and potential external issues, trends, and events that may impact the organization and be able to see new possibilities that these changes may bring. This understanding is informed through the pro- cess of external analysis. External analysis is a strategic thinking activity directed toward identifying, aggregating, and interpreting the issues outside an organiza- tion to determine the implications of those issues on the organization as well as providing information for internal analysis and the development of the direc- tional strategies. external analysis can remove the protective covering in which organizations often seal themselves.1 external analysis is a part of the situational analysis section of the strategic thinking map presented in Chapter 1 (exhibit 1–1).

The Goals of External Analysis Although the overall intent of external analysis is to position the organization within its industry and service area, more specific goals may be identified. The specific goals of external analysis are:

● To identify and analyze current important issues and changes that will affect the organization.

● To detect and analyze early or weak signals of emerging issues and changes that will affect the organization.

● To speculate on the likely future issues and changes that will have signifi- cant impact on the organization.

● To classify and order issues and changes generated by outside organizations.

● To provide organized information for the development of the internal analy- sis, mission, vision, values, goals, and strategy of the organization.

● To foster further strategic thinking throughout the organization.

in addition to the identification of current issues, external analysis attempts to detect early or weak signals outside the organization that may portend a future issue. Weak signals are early evidence of emerging trends from which it might be possible to deduce important changes in demography, technology, customer tastes, social, political or regulatory shifts, or economic patterns.2 sometimes based on little hard data, managers attempt to identify patterns that suggest emerging issues that will be significant for the organization. such issues, if they continue or actually do occur, may represent significant challenges or opportuni- ties. Timely identification of external issues aids in developing strategy.

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strategic managers must go beyond what is known and speculate on the nature of the industry, as well as the organization, in the future. This process often stimu- lates creative thinking concerning the organization’s present and future products and services. such speculation is valuable in the formulation of a guiding vision and the development of mission and strategy. The bulleted list of evolving exter- nal issues at the beginning of Chapter 1 provided some of the emerging and spec- ulative forces that strategic managers might incorporate into their thinking today. There is an abundance of such external data. For it to be meaningful, managers must identify the data sources and aggregate and classify the information. Once classified, important issues that will affect the organization may be identified and evaluated. This process encourages managers to view external changes as issues that may affect the organization.

When strategic managers – top managers, middle managers, and front-line supervisors – throughout the organization are considering the relationship of external forces to the organization, innovation and improved customer satis- faction are likely. strategic thinking within an organization fosters adaptability, and those organizations that adapt best will ultimately displace the rest.

The Limitations of External Analysis external analysis is critical for understanding external changes, but it provides no guarantees for success. The process has some practical limitations that the organi- zation must recognize. These limitations include:

● external analysis cannot foretell the future. ● Managers cannot see everything. ● sometimes pertinent and timely information is difficult or impossible to

obtain. ● There may be delays between the occurrence of external events and man-

agement’s ability to interpret them. ● sometimes there is a general inability on the part of the organization to

respond quickly enough to take advantage of the detected issue. ● Managers’ strongly held beliefs sometimes inhibit them from detecting

issues or interpreting them rationally.3

even the most comprehensive and well-organized external analysis processes will not detect all the changes taking place. events may occur that are significant to the organization but were preceded by few, if any, signals; or the signals may be too weak to be discerned.

Perhaps the greatest limiting factor in external analysis is the preconceived beliefs of management. in many cases, what leaders already believe about the industry, important competitive factors, or social issues, inhibits their ability to perceive or accept signals for change. Because of managers’ beliefs, signals that do not conform to what they believe may be ignored. What an individual actually perceives is often determined by established paradigms (ways of thinking and beliefs). Thus, data that exist in the real world that do not fit the paradigm will have a difficult time permeating the individual’s filters – he or she will simply not see it.4 As creativity

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Chapter 2 external analysis 41

expert edward De Bono explains, “[w]e are unable to make full use of the informa- tion and experience that is already available to us and is locked up in old structures, old patterns, old concepts, and old perceptions.”5 Despite long and loud signals for change, some organizations do not change until it is too late.

The Process of External Analysis

external analysis often is a complex undertaking. Therefore, a step-by-step process helps the identification and assessment of external issues likely to affect the organi- zation. As illustrated in exhibit 2–1, there are six steps to effective external analysis efforts.6 The strategic thinking states of awareness, anticipation, analysis, inter- pretation, synthesis, and reflection are particularly important in external analysis.

ExhIbIT 2–1 Process for External Analysis

Step 1 – Organize the External Analysis Process and Create an Issue Map Template

Step 2 – Scan the General Environment, Health Care System, and Service Area

Step 3 – Monitor and Con�rm External Issues

Step 4 – Forecast External Issues

Step 5 – Assess External Issues

Step 6 – Complete an Issue Map

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42 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Step 1: Organize the External Analysis Process engaging in strategic thinking and the process of external analysis can be over- whelming without some organization. Therefore, breaking the external analysis process into logical components can help focus strategic thinking to engage in the analysis process. in many respects organizations are similar to biological species – both are complex adaptive systems that are nested in broader systems. For example, natural systems are nested in the ecosystem, which is nested in the broader biological environment. similarly, health care organizations are nested in their service areas, the services areas are nested in the industry, and the industry is nested in the broader general or macro-environment as con- ceptualized in exhibit 2–2.7 in these nested systems, changes in one system will initiate changes in another system. For example, a change in national health policy, made in the macro-environment, will affect how the health industry

ExhIbIT 2–2 The Nested Environments of a Health Care Organization

General Environment

Health Care System

Service Area

Organization

• Government Institutions • Business Organizations • Educational Institutions • Religious Institutions • Research Organizations/Foundations • Individuals/Consumers

• Planning/Regulatory Organizations • Primary Providers • Secondary Providers • Provider Associations • Individuals/Patients

• Competitors • Government Services • Business Organizations • Not-for-Profit Organizations • Other Local Organizations • Individuals/Consumers

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Chapter 2 external analysis 43

works (the health care system). These changes in the health care system affect the service areas in which health care organizations operate and ultimately influence the way in which health care organizations operate in those service areas. reciprocally, actions by the organization will change the nature of the service area, changes in service area will be a factor in determining the nature of the health care system, and how the health care system will impact the general environment.

Within these nested systems, organizations and individuals create change. Therefore, if health care managers are to become aware of the changes tak- ing place outside their own organization, they must have an understanding of the types of organizations that are creating change and the nature of the change. When systems are nested, change generally cascades from one sys- tem to another; however, similar to the natural environment, changes in any one system may simultaneously affect the other systems as well as individual organizations.8

in this chapter we will explore the types of change initiated in the general envi- ronment, health care system, and the service area. Chapter 3 will focus on service area competitor analysis and Chapter 4 will examine the organization.

The General Environment All types of organizations and independent indi- viduals generate important issues – and subsequently change – within the general environment. For example, a research firm that is developing imaging equipment may introduce a new technology that could be used by a variety of other organi- zations in diverse industries such as hospitals (magnetic resonance imaging) and manufacturing (robotics). The general environment is the broadest system and members may be broadly classified in a variety of ways depending on the strate- gic management needs of the organization but certainly include:

● Government institutions. ● Business organizations. ● educational institutions. ● religious institutions. ● research organizations and foundations. ● individuals and consumers.

Organizations and individuals in the general environment, acting alone or in concert with others, initiate and foster the macro-environmental changes within society. These organizations and individuals generate economic, social/demographic, legislative/political, technological, and competitive change that will, in the long run, affect many different industries (including health care) and may even directly affect individual organizations. Therefore, external organizations engaged in their own processes, and pursuing their own missions and strategic goals, will affect other industries, organizations, and individuals.

in general, external changes affect a number of different sectors of the economy. For example, passage of the prescription drug bill during the George W. Bush presidency affected a variety of organizations as well as individuals,

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including insurance companies, organizations representing the elderly, and retir- ees. similarly, the early health care reform initiatives of the Obama administration resulted in the passage of ACA; however, its implementation was spread over a number of years and affected virtually all institutions in society, not just health care organizations. As U.s. national health care legislation evolves during the Trump administration, virtually all institutions and organizations will again be impacted.

The organization itself may be affected rather quickly by the economic, social/ demographic, legislative/political, technological, and competitive change initi- ated and fostered by organizations in the general environment. in the aggregate, these alterations represent the general direction of societal change that may affect the success or failure of any organization. Therefore, an organization engaging in strategic management must try to sort out the fundamental general environment changes and detect major shifts taking place. A shift in consumer attitudes and expectations concerning health care is an example of a societal change that may affect the success or failure of health care organizations. Demographic changes are somewhat more predictable and the growing number of seniors in the U.s. population will impact every aspect of society as well as the health care system. sometimes the demographics of the general environment provide leading indica- tors of health care trends.

Typically, as information is accumulated and evaluated by the organization, it will be summarized as issues affecting the industry or organization. The identi- fication and evaluation of the issues in society are important because the issues will accelerate or retard changes taking place within the industry and may affect the organization directly as well.

The Health Care System events in the health care system typically impact most significantly those organizations and individuals directly or indirectly involved in health care. Organizations and individuals within the health care system develop and employ new technologies, deal with changing social and demographic issues, address legislative and political change, compete with other health care organizations, and participate in the health care economy. Therefore, strategic managers should view the health care system with the intent of understanding the nature of all these issues and changes. Focusing attention on major change areas facilitates the early identification and analysis of industry-specific issues and trends that will affect the organization. in today’s health care system a more focused service area competitor analysis is typically required as well (see Chapter 3).

The wide variety of health care organizations makes categorization difficult; however, the health care system may generally be grouped into five segments: 1. Planning/regulatory Organizations. 2. Organizations that provide health services (primary providers). 3. Organizations that provide resources for the health care system (secondary

providers). 4. Organizations that represent the primary and secondary providers. 5. individuals involved in health care delivery and patients (consumers of

health care services).9

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Chapter 2 external analysis 45

exhibit 2–3 lists the types of organizations and individuals within each segment and provides examples. The categories of health care organizations listed under each of the health care segments are not meant to be all-inclusive, but rather to provide a starting point for understanding the wide diversity and complexity of the industry.

ExhIbIT 2–3 Organizations in the Health Care System

Planning/Regulatory Organizations

Federal regulating agencies ● Department of Health and Human Services (DHHS) ● Center for Medicare and Medicaid Services (CMS) ● Centers for Disease Control and Prevention (CDC) ● Food and Drug Administration (FDA) ● U.S. Agency for Toxic Substances and Disease Registry (ATSDR) ● Environmental Protection Agency (EPA)

State regulating agencies ● Public Health Departments ● State Health Planning Agency (e.g. Certificate of Need or CON)

Voluntary regulating groups ● The Joint Commission (accredits 21,000 health care organizations in the United States) ● National Committee for Quality Assurance (NCQA)

Primary Providers (Organizations that Provide Health Services)

Hospitals ● Voluntary (e.g. Barnes/Jewish Hospital) ● Governmental (e.g. Veteran’s Administration Hospitals) ● Investor-owned (e.g. HCA – The Healthcare Company, Tenet)

State public health departments

Non-hospital health care facilities ● Skilled nursing facilities (e.g. HCR ManorCare) ● Assisted living facilities (e.g. Brookdale Senior Living Solutions) ● Intermediate care facilities (e.g. Avalon Memory Care) ● Ambulatory care institutions (e.g. Ambulatory Care Centers) ● Hospices (e.g. Hospice Care & Palliative Care, Inc.) ● Home health care institutions (e.g. CareGivers Home Health)

Physicians’ offices

Secondary Providers (Organizations that Provide Resources)

Educational institutions ● Medical schools (e.g. Johns Hopkins, University of Alabama at Birmingham [UAB]) ● Schools of public health (e.g. The University of North Carolina at Chapel Hill, Harvard) ● Schools of nursing (Presbyterian School of Nursing) ● Health administration programs (University of Washington, The Ohio State University)

Organizations that pay for care (third-party payers) ● Government (e.g. Medicaid, Medicare) (See Essentials for a Strategic Thinker 2–1, “What is

Government Health Care Insurance?” for an overview of public health insurance) ● HMOs and IPAs (e.g. United Healthcare) ● Insurance companies (e.g. Prudential, Metropolitan)

(Continued)

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46 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

● Businesses (e.g. Microsoft, Ford Motor Company) ● Social organizations (e.g. Shriners, Rotary Clubs)

Pharmaceutical and medical supply companies ● Drug distributors (e.g. McKesson) ● Drug and research companies (e.g. Bristol Myers Squibb) ● Medical products companies (e.g. Johnson & Johnson, 3M, GE)

Organizations that Represent Primary and Secondary Providers

National associations ● American Medical Association (AMA) ● American Hospital Association (AHA)

State associations (e.g. Illinois Hospital Association, New York Medical Society)

Professional associations ● Health care (e.g. American College of Healthcare Executives [ACHE] or Medical Group

Management Association [MGMA]) ● Physicians (e.g. American College of Physician Executives [ACPE]) ● Medical products (e.g. Pharmaceutical Manufacturers Association [PMA])

Individuals and Patients (Consumers) ● Independent physicians ● Nurses ● Non-physician professionals (Physician Assistants, X-ray Technicians) ● Patients and consumer groups (American Heart Association)

Source: Adapted from Beaufort B. Longest Jr., Management Practices for the Health Professional, 4th edn (Norwalk, CT: Appleton & Lange, 1990).

ExhIbIT 2–3 (Continued)

ESSENTIALS fOr A STrATEGIC ThINkEr 2–1

What is government Health care insurance?

In the United States, there are several govern- ment programs that enhance access to health care for specific groups of eligible beneficiar- ies. Some programs only provide health insur- ance coverage such as Medicare, Medicaid, and Children’s Health Insurance Program (CHIP), whereas others may also deliver services directly to beneficiaries such as TRICARE (Military Health Care System, formerly CHAMPUS), the Veterans Administration (VA), and the Indian Health Service (IHS).

Medicare is a federal program that provides health insurance coverage to persons over the age of 65, some disabled workers, and people with end-stage renal disease (ESRD). Individuals who are assessed a payroll tax for forty quarters of employment and are over the age of 65 are eligible for Medicare coverage. People over the age of 65 may also buy into Part A. There is no dependent coverage under Medicare, but an individual that receives a spousal benefit under Social Security is also eligible for Medicare.

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Chapter 2 external analysis 47

The Medicare program consists of four parts: Part A (Hospital Insurance), Part B (Medical Insurance), Part C (Medicare Advantage), and Part D (Prescription Drug Insurance). Although Part A is funded by the Hospital Insurance Trust Fund (tax revenues), Parts B and D are funded by a combination of monthly premiums and gen- eral tax revenues. Part D coverage is provided by private insurers (premiums). Many Medicare beneficiaries purchase private Medigap policies (sold by insurance companies such as Humana, Blue Cross Blue Shield, and Aetna) to help with cost-sharing and supplement coverage. Rather than participating in traditional Medicare (i.e. Parts A, B, and D), beneficiaries may enroll in private Medicare Advantage Plans that typi- cally provide more coverage than traditional Medicare, but utilize narrower provider net- works (e.g. HMOs, PPOs). Additional premi- ums for Medicare Advantage Plans may be charged plus enrollees usually are required to pay the government-funded Part B premiums. For Medicare Advantage (Medicare beneficiaries have had the option to receive their Medicare benefits through managed capitated-fee health plans), Medicare pays the health plan a set amount every month (a per person set fee or capitation) at a capitated rate that is 95 per- cent of expenditures for beneficiaries under Medicare Parts A and B.

State Medicaid programs receive federal matching funds from the Federal Matching Funds Program (Maternal Health and Family Planning Program) to provide coverage to low-income pregnant women and children,

low income families, the elderly, persons on Supplemental Security Income (SSI), and disa- bled persons. Medicaid eligibility standards for the non-elderly vary greatly from state to state. Under the ACA Medicaid expansion, all adults with incomes below 138 percent of the Federal Poverty Level (FPL) are eligible for Medicaid cov- erage, but a number of states refused to expand Medicaid. A majority of states now contract with Medicaid Management Care Organizations (MCOs) to deliver services and most beneficiar- ies receive benefits through such plans. The Children’s Health Insurance Plan (CHIP) provides federal matching funds for coverage of children in families with incomes up to 300 percent FPL.

TRICARE provides health care in accordance with a group-priorities list to active duty/retired military, National Guard/Reserve members, and spouses and children through military facilities and civilian networks. In addition, the VA may pay for private care when wait times or com- mutes are excessive.

The Indian Health Services (IHS) provides care to members of federally-recognized tribes in the form of direct care (DC) and purchased/ referred care (PRC). Tribal members may receive DC from any IHS facility, but the availability of PRC care is geographically restricted to areas in close proximity to the home reservation. In addi- tion, tribal members are eligible to participate in all government programs open to the general population.

Source: Leonard J. Nelson, III, Adjunct Professor at UAB School of

Public Health and Professor Emeritus at Samford University.

The Service Area The service area is the geographic space surrounding the health care provider from which it pulls the majority of its customers/patients. it is often limited by sometimes ill-defined geographic borders. Beyond these borders, services may be difficult to render because of distance, cost, time, and so on; however, in some circumstances the service area might be world- wide. nevertheless, a health care organization must not only define its service

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area, but also understand the changes taking place that will directly affect the organization. Organizations generating change in the service area typically include:

● Competitors. ● Local government services. ● Local business organizations. ● Local not-for-profit organizations. ● Other local organizations. ● individuals and patients.

Defining the Service Categories The first step in defining the service area is to specify the service category to be analyzed because different service categories may have vastly different service areas. A service category is a distinct product/ service that may be defined very broadly (hospital care) or very narrowly (pedi- atric hematology) depending on the level of analysis. Many health care organiza- tions have several service categories or products, and each may have different geographic and demographic service areas. For a multihospital chain deciding to enter a new market, the service category may be defined as acute hospital care, but for a rehabilitation hospital, the service category might be defined as physi- cal therapy, occupational therapy, or orthopedic surgery. in addition, because many health care services can be broken down into more specific subservices, the level of service category specificity should be agreed on before analysis begins. For example, pediatric care may be broken down into well-baby care, infectious diseases, developmental pediatrics, pediatric hematology–oncology, and so on. Certainly pediatric hematology–oncology as a service category would have a far larger service area than well-baby care. A parent with a child who has cancer would travel farther (to a larger service area) for care from a specialist than a par- ent who sought well-baby care available from nurse practitioners in the neighbor- hood (smaller service area).

The service area is further defined by customers’ preferences and the health care providers that are available. The 21st-century consumer has become empowered by the amount of information available concerning disease conditions. exhibit 2–4 shows the determinants of a service area including the consumer variables and the market (provider) variables. For the consumer, the services needed could include health care that is preventive, diagnostic, alternative, routine, episodic, acute, chronic, or cosmetic. Usage rates would be related to a variety of economic, demographic, psychographic, and disease pattern variables.

Brand predisposition indicates the consumer has a preference for some health care providers over others. For example, if there is only one hospital in town, and the consumer does not like its “looks,” location, or perceived quality of care, he or she may prefer to drive to the nearest larger city. For routine medi- cal care, some consumers prefer to go to specialists; others prefer a primary care doctor; still others prefer clinics that have primary care physicians and specialists; and, finally, some consumers prefer physician assistants or nurse practitioners. These different consumer preferences will be determinants in defining the service area.

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Chapter 2 external analysis 49

Another group of consumer determinants will be related to personal factors such as personal and social values, epistemic (knowledge) values, past experi- ences, and the individual’s personal state of health. in concert, these variables develop the individual’s preferences for health care providers; however, if provid- ers are not available – meaning that limited or no options are in the immediate area, the consumer will travel greater distances to gain the desired care.

Options or choices are controlled by the health care structure. The market and organizations within it determine what will be offered or made available to the consumer. The “market” contains health care providers in a variety of locations that bear on convenience and image. Location includes drive time from home (or increasingly, work), availability of transportation, as well as access and parking ease. Convenience may be hours of operation, safety, availability of food, signs to assist in finding the way, and so on. image for the market entails positioning among the various providers. The health care provider might have the image of being more caring, friendlier, or more high-tech; or the practice may be perceived as attracting desirable or undesirable demographic, socioeconomic, or ethnic groups. The organization itself has a perceived or self-image of its services (health care) provided as well as its quality of service and the information provided.

ExhIbIT 2–4 Service Area Determinants

Services Type Personal Values Usage Rates Social Values Brand Predisposition Epistemic Values Preferred Image Past Experiences

Personal State of Health

Consumer Determinants

Location • Drive Time • Transportation • Parking Ease/Access

Convenience • Hours of Operation • Safety • Way�nding

Price Level Image

Services Available Service • Friendliness • Caring • Wait Time

Quality of Information • Website • Phone Consults • Brochures and Advertisements • Instructions • Demonstrations

Service Area

Market/Organization Determinants

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Location, convenience, and image are all in relationship to the other providers in the area, including those within driving distance and those that are remote but perceived as providing better quality, additional services, or other desirable characteristics. health care providers make these decisions, in part, based on their understanding of consumers’ needs and wants.

Managed care interrupts the normal decision making by consumers. An employed individual today usually has some choice in health care insurance. The employer may offer one or more different health plans; however, once the con- sumer has selected a managed care plan, the ability to choose providers – both hospitals and physicians – becomes more restrictive. And, in fact, the more the hMO attempts to control health care costs by further structuring health care delivery, the more restricted the choice becomes for consumers. restricted choice is not favored by most Americans and they have been quite vocal about it with their employers. The result is that many employers are only willing to commit to a health plan that offers choice (and thereby removes the quantity discounts previ- ously offered) and, hence, these organizations have seen health care cost increases in double digits.

Multiple Service Areas Understanding the geographic boundaries is impor- tant in defining the service area, but is often difficult because of the variety of services offered. in an acute care hospital, the service area for cardiac services may be the entire state or region, whereas the service area for the emergency room might be only a few blocks. Thus, for a health care organization that offers several service categories, it may be necessary to conduct several service area analyses. For example, the Des Moines, iowa market has two geographic components: the metropolitan area of the city as well as the suburbs of Polk County (popula- tion approximately 446,700) and the 43 primarily rural counties of central iowa that surround the capital (population of over 1 million). The issues for each of these multiple service areas may be quite different; therefore, considerable effort is directed toward understanding and analyzing the nature of the health care organization’s various service areas. At the same time, for certain organizations, defining only one service category may suffice (such as in the case of a long-term care facility in a major metropolitan area).

service areas will be unique for each organization. A national for-profit hos- pital chain may define its service area quite generally, but even then, different strategies may be in place. For example, hCA holdings inc. (hCA) is a holding company that owns and operates hospitals and related health care entities. As of 2017, it operated 171 hospitals and 118 freestanding surgery centers in 20 states and the United Kingdom.10 hCA’s strategy is to become a major health care presence in highly concentrated markets in the nation. On the other hand, the hospital Association of southern California owns more than 184 hospitals, 40 hospital systems, and numerous related professional associations and associate members.11 its strategy is to improve the operating environment for member hospitals and the health status of the communities they serve in Los Angeles, Orange, riverside, san Bernardino, santa Barbara, and Ventura counties in California (note that this six-county service area contains a population of over 19 million – larger than the population of all states except California, Texas, Florida, and new york).

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Chapter 2 external analysis 51

ESSENTIALS fOr A STrATEGIC ThINkEr 2–2

What is a community?

Community is a very important concept in public health as well as health care policy, plan- ning, and management. In general parlance, a community refers to a group of people living together in a defined place; the place could be a neighborhood, a rural village, an urban area, or an entire country. In addition, community implies a collective group of individuals who share some feature in common, be it a pro- fession (the scientific community), a religion (the Jewish community), or some other char- acteristic (the LGBT community, the Hispanic community).

The public health community (a group of professionals who share a common purpose) spends considerable effort monitoring the health of communities (groups of people living together in geographic areas within states and nations) because of its interest in promoting and preserving the health of entire populations. Issues relating to the larger community within which health care organizations do business

must be critically examined and either accom- modated or exploited to promote successful health care outcomes.

In this context, the community represents the service area within which health care organizations function, while also represent- ing a set of community factors – values, needs, resources, and constraints – that may suggest modifications to a typical health care structure or the usual set of services offered/delivered. Therefore, the service area would include such factors as access to care, available financing strategies, the ways in which resources are allo- cated, and systems of accountability.

Examples of community factors that can affect health care organizations include:

● The level and scope (federal, state, regional, local) of governmental entities that regulate the health system and the extent of regulation directed at health care organizations.

An individual hospital, home health care organization, or hMO may define its service area much more specifically. in general, health services are provided and received within a well-defined service area, where the competition is clearly iden- tified and critical forces for the survival of the organization originate. For instance, hospitals in rural areas have well-defined service areas for their particular ser- vices. These hospitals must be familiar with the needs of the population and with other organizations providing competing services. similarly, the service areas for public health departments vary within a state, depending on whether they are metropolitan or rural, and may suggest quite different opportunities and threats.

Determining the geographic boundaries of the service area may be highly subjective and is usually based on factors such as patient histories, the reputation of the organization, available technology, physician recognition, and so on. in addition, geographic impediments such as rivers, mountains, and limited access highways can influence how the service area is defined. The definition of com- munities (see essentials for a strategic Thinker 2–2, “What is a Community?”) is often helpful in determining a service area.

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● The nature and scope of professional organizations that set standards, accredit, or otherwise engage in accountability functions for health care organizations.

● The nature and scope of health care financing agencies, including purchasers and private and public insurers, that participate in the health care marketplace in the community.

● The availability of health care providers, facilities, supplies, and ancillary services across the community.

● The characteristics of the populations ultimately paying for and receiving health care services. These characteristics could include socioeconomic status (education, occupation, and income),

race and ethnicity, language, family structure, health status, health risk, and health-seeking behaviors.

A community, then, in this context, can refer to the health care community, the com- munity of individuals served by a health care system, the physical community within which the individuals reside and the health system functions, and the service area within which any given health care organization operates. Identifying and considering the community of interest (service area) facilitates strategic plan- ning and strategic management of health care organizations.

Source: Donna J. Petersen, MHS, ScD, CPH, Dean, College of Public

Health, University of South Florida.

External Information Categories Breaking the external macro-environment into the general environment, the health care system, and the service area compo- nents helps focus strategic thinking and external analysis. similarly, categorizing issues by type – economic, social/demographic, legislative/political, technologi- cal, and competitive – further aids in focusing on the identification of issues. such categories not only assist in tracking but also facilitate the subsequent assessment of the issues. issues are not inherently categorical; however, using these categories helps managers to understand the nature of the issues and aggregate and organize information. Through the aggregation and organization process, patterns may be identified and evidence accumulated on an issue.

Combining the system components with these categories of issues results in an issue map. More specifically, an issue map is a matrix of issues that com- bines the components of the external systems (general environment, health care system, and service area) on one axis with categories of issues (economic, social/demographic, legislative/political, technological, and competitive) on the other axis. The format of the issue map that organizes the external analy- sis process is shown in exhibit 2–5. The cells of the issue map may be filled in with identified issues and their implications through the remaining steps of the external analysis process – the scanning, monitoring, forecasting, and assessing stages. Additionally, the issue map will provide the foundation for a more focused analysis of the organization’s competitors in the service area (Chapter 3).

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Chapter 2 external analysis 53

ExhIbIT 2–5 External Issue Map

Issue Map

General Environment Service Area

Health Care System

Categories of Issue

Economic

Competitive

Technological

Legislative/ Political

Social/ Demographic

Step 2: Scan the General Environment, health Care System, and Service Area

Scanning is the process of identifying and documenting a number of external organizations in the general environment, health care system, and service area in search of pertinent, current, and emerging trends/issues. scanning the exter- nal systems requires the strategic thinking states of awareness and anticipation. strategic managers who practice effective external analysis are so “close” to the external issues that by the time change becomes apparent to others, they have already detected the signals of change and have explored the significance of the changes. These managers are often called visionaries; however, vision is often the result of their strategic awareness – thoughtful detection and interpretation of subtle signals of change. such strategic managers are able to eliminate predictable surprises for the organization – surprises that should not have been. These man- agers are able to avoid disasters by recognizing the issue, making it a priority in the organization, and mobilizing the resources required to address it.12 “The most important task of an organization’s leader is to anticipate crisis. Perhaps not to avert it, but to anticipate it. To wait until the crisis hits is already abdication. One has to make the organization capable of anticipating the storm, weathering it, and in fact, being ahead of it.”13

To be successful, health care organization leaders must have an understanding of the external systems in which they operate; they must anticipate and respond

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to the significant shifts taking place within those systems. strategic thinking, and the incorporation of that thinking into the strategic plans for the organization, is now more important than ever. “in times of turbulence the ability to anticipate dramatically enhances your chances of success. Good anticipation is the result of good strategic exploration.”14 Organizations that fail to anticipate change, ignore external forces, or resist change will find themselves out of touch with the needs of the market, especially because of antiquated technologies, ineffec- tive delivery systems, or outmoded management. institutions that anticipate and recognize significant external forces and modify their strategies and opera- tions accordingly will prosper. essentials for a strategic Thinker 2–3, “What Are inevitable and Predictable surprises and Gray rhinos?” examines the nature of these “surprises.”

ESSENTIALS fOr A STrATEGIC ThINkEr 2–3

What Are inevitable and Predictable surprises and gray rhinos?

Inevitable surprises are events occurring in the future that have discernable signs, patterns, or signals of their occurrence today. By examin- ing the dynamics at work, the strategist can predict the inevitable surprises of tomorrow; thus the future is foreseeable.1 Occurrence is inevitable and prediction is possible because many “surprises” are already taking place through predetermined events – forces that can be anticipated with certainty. If these events are identified, will there be surprises? The answer is simple – while the events are predetermined, the timing, results, and conse- quences are not.

Predetermined events can be anticipated because their early stages are already in motion – either they have already happened or they are currently happening, and experienced strate- gists are able to characterize likely implications. Leaders can increase the probability of success- fully predicting future events and trends by using a systems approach and incorporating the elements of strategic thinking into the deci- sion making process (awareness, anticipation, analysis, interpretation, synthesis, reflection). By

training themselves to carefully consider exter- nal systems, analyze data, question assumptions, and generate new ideas, decision makers can develop the ability to forecast predetermined events and even second- and third-degree effects that will impact the organization.

A related concept, that of predictable surprises, indicates that leaders may not be able to anticipate crises because of their cognitive, organizational, or political short- comings.2 Such faults may include inher- ent biases (cognitive); faulty external scans that do not identify threats or do not col- lect and analyze information appropriately (organizational); or specialized interests that invoke individuals or groups to act in their own self-interest rather than the organiza- tion as a whole (political). Those in leadership positions must champion the recognition of threats that are emerging, the subsequent prioritization of threats, and the activation of effective response.

In contrast to inevitable and predictable surprise, gray rhinos are high-probability, high- impact issues that everyone acknowledges

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Chapter 2 external analysis 55

as threats because a series of signals and vis- ible evidence has occurred. Leaders can see them coming yet fail to address them (obvious but neglected risks).3 These issues tend to be significant social, economic, and political issues or unsolved problems that threaten a profound impact and yet are not typically addressed until they create disaster. Such issues might include growing income inequal- ity, a deepening racial divide, global warming (climate change), political gridlock, or lack of access to health care for millions of people. Charging gray rhinos may pose significant risks to organizations; therefore, leaders must work to induce momentum for positive change or be flattened by inaction.4

Leaders can improve their organization’s abil- ity to anticipate and respond to events by learn- ing to recognize behaviors that cloud judgment (such as cognitive, organizational, and politi- cal imperfections) and incorporating lessons learned into the organizational culture.

RefeRenCeS

1. Peter Schwartz, Inevitable Surprises: Thinking

Ahead in a Time of Turbulence (New York:

Gotham Books, 2003).

2. Max Bazerman and Michael D. Watkins,

Predictable Surprises: The Disasters You Should

Have Seen Coming and How to Prevent Them

(Boston, MA: Harvard Business School Press,

2004).

3. Michele Wucker, The Gray Rhino (St. Martin’s

Press, 2016).

4. Ibid.

See also: Predictable Surprises: The Disasters You Should Have Seen Coming and How to Prevent Them (Parameters, 2006). Book Review by Mark J. Eshelman, retrieved from www.thefreelibrary. com/Predictable±Surprises%3A±The±Disasters ±You±Should±Have±Seen±Coming±and± …-a0148856135.

Source: Lauren Wallace MPH, MPA, DrPH Candidate, University of

Alabama at Birmingham.

Organizational and Individual Focus A number of organizations and individuals comprise the general environment, health care system, and service area. some external organizations and individuals have little direct involvement with the health care system while others are directly connected. The distinction is not always clear. These organizations and individuals, through their normal oper- ations and activities, are generating changes that may be important to the future of other organizations. Changes in the general environment are always “breaking through” to the health care system. For example, health care often advances hand in hand with technology, as is the case with the convergence of imaging technol- ogy and biotechnology – enabled by advanced health care information technology – which promises to radically change diagnosis and treatment for many chronic diseases.15

The external scanning process acts as a “window” to these organizations. These organizations and individuals are generating strategic issues that may shape the entire health care system or have a direct impact on any one health care organiza- tion. Managers engaged in external scanning carry out three functions. They: 1. View external data. 2. Organize external information into several desired categories. 3. identify issues within each category.

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http://www.thefreelibrary.com/Predictable%C2%B1Surprises%3A%C2%B1The%C2%B1Disasters%C2%B1You%C2%B1Should%C2%B1Have%C2%B1Seen%C2%B1Coming%C2%B1and%C2%B1%E2%80%A6-a0148856135

56 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Strategic issues are external trends, developments, dilemmas, and possible events that affect an organization and its position. strategic issues are often ill-structured and ambiguous and require effort in interpretation.16 Often, in attempting to identify important external issues, general labels such as oppor- tunities or threats are used to classify issues. however, signals are typically neutral in their implications and their interpretation can only be assessed in the context of strategy.17 Therefore, at this stage in strategic planning, it is ben- eficial to avoid using the terms opportunities/threats, positive/negative, gain/ loss, or controllable/uncontrollable, and instead consider the consequences of the issue itself. strategies can be worked out later, after leaders have a better understanding of external issues as well as internal resources, competencies, and capabilities.

The scanning function serves as the organization’s “window” or “lens” on the external world. The scanning function is a process of viewing a number of external organizations either in the general environment, health care system, or service area in search of current and emerging trends or issues. in the scan- ning process, planners focus on data generated by external organizations and individuals, and compile and organize it into meaningful categories. As a result, external issues are organized through the scanning process. Prior to this interpre- tation process, issues are diverse, unorganized, sporadic, mixed, and undefined. The scanning process categorizes, organizes, accumulates, and, to some extent, evaluates issues.

Information Sources There are a variety of sources for external information. Although organizations create change, they are often difficult to monitor directly. however, various secondary sources (published information) are readily avail- able. essentially, people and publications both outside and inside the organiza- tion serve as external information sources. Typically, within the organization, there are a variety of experts who are familiar with external issues and who may be the best sources of such information. in addition, many organizations collect patient and consumer information, and subscribe to and archive industry, techni- cal reports, and databases. Outside the health care organization, patients, physi- cians, nurses, suppliers, third-party payers, pharmaceutical representatives, and managed care companies may be considered important direct sources. indirect sources are mostly newspapers and journals, the internet, television, libraries, and public and private databases.

external scanning is perhaps the most important part of external analysis because it forms the basis for the subsequent processes. in the scanning activity, issues and changes are specified and sources identified. it is from this begin- ning that a database for decision making will be built. it is crucial that managers understand the thinking that led to the development and selection of strategic and tactical issues from among those identified in the scanning process. it is therefore advantageous if as many managers as possible take part in scanning. An important aspect of external scanning is that it focuses leaders’ attention on what lies outside the organization and enables them to create an organization that can adapt and learn.

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Chapter 2 external analysis 57

Step 3: Monitor and Confirm External Issues Monitoring is the tracking of issues identified in the scanning process to add data concerning the issue to confirm or deny its impact. This activity accomplishes four important functions: 1. researches and identifies additional sources of information for specific

issues delineated in the scanning process that were determined to be important or potentially important to the organization.

2. Adds to the external issue database. 3. Attempts to confirm or disprove issues (trends, developments, dilemmas,

and the possibility of events). 4. Attempts to determine the rate of change within issues.

Once the organizations creating change and the publications or other infor- mation sources reporting change have been identified, special attention should be given to these sources.

The monitoring function has a much narrower focus than scanning; the objec- tive is to accumulate a database around an identified issue. The database will be used to confirm or deny the trend, development, dilemma, or possibility of an event and to determine the rate of external change taking place.

The intensity of monitoring is reflected in management’s understanding of the issue. When managers believe they understand the issue well, less monitor- ing will be done. however, when external issues appear ill-structured, vague, or complex, the issues will require a larger amount of data to arrive at an interpretation.18

Step 4: forecast External Issues Forecasting external change is a process of extending the trends, developments, dilemmas, and events that the organization is monitoring to predict the future state. Further, forecasting looks at how hidden trends in the present signal possi- ble changes in direction for organizations and societies in the future. The forecast- ing function attempts to answer the question: “if these trends continue, or if issues accelerate beyond their present rate, or if this event occurs, what will the issues and trends ‘look like’ in the future?” An organization’s forecasting competence (coupled with its assessment) can yield a competitive advantage.19

Three processes are involved in the forecasting function: 1. extending the issues (trends, developments, dilemmas, or occurrences of an

event). 2. identifying the interrelationships among the issues. 3. Developing alternative projections.

Step 5: Assess External Issues information concerning external issues, though abundant, is seldom obvious in its implications. strategic managers must interpret the data they receive.

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ESSENTIALS fOr A STrATEGIC ThINkEr 2–4

What is Big Data Analytics?

Simplistically stated, Big Data means too much disparate data from too many sources to process with non-distributed techniques; thus analytics are employed. Big Data actually comprise multi- ple large datasets that are analyzed in conjunc- tion to uncover patterns and correlations among the data that likely would not be apparent if the datasets were analyzed independently. These collections of datasets include structured, semi- structured, and unstructured data extracted from many public and private sources that con- tribute to understanding or solving a complex problem. Such analyses are useful for operational purposes such as improving work processes and reducing cost, and for strategic purposes such as making future market predictions based on past sales behavior patterns.

Data VOlume

Compiling Big Data is not the point – Big Data provide no competitive advantage without ana- lytics (unless you are selling some exceptionally

important data to other users) – it is about the knowledge to be gleaned through expert explo- ration of the unique elements of the datasets in their combined contexts.

Data mining, the process of extracting knowl- edge about previously unknown relationships from massive datasets, is possible because of technological innovations such as cost-effective data storage options, high-speed distributed processing capability, robust device connectiv- ity with high-speed data transmission, and dis- tributed data platforms. Despite these and other technological capabilities available, Big Data still present many challenges to optimal utilization beyond the obvious challenge of volume.

Data VaRIety (DISPaRate Data StRuCtuReS)

Significant data from source databases may take many forms, including text, aggregated statistical data, raw data transmitted from mobile devices, video and graphic data, and other formats, that

After all, facts do not speak for themselves; one has to make sense of the facts, not just get them straight.20 Assessing is a process for the evaluation of the significance and impact of forecasted external issues on an organization that is largely non-quantifiable and therefore judgmental. The assessment process includes evaluation of the significance of the extended (forecasted) issue on the organization; identification of the issues that must be considered in the internal analysis; development of the vision and mission; and formulation of the strategic plan. however, even when exposed to identical issues, different managers may interpret their meaning quite differently. interpretations are a result of a variety of factors, including perceptions, values, past experiences, and context. Assessing may also initiate additional scanning, monitoring, and forecasting as part of the assessment process. Today, organizations are increas- ingly turning to “Big Data” and analytics in the assessment process. essentials for a strategic Thinker 2–4, “What is Big Data Analytics” examines Big Data and analytics in assessment.

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require sophisticated data management and analytical approaches. Data scientists with these skills are scarce.

Data VelOCIty

In the current environment, large volumes of data are captured and transmitted rapidly, often in real-time at exceptionally high speeds. Repositories of these data are dynamic or moving targets from an analytics perspective. Processing speed must be compatible with cap- ture speed.

Data VeRaCIty

The accuracy and reliability of data is a concern with any data analysis, and is compounded in Big Data rather than minimized, because analysis is based on numerous highly variable datasets, rather than a single constructed and cleaned dataset. Errors in one component data- set may affect a conclusion drawn from a com- plex relationship involving multiple datasets. Cleaning Big Data to enable analytics requires skilled data scientists, specific data tools, and much time.

Data CuRatIOn

The extreme volume of combined data, the variation among the multiple source datasets, and the velocity of data capture and processing all contribute to the challenge of establishing metadata for Big Data. Defining the logic model underlying the metadata structure and crafting a searchable data structure requires special tech- nical skills and data tools. Again, data scientists with these skills are scarce. Big Data, of neces- sity, are cloud-based, stored and processed on multiple servers that may be subscription-based, involve multiple vendors, and require compre- hensive data sharing agreements.

RegulatIOn anD OVeRSIgHt

Enforcement of consumer protection laws, such as those regulated by the Federal Trade Commission, as well as information security and privacy regulations such as the Health Insurance Portability and Accountability Act (HIPAA) are evolving with regard to Big Data.

Source: Donna J. Slovensky, PhD, RHIA, FAHIMA, Professor and

Senior Associate Dean, School of Health Professions, University of

Alabama at Birmingham.

strategic decisions are made in the context of changing financial, social, politi- cal, technical, and competitive forces – understanding the context in which an organization operates is, therefore, fundamental. Understanding the context of a situation so that complexity can be better explained is called sensemaking.21 strategic leaders who have a sense of context know how to quickly capture the complexities of their situation and explain them to others in simple terms. This explanation helps to ensure that everyone is working from the same map, which makes it far easier to discuss and plan for the journey.22

The assessment process is not an exact science, and sound human judgment and creativity may be bottom-line techniques for sensemaking – a process with- out much structure. For example, assessing the commercial potential of drugs in clinical trials requires not only an understanding of the science but also sound business judgment.23 The fundamental challenge is to make sense out of vague, ambiguous, and unconnected data. strategic leaders have to infuse meaning into data; they have to make the connections among discordant data such that signals of future events are created. sensemaking involves acts of perception

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and intuition. it requires the capacity to suspend beliefs, preconceptions, and judgments that may inhibit connections being made among unclear and dispa- rate data.24

several different strategic thinking frameworks and techniques may be used to examine issues identified in the scanning, monitoring, and forecasting stages of external analysis. These frameworks, which are informal and generally not overly sophisticated, have been variously described as “judgmental,” “speculative,” or “conjectural.”25 indeed, external analysis is largely an individual effort and is directed to person-specific interests. Further, external analysis usually is not limited to just one of the external analysis tools and techniques. The remainder of this chapter will discuss external analysis frameworks that identify and help assess issues in the general environment, the health care system, and the service area. An approach and techniques for more specific market segmentation and competitive analysis will be discussed in Chapter 3.

Issue Impact and Probability Prioritization Issue impact and probability prioritization is the classification of external issues based on an assessment of the importance of the issue and the likelihood that the issue will continue to remain an issue in the future. Perhaps because of its relative simplicity, issue prioritiza- tion is a widely practiced analysis method. Unfortunately, external issues are rarely presented as a neat set of quantifiable data; rather, external issues are ill- structured and conjectural. Thus, in many cases, external analysis is a matter of reaching consensus on the existence and impact of an issue and speculating on the likelihood of its continuance.

As illustrated in exhibit 2–6, the issue impact and probability prioritization process for a nursing home includes the identification of issues by external sys- tem category and the determination of its probable impact on the organization. Additionally, managers may assess the likelihood that the trend, development, or dilemma will continue or that the event will occur, and then identify the sources for additional information.

ExhIbIT 2–6 Issue Impact and Probability Prioritization by a Nursing Home

trend/Issue evidence

Impact on Our Organization

(1–10)

Probability of trend Continuing

(1–10)

Aging population 1 in 5 Americans will be at least 65 by 2030

9 9

Wealthier elderly Income of those 60+ has increased 10 percent faster than any other group

7 6

Local competition Over 5 years, the number of nursing homes in the service area has increased from 5 to 7

7 9

10 = High impact or probability; 1 = Low impact or probability

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Chapter 2 external analysis 61

ExhIbIT 2–7 External Trends/Issues Plot

Low Impact Low Probability

Impact on the

Organization

Critical issues to the right of the line should be addressed in the strategic plan

Low High 015

Low Impact High Probability

High Impact Low Probability

High Impact High Probability

Wealthier Elderly

Local Competition

Aging Population

High

Critical issues to the right of the line should be addressed in the strategic plan

Probability of Trend Continuing

The formats illustrated in exhibit 2–6 and exhibit 2–7 are useful for organizing external data and providing a starting point for speculating on the direction and rate of change for identified trends. however, trend extrapolation of external issues requires extensive familiarity with the issues and a great deal of sound judgment.

Solicitation of Expert Opinion Expert opinion is well-informed individu- als’ insight into an issue/trend/situation, typically used in external analysis to identify, monitor, forecast, and assess external trends. experts play a key role in shaping and extending the thinking of leaders. health care leaders can use these opinions to stimulate their strategic thinking and begin developing human resources strategies. To further focus leaders’ thinking and generate additional perspectives concerning external issues, there are a number of more formal expert-based external analysis techniques. These strategic thinking frameworks help to solicit and synthesize the opinions and best judgments of experts within various fields.

These issues may then be plotted on the chart shown in exhibit 2–7. The assumption is that the issues to the right of the curved line in the exhibit have a significant impact (high impact) on the organization and are likely to continue or occur (high probability) and should be addressed in the strategic plan.

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The Delphi Method The Delphi method is a process for the development, evaluation, and synthesis of individual points of view through the systematic solicitation and collation of individual judgments on a particular topic; it is a popular, practical, and useful approach for identifying issues and analyzing external data. The Delphi method may be used to identify and study current and emerging trends within each issue category (technological, social/demographic, economic, and so on). Opinions are summarized and then sent back to the par- ticipating individuals for the development of new judgments concerning the topic. After several rounds of solicitation and summary, a synthesis of opinion is formulated.26

The traditional Delphi method has undergone a great deal of change in the con- text of external analysis. The salient features of the revised Delphi method are to:

● identify recognized experts in the field of interest. ● seek their cooperation and send them a summary paper (based on a litera-

ture search). ● Conduct personal interviews with each expert based on a structured

questionnaire.27

in contrast to traditional Delphi methods, there is no further feedback or repeated rounds of questioning. The major advantage is that it is easier to recruit recognized experts because they do not need to commit as much of their time.

The Delphi method is particularly helpful when health care managers want to understand a specific external issue. For example, a Delphi study was designed to define the role and responsibilities of sports medicine specialists in the United Kingdom. A mail questionnaire was sent to a random sample of 300 members of the British Association of sport and exercise Medicine. The original questionnaire contained 300 attributes and allowed participants to modify their responses based on feedback from other participants. The study was recognized as the first system- atic attempt to define the role and responsibilities of the sports medicine special- ist and concluded that sports medicine was an evolving specialty in the United Kingdom.28 More recently, methods and experts from other disciplines have been applied to health care issues such as the forecasting of infectious diseases.

Nominal Group Technique, Brainstorming, and Focus Groups The nominal group technique (nGT), brainstorming, and focus groups are interac- tive group problem identification and solving techniques. The nominal group technique is a facilitated group discussion process for developing consensus on an issue or problem where individuals present ideas, discussion occurs, and consensus is reached through a voting process. in the nominal group technique, a group is convened to address an issue, such as the impact of consolidation within the health care system or the impact of an aging population on hospi- tal facilities. each individual independently generates a written list of ideas surrounding the issue. Following the idea-generation period, group members take turns reporting one idea at a time to the group. Typically, each new idea is recorded on a large flip chart for everyone to consider. Members are encouraged to build on the ideas of others in the group. After all the ideas have been listed, the group discusses the ideas. After the discussion, members privately vote or

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Chapter 2 external analysis 63

rank the ideas. After voting, further discussion and group generation of ideas continue. Typically, additional voting continues until a reasonable consensus is reached.29

Brainstorming is a group process of free flowing idea generation and discus- sion, typically used in strategic management to better understand an issue, assess the impact of an issue, or to generate alternatives. in this process, participants present ideas and are allowed to clarify them with brief explanations. each idea is recorded, but evaluation is generally not allowed. The intent of brainstorming is to generate fresh ideas or new ways of thinking. Participants are encouraged to present any ideas that occur to them, even apparently risky or impossible ideas. such a process often stimulates creativity and sparks new approaches that are not as risky, crazy, or impossible as first thought.30

nGT and brainstorming could be used to understand and respond to the increasing competition for ambulatory surgery. non-hospital access points, such as specialized ambulatory surgery centers, represent a rapidly growing trend and hospitals are very concerned about the impact this growth could have on their bottom line. inpatient surgeries requiring a one-day or longer length of stay constitute a small and decreasing percentage of hospital surgery profits. The most popular outpatient areas are gastroenterology, orthopedics, gynecol- ogy, ophthalmology, as well as podiatry, enT, and general surgery. however, increasingly there are signs that angioplasty, peripheral vascular surgery, and low-risk coronary interventions such as pacemakers and cardiac defibrillators may be next.

These changes and the prospect of even greater changes offer an opportunity for hospital managers to employ brainstorming groups to plan for the future. some of the major uncertainties that could be addressed by the groups include the future of Medicaid, Medicare, and other forms of government health care insurance (see essentials for a strategic Thinker 2–1). Brainstorming groups could provide serious insights into how willing physicians are to continue perform- ing their procedures in hospitals and turn away from investments in outpatient facilities that could provide a 25 percent return on invested capital. Moreover, outpatient surgeries are easier for physicians to schedule without the aggravation of sharing operating rooms with inpatient and emergency services. Brainstorming groups might also be used to project the future direction of hospital reimburse- ment. Although both of these factors represent major uncertainties, informed groups could be very useful in preparing for the increasingly competitive health care system.31

similar to the process of brainstorming, focus groups bring together 10 to 15 key individuals to surface issues and develop, evaluate, and reach conclusions. Focus groups provide an opportunity for management to discuss particularly impor- tant organizational issues with qualified individuals. hospitals and large group practices have used focus groups of patients to better understand the perceived strengths and weaknesses of the organization from the patient’s view. For exam- ple, Johns hopkins was considering the establishment of an integrated delivery system under one umbrella name. Focus groups of physicians, present and past patients, non-patients, and others convinced them to change plans. Focus groups can provide new insights for understanding issues and suggest fresh alternatives for their resolution.

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64 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Dialectic Inquiry Dialectic inquiry is a “point and counterpoint” process of argumentation in which a thesis is argued against an antithesis to develop a syn- thesis of ideas or issues. The 19th-century German philosopher hegel suggested that the surest path to truth was the use of a dialectic process – an intellectual exchange in which a thesis is pitted against an antithesis. According to this prin- ciple, truth emerges from the search for synthesis of apparently contradictory views.32

More specifically, in external analysis, dialectic inquiry is the development, evaluation, and synthesis of conflicting points of view (concerning issues) through separate formulation and refinement of each point of view.33 For instance, one group may argue that health care costs will be declining between 2018 and 2025 (thesis) because of changes in health regulation. Another group may present a case that the trend toward rising health care costs will continue (antithesis) because of hospital failures, the high cost of new technology, shortage of primary care pro- viders, and so on. Debating this issue will unearth the major factors influencing health care costs and the implications for the future.

Any health care provider can utilize this technique by assigning groups to debate specific external issues. The groups make presentations and debate con- flicting points of view concerning the issues. After the debate, the groups attempt to form a synthesis of ideas concerning the likely future.34

Stakeholder Analysis Stakeholder analysis is the systematic identification and evaluation of external and internal individuals, groups, and organizations that have an interest (or stake) in the success or failure of an organization. it is based on the belief that there is a reciprocal relationship between an organiza- tion and certain other organizations, groups, and individuals. examples of pos- sible health care stakeholders, shown as a “stakeholder map,” are presented in exhibit 2–8.

Stakeholders are individuals, groups, and organizations that are directly or indirectly impacted by the success or failure of the organization and may be cat- egorized as internal, interface, and external. internal stakeholders are those who operate primarily within the bounds of the organization, such as managers and other employees. interface stakeholders are those who function both internally and externally, such as the medical staff and the corporate officers of the parent company. external stakeholders operate outside the organization and include such entities as suppliers, third-party payers, competitors, regulatory agencies, the media, the local community, and so on.35 such stakeholders have been referred to as the “organization ecosystem”– organizations that affect and are affected by the creation and delivery of the organization’s product or service. Part of stake- holder analysis is to systematically identify the organizations with which their future is most closely intertwined and determine the dependencies that are most critical.36

some of these stakeholders are almost always powerful or influential; others are influential regarding only certain issues; still others have little influence or power. if the stakeholders can be identified and evaluated, then the “forces” affecting the organization may be specified. The needs and wants of these constituencies may dramatically affect the strategy of an organization.37

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Chapter 2 external analysis 65

Typically, managers tend to focus attention on known, salient, or powerful stakeholders to help protect existing competitive advantages. however, there is growing evidence that “fringe” stakeholders are important as well – particularly for developing new ways of thinking. researchers suggest that “the knowledge needed to generate competitive imagination and to manage disruptive change increasingly lies outside the organization, at the periphery” of the organization’s established stakeholder network.38 Therefore, strategic thinkers must be open to fringe ideas and non-traditional thinking developed by fringe players. At first, these stakeholders may appear to be poor, weak, isolated, non-legitimate, or radi- cal.39 in reality, they may be strong purveyors of change.

Scenario Writing and Future Studies Many businesses regularly use sce- narios when assessing the external trends. Scenarios are probable visions, stories, or pictures of the future based on forecasting the impact of current trends, events, and issues. The popularity of scenario analysis is due in large part to the inability of other, more quantitative, forecasting methods to predict and incorporate major

ExhIbIT 2–8 A Stakeholder Map for a Large Multispecialty Group Practice

Specialty physician referrals

Nonspecialty physician referrals

Competing physicians

Third-party payors

Self-insured employers

Local paying patients

Organizations managing

care

Nonlocal patients

Professional associations

Federal, state, and local regulators

Federal Medicare

State Medicaid

Indigent patients

Professional employees

Practice administrative

services

Multispecialty group medical

practice

Nonlocal physicians

Hospital

Governing board

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66 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

external shifts and provide a context for strategic thinking. scenarios avoid the need for single-point forecasts by allowing users to explore several alternative futures.40 scenario analysis is an alternative to conventional forecasting that is better suited to situations with numerous uncertainties or imponderables – where there is no map.

A scenario is a coherent story about the future, using the world of today as a starting point. Based on data accumulated in the scanning and monitoring pro- cesses, a scenario or narrative that describes an assumed future is developed. The objective of scenarios and future studies is to describe a point of time in the future as a sequence of timeframes or periods of time. scenario writing often requires gen- erous assumptions. Few guidelines prescribe what to include in a scenario. in most cases several plausible scenarios should be written. it is an all-too-common mistake to envision only one scenario as the “true picture of the future.”41 Most authorities advocate the development of multiple scenarios. however, to avoid decision mak- ers focusing only on the “most likely” or “most probable” scenario, each scenario should be given a distinctive theme name, such that they appear equally likely.

Multiple scenarios allow the future to be represented by different cause–effect relationships, different key events and their consequences, different variables, and different assumptions. The key question is: “if this external event happens (or does not happen), what will be the effect on the organization?” The use of mul- tiple scenarios is particularly helpful in considering the future of public health. see essentials for a strategic Thinker 2–5 to answer the question “What is Public health in the United states?” and exhibit 2–9 to examine four scenarios or alter- native futures for public health care through 2030. The scenarios were developed by the institute for the Future to provide a description of critical factors that will influence public health in the 21st century.

ESSENTIALS fOr A STrATEGIC ThINkEr 2–5

What is Public Health in the United states?

The work of public health developed over time in response to community need and is carried out at federal, state, and local levels. In 1988, after an intense study of public health in six states, the Institute of Medicine defined the basic functions of public health as assess- ment, policy development, and assurance. The Centers for Disease Control and Prevention (CDC) proposed organizational practices to implement the three core functions. In spring 1994, a national working group comprised of representatives of the Public Health Services

Agencies and the major public health organ- izations developed a consensus list of the “essential services of public health.” The new statement on essential services provided a vision for public health in America – “Healthy People in Healthy Communities” – and stated the mission of public health – “Promote physi- cal and mental health and prevent disease, injury, and disability.” The statement described what public health seeks to accomplish in pro- viding essential services to the public and how it carries out these basic public responsibilities.

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Chapter 2 external analysis 67

ExhIbIT 2–9 Public Health 2030: A Scenario Exploration

Scenario 1: One Step forward, Half a Step Back Amidst continued fiscal constraints, public health agencies and health care slowly advance their capabilities. Many use automation and advanced analytics to improve services and community and population health. However, climate change challenges continue to grow, and there is lit- tle progress in improving the social determinants of health. Great variations in technological capabilities, funding, and approaches to prevention – along with a continuous rise in health care costs – significantly limit public health gains.

tHe eSSentIal SeRVICeS

The fundamental obligation or purpose of pub- lic health agencies responsible for population- based health is to:

● Prevent epidemics and the spread of disease.

● Protect against environmental hazards. ● Prevent injuries. ● Promote and encourage healthy behaviors

and mental health. ● Respond to disasters and assist communities

in recovery. ● Assure the quality and accessibility of health

services.

Part of the function of public health is to assure the availability of quality health services. Both distinct from and encompassing clinical services, public health’s role is to ensure the conditions necessary for people to live healthy lives, through community-wide prevention and protection programs.

Public health serves communities (and indi- viduals within them) by providing an array of essential services. Many of these services are invisible to the public. Typically, the public only becomes aware of the need for public health services when a problem develops (for instance, when an epidemic occurs). The practice of public health is articulated through the list of “essential services.”

aSSeSSment SeRVICeS InCluDe

● Monitoring health status to identify commu- nity health problems.

● Diagnosing and investigating health prob- lems and hazards in the community.

● Researching for new insights and innovative solutions to health problems.

POlICy DeVelOPment SeRVICeS InCluDe

● Informing, educating, and empowering peo- ple about health issues.

● Mobilizing community partnerships and actions to identify and solve health problems.

● Developing policies and plans that support individual and community health efforts.

aSSuRanCe SeRVICeS InCluDe

● Enforcing laws and regulations that protect health and ensure safety.

● Linking people to needed personal health services and ensuring the provision of health care when otherwise unavailable.

● Assuring a competent public and personal health care workforce.

● Evaluating effectiveness, accessibility, and quality of personal and population-based health services.

Source: Ray M. Nicola, MD, MHSA, FACPM, Senior CDC Consultant

to the Turning Point National Program Office.

(continued)

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68 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Scenario 2: Overwhelmed, under-Resourced Funding cuts and a hostile political context undermine the role of public health agencies, which subsequently fail to attract talented young people. Public health crises grow worse and more frequent, largely due to climate change. Private sector initiatives produce significant innova- tions for health and wellness, but these primarily benefit the middle-class and affluent groups. Technological, economic, educational, and health disparities grow, and the institutions of public health have little capacity for doing anything about them.

Scenario 3: Sea Change for Health equity National and local economies gradually grow, and changes in values and demographics lead to “common sense” policies and support for health equity. Public health agencies develop into health development agencies that use advanced analytics, gamification, and diverse partner- ships to identify problems and opportunities, and catalyze and incentivize action to improve community health. While some disparities persist, in 2030 the vast majority of U.S. residents have attained greater opportunity for good health through quality improvements in housing, economic opportunity, education, and other social determinants of health.

Scenario 4: Community-Driven Health and equity Public health agencies, partners, and local health improvement initiatives coalesce via technol- ogy and social media into a national web of community-health enhancing networks. These networks help communities exchange their innovations and best practices, and leverage the expertise of public health agencies and others. The nation also strives to come to terms with its racial and socioeconomic histories, and supports real changes and legislation to create a more equitable society. This value shift to equity is accelerated by the proliferation of new community economic models that help households sustain themselves and improve health and well-being. Public health sheds many functions and facilitates these movements to improved health.

Source: Institute for Alternative Futures. Public Health 2030: A Scenario Exploration. Alexandria, VA. May 2014. Available from www.altfutures.org/pubs/PH2030/IAF-PublicHealth2030Scenarios.pdf.

Select the Strategic Thinking framework The purpose of analyzing the general environment, the health care system, and the service area is to identify and understand the significant shifts taking place. exhibit 2–10 summarizes the primary focus, advantages, and disadvantages of each strategic thinking framework.

ExhIbIT 2–10 Primary Focus, Advantages, and Disadvantages of External Analysis Techniques

technique Primary focus advantage Disadvantage

Issue Impact and Probability Prioritization

Scanning Monitoring Forecasting Assessing

● Simple. ● Logical. ● Easy to communicate.

● Need a good deal of data to effectively extend a trend.

● Limited to existing trends.

● May not foster creative thinking.

ExhIbIT 2–9 (Continued)

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Chapter 2 external analysis 69

technique Primary focus advantage Disadvantage

Delphi Method Scanning Monitoring Forecasting Assessing

● Use of field experts. ● Avoids intimidation

problems. ● Eliminates management’s

biases.

● Members are physically dispersed.

● No direct interaction of participants.

● May take a long time to complete.

Nominal Group Technique

Scanning Monitoring Forecasting Assessing

● Everyone has equal status and power.

● Wide participation. ● Ensures representation. ● Eliminates management’s

biases.

● Structure may limit creativity.

● Time consuming.

Brainstorming Forecasting Assessing

● Fosters creativity. ● Develops many ideas,

alternatives. ● Encourages communication.

● No process for making decisions.

● Sometimes gets off track.

Focus Groups Forecasting Assessing

● Uses experts. ● Management/expert

interaction. ● New viewpoints.

● Finding experts to participate.

● No specific structure for reaching conclusions.

● Multiple focus groups needed to gain insight.

Dialectic Inquiry Forecasting Assessing

● Surfaces many sub-issues and factors.

● Conclusions are reached on issues.

● Based on analysis.

● Does not provide a set of procedures for deciding what is important.

● Considers only a single issue at a time.

● Time consuming.

Stakeholder Analysis

Scanning Monitoring

● Considers major independent groups and individuals.

● Ensures major needs and wants of outside organizations are taken into account.

● Emerging issues generated by other organizations may not be considered.

● Does not consider the broader issues of the general environment.

Scenario Writing Forecasting Assessing

● Portrays alternative futures. ● Considers interrelated

external variables. ● Gives a complete picture

of the future. ● Focus is on what might be.

● Requires generous assumptions.

● Always a question as to what to include.

● Difficult to write.

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70 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

The approach selected for evaluating the general environment, health care sys- tem, and service area will depend on such factors as the size of the organization, the diversity of the products and services, and the complexity and size of the mar- kets (service areas). Organizations that are relatively small, do not have a great deal of diversity, and have well-defined service areas may opt for a simple stra- tegic thinking framework that may be carried out in-house, such as trend identi- fication and extrapolation, in-house nominal group technique or brainstorming, or stakeholder analysis. such organizations may include independent hospitals, hMOs, rural and community hospitals, large group practices, long-term care facilities, hospices, and county public health departments.

health care organizations that are large, have diverse products and services, and have ill-defined or extensive service areas may want to use a strategic thinking framework that draws on the knowledge of a wide range of experts. As a result, these organizations are more likely to set up Delphi panels, outside nominal groups, or brainstorming sessions. in addition, these organizations may have the resources to conduct dialectics concerning external issues and engage in scenario writing. such approaches are usually more time consuming, fairly expensive, and require extensive coordination. Organizations using these approaches may include national and regional for-profit health care chains, regional health care systems, large federa- tions and alliances, and state public health departments. Ultimately, the strategic thinking framework selected for external analysis may depend primarily on the style and preferences of management. if used properly, any of the frameworks are powerful tools for identifying, monitoring, forecasting, and assessing issues.

Step 6: Complete an Issue Map exhibit 2–11 shows the abbreviated results of a general environment, health care system, and service area external analysis with the issues categorized as eco- nomic, social/demographic, legislative/political, technological, and competitive.

ExhIbIT 2–11 Example of a Completed Issue Map

Issue Categories general environment – united States

Health Care System – united States Service area – Charlotte, nC

Economic ● Economy experiencing slow overall growth.

● Decrease in regulations of businesses and financial institutions.

● Emphasis on keeping jobs in the United States.

● Economic fallout of Brexit. ● Likely changes in

corporate/ individual tax policy.

● Continued growth in the industry.

● Procedure costs falling, total spending is rising.

● Many employers unwilling to shoulder costs for health care.

● Over 27.3 million Americans still without health insurance.

● Provisions of the Affordable Care Act have resulted in an estimated 20 million people gaining health insurance coverage.

● After 9.6 percent unemployment during the recession, Charlotte is back to its norm of about 4.5 percent.

● The focus on banking has been broadened to include energy and analytics technology.

● Cost of living is 96.2 percent of the national average.

● Top city for entrepreneurs.

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Chapter 2 external analysis 71

Issue Categories general environment – united States

Health Care System – united States Service area – Charlotte, nC

Social/ Demographic

● By 2020, the U.S. population over the age of 65 is expected to increase from 47.5 million to 53.7 million or approximately 20 percent of the U.S. population.

● Hispanics are the largest minority population representing about 18 percent of the U.S. population by 2050.

● Rising social unrest/ protests.

● The U.S. population is becoming more ethnically diverse; the trend continues.

● An aging population and increased average life span will place capacity burdens on some health care organizations while a lessening of demand threatens the survival of others.

● Charlotte is the 17th largest city in the United States, with a growing population (842,051 in 2017); 2.4 million in the area.

● The city is diverse: African American (31 percent), Hispanics (12.8 percent).

● More than 30 percent increase in millennials (past five years).

● Year-round outdoor activities.

● Sports (professional and college) are supported.

● Philanthropic support for the arts, education.

Legislative/ Political

● Changes to the Patient Protection and Affordable Care Act (ACA).

● General deregulation occurring, e.g. environmental.

● Moves to stop corporate inversion (moving funds to foreign countries).

● United States moves more to the right politically.

● New concerns on immigration.

● Passage of the ACA generally supported by the Supreme Court (only the mandate/penalty for Medicaid was disallowed, resulting in the right of states to opt out of that requirement).

● Employer-based insurance may diminish as the penalties to be paid under ACA are less than the cost of health insurance.

● NC rejected Medicaid expansion under ACA.

● HB2 limited LGBT rights; partially repealed after 18 months.

● NC is conservative; Charlotte is not.

● Charlotte is a sanctuary city for immigrants (cities/ counties in the United States that chose not to partner with the federal government to enforce immigration laws).

Technological ● Virtual reality. ● Increasing use of

automation. ● Increasing number of

on-demand services. ● Robotics applications

continue to be developed.

● Electronic health records will supply copious amounts of data and many will struggle to utilize the information to improve the quality of care; will be used to determine payments for hospitals and physicians.

● FinTech (financial services technology) is growing based on need for IT security in banking.

● Energy sector research, especially solar and alternatives.

(continued)

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72 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Issue Categories general environment – united States

Health Care System – united States Service area – Charlotte, nC

Technological (continued)

● Big Data and Analytics increasingly being used.

● Increased application of 3-D printer technology.

● Increased applications of artificial intelligence (AI).

● Significant advances in medical information, such as automation of basic business processes, clinical information interfaces, data analysis, and telehealth.

● New technologies emerging in drug design, imaging, minimally invasive surgery, genetic mapping and testing, gene therapy, vaccines, artificial blood, and xenotransplantation (transplantation of tissues and organs from animals into humans).

● Google Fiber and AT&T U-verse High Speed internet connectivity.

● Adoption of electronic health records (EHRs) is widespread in MD offices, urgent care, hospitals.

● Telemedicine and other remote access medicine is growing.

Competitive ● Global competition – threat of “trade wars.”

● Increasing importance of market niche strategies and services marketing.

● Increasing emphasis on adaptability.

● Increasing concerns for data security (avoiding hackers) for businesses.

● The disintegration of some health care networks. In some markets this significantly reduced the options available to patients insured under the ACA.

● A changing role for public health is expected, moving back to “core” activities (prevention, surveillance, disease control, assurance).

● Nurses, the largest segment of the health care workforce will be in short supply – 1.2 million vacancies will emerge for RNs between 2014–2022.

● Two major hospitals purchased many physician practices (but not many dermatologists or plastic surgeons) during the recession.

● Fewer health insurance companies in the state; coverage is dominated by Blue Cross Blue Shield.

Strategic Momentum: Validating the Strategic Assumptions

A strategic plan is based in part on an external analysis. initially this analysis provides the basic beliefs or assumptions that management holds concern- ing various external trends, issues, and events. Once strategic management

ExhIbIT 2–11 (continued)

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Chapter 2 external analysis 73

is adopted as the operating philosophy of managing, strategic thinking, stra- tegic planning, and strategic momentum require frequent validation of the strategic assumptions to determine whether external issues have changed and to what extent. Continued strategic thinking is vital to maintaining strategic momentum.

The strategic thinking map presented in exhibit 2–12 provides a series of questions designed to detect signals of new perspectives regarding these assumptions. The questions examine management’s understanding of the external situation and the effectiveness of the strategy. The board of directors, strategic managers, or others may use these questions as a beginning point to confirm the assumptions underlying the strategy. such strategic thinking ques- tions may indicate the emergence of new external opportunities or threats that will affect the organization and may suggest areas where additional information will be required in future planning efforts. Current, accurate information may mean survival for many health care organizations. Questions concerning the external situation may reveal that a group practice knows far too little about the views of its major constituents (stakeholders) or the existence of new technolo- gies or social trends. A validation (or invalidation) of the strategic assumptions reinvigorates strategic thinking and provides a basis for investigating whether to change the strategy.

ExhIbIT 2–12 Strategic Thinking Questions for Validation of the Strategic Assumptions

1. Has the organization’s performance been adversely affected by unexpected or new general environment trends or issues?

2. Has the organization’s performance been adversely affected by unexpected or new trends or issues in the health care system?

3. Has the organization’s performance been adversely affected by unexpected or new trends or issues in the service area?

4. Have new opportunities emerged as a result of new external trends, issues, or events?

5. Is the strategy acceptable to the major stakeholders?

6. Are there new technological developments that will affect the organization?

7. Have there been social or demographic changes that affect the market or strategy? Changes in ethnic mix? Language barriers? Family structure?

8. Has the legislative/political environment changed?

9. Are there new local, state, or federal regulations or laws being introduced, debated, or passed that will affect operations or performance?

10. Are there new economic issues?

11. Have new competitors outside the industry considered entering – or actually entered – into health-related areas?

12. Is the strategy subject to government response?

13. Is the strategy in conformance with the society’s moral and ethical codes of conduct?

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Chapter Summary

health care managers must be able to understand and analyze the general envi- ronment, the health care system, and their service area to be effectively positioned. The goal of external analysis is to classify and organize issues and changes gener- ated outside the organization. in the process, the organization attempts to detect and analyze current, emerging, and likely future issues. The gathered information is used for internal analysis; development of the vision and mission; and formu- lation of the strategy for the organization. in addition, the process should foster strategic thinking throughout the organization.

Although the benefits of external analysis are clear, there are several limita- tions. external analysis cannot foretell the future; nor can managers hope to detect every change. Moreover, the information needed may be impossible to obtain or difficult to interpret, or the organization may not be able to respond quickly enough. The most significant limitation may be managers’ preconceived beliefs.

The steps in external analysis include organizing the process, active scanning to identify signals of change, monitoring and confirming identified issues, fore- casting the future direction of issues, and assessing organizational implications. external changes that may be important to health care organizations are generated by organizations and individuals in the general environment (government institu- tions and agencies, business firms, educational institutions, research organizations and foundations, individuals and consumers); organizations and individuals in the health care system (organizations that regulate, primary providers, secondary providers, organizations that represent providers; and individuals and patients); and competitors and local organizations in the service area. Typically, such change is classified as economic, social/demographic, legislative/political, technological, or competitive. such a classification system aids in aggregating information con- cerning the issues and in determining their impact.

People, organizations, databases, and publications both outside and inside the organization serve as external information sources. There are a variety of experts who are familiar with external issues; in addition, many organizations collect patient and consumer information, and subscribe to and archive industry, technical reports, and databases. Further, patients, physicians, nurses, suppliers, third-party payers, pharmaceutical representatives, and managed care companies as well as newspapers and journals, the internet, television, libraries, and public and private databases may be important information sources.

scanning is the process of viewing and organizing external information in an attempt to detect relevant issues that will affect the organization. Monitoring is the process of searching for additional information to confirm or disprove the issue (trend, development, dilemma, or likelihood of the occurrence of an event). Forecasting is the process of extending issues, identifying their interrelationships, and developing alternative projections. Finally, assessing is the process of evaluat- ing the significance of the issues.

There are several strategic thinking frameworks to conduct the scanning, moni- toring, forecasting, and assessing processes. These methods include issue impact and probability prioritization, solicitation of expert opinion, dialectic inquiry, stakeholder analysis, and scenario writing. The information garnered from

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Chapter 2 external analysis 75

external analysis may be documented in an issue map and serves as a foundation for competitor analysis, internal analysis, the development of the vision and mis- sion, and formulation of the strategy for the organization. Finally, as part of man- aging the strategic momentum, evaluation of the strategic assumptions (external issues) should periodically take place. The next chapter focuses on service area competitive analysis.

Practical Lessons for health Care Strategic Thinkers

1. external analysis is one of the most important steps in developing a strate- gic plan and provides an understanding of the context in which the organi- zation has to be successful.

2. strategic thinking – awareness, anticipation, analysis, interpretation, syn- thesis, and reflection – is key in external analysis. Awareness and anticipa- tion help identify issues, trends, and events; analysis and interpretation infuse meaning and consequences; and synthesis and reflection provide conclusions that serve to build a strategic plan.

3. external analysis is an ongoing process and requires organization. Using a systems perspective to focus strategic thinking can help in identifying and tracking important external trends, issues, and events that will impact the organization.

4. external analysis tools and techniques provide no answers in themselves; but rather they are processes that help strategic managers identify and think through issues and reach conclusions.

5. The issue map provides a foundation for the analysis of competitors in the service area.

THE LANGuAGE OF STrATEGIC MANAGEMENT: KEy TErMS AND CONCEPTS

Assessing Brainstorming Community Delphi Method Dialectic inquiry expert Opinion external Analysis Focus Groups Forecasting General environment Gray rhinos

inevitable surprise

issue impact and Probability Prioritization

issue Map

Medicaid

Medicare

Monitoring

nested systems

nominal Group Technique (nGT)

Predictable surprise

Primary Providers

scanning scenarios secondary Providers sensemaking service Area service Category stakeholder Analysis stakeholders strategic Awareness strategic issues

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76 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Notes

1. James M. Kouzes and Barry Z. Posner, The Leadership Challenge: How to Keep Getting Extraordinary Things Done in Organizations (san Francisco, CA: Jossey-Bass Publishers, 1995), pp. 47–48 and ross Dawson, Living Networks: Leading Your Company, Customers, and Partners in the Hyper-Connected Economy (Upper saddle river, nJ: Prentice hall/Financial Times, 2003), see especially Chapter 9.

2. Govindarajan, Vijay, “Planned Opportunism,” Harvard Business Review 94, no. 5 (2016), pp. 54–61.

3. J. O’Connell and J. W. Zimmerman, “scanning the international environment,” California Management Review 22 (1979), pp. 15–22 and Bradley J. Olson, satyanarayana Parayitam, and yongjian Bao, “strategic Decision Making: The effects of Cognitive Diversity, Conflict, and Trust on Decision Outcomes,” Journal of Management 33, no. 2 (2007), pp. 196–222.

Questions for Class Discussion

1. What types of changes are likely to occur in the health care system in the next several years?

2. Describe the “setting” for health care management. is the setting too complex or chang- ing too rapidly to accurately predict future conditions?

3. Why is external analysis important for an organization?

4. What are the specific goals of external analysis?

5. What are the limitations of external analysis? Given these limitations, is external analy- sis worth the effort required? Why?

6. What processes are involved in external analysis? What are their subprocesses?

7. Why must the service categories be specified first in service area analysis for health care organizations?

8. Why is it important to clearly define the service area?

9. how does the scanning process create a “window” to the external systems? how does the window concept help in understanding organizations and the types of information they produce?

10. Why is the process of external analysis as important as the product?

11. Which of the external analysis strategic thinking frameworks are most useful? Why?

12. Using exhibit 2–7 as an example, develop a “stakeholder map” for a health care organization in your metropolitan area or state. On this map show the important health care organizations and indicate what impact they may have on the industry.

13. Which of the scenarios in exhibit 2–8 do you think is most likely? Why?

14. What is an issue map? how is it helpful for strategic thinking?

15. What are an organization’s strategic assumptions? how may the strategic assumptions be evaluated as part of managing strategic momentum?

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Chapter 2 external analysis 77

4. Joel A. Barker, Future Edge: Discovering the New Paradigms of Success (new york: William Morrow, 1992), p. 86.

5. edward De Bono, Serious Creativity: Using the Power of Lateral Thinking to Create New Ideas (new york: harperBusiness, 1992), p. 17. see also Bradley L. Kirkman, Benson rosen, Paul e. Tesluk, and Christina B. Gibson, “The impact of Team empowerment on Virtual Team Performance: The Moderating role of Face-to- Face interaction,” Academy of Management Journal 47, no. 2 (2004), pp. 175–192.

6. Liam Fahey and V. K. narayanan, Macroenvironmental Analysis for Strategic Management (st. Paul, Mn: West Publishing, 1986).

7. Martin reeves, simon Levin, and Daichi Ueda, “The Biology of Corporate survival,” Harvard Business Review 94, no. 1/2 (2016), pp. 46–55.

8. ibid., p. 50. 9. Beaufort B. Longest Jr., Management Practices for the

Health Professional, 4th edn (norwalk, CT: Appleton & Lange, 1990), pp. 12–28.

10. www.hcahealthcare.com/about/our-history.dot. 11. www.hasc.org/about-hasc. 12. Michael D. Watkins and Max h. Bazerman, “Predictable

surprises: The Disasters you should have seen Coming,” Harvard Business Review 81, no. 3 (2003), pp. 72–80. For a comprehensive assessment see Max h. Bazerman and Michael D. Watkins, Predictable Surprises: The Disasters You Should Have Seen Coming and How to Prevent Them (Boston, MA: harvard Business school Press, 2004).

13. Peter F. Drucker, Managing the Nonprofit Organization: Principles and Practices (new york: harperCollins Publishers, 1990), p. 9.

14. Barker, Future Edge, p. 86. 15. Klaus Kleinfeld, “seeing is Treating,” Harvard Business

Review 85, no. 2 (February 2007), p. 47. 16. James B. Thomas and reuben r. McDaniel Jr.,

“interpreting strategic issues: effects of strategy and the information-Processing structure of Top Management Teams,” Academy of Management Journal 33, no. 2 (1990), p. 288. see also Peer C. Fiess and edward J. Zajac, “The symbolic Management of strategic Change: sensegiving via Framing and Decoupling,” Academy of Management Journal 49, no. 6 (2006), pp. 1173–1193.

17. Govindarajan, “Planned Opportunism,” p. 58. 18. Thomas and McDaniel, “interpreting strategic issues,”

pp. 289–290. 19. Paul J. h. schoemaker and Philip e. Tetlock,

“superforecasting: how to Upgrade your Company’s Judgment,” Harvard Business Review 94, no. 5, (2016), pp. 72–78.

20. Kathleen M. sutcliffe and Klaus Weber, “The high Cost of Accurate Knowledge,” Harvard Business Review 81, no. 5 (2003), p. 75.

21. Karl e. Weick, Sensemaking in Organizations (Thousand Oaks, CA: sage Publications, 1995); Deborah Ancona,

Thomas W. Malone, Wanda Orlikowski, and Peter M. senge, “in Praise of the incomplete Leader,” Harvard Business Review 85, no. 2 (February 2007), pp. 94–95.

22. ibid. p. 95. 23. schoemaker and Tetlock, “superforecasting: how to

Upgrade your Company’s Judgment,” p. 74. 24. Fahey and narayanan, Macroenvironmental Analysis,

p. 39. 25. h. e. Klein and r. e. Linneman, “environmental

Assessment: An international study of Corporate Practice,” Journal of Business Strategy 5 (1984), pp. 66–75. see also Jonathan Parry, “Making sense of executive sensemaking,” Journal of Health Organization & Management 17, no. 4 (2003), pp. 240–263 and Linda rouleau, “Micro-Practices of strategic sensemaking and sensegiving: how Middle Managers interpret and sell Change every Day,” Journal of Management Studies 42, no. 7 (2005), pp. 1413–1441.

26. James L. Webster, William e. reif, and Jeffery s. Bracker, “The Manager’s Guide to strategic Planning Tools and Techniques,” Planning Review 17, no. 6 (1989), pp. 4–13; Pamela Tierney and steven M. Farmer, “The Pygmalion Process and employee Creativity,” Journal of Management 30, no. 3 (2004), pp. 413–432.

27. s. C. Jain, “environmental scanning in U.s. Corporations,” Long Range Planning 17 (1984), p. 125. see also Dovev Lavie, “Capability reconfiguration: An Analysis of incumbent responses to Technological Change,” Academy of Management Review 31, no. 1 (2006), pp. 153–174.

28. B. Thompson, D. MacAuley, O. Mcnally, and s. O’neill, “Defining sports Medicine specialist in the United Kingdom: A Delphi study,” British Journal of Sports Medicine 38, no. 2 (2004), pp. 14–18.

29. Craig s. Fleisher and Babette e. Bensoussan, Strategic and Competitive Analysis: Methods and Techniques for Analyzing Business Competition (Upper saddle river, nJ: Prentice hall, 2003), p. 287; Lucy L. Gilson and Christina e. shalley, “A Little Creativity Goes A Long Way: An examination of Teams’ engagement in Creative Processes,” Journal of Management 30, no. 4 (2004), pp. 453–470.

30. Fleisher and Bensoussan, Strategic and Competitive Analysis, p. 257.

31. information for this example was adapted from richard haugh, “Competition Keeps Getting hotter for Ambulatory surgery,” Hospitals & Health Networks 80, no. 10 (2006), pp. 68–72.

32. Barbara Karmel, Point and Counterpoint in Organizational Behavior (hinsdale, iL: Dryden Press, 1980), p. 11; W. Jack Duncan, Peter M. Ginter, and Linda e. swayne, Strategic Issues in Health Care Management (Boston, MA: PWs-Kent Publishing, 1992), p. 6.

33. Webster, reif, and Bracker, “The Manager’s Guide,” p. 13.

34. ibid.

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http://www.hasc.org/about-hasc

78 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

35. Myron D. Fottler, John D. Blair, Carlton J. Whitehead, Michael D. Laus, and G. T. savage, “Assessing Key stakeholders: Who Matters to hospitals and Why?” Hospital and Health Services Administration 34, no. 4 (1989), p. 527.

36. Marco iansiti and roy Levien, “strategy as ecology,” Harvard Business Review 82, no. 3 (2004), pp. 68–78.

37. Fottler, Blair, Whitehead, Laus, and savage, “Assessing Key stakeholders,” p. 532.

38. stuart L. hart and sanjay sharma, “engaging Fringe stakeholders for Competitive imagination,” The Academy of Management Executive 18, no. 1 (2004), pp. 7–18.

39. ibid. 40. Audrey schriefer, “Getting the Most Out of scenarios:

Advice from the experts,” Planning Review 23, no. 5 (1995), pp. 33–35; J. Alberto Aragón-Correa and sanjay sharma, “The social side of Creativity: A static and Dynamic social network Perspective,” Academy of Management Review 28, no. 1 (2003), pp. 89–106; Mats Lindgren and hans Bandhold, Scenario Planning: The Link between Future and Strategy (houndsmills, UK: Palgrave Macmillan, 2003).

41. Peter schwartz, The Art of the Long View: Planning for the Future in An Uncertain World (new york: Currency Doubleday Publishers, 1991).

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