Internal Audit & External Analysis of Cleveland Clinic PPT

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Resources and Competencies Every organization can be viewed as simply a bundle of resources and competencies. The resources are either tangible or intangible. The resources have competencies— latent abilities to perform activities. It is through activities that current operations are conducted and future strategies pursued. Depending on how well they contribute to the performance of an organization’s operations and the implementation of its strategies, resources, and competencies may be considered strengths or weaknesses.

What an organization is able to accomplish depends upon the resources that it possesses, the competencies of those resources, and how the organization combines them to carry out activities. Some organizations have more resources with better competencies than other organizations. Some organizations do a better job of combining and mobilizing the resources and competencies that they do possess in order to achieve their operational and strategic goals. This ability is at the core of most successful organizations.

It is not enough for a firm to possess an outstanding collection of resources and competencies. The firm must be capable of translating the resources and competencies into the activities required by the strategies that it intends to implement. If that is not the case, the firm must either modify its strategies or acquire the necessary resources and competencies. In the first case, the firm would reexamine what it is capable of doing and look for strategies that are

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possible within those constraints. Alternatively, it would choose the most optimal strategies with the understanding that it would have to hire new employees, retrain existing ones, or outsource some functions, purchase new equipment, develop new systems and processes, and combine them in ways that allow execution of the strategies.

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Resources

Resources are things that are owned by a business; they may be either tangible or intangible. By themselves, they accomplish nothing. A sophisticated piece of medical imaging or laboratory research equipment, sitting idle, produces no value for the organization. A highly skilled radiologist or research scientist, employed but unoccupied, performs no strategic function. What makes a difference is what they are capable of accomplishing when they are in action or operation. This latent potential of resources constitutes a firm’s competencies. A competence that is triggered is an activity. The performance of activities serve as the building blocks of an organization’s operations and strategies.

Resources can be grouped in the following categories, with examples.

I. Tangible—visible, touchable, measurable Financial Free cash flow—substantial amounts to cover large percentage of strategic investment needs over the next three years. Credit rating—higher Standard & Poor’s (S&P) rating allows borrowing investment capital at lower rates than competitors. Organizational Control and reporting systems—near real-time data analytics system allows correction of problems before they escalate. Integrated clinical-cost management systems— generate data that enable cost cutting without jeopardizing quality.

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Service-line organizational structure—more in line with the way the hospital promotes itself to market segments. Physical Real estate—ownership of developable plot of land in area of rapid residential growth. Buildings—present clinic building was purpose- designed only eight years ago with room for expansion. Equipment—molecular biology research lab contains the latest genetic engineering instruments. Geographic location—nongovernmental organization (NGO) operates clinics in areas of greatest disease concentration. Technological Proprietary technologies—patents, copyrights, trademarks, trade secrets 1. Patents obtained on innovative surgical

procedures and medical devices developed in house

2. Secured trademark protection for a highly recognizable corporate logo

II. Intangible—unseen, amorphous Human—staff skills and experience, managerial judgment and insight, workforce morale, congenial labor-management relations, individual and organizational knowledge.

Good working relationship with nurses’ union

Community health center staff is highly spirited and passionate about serving their low-income clients.

Creative—innovation, problem-solving, clinical research capabilities

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Highly creative advertising and marketing staff

Researchers recruited from top postdoctoral programs

Perceptual—reputation with customers, suppliers, strategic partners, media, politicians, and competitors, public perceptions of specific product qualities, and organizational integrity

Patient satisfaction ratings higher than any of its competitors

Independent lab tests show greater durability and reliability of medical device products.

These are all positive examples of each type of resource; imagine what less desirable, negative examples might look like.

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Competencies

Competencies are usually the product of combinations of resources, the most important being human resources. Examples are a person operating a piece of equipment, a person sending a report through a management control system, a person performing a patented research procedure, or several people working together to accomplish a task. Any competence with strategic potential is worth noting, preserving, building, and using. An organization needs a wide variety of competencies just to conduct its day-to-day operating activities, even if they result in no more than competitive parity with its rivals. These are some examples of health care – related competencies.

Ability to maintain low in-hospital infection rates (hospital) System for minimum-error dispensing of medications (hospital) Ability to move a drug through the Federal Drug Administration (FDA) approval process with a minimum of cost and delay (pharmaceutical company) High proportion of research discoveries translated into commercial products (small biomedical research firm) High submission rate of accurate medical claims not returned by payers (physician practice) Efficient scheduling of operating room procedures (hospital) First mover in adopting new patient-friendly technologies like e-mail scheduling and prescription renewals (physician practice) Effective at maintaining good relations with contracted providers (managed care organization)

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Adept at assimilating newly acquired/merged small biotech research firms (large biotech firm)

There are thousands of competencies required to operate any health care organization, particularly one providing medical services to patients. The Healthcare Leadership Alliance, a consortium of professional health care administration associations, describes 802 competencies in five domains that it believes are required by health care administrators.

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SYNERGY IN THE OPERATING ROOM

A good health care example of the synergistic combining of resources and competencies is a multidisciplinary operating room (OR) team composed of physicians, nurses, and technicians. The lead physician may be a Harvard Medical School graduate and board certified, with twenty years of experience during which she has performed a particular surgical procedure hundreds of times. She is a valuable resource of the hospital. Her training and numerous repetitions of this and other procedures have made her highly competent in their performance. The benefit to the organization occurs every time that she actually performs the procedures.

Of course, the surgeon cannot carry out the procedures without the support of the other members of the OR team. Each one of them is a resource with specific competencies. They act together in carefully orchestrated unison. If the team was assembled carefully and subsequently nurtured, it may function with unique proficiency that completes procedures more quickly with clinical outcomes of higher quality. It may be hard to identify exactly what the team members do that permits them to function together so smoothly. The well- designed and equipped operating rooms help; so do the policies and procedures that are trained and enforced. This OR team is a resource with competencies that may contribute to a hard-to- duplicate competitive advantage over other hospitals.

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When an organization is able to develop a competence that gives it a real competitive advantage, it is said to be a core competence, critical to the organization’s strategic success. Such competencies have two vital characteristics: (1) because they are major contributors to product costs or features that customers are willing to pay for, and because they can be used to exploit opportunities or defend threats in the external environment, they are valuable to the organization, and (2) because they allow the organization to perform activities that its competitors cannot, and create customer value that the competitors cannot offer, and because competitors do not possess them, the competencies are considered unique. Even better is the competitive advantage that can be sustained for an extended period of time. To serve as the basis of such a sustainable competitive advantage, a competence must be difficult, expensive, or impossible for a competitor to imitate, and there must be no substitutes for it—that is, other competencies that could serve the same strategic purpose.

It would be too time consuming to compile an exhaustive list of all the resources and competencies possessed by an organization and then determine their specific competencies. They would number in the thousands or tens of thousands. There are two more selective approaches for identifying the most significant resources. A focused approach that yields useful results is to identify those resources and competencies that are strengths and weaknesses of the organization. This knowledge can inform three important categories of decisions.

1. New strategies must have their foundation in resources and competencies where the organization is strong. If a strategy depends, even inadvertently,

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upon areas in which the organization is weak, it is much more likely to fail.

2. A business may decide that it wishes to implement a highly advantageous strategy for which it lacks some of the appropriate resources and competencies. To permit this, it can take steps to develop or acquire them. It may accomplish this by buying specific resources, hiring new personnel with necessary skills, retraining current staff in the needed competencies, contracting with outside firms to provide the competencies, or merging with/acquiring entire businesses that already possess the desired resources and competencies.

3. If a business faces strategically aggressive competitors, it can expect that they may target its points of weakness. It can anticipate such attacks and take steps to correct the weaknesses or minimize the damaging effects of the attacks.

This approach begins by asking key managers with knowledge of major areas of the firm’s operations to identify the strongest and weakest resources and competencies within their areas of authority. It often makes sense to work with the heads of the various functional areas of the organization to come up with this information. Top management also needs to have input to this list for those resource and competence items that are organizationwide or cut across several functional areas.

Another approach is to rate the selected competencies by their degree of strength or weakness. Then, compare them with the same resources and competencies possessed by competitors. The contrasts can be highlighted through presentation in graphic formats.

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Strategic Uses for Resources and Competencies

Resources and competencies are the tools that strategists have to use in carrying out their plans. It is not the number or the sophistication of a firm’s resources and competencies that determines what it can accomplish, but how well the firm is able to leverage those resources to perform strategically appropriate activities. A firm can manipulate and deploy its resources and competencies to maximum advantage in a variety of generic ways.

Discovery. It may sound strange, but some businesses have resources and competencies that they are unaware of. Tangible resources are not likely to go unnoticed, but a firm may more easily forget about certain credentials that employees possess or intellectual property that it owns. Even more likely to be missed are unique competencies of employees, machines, or computer software. Think of a billing clerk who learned several useful nursing procedures before dropping out of nursing school, the PET scanner that has always been operated at its default medium-resolution setting, or the unused coding accuracy review feature of a medical claims filing program. An organization limits its strategic possibilities by not learning about all the resources and competencies it already owns.

Creation. A business need not feel constrained by the strategy options allowed by the bundle of resources and competencies that it currently possesses. It can and must be willing to create additional assets if they will enable the implementation of strategies deemed essential to its mission and objectives. It is possible to acquire these assets

by a variety of means. (See the sidebar on active management of firm resources and competencies.)

Combination. Resources and competencies have certain strategic potentials when deployed individually; they allow the performance of a great many more activities when they are used together in various combinations. Possible combinations include machines working in synchronization, human resources employing equipment and tools in different ways, people with different skill sets working in unison toward common goals, and systems being integrated with other systems and with the people who interface with them. Artful blending and balancing of a firm’s assets can produce powerful new synergies that open up new strategic opportunities.

ACTIVE MANAGEMENT OF FIRM

RESOURCES AND COMPETENCIES

A firm’s strategies must be matched to the strategic assets—the resources and competencies—that it has available if the strategies are to be successful. However, the firm is not restricted to the bundle of resources and competencies that it currently possesses. The firm should manage its strategic assets portfolio actively and dynamically, constantly assessing its operational and strategic requirements and taking steps to make sure that the required resources and competencies are in place when and where needed. There are several ways to accomplish this.

Purchase the resources, which may be equipment, systems, technology, intellectual property, buildings/facilities, or real estate. Hire new employees with the required experience, credentials, or skill sets to interact with other resources, both nonhuman and human. Train and develop existing employees to have the required competencies and to perform the required activities. Contract with outside businesses (“outsource”) to provide whatever resources and competencies are required, but that the firm cannot readily acquire or develop. Merge with or acquire entire organizations that already possess the desired resources or competencies. Enter into strategic partnerships with other organizations to share resources and

competencies that each requires for its strategic purposes.

Preservation. Resources and competencies with strategic or operational value must not be allowed to degrade or disappear. It may take greater recognition or more regular use of an asset to keep it alive. A good example is a complex surgical procedure that a surgeon must perform a minimum number of times in a year if he or she is to remain competent in it. In addition, the value of some resources and competencies can actually be multiplied by reusing them when they may otherwise seem to be used up, by sharing them with other units in the organization, or by finding new uses for them beyond their original design.

Concentration. A very important guideline for strategic asset deployment is to use just the right resource or competence for just the right purpose at just the right point in the implementation of a strategy. This also implies using the full volume of resources or competencies necessary in a concerted effort. The value of assets can be wasted if they are dissipated or committed in inadequate amounts.

Breakdown and Evaluation of the Internal Value Chain Because an organization ultimately aims to create and deliver value to its customers, a second useful way to describe its inner workings is as a sequential series of activities that cumulatively build value in a product or service until it is turned over to the customer. Michael Porter captured this entire process in a concept he called the “value chain.” It is composed of primary activities (directly associated with the manufacture and distribution of a product) and support activities (assist in accomplishing the primary activities). His generic value chain is shown in FIGURE 2-1.

FIGURE 2.1 Porter’s Generic Value Chain

The value chain is based on the traditional manufacturing company model, which brings in raw materials as inputs at one end and outputs finished goods at the other end. Value chains in the health care and biotechnology fields have their own unique features. See Figures 2-2 and 2-3 for examples

of value chains for a hospital and a pharmaceutical company.

FIGURE 2.2 Hospital Value Chain

FIGURE 2.3 Pharmaceutical Company Value Chain

Within each of the categories in these chains (inbound logistics, production, outbound logistics, sales and marketing, and service) are performed hundreds, if not thousands, of activities. Every one of them does, or should, create some small increment of value for the customer. Each activity can be performed well or poorly. In many cases, the same value could be created through the performance of a different activity. It also is possible frequently to create an entirely new form of value through the performance of new activities. Competitors are using their own variations of the value chain to manufacture goods and services. When a firm studies its competitors, it

compares its own value chain with theirs, activity by activity. (This is discussed in more detail in Chapter 5.)

In analyzing its own value chain, a firm is looking for the points at which the most cost is incurred and the most value added. Every activity does both to some degree. No activities are free and, if they are not contributing (directly or indirectly) to product or service values, they should not be part of the value chain. The purpose of the analysis is to find opportunities fo