Assignment 03: Benchmark: A Starting Point

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Strategic Analysis for Healthcare

Chapter 8

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Competitive Market Benchmark Analysis

Understanding the position of competitors in the market is essential for the development of effective business strategy.

One way analysts achieve this understanding is through competitive market benchmark analysis.

This approach helps analysts identify key factors that differentiate a company from its competition.

Benchmarking—that is, establishing goals through comparisons with other organizations’ performance—is widely used in healthcare as a quality improvement tool, and it can be extremely helpful in ensuring a competitive advantage over the competition.

Analysts are able to use comparisons and differentiation to drive strategy development.

For example, consider an organization that currently ranks first in market share but sees a competitor quickly rising in the rankings for price, quality, service, and reputation. Benchmark analysis helps the organization identify this new competition and decide what to do about it.

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Competitive Market Benchmark Analysis

To begin a benchmark analysis, analysts need to identify what factors are important in the industry being studied.

Each industry has a unique set of critical success factors, key competencies, requirements, and indicators.

In most industries, analysts evaluate productivity.

In retail sales, for instance, productivity has been measured in sales per square foot, and this measure serves as a key indicator of the efficiency of operations, trends (when measured over time), and competitive position (when compared to other retailers).

In healthcare organizations, we evaluate conditions across a number of categories (operations, finance, and so on), and we compare our own organizations with organizations considered to be the best in those specific categories, in or out of healthcare.

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Competitive Market Benchmark Analysis

Conducting a competitive market benchmark analysis involves a series of steps. First, through research, select the appropriate broad categories for your organization. These categories may include, but are not limited to, the following:

Product/service categories

Finance

Productivity

Human resources

Facility

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Competitive Market Benchmark Analysis

Second, identify the particular factors within those broad categories that are important to your industry.

For example, within the finance category, “return on assets” might be important in an industry such as manufacturing, which is highly dependent on equipment.

At the same time, “number of accounts 30 to 59 days past due” would likely be much more important in the retail credit industry.

Examples of broad categories and key factors common in healthcare are provided in Exhibit 8.1 in your book. In conducting your analysis, you can select as many factors as you feel are important.

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Competitive Market Benchmark Analysis

In identifying factors, analysts sometimes fall into conceptual traps such as failure to think in the big picture or failure to move from the present to the future tense.

Consider the US automotive industry in the 1960s. The industry failed to foresee the oil crisis of the 1970s, the growth of the Japanese automotive industry, and the trend of increasing consumer sensitivity to price and quality.

Looking back, one might wonder how analysts would miss those issues.

This example provides a clear picture of the need to think broadly and consider future possibilities.

American auto industry analysts could have, and in retrospect should have, identified those issues and enabled the US industry to stop the Japanese industry in its tracks.

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Competitive Market Benchmark Analysis

Healthcare is different from the auto industry, but the key points still apply.

Consider the rapidly evolving healthcare system in the United Sates.

Most agree that some type of reform is necessary, but few can agree on how to approach it.

Can you consider the big picture to address the healthcare issues in the industry segment you are studying?

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Competitive Market Benchmark Analysis

As the third step, identify the competition in your area, and obtain their information for each key factor you have identified.

Laying the results out in a table allows for easier presentation and quick grasp of the issues.

Consider adding an “industry average” column to compare your organization to the averages.

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Competitive Market Benchmark Analysis

You can choose from a number of methods for finding how the competitors compare.

Common methods include

numeric data reporting,

forced ranking (in which competitors are assigned ranks from best to worst),

scoring (on a point scale from 1 to 5 for each factor, for instance), and

selecting “yes” or “no” for key items.

Examples of these approaches are presented in exhibits 8.2 through 8.5 in your book.

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Competitive Market Benchmark Analysis

Analysis Example Using a Yes/No Method
Product/Service:	Our Hospital	Alpha Hospital	Beta Hospital	Omega Hospital	Industry
Practice network	YES	NO	NO	YES	Yes
Trauma center	YES	NO	NO	YES	NO
Cancer center	YES	YES	NO	NO	NO
Emergency department	YES	NO	YES	YES	YES

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Competitive Market Benchmark Analysis

Analysis Example Using a Scoring Scale Method
Human Resources	Our Hospital	Alpha Hospital	Beta Hospital	Omega Hospital	Industry
Overall quality rating	1	2	2	5	3
Retention	2	1	2	5	2
Flexibility	1	4	2	5	3
Onboarding and training	1	4	3	5	3
1 = superior; 5 = poor

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Competitive Market Benchmark Analysis

Analysis Example Using a Numeric Data Reporting Method
Financial	Our Hospital	Alpha Hospital	Beta Hospital	Omega Hospital	Industry
Liquidity ratio	2.18	1.95	.98	2.02	2.11
Long-term debt to assets	.25	48	67	33	.21
Age-of-plant ratio	9.49	7.80	8.21	5.72	10.31
Average days in accounts receivable	48	59	62	54	49

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Competitive Market Benchmark Analysis

Analysis Example Using Forced Ranking Method
Productivity	Our Hospital	Alpha Hospital	Beta Hospital	Omega Hospital	Median
Market share	1	2	3	4	2.5
Adjusted operating revenue	2	4	3	1	2.5
Revenue per provider	2	4	1	3	2.5
Patient loyalty	1	3	2	4	2.5

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Competitive Market Benchmark Analysis

Fourth, extract meaning from the data.

Ask questions like,

“Why is it so?”

“Who is the best of the best and why?”

“What trends are visible?”

“Given this same data, what are the competitors likely to do?”

In subsequent chapters, we will look at strengths, weaknesses, opportunities, and threats (SWOT).

Findings from the competitive market benchmark analysis will provide you with some of the information necessary to complete the SWOT analysis.

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Competitive Market Benchmark Analysis

Again, remember to think broadly.

Your competition includes anything that could compete with your organization, not just your peer group.

For example, movie theaters compete with other theaters directly, but they also compete indirectly with cable TV, video rentals, electronic games, websites, restaurants, live music venues, Broadway-style theater, and circuses, to name a few.

In healthcare, alternative providers are but one category of potential competitors.

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Competitive Market Benchmark Analysis

When a benchmark analysis contains both financial and nonfinancial information, it is often called a balanced scorecard.

The word balanced reflects the fact that many companies in the past only measured themselves and their competitors based on financial data.

The inclusion of a broad range of categories, from corporate culture to technical innovation, gives the strategic analyst a deeper insight to the company under study, the competitors, and the industry.

This insight will likely lead to a more effective strategy.

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Exercise

Break into groups.

Conduct a competitive market benchmark analysis for your industry.

Use the space beginning on page 53 in your book.

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