Service Area Competitor Analysis

Chapter 4 Internal Analysis and Competitive Advantage

Why Internal Analysis and Competitive Advantage Are Important

As defined by Professor Kotler, enhancing and leveraging competitive advantage is central to strategy. Organizations are constantly trying to “distance themselves” from competitors; responding to the demands of their situation in unique ways enables them to be separated from their competitors. Competitive advantage is created inside the organization through the development of a unique bundle of resources, exclusive technology, access to the market, or new product/service characteristics, that competitors “cannot or will not match.” Differentiation is typically the basis for competitive advantage.

“Competitive advantage is a company’s ability to perform in one or more ways that competitors cannot or will not match.”

—PhiliP KOtler, AMeriCAn MArKeting AuthOr AnD DistinguisheD PrOfessOr

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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122 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Competitive advantage is found in the strengths of the organization; however, these strengths must be relevant to the markets served. Moreover, competi- tive advantage does not exist in a vacuum – there is no one universal competitive advantage. Competitive advantage occurs in context – what is a competitive advantage in one market may not be a competitive advantage in another market. finally, competitive advantage must differentiate the organization enough from its competitors to make a meaningful difference in the mind of the buyer. if com- petitive advantages are easy to copy, they do not remain competitive advantages for long.

An organization’s self-examination is difficult – strengths are sometimes over estimated and weaknesses difficult to acknowledge. therefore, methods to help strategic managers objectively surface their organizational strengths and weak- nesses as well as assessment guidelines for determining sustainable current and potential competitive advantages are essential. An organization’s external analysis, service area analysis, and internal analysis are the basis for identifying competitive advantage.

use the concepts in this chapter to appraise internal strengths and weaknesses, identify unique characteristics, and create competitive advantages for a health care organization!

learning objectives

After completing the chapter you will be able to: 1. Explain how external analysis creates the context for internal analysis and the

development of competitive advantage. 2. Discuss the ways in which value can be created at various places in the

organization. 3. Articulate the rationale of using the organizational value chain to conduct inter-

nal analysis. 4. Use the value chain to identify organizational strengths and weaknesses. 5. Determine the competitive relevance of each organizational strength and

weakness. 6. Describe how competitively relevant strengths and weaknesses can be used as

the basis for developing strategic plans. 7. Discuss the importance of identifying and developing competitive advantage for

a health care organization.

Strategic Management Competency After completing this chapter you will be able to perform an internal analysis and determine the competitive advantages and competitive disadvantages for a health care organization.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 123

The Process for Internal Analysis and the Search for Competitive Advantage

Although an understanding of an organization’s external environment is criti- cal and provides the context for strategic planning, it is the organization’s strengths that provide the foundation for creating a competitive advantage. Competitive advantage is derived from organizational strengths that are valu- able to external stakeholders, relatively rare among competitors, difficult to duplicate by competitors, and can be sustained by the organization. typically, these strengths are directed toward achieving a cost advantage or differentiat- ing the organization from its competitors. therefore, a detailed understanding of the organization’s internal strengths and weaknesses relative to the changes taking place externally is a necessary element for developing a viable strategic plan. the search for competitive advantage consists of five steps as shown in exhibit 4–1.

EXHIBIT 4–1 The Process for Internal Analysis

Step 1 – Review Results of External Analysis and Service Area Competitor Analysis

Step 2 – Organize the Internal Analysis Process – Using the Value Chain

Step 3 – Identify Organizational Strengths and Weaknesses

Step 4 – Determine Competitive Advantages and Disadvantages

Step 5 – Synthesize and Determine the Implications of the Competitive Advantages and Disadvantages

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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124 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Step 1: Review Results of External Analysis and Service Area Competitor Analysis

to this point, situational analysis has concentrated on external factors in an attempt to answer the first of three strategic questions – “What should the organi- zation do?” Before undertaking an internal analysis, it is important to understand the external analysis – the legislative/political forces, economic trends, social/ demographic changes, and technological issues affecting the organization, as well as competitors’ abilities to be successful in the marketplace. therefore, at a mini- mum, the issue map (Chapter 2, exhibit 2-5) and the synthesis of the service area competitor analysis (Chapter 3, step 7) should be reviewed.

After external analysis, the emphasis of situational analysis shifts to the organiza- tion itself and the ways in which competitive advantage may be established – the inter- nal analysis. successful organizations “focus relentlessly on competitive advantage … [they] strive to widen the performance gap between themselves and competitors. they are not satisfied with today’s competitive advantage – they want tomorrow’s.”1 As essentials for a strategic thinker 4–1, “What is the red Queen effect?” illustrates, obtaining and maintaining a competitive advantage is a difficult challenge.

ESSEnTIAlS foR A STRATEgIC THInkER 4–1

What Is the red Queen effect?

The Red Queen appeared in Lewis Carroll’s Through the Looking Glass with Alice running hand-in-hand with the Red Queen who keeps telling her to run faster and faster. To Alice’s amazement, no matter how fast they run every- thing around them remains in the same place. Alice says to the Red Queen, “Well, in our country you’d generally get to somewhere else – if you ran very fast for a long time, as we have been doing.” The Queen responds, “A slow sort of country. Not here, you see, it takes all the running you can do, to keep in the same place, if you want to get somewhere else, you must run twice as fast as that!”

William Barnett in his book, Red Queen among Organizations: How Competitiveness Evolves, demonstrates what many health care executives know intuitively – “you have to run as fast as you can just to stay where you are” in a highly competitive environment.1 Consider the

case of a long-term care facility in a prosperous retirement market that decides to seek a com- petitive advantage by providing a number of ancillary services to its residents not offered in the general market. The facility builds a state-of- the-art wellness center, an on-site Olympic size swimming pool, and provides on-demand trans- portation services to local health care offices and shopping malls.

Initially the facility gains a competitive advantage by offering these services. Retirees move from other facilities and a larger percent- age of prospective residents select the facility because of the enhanced services. Rivals, rec- ognizing they are operating at a disadvantage, upgrade their facilities and add more amenities such as an on-site chef, customized menus, and a spa. This competitor becomes the recipient of transfers from other facilities and acquires a larger market share for a while.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 125

the task of establishing competitive advantage is sometimes perplexing, and not always successful. Developing a better product, establishing a cost advantage, or delivering superior service does not necessarily guarantee success. Competitive advantage requires an organization to develop a distinctiveness that is valued by customers, not offered by competitors, and cannot easily be imitated. identifying this distinctiveness requires an introspective view that enables the organization to answer the second strategically relevant question of situational analysis – “What can the organization do?” to answer this question, a method of internal analysis must be adopted that will enable the strategist to effectively determine what cus- tomers value.

Step 2: organize the Internal Analysis Process – Using the Value Chain

internal analysis can be accomplished by evaluating the strengths and weak- nesses of the functional areas such as clinical operations, information systems, marketing, clinical support, human resources, financial administration, and so on. With such an approach, each function or organizational subsystem is care- fully analyzed. Although this approach has been successful in some instances, by itself it does not adequately address strategic issues. A better approach is to evaluate the various ways that organizations create value for stakeholders. Value is defined as the degree of satisfaction received relative to the price and the expected outcome or results.2 for example, a patient may go to a plastic surgeon and pay an extremely high price to correct scarring from an automobile accident. Despite the high price, the perception of social acceptance, increased self-esteem, and improved self-confidence may provide so much satisfaction that the patient perceives a very high value. By contrast, patients may go to a free family practice clinic where services are provided in a rude and disrespectful manner and per- ceive that they have received little or no value. Value is the perceived relationship between satisfaction and price; it is not based solely on price.3 the organizational value chain is a useful tool for identifying and assessing how health care organiza- tions create value through service delivery and organizational support activities.

Barnett notes that although it appears every- one is staying in the same relative place, it is really an illusion to the insiders.2 The Red Queen effect, viewed from the perspective of the customer or patient, is that competition has forced both organizations to learn and grow. Organizations that rest on their past offerings and insist on doing things the “way we have always done them” fail to improve and eventu- ally lose their competitive advantage. Constantly “running faster” leads to innovation, learning, and continuous improvement. Strategic leaders

must embrace competition and change – the pathways to improvement.

SourceS 1. William P. Barnett, Red Queen among

Organizations: How Competitiveness Evolves

(Princeton, NJ: Princeton University Press, 2008).

2. Claudio Giachetti, Joseph Lampel, and Stefano

Li Pira, “Red Queen Competitive Imitation in

the UK Mobile Phone Industry,” Academy of

Management Journal, 60, no. 5 (2017),

pp. 1882–1914.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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126 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Organizational Value Chain health care organizations have numerous opportunities to create value for patients and other stakeholders.4 for example, efficient appointment systems, courteous doctors and nurses, “patient-friendly” billing systems, easy-to-navigate physical facilities, and the absence of bureau- cratic red tape can greatly increase satisfaction.5 the organizational value chain is an effective means of determining how and where value may be created.6

the value chain illustrated in exhibit 4–2 has been adapted from the value chain used in business organizations to more closely reflect the value-adding com- ponents for health care organizations. the value chain utilizes a systems perspec- tive; value may be created in the service delivery subsystem (upper portion of the value chain) and by effective use of the support activities (lower portion). Service delivery is the primary way organizations create value for the customer/patient through pre-service, point-of-service, and after-service activities. service deliv- ery activities are placed above the support activities, as they are the fundamental value creation activities; however, they are buttressed (supported) by activities that facilitate and improve service delivery.

the three elements of service delivery – pre-service, point-of-service, and after-service – incorporate the production or creation of the service (product) of health care and include primarily operational processes and marketing activities. Organizational culture, organizational structure, and strategic resources are support activities that may add value to service delivery by ensuring an inviting and sup- portive atmosphere, an effective organization, and sufficient use of resources such

EXHIBIT 4–2 The Value Chain

PRE-SERVICE Market/Marketing Research Target Market Services Offered/Branding Pricing Distribution/Logistics Promotion

POINT-OF-SERVICE Clinical Operations

Quality Process Innovation

Marketing Patient Satisfaction

AFTER-SERVICE Follow-up

Clinical Marketing

Billing Follow-on

Clinical Marketing

ORGANIZATIONAL CULTURE Shared Assumptions Shared Values Behavioral Norms

ORGANIZATIONAL STRUCTURE Function Division Matrix

STRATEGIC RESOURCES Financial Human Information Technology

A dd

V al

ue A

dd V

al ue

S up

po rt

A ct

iv iti

es S

er vi

ce D

el iv

er y

Source: Adapted from Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985), p. 37.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 127

as finances, highly qualified staff, information systems, and appropriate facilities and equipment. Although not always apparent, such support systems and the value they add are critical for an effective and efficient organization. the value chain as a strategic thinking map provides the health care strategist with a frame- work for internal analysis of the organization (see exhibit 4–2 and exhibit 4–3).

EXHIBIT 4–3 Description of Value Chain Components

Value chain component Description

Service Delivery Activities

Creation of value that is directly involved in ensuring access to, provision of, and follow-up for health care services.

Service Delivery – Pre-Service

These activities create value prior to the actual delivery of health care.

Market/Marketing Research

Identification of recognizable groups (segments) that make up the market; information gathering to improve quality, how to meet consumers’ needs.

Target Market Determination of the appropriate segment(s) to satisfy with specific health care services.

Services Offered/ Branding

Dissemination of information to prospective patients and other stakeholders regarding the prices, range of products, and location of available services by an identified health care organization; promotional information; brand-quality relationship.

Pricing Determination of the charge schedule (prices) for available services.

Distribution/Logistics Actions that aid patient/customer entry into the health care delivery system, including appointments, registration, and parking.

Promotion Communication of information to customers concerning the health care offering; includes advertising, events (health fairs, 10K sponsorships), social media, and so on.

Service Delivery – Point-of-Service

These activities create value at the point where health care is actually delivered to the patient.

Clinical Operations Delivery of health care to patients.

Quality Improvements in the efficiency and effectiveness of health care services as perceived by the patient.

Process Innovation Improvements in existing or new operational processes.

Marketing Determination of new products and prices; identification of new customers; provision of information to customers; convenience of access.

Patient Satisfaction Enhancement of the patient/customer health care experience.

(Continued)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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128 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Value chain component Description

Service Delivery – After-Service

These activities create value after the patient/customer has received the initial health care.

Follow-up Determination of additional services needed to supplement the initial health care need.

Clinical Tracking of subsequent procedures and appointments.

Marketing Actions that provide information, assessment of patient/customer satisfaction, and continuous improvement in quality of care.

Billing Implementation of clear, easy to understand billing procedures and documents.

Follow-on Facilitation of patient/customer entry into another health care setting.

Clinical Referrals to the proper clinical settings.

Marketing Provision of information concerning follow-on clinical settings for further (extended) care, tracking of outcomes of care.

Support Activities The activities in the value chain that are designed to aid in the efficient and effective delivery of health services.

Support Activity – Culture

Values, norms, artifact, and assumptions that serve as a guide for behavior.

Shared Assumptions The assumptions employees and others share in the organization regarding all aspects of service delivery (e.g. needs of patients, goals of the organization).

Shared Values The guiding principles of the organization and its employees. The understandings people in the organization have regarding excellence, risk taking, etc.

Behavioral Norms Understandings about behavior in the organization that can create value for patients.

Support Activity – Structure

Those aspects of organization structure that are capable of creating value for customers/patients.

Functional Structure based on processes or activities used by employees (e.g. surgery, finance, human resources).

Divisional Major units operate relatively autonomously subject to overarching policy guidelines (e.g. hospital division; outpatient division; northwest division).

Matrix Two-dimensional structure where more than one authority operates simultaneously (e.g. interdisciplinary team with representatives from medicine, nursing, administration).

EXHIBIT 4–3 (Continued)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 129

Value chain component Description

Support Actiivty – Strategic Resources

Value-creating financial, human, information resources, and technology necessary for the delivery of health services.

Financial Financial resources required to provide the facilities, equipment, and specialized competencies demanded by the delivery of health services.

Human Individuals with the specialized skills and commitment to deliver health services.

Information Hardware, software, and information-processing systems needed to support the delivery of health services.

Technology The facilities and equipment required to provide health services.

Service Delivery Activities health care organizations can create value and significant advantages over competitors in all three of the service delivery sub- systems. for example, in late summer and early fall, public health officials begin to remind citizens that it is time for immunization against influenza. numerous methods are available for a provider to create value even before the patients arrive for their flu shot. Pre-service is a key area in the value chain where value can be cre- ated for the customer/patient before the service is actually delivered. A provider that views administering flu shots as an effective way to build a caring, quality image might do considerable research to determine which patients need flu shots (or would benefit most from having flu shots); where those patients live or work and where they might find it convenient to go for the immunization; how much they might be willing to pay; and how they might best find out about the benefits, convenience, and affordability (promotion). in this manner the clinic develops a distinctive market orientation that is not common in public health or many pri- vate health care organizations.7

Once the patient arrives, point-of-service activities occur. regarding the actual delivery of health care, there are multiple ways to create value for the customer. Point-of-service is the key area in the value chain where the service is actually deliv- ered and value can be created through clinical operations and marketing. Point-of- service value might be added if the physical surroundings are clean and attractive, there is no waiting time, the nurse is courteous, and information is received concerning the possible side effects of the services to be provided. numerous public and private organizations have attempted to improve point-of-service by ensuring the delivery of higher-quality services. however, there continues to be considerable controversy as to how effective service improvements alone can lead to sustainable competitive advantage.8 At the same time, when patient services are enhanced through innovation that results in an improvement in perceived outcomes, a competitive advantage may result – at least in the short run.9 Perhaps the most important single area of the point-of service evaluation relates to patient satisfaction. essentials for a strategic thinker 4–2, “What is Patient satisfaction?” illustrates one of the established survey methodologies for assessing patient

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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130 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

satisfaction, and a more recently developed effort to evaluate and make available to the public the patient satisfaction scores for hospitals.

ESSEnTIAlS foR A STRATEgIC THInkER 4–2

What Is Patient satisfaction?

Patient satisfaction is the individual’s percep- tion of the quality of his or her care experience, including such factors as care outcomes, com- munication with and attitudes of nurses and doctors, responsiveness of staff, facility cleanli- ness, communicating about medicines, discharge information, overall rating of the facility, pain management, and so on. Assessment of patient satisfaction enables comparisons of care to be made longitudinally for a single provider as well as across a number of providers or facilities and, thus, provides a basis for tracking the quality of care and determining where improvements may be made. Patient satisfaction measures may or may not reflect the actual quality (technical exper- tise) of care as the patient may not be awake, may not have any medical procedure experience, nor be realistic in terms of pain management.

The most recognized name in health care patient satisfaction is Press Ganey – a company that has provided consulting services for more than 30 years to more than 26,000 health care organizations.1 Many people who visit their doc- tors are familiar with the follow-up Press Ganey surveys that appear a few days after the visit. Patients are asked to assess the quality of care from providers as well as the treatment afforded by office personnel, laboratory technicians, and health educators where appropriate.

The Cleveland Clinic became concerned about its patient satisfaction scores when it discovered its physician communication scores were among the lowest when compared to 15 other top hospitals such as the Mayo Clinic, Johns Hopkins Hospital, and Massachusetts General

Hospital. Through the collection of quantitative and qualitative data, the Cleveland Clinic deter- mined that patients’ top three concerns were: respect, good communication among staff, and happy employees during their stay.

When the Clinic implemented a pilot program in its emergency department to improve patient satisfaction, patient experience scores began to rise when employees at all levels were encour- aged to communicate with each patient during their wait. For example, a receptionist might ask, “Is there anything I can get you? I know you have been waiting a long time …” Doctors, nurses, and all other employees were trained in com- municating with patients. The Cleveland Clinic’s doctor communication scores are now in the top percentile of all reporting hospitals.2

In 2002 the Centers for Medicare & Medicaid Services (CMS), working with the Agency for Healthcare Research and Quality (AHRQ) and the Department of Health and Human Services (HHS), began developing a patient satisfaction survey for hospitals.3 This survey is called the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey. This instrument has three major goals:

1. To produce data from a patient perspective that will allow objective and meaningful comparisons of hospitals.

2. To enable public reporting of data to provide an incentive for hospitals to improve patient care.

3. To improve health care accountability by increasing transparency of the quality of services provided by hospitals.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 131

finally, value can be created through effective after-service activities. After- service activities can add value through subsequent patient interactions. A friendly call (follow-up) from someone the next day to check that there were no adverse side effects of the treatment is a thoughtful gesture and can create considerable consumer/patient satisfaction. Billing may provide assistance in filing the neces- sary insurance papers or assuring payment methods. Patient satisfaction surveys at a later date can serve to remind the consumer of the outstanding care received or can identify areas that need improvement. follow-on activities may be as sim- ple as setting up the post-hospital stay check-up with the physician or assistance in determining a rehab facility for after surgery to repair a broken hip.

Support Activities Value creation in service delivery can be greatly enhanced by support activities. if the organizational culture is service oriented, patients feel it when they walk through the door.10 the organizational structure increases patient satisfaction by effectively and efficiently facilitating the service delivery. the structure should have enough standardization to ensure consistent qual- ity yet enough flexibility to allow for responding to special needs. strategic resources are important to the overall perception of value received at the health care organization. such resources will have a positive impact on a patient’s satisfaction with the visit and can include employees with the proper skills, an up-to-date information system, an accessible parking lot, well-maintained build- ings and grounds, and up-to-date diagnostic and treatment equipment. it is also important to have modern and responsive administrative and financial manage- ment systems.11 financial systems that produce bills that are too complex for patients to understand or lost patient records may imply to some that the facility provides poor quality care.

there are a number of opportunities for health care organizations to create value even when patients come for a service as simple as immunizations. it is important to recognize that opportunities for value creation may be missed within each subsystem just as easily as they may be created.12 therefore, the goals,

Utilizing this instrument, consumers/patients are able to compare and assess participating hospitals and gain valuable information about the quality of services.

The HCAHPS survey includes 27 questions addressed to discharged patients regarding their hospital stay. The survey is administered to patients within 48 hours to six weeks after they are discharged. The survey is available in English, Spanish, Chinese, Russian, and Vietnamese. CMS publishes the participating hospital results on its “Hospital Compare” website (https://www. medicare.gov/hospitalcompare/search.html?).

referenceS

1. www.pressganey.com/about.

2. James Merlino, “How to Improve Patient

Satisfaction Scores By Using Data,”

HealthCatalyst, www.healthcatalyst.com/how-

cleveland-clinic-improve-patient-satisfaction-

scores-data-analytics.

3. Source of information on the HCAHPS

survey obtained from www.cms.gov/

Medicare/Quality-Initiatives-Patient-

Assessment-Instruments/HospitalQualityInits/

HospitalHCAHPS.html.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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132 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

values, and behaviors of all employees must be integrated toward the common objective of patient satisfaction and service.

Step 3: Identify organizational Strengths and Weaknesses

An organizational strength is an attribute or characteristic (resource, competency, capability) that the organization believes it possesses and utilizes successfully. in the past, a stable environment allowed static strategies based on one or two strengths to be successful for years, particularly for large, dominant organizations. A particular location may be a visible strategic strength because it prohibits other organizations from occupying that specific space and cannot be exactly replicated. some strengths that health care organizations possess are clear and easily recognizable; however, organizational characteristics that appear to represent key strengths to strategists may have little importance to patients or other key stakeholders. further, it may be a strength possessed by competitors. in today’s health care market, strengths can quickly become weaknesses as competitors challenge successful strategies.

Comparatively, a weakness is an attribute or characteristic (resource, competency, capability) that the organization assesses that it needs to improve. Weaknesses may be easy to recognize as well. to be competitively relevant, the weakness must be of value to stakeholders, relatively rare among competitors, difficult for the organization to fix, and sustainable by competitors. Dominant organizations may become complacent, rest on their laurels, and refuse to consider that the factors that made them a success may become a liability in the future.13

strengths and weaknesses are subjective in that they represent the opinions of evaluators. for example, employees stating that the long-term care facility offers a caring environment would be a subjective strength. employees may believe they provide a caring environment, but do the patients? some strengths and weak- nesses are relative – they are not obvious and can only be determined in relation- ship to the strengths and weaknesses of primary competitors.14 for example, a world-renowned academic health center may lose a famous surgeon to a local hospital that is attempting to build more strength in the clinical area of the sur- geon’s specialty. the health center may remain very strong in terms of the services it provides, but have a relative weakness with regard to the facility where the surgeon is now located. finally, strengths or weaknesses may be objective in that most everyone recognizes that the organization possesses the strength or weak- ness. A pharmaceutical company that wins a patent for an important new drug has an objective or absolute strength (at least until the patent runs out or another company wins a patent that is superior).

Competitive advantage of an organization may be based on having rare or abundant resources, special competencies or skills, or superior management or logistical capabilities. similarly, competitive disadvantages may result from a lack of resources, competencies, or capabilities. in most cases the search for competitive advantages begins with an assessment of organizational strengths followed by an assessment of organizational weaknesses. essentials for a strategic thinker 4–3, “What is the resource-Based theory of Competitive Advantage?” illustrates one view of competitive advantage, based on the tangible and intangible resources possessed by the organization.

.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 133

ESSEnTIAlS foR A STRATEgIC THInkER 4–3

What Is the resource-Based theory of Competitive Advantage?

The resource-based theory argues that sus- tained competitive advantage is a function of the organization’s tangible and intangible resources. Tangible resources include capital facilities, human, informational, financial, and similar types of observable resources. Resources such as reputation, goodwill, and so on are intan- gible. Although not directly observable, they are real none the less. How much goodwill does St. Jude’s Research Hospital for Children possess? What is the reputation of the Cleveland Clinic worth? How can anyone put a true value on the name Mayo Clinic?

Although the roots of resource-based the- ory can be traced to early economic thought, researchers indicate that the most direct ori- gins of the theory emerged in the early 1980s.1 Although resource-based theory might appear logical, even self-evident, notable exceptions to the argument are identifiable. In almost all industries some examples of relatively weak companies (resource wise) exist that effectively compete against their richer industry neigh- bors. In 1968, how could Hospital Corporation of America (HCA) expand by building new hospitals, acquiring and upgrading existing facilities, and building one of the first national hospital companies in the midst of so many well-established and successful hospitals and health care organizations? Perhaps the best explanation for this seemingly contradictory evidence is that HCA was able to develop cer- tain intangible resources such as leadership and managerial capabilities that enabled it to

muster and combine its limited resources in innovative ways.

An entrepreneurial spirit might be a unique resource possessed by an organization with less tangible resources that allows it to be effective against larger and more resource rich competitors. Titan Spine, which produces only a small number of products used in back surgeries, offers a five-year warranty on the devices it manufactures shielding some of the risk of product failure from its customers.2 In a highly litigious society even the removal of a small amount of risk might provide a competi- tive edge.

Sometimes an organization can convert a resource weakness into an advantage. Younger, smaller, and more creative organizations can react to and take advantage of developing opportunities faster than large, complex, and bureaucratic competitors. Moreover, smaller and more nimble organizations are often closer to their customers/patients and increase the value of their products and services by listening more carefully to user preferences.

The resource-based theory provides an important insight for strategic thinkers. To some extent, the thinking prior to the emergence of this theory was for organizations to adapt similar strategies and do the same things bet- ter or at a lower cost/price than competitors. The resource-based theory altered this view by suggesting that a more productive approach is to leverage unique resources and exploit the dif- ferences among competitors.3

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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134 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Resources Resources include factors that are available for use in produc- ing goods and services. resources may be tangible, as in the case of land and capital, or they may be intangible, as in the case of intellectual property, repu- tation, and goodwill.15 the importance of intangible resources should not be underestimated. robert Kaplan and David norton, co-creators of the “Balanced scorecard” strategy performance tool, point out that unlike financial and physi- cal resources, intangible resources are hard for competitors to imitate, making them a powerful source of sustainable competitive advantage.16 furthermore, according to a harris interactive health Care Poll, a good reputation and a trusted physician’s recommendation are two of the most important indicators of the quality of medical care as perceived by patients. these factors ranked above more tangible indicators of resources, including location, appearance, and con- dition of physical facility.17

the resource-based theory of strategy argues that valuable, expensive, or difficult- to-copy resources provide a key to sustainable competitive advantage.18 Although the resource-based viewpoint has been an integral part of strategic thinking for more than two decades, it has consistently evolved and matured into a com- prehensive theory in more recent years. the basic assumption is that “resource bundles” used by health care organizations to create and distribute services are unevenly developed and distributed, explaining – at least to some extent – the ability of each organization to compete effectively. Organizations with marginal resources may break even; those with inferior resources might disappear; and those with superior resources typically generate profits. interestingly, some researchers suggest that the deployment of unique resources does not necessarily increase profits or explain the difference between the deploying firm’s profit and that of competitors.19

Basing strategy on the resource differences between organizations should be automatic rather than noteworthy; however, appropriate utilization of this basis for strategy is far from evident, especially in light of the overwhelming attention given to external analysis in strategy formulation.20 in addition, there are many different types of resources. More recently the issue of resource orchestration has emerged, calling for an increased focus on the amount of resources an organiza- tion possesses as well as the effectiveness of health care managers in structuring, bundling, and leveraging resources.21

Competencies Competency includes intellectual and skills-based knowl- edge or know-how and may be a powerful source of sustained competitive advantage. for a growing number of health care organizations, competitive

referenceS

1. Jay Barney and Delwyn Clark, Resource-Based

Theory: Creating and Sustaining Competitive

Advantage (New York: Oxford University Press,

2007).

2. Larry Myler, “What Does Entrepreneurship

Look Like in Healthcare? Forbes – Entrepreneurs,

March 14, 2016.

3. Robert M. Grant, Contemporary Strategy

Analysis: Concepts, Techniques, Applications

(Malden, MA: Blackwell Publishers, 2002).

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 135

advantage lies in the ability to create an economy driven not by cost efficiencies but by ideas.22 for example, some researchers have suggested that intellectual capital is the single most important factor in the development of competitive advantage.23

in many cases, competencies are socially complex and require large numbers of people engaged in coordinated activities.24 generally, to enter a particular market or deliver specific services, the organization must possess threshold con- ditions – the minimally required resources, competencies (knowledge and skills), or capabilities necessary to compete in a particular area. for example, to offer cardiac services, an acute care hospital must have a minimum number of clinical personnel with specific knowledge and skill in cardiac care. Although all organi- zations offering cardiac services presumably possess threshold competencies, only one or two will develop a particular type of knowledge or specific skill to the point that it becomes a distinctive competency. this type of competency is a highly developed strength that can be critical in developing a competitive advantage.

Capabilities A health care organization’s ability to muster, coordinate, and deploy resources and competencies, usually in combination, to produce desired services is known as its capability. the capability to purposefully coordinate resources and competencies is another potential source of competitive advantage. the ability to effectively and efficiently coordinate resources and competencies to achieve integrative synergies through leadership and management is a strategic capability. for example, some assets almost never create value by themselves, and need to be combined with other assets – investments in it (a resource) have little value unless complemented with effective hr training (competencies). Conversely, many hr training programs have little value unless complemented with modern technology and managerial tools. Another example involves the effective manage- ment of the health care organization’s supply chain.25 individuals who are capable of building and maintaining relationships with suppliers can develop significant advantages over competitors.26

Capabilities fall into one of the two following categories – dynamic capabilities or disruptive capabilities:

1. the ability to make ongoing improvements to the organization’s activities through learning, renewal, and change over time is referred to as a dynamic capability and relates to an organization’s skill at adapting its resources, or competencies, or both to external changes.27

2. the ability to develop strategic insights, recognizing and arranging or rearranging resources and competencies to develop novel strategies before or better than competitors is a disruptive capability.28

Capabilities, therefore, are integrating and coordinating abilities (bonding mechanisms) of managers and leaders to bring together resources and competen- cies in ways superior to those of competitors.29

the stock of resources, knowledge, and integrative skills contained in a health care organization may not be sufficient to ensure a competitive advantage over time. it is likely that two or more organizations competing in the same health care

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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136 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

market could have essentially the same resources and similar competencies. When this is the case, the competitive advantage is likely to be the result of different capabilities – a unique culture, strategic leadership, or a set of processes.30

health care organizations that do not have superior resources or unique compe- tencies may still develop competitive advantages if they are extraordinarily com- petent at converting ordinary resources and skills into genuine strategic assets.31 for example, effective management of technology is more important than new computers and software. effective it management results in services that respond uniquely to customer needs and, thereby, provide a competitive advantage. the development of this type of capability is based on four interrelated principles:

1. the building blocks of strategy may be processes as well as people, products, services, and markets.

2. Competitive success depends on transforming an organization’s key processes into services that consistently provide superior value to customers.

3. Organizations create these capabilities by making strategic investments in a support infrastructure that link together and transcend traditional functions of any single component of the value chain.

4. Because capabilities necessarily cross functions and value chain components, the champion of capabilities-based strategy must be the chief executive.32

Step 3: Identify organizational Strengths and Weaknesses – Hill-Rom

using an actual organization, hill-rom, inc., the steps in the process of deter- mining competitive advantage will be illustrated. the first action of step 3 is to carefully assess the activities that hill-rom does well and the activities it does not do as well within each component of the value chain (exhibit 4–2). After the organization’s strengths and weaknesses have been identified, each is assessed (step 4) to determine whether it is – or could become – a competitive advantage or competitive disadvantage.

hill-rom, headquartered in Chicago, is the dominant manufacturer of hospi- tal beds in the united states – some observers estimate the company controls 70–90 percent of the hospital bed market. hill-rom, however, is much more. it is a leading global technologies company with three major global businesses: Patient support systems, surgical solutions, and front line Care. With more than 10,000 employees and partners in more than 100 countries world-wide, the com- pany states that its focus is on improving clinical and economic outcomes in eight core areas: advancing mobility, wound care and prevention, patient monitoring and diagnostics, surgical safety and efficiency, respiratory health, patient support systems, surgical solutions, and front line care.

hill-rom pioneered in making hospitals safer and more comfortable for patients. the company has expanded its portfolio through acquisitions by pur- chasing Allen Medical, the world’s leading manufacturer of accessories for operat- ing room tables; liko, a swedish firm specializing in products for the safe lifting

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 137

and transferring of patients in health care settings; Aspen, a British company that makes surgical blades and scalpels (Aspen’s successful Bard-Parker scalpel sells more than a 115 million units per year); Völker, a german company that is a leader in the production of long-term care beds; trumpf Medical, a german company specializing in the production of advanced operating room products and services as well as innovative lighting technologies, cameras, and surgical assistance systems; and its largest acquisition, Welch Allyn, the company that developed the first direct illuminating hand held ophthalmoscope and manufactures other instruments to assist physicians in examining patients. today, hill-rom is a fully integrated medical technologies company with revenues of $2.7 billion and has virtually doubled its revenues since 2009.33

Service Delivery Activities hill-rom possesses both important value-creating strengths and value-reducing weaknesses in service delivery for the medical device industry. incorporated into that is a large and diversified industry segment with some exceptionally powerful competitors (see essentials for a strategic thinker 4–4, “What is the Medical Device industry?”). Yet, hill-rom, or its antecedents, has existed for more than 90 years. Because of its market share in the hospital bed indus- try, it enjoys considerable name recognition, although it is a relatively small company compared to the overall market leaders (Johnson & Johnson, ge, Medtronic, Baxter). hill-rom has a diverse but remarkably interrelated portfolio ranging from hospital beds to operating room beds, patient mobility equipment, physician exam equip- ment, and medical supplies.

ESSEnTIAlS foR A STRATEgIC THInkER 4–4

What Is the medical Device Industry?

The World Health Organization defines a medi- cal device as an “article, instrument, apparatus or machine used in the prevention, diagnosis or treatment of illness or disease, or for detecting, measuring, restoring, correcting or modifying the structure or function of the body for some health purpose. Typically, the purpose of a medi- cal device is not achieved by pharmacological, immunological or metabolic means.”1 The pri- mary customers for medical device firms are physicians or hospitals (acting on behalf of phy- sicians). These firms typically receive payments directly from insurance companies.

The Food and Drug Administration (FDA) divides the types of medical devices into

17 medical specialty panels. These include ortho- pedic instruments, surgical instruments, diag- nostic apparatus, stents and catheters, syringes and hypodermic needles, blood transfusion and IV equipment, and others. The American medi- cal device industry represents almost half of the sales world-wide. The industry includes 7,000 companies, employs 400,000, and is expected to grow 6 percent per year over the next five years.

The market is dominated by five mega corporations, including Johnson & Johnson, General Electric, Medtronic, Baxter International, and Cardinal Health. These five companies alone account for over $91 billion in revenues. Johnson & Johnson has revenue of almost $30  billion;

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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138 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

hill-rom’s scale of operations makes it a formidable competitor in the special- ized markets where it operates. hill-rom’s reputation for exceptional products and services is backed up by an extensive service operation – it has more than 160  service centers in north America and 45 more internationally, employing more than 1,600 service personnel.

Although hill-rom was forced to eliminate a number of jobs in 2014 and closed two manufacturing facilities because of the uncertainties associated with the hos- pital industry, 2016 was recognized as a “record-setting year” by the President and CeO. Of particular importance were the integration of its $2 billion acquisition of Welch Allyn and its development of the enterprise Account teams that resulted in several major contracts. these teams work with the largest health systems in an effort to identify customers’ needs across the entire hill-rom portfolio.

As with all organizations, hill-rom has some apparent service delivery weak- nesses. the company competes in eight core areas and faces competition from well-known firms. some of its powerful competitors specifically in the hospital bed component of the health care device industry include stryker Corporation, invacare, electromed, and linet.

Whereas large-scale and global operations represent great strengths, hill- rom’s geographic footprint subjects the company to complex and diverse fDA and international regulations. the diversity of the product and service portfolio presents the usual challenges of managing diversified operations. in addition, the company is obliged to deal with group Purchasing Organizations (gPOs) that frequently require discounts and strongly resist price increases.

although growing rapidly, Hill-Rom, has annual revenues of $2.7 billion. Aside from the five behemoths, 80 percent of the firms in the medi- cal device industry are small to medium size businesses with less than 50 employees.

Medical devices benefit from an aging pop- ulation; thus the outlook for the industry is favorable. As the population ages, more fre- quent injuries, required surgeries, and more chronic diseases occur. One of the most inter- esting opportunities in new technology is the introduction of 3D printers. The medical device industry is finding multiple ways to use this technology, including pre-surgery planning, hearing aids, prosthetics, and dental implants.2

Threats include value-based reimburse- ment (versus volume-based reimbursement) becoming more prevalent and the increase in

regulation. The degree of government regula- tion in this industry depends a great deal on the nature of the device. The FDA does not require a lot of premarket regulation if the device is simple and does not pose a significant risk to human beings; however, other devices such as cardiac defibrillators, are high risk and highly regulated. Congress imposed taxes on many medical devices, effectively raising the price for patients; however, because of industry pressure and patient outrage, the tax was suspended after one year and is expected to be repealed.

referenceS

1. http//who.int/medical device/full_definition/

en/.

2. Market Realist.com at Marketrealist.com/11/

must-read-overview-medical-device-industry/.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 139

hill-rom faces potential quality control problems if raw material supplies do not comply with quality standards. furthermore, the dominant market share relative to hospital beds suggests the danger of antitrust actions. One of the most serious operational risks is the limited number of manufacturing locations; the loss of any single location would present a major challenge to meet customer needs. some important financial issues include the company’s pension plan being underfunded by about $80 million and that hill-rom self-insures up to a stop-loss level, representing considerable financial risk with regard to its products’ associ- ated liabilities.

Support Activities Despite the fact that hill-rom was faced with a reduction in force in 2014, the company appears to enjoy supportive human resources – it has not experienced a work stoppage in over 40 years despite 6 percent of its manufacturing workforce being covered under collective bargaining agreements; another 18 percent of employees are covered by various collec- tive bargaining agreements or national agreements outside the united states. in addition, hill-rom has gone on record with a strong statement of socially responsible operations.

Virtually all of hill-rom’s executive team have experience in the health care system as well as other areas, such as management consulting. As a pioneer in the hospital bed industry, the company holds a number of patents enabling it to continue its industry leadership; however, none of the pat- ents are considered to materially affect the value of the business. in recent years hill-rom has made significant investments in information technology, although it faces a number of challenges trying to integrate the systems of its various acquisitions.

As expected, there are some weaknesses in hill-rom’s support activities. international operations present the challenge of managing individuals from such a variety of cultures. With the company’s diverse product portfolio, culture clash among the existing and acquired firms is an ever-present potentiality.

financially, it has to be noted that much of the growth in recent years has come from acquisitions. Continuing to locate and acquire related firms at its present rate is doubtful. Moreover, the acquisitions have had both positive and negative effects. Acquisitions primarily accounted for the over 200 percent increase in total assets since 2014, plus a 33 percent increase in total revenues and a 150 percent increase in net income during the 2016 fiscal year. Although total long term obliga- tions have been reduced over the past year, they remain significantly higher than they were in 2014.

With the constantly evolving health care system, it is reasonable to assume that hill-rom will be required to maintain and even accelerate its rate of innovation with regard to its core areas. During 2016, the company spent about four percent of its revenues on research and development which, although significant, is not particularly impressive when compared with other companies in health care. in addition, almost all of its research and development is internal.

finally, the impressive record of acquisitions has associated problems of increasing debt. for example, the Welch Allyn acquisition added substantial debt to hill-rom’s balance sheet in 2015; however, operating profits showed a signifi- cant increase in 2016.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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140 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

After carefully searching through the value chain of an organization and reflecting on its resources, competencies, and capabilities to develop value, a more detailed look must be undertaken to evaluate the competitive relevance of each strength and weakness. exhibit 4–4 categorizes value-creating strengths and value-reducing weaknesses for hill-rom, inc.

EXHIBIT 4–4 Value-Creating Strengths and Value-Reducing Weaknesses for Hill-Rom, Inc.

Value chain component Value-creating Strength* Value-reducing Weakness*

Service Delivery – Pre-Service

1. 90-year history of delivering quality products (reputation).

2. Strong market position; dominant market share in hospital beds.

3. Diverse but related product portfolio.

4. Innovative sales approach – Enterprise Account Teams.

1. Undifferentiated products in competitive markets.

2. Diverse product line presents management challenges.

Service Delivery – Point-of-Service

5. Scale of operations – 10,000 employees and over 100 global partners.

6. Integrated strategy focusing on patient care solutions and economic outcomes.

7. Executive team with significant health care and management consulting expertise.

3. Quality products offered to Group Purchasing Organizations (GPOs) that seek discounts and resist price increases.

4. Management of diversified companies involves unique challenges.

5. No backup for limited manufacturing facilities.

Service Delivery – After-Service

8. Extensive service operation with 160 service centers in North American and 45 more world-wide with 1,600 service personnel.

6. Litigation in areas of product liability, environment, and employment.

Support Activities – Culture

9. Favorable human resources; no work stoppages in over 40 years.

10. Published and circulated social responsibility statement.

11. Aggressive growth strategy based on acquisitions.

7. Culture clashes among acquired companies.

8. Difficulties in coordinating global operations.

Support Activities – Structure

None None

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 141

Value chain component Value-creating Strength* Value-reducing Weakness*

Support Activities – Strategic

Resources

12. Numerous patents and registered trademarks.

13. Significant increase in total assets.

14. Significant increase in research and development expenditures.

9. Significant reductions in net revenue, net income, and operating profit during the 2015 fiscal year. Although substantial turnaround occurred in 2016, significant demands on operations.

10. Substantial long-term debt. 11. Self-insured and underfunded

pension plan. 12. Difficulty integrating

information systems of acquired companies.

*Opinions and conclusions presented are those of the authors and are intended to be used as a basis for class discussion rather than to illustrate effective or ineffective business practices.

Step 4: Determine Competitive Advantages and Disadvantages

Assessing an organization’s current and potential competitively relevant strengths and weaknesses is the goal of internal analysis. Competitively relevant strengths are those that are valued by the external stakeholders, are relatively rare among competitors, relatively difficult to duplicate by competitors, and can be sustained by the organization. they are the pathways to sustained competitive advantage.34

in today’s competitive and dynamic health care environment, the ability to develop a sustained competitive advantage is increasingly difficult. Sustained competitive advantage is the result of an enduring value differential between the services of one organization and that of its competitors in the minds of patients, physicians, and other stakeholders.35 health care organizations must consider how their resources, competencies, and capabilities – strengths and weaknesses – relate to those of competitors.

Competitively Relevant Strengths strengths must have value, be rare, be difficult to imitate, and be sustainable to create competitive advantage. strengths that are merely present do not represent competitive advantages in themselves. to be competitively relevant, the specialized resources and competencies must be marshaled in a way that enables them to become genuine strategic assets, result- ing in the accumulation of economic returns greater than could be achieved with any alternative use.

Competitive relevance is determined by critically considering four important questions:

1. Question of value. is the resource, competency, or capability of value to customers?

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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142 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

2. Question of rareness. is this organization the only one that possesses the resource, competency, or capability or do many or all of its competitors possess it?

3. Question of imitability. is it easy or difficult to duplicate the resource, competency, or capability?

4. Question of sustainability. Can the resource, competency, or capability be maintained over time?36

A judgment must be made as to whether the strength is of high (h) or low (l) value in the marketplace. Value is a critically important question because if a strength does not have high value in the marketplace there is no reason to ask the other three questions. A strength that does not have value is simply not relevant in a competitive sense.

the second question requires that a judgment be made as to whether the strength is rare or commonly found among competitors. if the strength is rare, an answer of “yes” (Y) is appropriate. if it is possessed by many or all competitors, the answer is “no” (n). Combined with value, the relative rareness of a strength is key to competi- tive advantage. even critically valuable strengths when not rare (meaning they are common) among competitors, do not create a competitive advantage.

Question 3 attempts to determine whether it would be difficult (D) or easy (e) for competitors to obtain or imitate the strength. the rareness of a strength becomes even more important if the strength is difficult to imitate. if a valuable and rare strength is easy to imitate, it may be the basis for a competitive advan- tage in the short run but is not a good bet for long-term strategy formulation as competitors will likely imitate it as soon as possible.

finally, the fourth question involves a judgment as to whether the organiza- tion can sustain the resource, competency, or capability. A “yes” (Y) or “no” (n) answer is required to this question. if the strength cannot be sustained it will pro- vide, at best, only a short-term advantage over competitors. the difficulty or ease with which competitors can imitate the strengths and the organization’s ability to sustain them determines the extent of its long-term or short-term advantage. exhibit  4–5 provides a strategic thinking map for possible combinations of the four questions regarding strengths and the implications for strategic leaders.

EXHIBIT 4–5 Strategic Thinking Map of Competitive Advantages Relative to Strengths

Is the Value of the Strength High or Low? (H/L)

Is the Strength Rare? (Y/n)

Is the Strength easy or Difficult to Imitate? (e/D)

can the Strength be Sustained? (Y/n) Implications

H N E Y No competitive advantage. Most competitors have the strength and those that do not can develop it easily and sustain it. Because the strength is widely possessed and can be sustained, it is likely that it already has become a threshold condition for success.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 143

Is the Value of the Strength High or Low? (H/L)

Is the Strength Rare? (Y/n)

Is the Strength easy or Difficult to Imitate? (e/D)

can the Strength be Sustained? (Y/n) Implications

H N E N No competitive advantage. Most competitors have the strength and it is easy to develop; however, the strength generally is not sustainable. If the organization is the only organization in the service area that cannot sustain the strength, it will become a short-term competitive disadvantage.

H N D Y No competitive advantage. Many competitors possess the strength but it is difficult to develop, so care should be taken to maintain this strength. Because the strength is widely possessed and can be sustained, it is likely that it already has become a threshold condition for success.

H N D N No competitive advantage. Many competitors possess the strength yet it is difficult to develop, and those who do possess it will not be able to sustain the strength. If the organization is the only organization that cannot sustain the strength, it will become a long-term competitive disadvantage.

H Y E Y Short-term competitive advantage. Because the strength is valuable and rare, competitors will do what is necessary to develop this easy-to-imitate strength. The organization should exploit this short-term advantage but should not base long-term strategies on this type of strength. Over time, this strength is likely to become a threshold condition for success.

H Y E N Short-term advantage but not a source of long-term competitive advantage. The strength is easy to imitate but cannot be sustained. The organization should not base long-term strategies on this type of strength but may obtain benefits for a short-term advantage.

(Continued)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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144 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Is the Value of the Strength High or Low? (H/L)

Is the Strength Rare? (Y/n)

Is the Strength easy or Difficult to Imitate? (e/D)

can the Strength be Sustained? (Y/n) Implications

H Y D Y Long-term competitive advantage. This strength is rare in the service area, difficult to imitate by competitors, and can be sustained by the organization. If the value is very high, it may be worth “betting the organization” on this strength.

H Y D N Short-term competitive advantage but not a strength that can be sustained over the long run. Although rare and difficult to imitate, the strength cannot be sustained. This strength should be exploited for as long as possible.

EXHIBIT 4–5 (Continued)

Competitively Relevant Weaknesses the strategic relevancy of each weak- ness can be determined by asking questions similar to those used to evaluate strengths. Weaknesses are serious competitive disadvantages if they have high value to patients and other stakeholders (h), are not possessed by competitors (n), cannot be easily eliminated or corrected (D), and competitors can sustain their strengths (Y). exhibit 4–6 provides a strategic thinking map listing the suggested actions of strategic leaders relative to possible combinations of weaknesses.

EXHIBIT 4–6 Strategic Thinking Map of Competitive Disadvantages Relative to Weaknesses

Is the Weakness of High or Low Value? (H/L)

Is the Weakness Common (not rare) Among competitors? (Y/n)

Is the Weakness easy or Difficult to Correct? (e/D)

can competitors Sustain their Advantage? (Y/n) Implications

H Y E Y No competitive disadvantage. Although a weakness of the organization, most other competitors are also weak in this area; however, the weakness is easy to correct and competitors will likely work to correct the weakness. If the organization fails to correct it, competitors could achieve a short-term competitive advantage. Over time, correction of this weakness is likely to become a threshold condition for the market.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 145

Is the Weakness of High or Low Value? (H/L)

Is the Weakness Common (not rare) Among competitors? (Y/n)

Is the Weakness easy or Difficult to Correct? (e/D)

can competitors Sustain their Advantage? (Y/n) Implications

H Y E N No competitive disadvantage. Although a weakness of the organization, most other competitors are also weak in this area; however, the weakness is easy to correct. It is likely that most competitors will work to correct it and therefore no organization will be able to sustain an advantage; likely to become a threshold condition for the market.

H Y D Y No competitive disadvantage. Although a weakness of the organization, most other competitors are also weak in this area and it is difficult to correct; however, this situation is dangerous and should be addressed to ensure that competitors do not overcome this difficulty and correct it first. If competitors correct the weakness and continue to sustain their advantage, the weakness could become a long-term competitive disadvantage.

H Y D N No competitive disadvantage. Although a weakness of the organization, most other competitors are also weak in this area and it is difficult to correct. It is likely this weakness is chronic among competitors in the service area as corrections in the weakness tend to erode over time.

H N E Y Short-term competitive disadvantage. Most competitors are not weak in this area; however, the weakness is easy to correct. The organization should move quickly to correct this type of weakness. Correcting this weakness is likely to become a threshold condition for the market.

H N E N Short-term competitive disadvantage. Competitors are not weak in this area; however, the weakness is easy to correct. The organization should move quickly to correct the weakness. It is likely that all competitors will correct the weakness and therefore cannot sustain any advantage.

(Continued)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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146 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Is the Weakness of High or Low Value? (H/L)

Is the Weakness Common (not rare) Among competitors? (Y/n)

Is the Weakness easy or Difficult to Correct? (e/D)

can competitors Sustain their Advantage? (Y/n) Implications

H N D Y Serious competitive disadvantage. The weakness is valuable, most competitors do not have it, it is difficult for the organization to correct, and competitors can sustain their advantage. If the weakness is of very high value, it may threaten the survival of the organization.

H N D N Short-term competitive disadvantage. The weakness is valuable, most competitors do not have it, it is difficult for the organization to correct; however, competitors cannot sustain their advantage. Until this area becomes a weakness for most competitors in the service area or the weakness is corrected by the organization, it will continue to be a serious disadvantage.

Step 4: Determine Competitive Advantages and Disadvantages – Hill-Rom

identification of the strengths in the various components of the value chain in an organization such as hill-rom inevitably results in a lengthy list of activities in which the organization excels. As noted, not all of the strengths will necessarily be sources of competitive advantage for the organization and only a few may be competitively relevant. for example, executives often believe that “our reputation is our greatest asset.” however, in the medical device industry, there are numer- ous firms with excellent reputations (e.g. Boston scientific, general electric, st. Jude Medical), so it is unlikely that reputation alone would constitute a significant competitive advantage. similarly, an identified weakness may not necessarily be a competitive disadvantage if it is not competitively relevant (others share the same or similar weaknesses).

Competitively Relevant Strengths – Hill-Rom to further illustrate how this process may be used, the strengths of hill-rom, inc. as listed in exhibit 4–4, are evaluated with regard to the four questions (found in exhibit 4–5) to generate exhibit 4–7: Competitive relevance of the strengths of hill-rom, inc. from the initial assessment, hill-rom, inc. has 14 potentially important strengths that have high value in the marketplace. these strengths with high value are assessed using

EXHIBIT 4–6 (Continued)

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 147

the remaining three characteristics (rare, easy to imitate, and can be sustained) to determine which strengths may become the basis for competitive advantage. the last column in exhibit 4–7 indicates the implications for hill-rom’s identified and analyzed strengths.

(Continued)

EXHIBIT 4–7 Competitive Relevance of the Strengths of Hill-Rom, Inc.

Strengths*

Is the Value of the Strength High or Low? (H/L)

Is the Strength Rare? (Y/n)

Is the Strength easy or Difficult to Imitate? (e/D)

can the Strength be Sustained? (Y/n) Implications

Service Delivery – Pre-Service 1 90-year history

of delivering quality products (reputation).

H Y D Y Long-term competitive advantage.

2 Strong market position; dominant market share in hospital beds.

H Y D Y Long-term competitive advantage.

3 Diverse but related product portfolio (one-stop shop for many medical devices).

H Y D Y Long-term competitive advantage especially for large-scale customers.

4 Innovative sales approach – Enterprise Account Teams.

H N E Y Threshold condition.

Service Delivery – Point-of-Service 5 Scale of operations

– 10,000 employees and over 100 global partners.

H Y D Y Long-term competitive advantage.

6 Integrated strategy focusing on patient care solutions and economic outcomes.

H N E Y Threshold condition.

7 Executive team with significant health care and management consulting expertise.

H N E Y Threshold condition.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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148 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

EXHIBIT 4–7 (Continued)

Strengths*

Is the Value of the Strength High or Low? (H/L)

Is the Strength Rare? (Y/n)

Is the Strength easy or Difficult to Imitate? (e/D)

can the Strength be Sustained? (Y/n) Implications

Service Delivery – After-Service 8 Extensive service

operation with 160 service centers in North America; 45 in other countries; 1,600 service employees.

H Y D Y Long-term competitive advantage; 160 centers for fast service.

Support Activities – culture 9 Favorable human

resources with no work stoppages in 40 years.

H N D Y Threshold condition.

10 Published and circulated social responsibility statement.

H N E Y Threshold condition.

11 Aggressive growth strategy based on acquisitions.

H N D N No competitive advantage unless sustained.

Support Activities – Structure

None apply.

Support Activities – Strategic resources 12 Numerous patents

and trademarks. H N D Y Threshold condition.

13 Significant increase in total assets.

H N D N No competitive advantage unless sustained.

14 Significant increase in research and development expenditures.

H N E N No competitive advantage.

*Opinions and conclusions presented are those of the authors and are intended to be used as a basis for class discussion rather than to illustrate effective or ineffective business practices.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 149

strengths that are valuable, but not rare, easy or difficult to imitate, and can be sustained (hneY or hnDY) should be maintained by hill-rom because they are possessed by others and represent a threshold condition for success. they include: no. 4 innovative sales approach; no. 6 integrated strategy – patient care solutions and economic outcomes; no. 7 executive team experience; no. 9 favorable hr – no work stoppages; no. 10 Published/circulated social responsibility statement; and no. 12 Patents and trademarks. these strengths are necessary to be competi- tive in the market but are unlikely to become a competitive advantage.

hill-rom has one strength that, although valuable, is not rare, is easy to imitate, and cannot be sustained (hnen) – no. 14 increase in r and D; however, it offers no competitive advantage as most competitors spend 4 percent of revenue on r and D; thus it needs to be sustained or could become a competitive disadvantage.

five strengths offer potential as competitive advantages (hYDY): no. 1 established reputation; no. 2 Domination of hospital beds market; no. 3 related and diverse product portfolio; no. 5 large scale operations; and no. 8 extensive service operation.

Competitively Relevant Weaknesses – Hill-Rom An assessment of the value chain for hill-rom revealed a number of weaknesses as first included in exhibit 4–4. using the questions and implications found in exhibit 4–6, exhibit 4–8 “Competitive relevance of the Weaknesses of hill-rom, inc.” was developed to list and assess hill-rom’s weaknesses.

(Continued)

EXHIBIT 4–8 Competitive Relevance of the Weaknesses of Hill-Rom, Inc.

Weaknesses*

Is the Weakness of High or Low Value? (H/L)

Is the Weakness Common (not rare) Among competitors? (Y/n)

Is the Weakness easy or Difficult to Correct? (e/D)

can competitors Sustain Their Advantage? (Y/n) Implications

Value chain component Service Delivery – Pre-Service 1 Undifferentiated

products in competitive markets.

H Y D N No competitive disadvantage; for all competitors, differentiation is difficult.

2 Diverse product line presents management challenges.

H N D Y Could be serious competitive disadvantage.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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150 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

EXHIBIT 4–8 (Continued)

Weaknesses*

Is the Weakness of High or Low Value? (H/L)

Is the Weakness Common (not rare) Among competitors? (Y/n)

Is the Weakness easy or Difficult to Correct? (e/D)

can competitors Sustain Their Advantage? (Y/n) Implications

Service Delivery – Point-of-Service 3 Quality products

offered to Group Purchasing Organizations (GPOs) that seek discounts and no price increases.

H Y D N No competitive disadvantage; industry problem.

4 Management of diversified companies involves unique challenges.

H N D N Short-term competitive disadvantage.

5 No backup for limited manufacturing facilities.

H N D Y Serious competitive disadvantage.

Service Delivery – After-Service 6 Litigation in

areas of product liability, the environment, and employment.

H Y D N No competitive disadvantage; industry problems.

Support Activities – culture 7 Culture clashes

among acquired companies.

H N D Y Could be serious competitive disadvantage; major distraction.

8 Difficulties in coordinating global operations.

H N D N Short-term competitive disadvantage.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 151

three of hill-rom’s weaknesses (hYDn): no. 1 undifferentiated products; no. 3 Quality products offered to group Purchasing Organizations (gPOs) that seek deep discounts; and no. 6 litigation in the areas of product liability, environ- ment, and employment are serious issues – but they are not unique to hill-rom. Management must be aware of these challenges but they do not constitute a competitive disadvantage.

Weaknesses*

Is the Weakness of High or Low Value? (H/L)

Is the Weakness Common (not rare) Among competitors? (Y/n)

Is the Weakness easy or Difficult to Correct? (e/D)

can competitors Sustain Their Advantage? (Y/n) Implications

Support Activities – Strategic resources 9 Significant

reductions in net revenue, net income, and operating profit during the 2015 fiscal year. Although substantial turnaround occurred in 2016, significant demands on operations.

H N D Y Could be serious competitive disadvantage; strains growth.

10 Substantial long-term debt.

H N D Y Serious competitive disadvantage.

11 Self-insured and underfunded pension plan.

H N D Y Serious competitive disadvantage.

12 Difficulty integrating information systems of acquired companies.

H N D N Could be short- term competitive disadvantage.

*Opinions and conclusions presented are those of the authors and are intended to be used as a basis for class discussion rather than to illustrate effective or ineffective business practices.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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152 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

the more serious weaknesses are primarily the result of hill-rom’s con- scious strategy to diversify its product lines and grow through acquisitions. these include six weaknesses in the form of (hnDY): no. 2 Diverse product line challenges management; no. 5 no backup for limited manufacturing facilities; no. 7 Culture clashes among acquired companies; no. 9 significant reductions in net revenues/income/profit in 2015 pressures operations; no. 10 significant increase in long-term debt; and no. 11 self-insured, underfunded pension plan are serious disadvantages. it should be pointed out that these competitive disadvantages occurred because management is betting in the long run that these very same weaknesses will provide competitive advan- tages for the company.

three additional short-term weaknesses are oriented around him-rom’s rapid growth: no. 4 Management of diversified companies involves unique challenges; no. 8 Difficulties in coordinating global operations; and no. 12 Difficulty integrat- ing information systems of acquired companies. these weaknesses represent high value areas, are not shared by all competitors, and are difficult to correct; however, the advantages may not be sustainable by others in the industry (hnDn). they are short-term competitive disadvantages but must be addressed based on hill- rom’s expansion strategy through acquisition.

Step 5: Synthesize and Determine the Implications of the Competitive Advantages and Disadvantages

As illustrated in exhibit 4–1, the final step in exploiting competitive advan- tage is to determine how each competitively relevant strength and weakness is likely to affect an organization’s ability to compete in the marketplace. Competitively relevant strengths are those that are valued in the marketplace, are rare, are difficult to imitate, and can be sustained (hYDY) providing the basis for long-term competitive advantage and should be developed to the greatest extent possible. Competitively relevant weaknesses relate to areas that are valued in the marketplace, are not common weaknesses among competitors, are dif- ficult for organizations to correct, and offer advantages that can be sustained by others (hnDY), are serious competitive disadvantages and may threaten the survival of the organization. results of the determination of both long- and short-term competitive advantages and disadvantages are a part of situational analysis and provide one part of the basis for strategy formulation (what an organization can do).

Step 5: Synthesize and Determine the Implications of the Competitive Advantages and Disadvantages – Hill-Rom

exhibit 4–9 lists each of hill-rom’s competitively relevant strengths and weak- nesses that have been identified (those displaying the pattern hYDY for strengths and hnDY for weaknesses from exhibit 4–7 and exhibit 4–8) and speculates as to whether or not hill-rom has the potential to differentiate itself from competitors or to provide a cost advantage over competitors.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 153

EXHIBIT 4–9 Strategic Implications of Hill-Rom’s Competitively Relevant Strengths and Weaknesses

competitively relevant Strengths* (from exhibit 4–7) Strategic Implications

1 90-year history of delivering quality products; reputation.

Brand recognition and institutional history.

2 Strong market position; dominant market share in hospital beds.

Leadership position in hospital beds provides entrée to selling many other products to large hospital systems.

3 Diverse but related product portfolio. Name recognition and superior reputation in health care system.

5 Scale of operations; 10,000 employees and over 100 global partners.

Market domination in hospital beds and economies of scale.

8 Extensive service operation with 160 service centers in North America and 45 more world-wide with 1600 service personnel.

Ability to provide prompt and continuing after service.

competitively relevant Weaknesses* (from exhibit 4–8) Strategic Implications

2 Diverse product line presents management challenges.

Although the diverse product portfolio is a strength, coordination challenges occur for management.

5 No backup for limited manufacturing facilities.

Majority of manufacturing taking place in only one location. Facility shutdown because of severe weather, labor shut-down, or terrorism could have catastrophic impact.

7 Culture clashes among acquired companies.

Merging cultures is challenging, takes time, and impacts the bottom line.

9 Significant reductions in net revenue, net income, and operating profit during 2015; substantial turnaround in 2016, however, demands on financial resources remain.

Growth by acquisition is over without infusion of capital to continue the strategy.

10 Substantial long-term debt. Current long-term debt obligation will limit acquisitions.

11 Self-insured and underfunded pension plan.

May lose talented people to other organizations that have a fully funded pension program or disaster might cause a plant shutdown.

*Opinions and conclusions presented are those of the authors and are intended to be used as a basis for class discussion rather than to illustrate effective or ineffective business practices.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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154 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

for hill-rom, the strengths have been collected into exhibit 4–9 “strategic implications of hill-rom’s Competitively relevant strengths and Weaknesses” to determine competitive advantages. the company's strengths, no. 1 90-year reputation; no. 2 strong market position, dominant market share in hospital beds; no. 3 Diverse but related product lines; no. 5 scale of operations; and no. 8 extensive aftermarket service support organization in north America and around the globe, represent potential long-term sustainable competitive advantages. Of particular significance is the company’s carefully selected range of associated products ranging from hospital beds, patient mobility machines, operating room supplies and equipment, and medical instrumentation. it will be very difficult for any competitor to imitate this product portfolio.

note that the assessment indicates that hill-rom’s strategic leadership has the ability to differentiate the organization and its services through its long-term market presence, dominance in the hospital bed industry, diversity of its present product line, and the breadth of its service centers and personnel. leaders must be careful, however, because competitors have the potential for a substantial advantage if the expansion through acquisitions strategy is not successful. hill- rom is stretched to the limit financially and faces considerable risk in successfully managing diverse, although related, companies.

A final Challenge

Careful internal analysis provides a better understanding of where strategic lead- ers should focus their efforts to compete effectively and where they should be careful to avoid vulnerability relative to competitors. it is not possible to be every- thing to everyone; an organization must focus its efforts.

the basic endowment of resources, competencies, and capabilities in a health care organization and the way they are allocated are critical determinants of the organization’s ability to compete effectively. Arguably, the essential character of strategic thinking is the acceptance of “an aspiration that creates, by design, a chasm between ambitions and resources.” it is further argued that spanning the chasm and encouraging stretch “is the single most important task senior manage- ment faces.”37

Stretch is significantly moving the organization toward its strategic goals and is accomplished through resource leveraging or systematically achieving the most customer-satisfying products and services possible from the available resources. stretch enables smaller health care organizations that are less rich in resources, competencies, and capabilities to compete against large, powerful, national and regional health networks and managed care organizations. leveraging is usually thought of in terms of financial leveraging through the use of debt; however, other resources may be leveraged as well.

Leveraging may be accomplished by concentrating, accumulating, complement- ing, conserving, and recovering resources.38 Prioritizing goals and focusing on no more than a few things at one time aids the concentration of limited resources. successful concentration of resources, competencies, and capabilities requires not only focusing on relatively few things but also focusing on the right things – those

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 155

activities that make the greatest impact on patients’ perceived value. nurses, receptionists, therapists, maintenance employees, and others come into con- tact with patients and observe organizational realities in ways that are different from physicians, CeOs, and management personnel. the stockpiles of experi- ence accumulated by the individuals with extensive patient contact are valuable competitive resources if properly mined.

Complementary resources, competencies, and capabilities can be combined to create synergy – where value and performance combined will be greater than the sum of the separate individual parts. in the value chain, linking activities will provide unique opportunities to integrate functions such as service delivery, organizational culture, and strategic resources. in other words, there is a cre- ative interweaving of different types of skills that assists in creating competitive advantage.

the potential for effectively leveraging a particular resource, competency, or capability becomes greater the more often they are used. the ability to quickly switch knowledge from delivering one service to another conserves service development resources and reduces the learning curve in introducing and perfecting service delivery. Conserving and recovering resources by restricting their exposure to unnecessary risks is essential to the conservation of limited resources. An aspiring competitor in a health care market should think care- fully before attacking the dominant player at the point of that competitor’s greatest strength. Challenging a stronger competitor requires creativity and innovation.

expediting success – increasing the resource multiplier by reducing the time between expenditure of resources and their recovery through revenue gen- eration – is an important means to leverage resources. reducing the payback period of technological improvements in health care organizations is a substan- tial resource recovery challenge. On the one hand, high-quality service delivery depends on state-of-the-art technology. On the other hand, this type of technol- ogy is expensive and usually has a relatively short economic life. Careful plan- ning is required to ensure that paybacks are evaluated and accelerated in every possible way.

essentials for a strategic thinker 4–1, “What is the red Queen effect?” illustrated the importance of not allowing a competitive advantage to lead to complacency. Competitive advantage can be lost faster than it can be gained, requiring vigilance on the part of strategic leaders. resource leveraging is a matter of attitude and willingness to take reasonable risks, to do things in new and innovative ways, to learn from the experiences of others, and generally pursue excellence in all aspects of organizational performance. Management consultants hamel and Prahalad note that traditional strategic, as well as behavioral, factors may lead to competitive advantage: “Cross-functioning teams, focusing on a few core competencies, strategic alliances, programs of employee involvement, and consensus are all parts of stretch.”39 these factors are relevant to all type of health care organizations including public health and community health organizations. see essentials for a strategic thinker 4–5, “What Are federal health Centers?” for an understanding of this important industry segment.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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156 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

ESSEnTIAlS foR A STRATEgIC THInkER 4–5

What Are federal Health Centers?

The Health Resources and Services Administration (HRSA) of the U.S. Department of Health and Human Services (HHS) awards grants to four types of Federal Health Centers (FHCs): (1) Community Health Centers (CHCs); (2) health centers for the homeless; (3) health centers for public housing residents; and (4) health centers for migrants. FHCs are governed by community boards with a majority of members (at least 51 percent) being patients. FHCs provide direct access to health care services as part of the health safety net.

More specifically:

Health centers are community-based and patient-directed organizations that deliver comprehensive, culturally competent, high-quality primary health care services. In addition, health centers often integrate access to pharmacy, mental health, sub- stance abuse, and oral health services in areas where economic, geographic, or cul- tural barriers limit access to affordable health care services. Health centers deliver care to the Nation’s most vulnerable indi- viduals and families, including people experiencing homelessness, agricultural workers, residents of public housing, and the Nation’s veterans.1

Most FHCs are CHCs, i.e. public, not-for-profit entities that provide primary, preventive, and emergency services to the general population of low-income individuals. CHCs also receive grants from state and local sources, private foundations, and other federal programs. CHCs are required to provide health care to all indi- viduals regardless of ability to pay and are

located in medically underserved areas. Most CHC patients have incomes at or below the fed- eral poverty level.

Although CHC Patients with incomes at or below 100 percent of the federal poverty level (FPL) pay only nominal fees, patients with incomes greater than 200 percent FPL pay full charges. CHCs are required to collect reimbursement from third-party payers (e.g. private insurance plans, Medicare, Medicaid, CHIP) for insured patients. CHCs are also eligible for designation as Federally Qualified Health Centers (FQHCs) and as such par- ticipate in the Medicare and Medicaid programs.

In addition to providing medical services (e.g. diagnosis and treatment), CHCs provide preven- tive health services including immunizations, free vaccines for children, family planning, pre- natal care, and preventive dental care. Further, CHCs provide behavioral health treatments and services including mental health services, sub- stance abuse treatment, and diabetes self-man- agement training. CHCs are required to have arrangements with outside providers for emer- gency medical services and after-hours care.

CHCs employ physicians and physician extend- ers to provide services for patients; its workforce includes many primary care clinicians from the National Health Services Corps that work in medi- cally underserved areas in return for student debt reduction. Physicians must be licensed and are ordinarily required to have admitting privileges at a local hospital. CHC physicians are not required to carry medical malpractice insurance coverage because under the Federal Tort Claims Act (FTCA) they are immune from liability for care provided within the scope of employment; however, the Federal government may still be subject to liability for patients injured by malpractice in these cases.2

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 157

sustained competitive advantage does not necessarily lead to continuous value creation; yet long-term success requires ongoing satisfaction of ever-increasing expectations. success builds the expectation of continued success. Ongoing value creation requires an organization to have a theory or a consistent means of choos- ing among all the options with regard to activities, resources, etc. in other words, it requires not just a strategy but a “strategy for strategies.”40 in the end, deter- mination of competitive advantage requires an integration of what health care strategists know about the external forces with a sophisticated understanding of competitively relevant strengths and weaknesses.

Strategic Momentum

for sustained competitive advantage, strategic momentum must be maintained. After the strategy has been initiated, internal analysis must be continuous to stay informed and current regarding the organization’s competitively relevant strengths and weaknesses. sustaining a competitive advantage is difficult in a dynamic market, and what might be a competitive advantage today may not be an advantage tomorrow. Carefully evaluating the strengths and weaknesses allows the strategist to focus on the relatively few aspects of the value chain that have the potential for building and sustaining competitive advantage. Care must be exercised, however, to ensure that new and emerging strengths or weaknesses are adequately considered in the continuous internal analysis.

the questions presented in exhibit 4–10 provide for such an ongoing evalua- tion of the effectiveness of the internal analysis. ensuring appropriate strategic fit requires that the internal as well as the external analysis be continuously evaluated.

EXHIBIT 4–10 Questions for Evaluating the Internal Strategic Assumptions

1. Have the strengths and weaknesses been correctly identified?

2. Is there a clear basis on which to compete?

3. Does the strategy exploit the strengths and avoid the major weaknesses of the organization?

4. Are the competitive advantages related to the critical success factors in the service area?

5. Are short- and long-term competitive advantages protected?

6. Has the competition made strategic moves that have weakened the organization’s competi- tive advantages?

7. Is the organization creating new competitive advantages?

referenceS

1. What is a Health Center? https://bphc.hrsa.gov/

about/what-is-a-health-center/index.html.

2. “Federal Health Centers: An Overview,”

Congressional Research Service, Jan. 6, 2016.

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

Public Health and Professor Emeritus at Samford University.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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158 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

Chapter Summary

Competitive advantage resides within the organization, whether it is a hospital, physician’s office, or health maintenance organization. understanding competi- tive advantage requires a careful internal analysis of the organization through its value chain. the value chain provides a framework for analysis, identifying and focusing on areas in a health care organization where value may be added or created. the value chain is divided into two major components – the delivery of health services and support activities. service delivery includes pre-service activities, point-of-service activities, and after-service activities. support activities include organizational culture, organizational structure, and strategic resources.

By investigating all systems and subsystems of the value chain and evaluat- ing the resources, competencies, and capabilities, strategic thinkers are better able to identify possible strengths and weaknesses. each strength or weakness is evaluated in terms of its value, rareness, imitability, and sustainability to deter- mine those that are competitively relevant. Competitively relevant strengths and weaknesses provide the bases for developing strategies to achieve competitive advantage.

Although understanding competitive advantage is important to health care strategists, more is required. successful health care organizations must always insist on stretching their resources, competencies, and capabilities while crea- tively looking for new opportunities. sustaining competitive advantage requires that leaders understand what the marketplace demands of successful health care organizations, configuring competitively relevant strengths to the organization’s greatest advantage, eliminating or minimizing the adverse effects of competi- tively relevant weaknesses, and establishing demanding aspirations that require strategic assets to be synergistically pursued while constantly searching for new opportunities. Chapter 5 examines the development of directional strategies that set strategic direction and create buy-in among stakeholders.

Practical lessons for Health Care Strategic Thinkers

1. external analysis indicates what the organization should do; internal analy- sis indicates what the organization can do.

2. finding strengths that are competitively relevant involves more than a list- ing of strengths. each strength must be evaluated to ensure it is of value to stakeholders, is something rare that the organization possesses, is difficult for competitors to copy, and can be sustained.

3. leaders must evaluate the organization’s weaknesses to ensure they do not constitute a competitive disadvantage. Competitive disadvantages, without corrective action, place the organization in danger of extinction.

4. Competitive advantage is not an excuse for complacency; the things that made an organization great in the past may be the very things that will cause problems in the future.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 159

THE LAnguAgE of STRATEgIC MAnAgEMEnT: KEy TERMS AnD ConCEPTS

Questions for Class Discussion

1. it has been said that the rules for success are written outside the organization but com- petitive advantage must be found within the organization. explain this statement.

2. Why is value creation an important concept for health care organizations? is value crea- tion more or less important in health care than in other industries?

3. Which activities, service delivery or support, are more important in the organizational value chain? explain your answer.

4. Why is the value chain consistent with systems concepts discussed in Chapter 1? Why is a systems approach to internal analysis important?

5. Why is the concept of competitively relevant strengths and weaknesses so important to internal analysis?

6. What is the difference between an objective and subjective strength and weakness? give examples of each type of strength and weakness in a health care organization.

7. Discuss the resource-based view of competitive advantage. Why is it important to understand organizational differences when using this approach?

8. Briefly define what is meant by competitive advantage. Are competitive advantage and sustained competitive advantage identical concepts? Why or why not?

9. What are the differences between capabilities and competencies? how are capabilities related to both resources and competencies?

10. When searching for competitive advantage, which characteristic of a strength or weak- ness (value, rareness, imitability, sustainability) is the most important in health care organizations? Discuss your response.

After-service Capability Competency Competitive Advantage Competitively relevant strength Competitively relevant

Weakness Disruptive Capability Dynamic Capability leveraging

Objective strength or Weakness Point-of-service Pre-service red Queen effect relative strength or Weakness resource-Based theory resources service Delivery strength stretch

subjective strength or Weakness

support Activities sustained Competitive

Advantage synergy threshold Condition Value Value Chain Weakness

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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160 strAtegIC mAnAgement of HeAltH CAre orgAnIzAtIons

notes

1. george stalk Jr. and rob lachenauer, “hardball: five Killer strategies for trouncing the Competition,” Harvard Business Review 82, no. 4 (2004), p. 64.

2. David Bovet and Joseph Martha, Value Nets: Breaking the Supply Chain to Unlock Profits (new York: John Wiley & sons, 2000).

3. stuart l. hart and Mark B. Milstein, “Creating sustainable Value,” Academy of Management Executive 17, no. 2 (2003), pp. 56–69.

4. eric Almquist, John senior, and nicholas Bloch, “the elements of Value: Measuring – and Delivering – What Customers really Want,” Harvard Business Review 9, no. 3 (2016), pp. 47–53.

5. stephen D. Mallard, terri leakeas, W. Jack Duncan, Michael e. fleenor, and richard J. sinsky, “same-Day scheduling in a Public health Clinic: A Pilot study,” Journal of Public Health Management and Practice 10, no. 2 (2004), pp. 152–157.

6. Michael e. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (new York: free Press, 1985), Chapter 2. for some limitations of the conven- tional “linear value chain,” see frits K. Phil and Mattias holweg, “evolving from Value Chain to Value grid,” MIT Sloan Management Review 47, no. 4 (2006), pp. 72–80.

7. V. Kumar, eli Jones, rajkumar Venkatesan, and robert P. leone, “is Market Orientation a source of sustained Competitive Advantage or simply the Cost of Competing?” Journal of Marketing 75, no. 1 (2011), pp. 16–30.

8. heiko gebauer, Anders gustafsson, and lars Witell, “Competitive Advantage through service Differentiation by Manufacturing Companies,” Journal of Business Research 64, no. 12 (2011), pp. 1270–1280; Daniel i. Prajogo and Peggy McDemott, “examining Competitive Priorities and Competitive Advantage in service Organizations using importance–Performance Analysis Matrix,” Managing Service Quality 21, no. 5 (2011), p. 465.

9. ing-long Wu and Pi-Jung hsieh, “understanding hospital innovation enabled Customer-Perceived Quality of structure, Process, and Outcome Care,” Total Quality Management and Business Excellence 22, no. 2 (2011), pp. 227–235.

10. Corinne M. Karuppan, nancy e. Dunlap, and Michael r. Waldrum, Operations Management in Health Care: Strategy and Practice (new York: springer Publishing, 2016), p. 156.

11. Michael e. nugent, “Managing Your Margin after reform with the strategic Margin Plan,” Healthcare Financial Management 65, no. 1 (2011), pp. 40–45.

12. stan galser, “the Value of the Manager in the Value Chain,” Management Decision 44, no. 3 (2006), pp. 442–447.

13. nicholas Argyris and romel Moatafa, “Knowledge integration, Vertical integration, and entrant survival in the early Automobile industry,” Academy of Management Journal 59, no. 4 (2016), pp. 1474–1492.

14. nag rajiv and Dennis A. gioia, “from Common to uncommon Knowledge: foundations of firm- specific use of Knowledge as a resource,” Academy of Management Journal 56, no. 2 (2012), pp. 421–457.

15. richard hall, “A framework for linking intangible resources and Capabilities to sustainable Competitive Advantage,” Strategic Management Journal 14, no. 6 (1993), pp. 607–618.

16. robert s. Kaplan and David P. norton, “Measuring the strategic readiness of intangible Assets,” Harvard Business Review 82, no. 2 (2004), pp. 52–64.

17. Anonymous, “Americans rank good reputation, Doctor’s recommendation as top indicators of Quality Care,” Health Care Strategic Management 21, no. 11 (2003), p. 8.

18. Michael A. hitt, leonard Bierman, Klaus uhlenbruch, and Katsuhiko skimiju, “the importance of resources in the internationalization of Professional service firms: the good, the Bad, and the ugly,” Academy of Management Journal 49, no. 6 (2006), pp. 1137–1157.

19. luis Costa, Karel Cool, and ingemar Dierickx, “the Competitive implications of the Deployment of unique resources,” Strategic Management Journal 34, no. 4 (2013), pp. 445–454.

20. glen r. Carroll, “A sociological View on Why firms Differ,” Strategic Management Journal 14, no. 4 (1993), pp. 237–249.

21. Jay Barney, “the future of resource-Based theory,” Journal of Management 37, no. 5 (2011), pp. 1299–1315. David g. sirmon, Michael A. hitt, r. Duane ireland, and Brett Anitra gilbert, “resource Orchestration to Create Competitive Advantage: Breadth, Depth, and life Cycle effects,” Journal of Management 37, no. 5 (2011), pp. 1390–1412.

11. Why are some strengths and weaknesses that are not competitively relevant deserving of attention by health care strategists? Provide one example of a strength and weakness that are not competitively relevant but deserve attention.

12. Why is resource leveraging an important concept in internal analysis?

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Chapter 4 Internal analysIs and CompetItIve advantage 161

22. rob goffee and gareth Jones, “leading Clever People,” Harvard Business Review 85, no. 3 (March 2007), p. 72.

23. nixon Kamukama, “intellectual Capital: Company’s invisible source of Competitive Advantage,” Competitiveness Review 23, no. 3 (2013), pp. 260–283.

24. raphael Amit and Paul J. h. schoemaker, “strategic Assets and Organizational rent,” Strategic Management Journal 14, no. 1 (1993), pp. 33–46; Juan florin, Michael lubatkin, and William schulze, “A social Capital Model of high-growth firms,” Academy of Management Journal 46, no. 3 (2003), pp. 374–386.

25. hakan Aronsson, Mats Abrahamsson, and Karen spens, “Developing leAn and Agile health Care supply Chains,” Supply Chain Management 16, no. 3 (2011), pp. 176–185.

26. gilbert n. nyaga and Judith M. Whipple, “relationships Quality and Performance Outcomes: Achieving a sustainable Competitive Advantage,” Journal of Business Logistics 32, no. 4 (2011), pp. 345–360.

27. Oliver schilke, “On the Contingent Value of Dynamic Capabilities for Competitive Advantage: the nonlinear Moderating effect of environmental Dynamism,” Strategic Management Journal 35, no. 2 (2014), pp. 179–188.

28. Kaplan and norton, “Measuring the strategic readiness,” p. 54.

29. Manish K. srivastava and Devi r. gnyawli, “When Do relational resources Matter? leveraging Portfolio technological resources for Breakthrough innovations,” Academy of Management Journal 54, no. 4 (2011), pp. 797–810.

30. george stalk, Philip evans, and lawrence shulman, “Competing on Capabilities: the new rules of Corporate strategy,” Harvard Business Review 70, no. 2 (March–April 1992), p. 62.

31. ray gautam, Jay B. Barney, and Waleed A. Muhanna, “Capabilities, Business Processes, and Competitive Advantage: Choosing the Dependent Variable in empirical tests of the resource-Based View,” Strategic Management Journal 25, no. 1 (2004), pp. 23–31; Dovev lavie, “Capability reconfiguration: An Analysis of incumbent responses to technological Change,” Academy of Management Review 31, no. 1 (2006), pp. 153–174.

32. stalk, evans, and shulman, “Competing on Capabilities,” p. 62.

33. the hill-rom overview used a variety of sources includ- ing funding universe for the historical information. www.fundinguniverse.com/company-histories/hillen- brand-industries-inc-history/. see also “Casket Maker evolves into Major Manufacturer,” Cincinnati Reporter (December 30, 2012) and “hillenbrand industries to split into two independent Companies,” http//ir.hill- rom.com/releasedetail/cfm?. financial information taken from Annual Reports hill-rom 2016 and 2015. note: the illustration of hill-rom is used for educational purposes only and is not to be considered an assessment of effective or ineffective management.

34. Manuel espinoza, “turning Diversity into a Competitive Advantage,” Financial Executive 23, no. 3 (2007), pp. 43–46.

35. Amit and schoemaker, “strategic Assets and Organizational rent,” p. 35. see also Danny Miller, “An Asymmetry-Based View of Advantage: towards an Attainable sustainability,” Strategic Management Journal 24, no. 10 (2003), pp. 961–972; Margaret A. Peteraf and Mark e. Bergen, “scanning Dynamic Competitive landscapes: A Market-Based and resource-Based framework,” Strategic Management Journal 24, no. 10 (2003), pp. 1027–1035.

36. Jay B. Barney, “looking inside for Competitive Advantage,” Academy of Management Executive 9, no. 4 (1995), pp. 49–61. note that Barney added an additional question, that of an organization not included in this discussion.

37. gary hamel and C. K. Prahalad, “strategy as stretch and leverage,” Harvard Business Review 71, no. 3 (1993), pp. 75–84.

38. this discussion has been adapted from gary hamel and C. K. Prahalad, Competing for the Future (Boston, MA: harvard Business school Press, 1994), Chapter 7.

39. gary hamel and C. K. Prahalad, “Competing in the new economy: Managing Out of Bounds,” Strategic Management Journal 17, no. 1 (1996), pp. 237–242.

40. todd Zenger, Beyond Competitive Advantage: How to Solve the Puzzle of Sustaining Growth while Creating Value (Boston, MA: harvard Business school Press, 2016), p. 12.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-06 19:42:54.

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