Strategies & Alternatives

Chapter 6 Identifying Strategic Alternatives

Why Identifying Strategic Alternatives Is Important

As Peter Drucker observed, understanding and seriously considering alternatives is the first step in making decisions. Careful evaluation of alternatives is even more critical for organizations making strategic choices because of the long-term consequences of such decisions.

Organizations typically have many strategic alternatives from which to choose – so many that selecting a strategy can become confusing at best and com- pletely overwhelming at worst. Systematic classification of the strategic alterna- tives available, as well as a description of the intent and required conditions for selecting each alternative within each classification, can aid strategic managers in working though the “clash and conflict of divergent opinions of the serious consideration of competing alternatives.” Despite one course of action appearing

“The understanding that underlies the right decision grows out of the clash and conflict of divergent opinions and out of the serious consideration of competing alternatives … Unless one has considered alternatives, one has a closed mind.”

—Peter F. DruCker, MAnAgeMent AuthOr AnD PhilOSOPher

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 2023-10-14 00:03:21.

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206 StrAtegIc mAnAgement of HeAltH cAre orgAnIzAtIonS

obvious, examining alternatives will provide new information; test long held assumptions, biases, and opinions; and prevent tunnel vision.

Strategic decisions have a rational hierarchy. Decisions concerning the organi- zation’s mission, vision, values, and strategic goals are made first and provide guidance for subsequent decisions. An understanding of the hierarchy of strategic decisions – a map that shows the classes of decisions and a logical order to follow – is important for strategic decision makers. in addition, strategic managers need clear delineations of the available strategic alternatives and an understanding of the implication of each. A logical map of strategic decision alternatives (the analytical approach) lays the groundwork for the strategic planning process. As the strategy unfolds, learning (the emergent approach) will guide alternative decision making.

A map of strategic alternatives for health care organizations helps begin the pro- cess of alternative analysis. Being able to envision the complete “big picture” of how strategic decisions must progress provides perspective on the scope and hierarchy of strategic decision making and illustrates the linkage of strategic alternatives in organizations. Considering strategic alternatives opens one’s mind to what can be.

use the concepts in this chapter to identify and organize strategic alternatives.

learning objectives

After completing the chapter you will be able to: 1. Discuss the steps and logic of strategy development. 2. Identify the hierarchy of strategies and strategic decisions required in strategic

planning. 3. Explain the relationship among directional strategies, adaptive strategies, mar-

ket entry/exit strategies, and competitive strategies. 4. Identify strategic alternatives available to health care organizations. 5. Provide the rationale as well as advantages and disadvantages for strategic

alternatives. 6. Demonstrate how strategies may be used in combination to accomplish the

organization’s goals. 7. Map strategic decisions showing how they are linked.

Strategic Management Competency After completing this chapter you will be able to use the hierarchy of strategic decisions to identify strategic alternatives and begin the process of making rational strategic decisions for a health care organization.

The Process for Identifying Strategy Alternatives

Strategic thinking involves an awareness of the environment; intellectual curiosity that is always gathering, organizing, and analyzing information; and a willingness to be open to creative ideas and solutions. Strategic planning concerns reaching conclusions

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 207

based on information, setting a course of action, and documenting the plan. therefore, strategic planning is essentially decision making – determining which strategy to pur- sue from among the many available options. in addition, a health care organization may pursue several different types of strategies simultaneously or sequentially.

there is a logical order in making strategic decisions because as organizations make strategic choices, these choices will have downstream consequences that both limit and create opportunities. For instance, a merger or affiliation decision is part of a series of decisions rather than a single decision or an end in itself; there is a broader strategy that precipitated the merger or affiliation and there will be subsequent strategic decisions that will have to be made to ensure success. Strategy formulation is the process of developing strategic alternatives, evaluating alternatives, and making strategic choices. this chapter introduces and classifies the strategic alternatives for health care organizations and Chapter 7 discusses strategic thinking methods for analyzing alternatives to make a strategic choice.

exhibit 6–1 provides a six-step process for understanding the hierarchy of strategic decisions and identifying the strategic choices available to health care

EXHIBIT 6–1 The Process for Strategy Development

Step 1 – Understand the Decision Logic of Strategy Development

Step 2 – Understand the Role of Directional Strategies

Step 3 – Understand Adaptive Strategy Alternatives

Step 4 – Understand Market Entry/Exit Strategy Alternatives

Step 5 – Understand Competitive Strategy Alternatives

Step 6 – Understand Combination Strategies

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 2023-10-14 00:03:21.

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208 StrAtegIc mAnAgement of HeAltH cAre orgAnIzAtIonS

organizations. Beginning with a general understanding of the rationale or logic of the process, the chapter works through the different types of strategy choices. understanding the decision logic is first, followed by directional strategies that frame subsequent strategic choices. next the adaptive strategic alternatives define the scope of the organization. the market entry/exit alternatives carry out the adaptive strategies whereas competitive alternatives define the nature of the rivalry among similarly focused organizations. Because strategy development is a creative (and iterative) process, some combinations of strategies may be required to enable the organization to pursue its mission and achieve its vision.

Step 1: Understand the Decision Logic of Strategy Development

the decision logic of strategy formulation is illustrated in exhibit 6–2. Decisions concerning five categories of strategies – directional, adaptive, market entry/exit,

EXHIBIT 6–2 The Decision Logic of Strategy Formulation

Directional Strategies

Adaptive Strategies

Market Entry/Exit Strategies

Competitive Strategies

Implementation Strategies

• Expansion of Scope • Reduction of Scope • Maintenance of Scope

• Purchase • Cooperation • Development • Market Exit

• Strategic Posture • Positioning

• Service Delivery • Support • Unit Action Plans

Organization-level Strategies

Unit-level Strategies

Corporate- and Divisional-level Strategies

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 209

competitive, and implementation – should generally be addressed sequentially with each decision more specifically defining the activities of the organization. thus, the organization must first establish or reaffirm consensus on its mission, vision, values, and strategic goals (directional strategies). next, the adaptive strat- egies must be agreed on and developed to accomplish the goals set forth by the directional strategies. Adaptive strategies are corporate-level decisions that specify the organization’s scope and focus on expanding, reducing, or maintaining oper- ations. then strategists should discuss market entry/exit strategies, as they are the means to accomplish the adaptive strategies through purchase, cooperation, inter- nal development, or market exit. Competitive strategies are generally indepen- dent of the adaptive and market entry/exit strategies as they are market- or service area-specific. Competitive strategies determine the organization’s strategic posture and position vis-à-vis other organizations within the market. Finally, implementation strategies are directed toward value-adding service delivery strat- egies, value-adding support strategies, and unit action plans and must be devel- oped to carry out competitive and market entry/exit strategies. the scope and role of the strategy formulation types are summarized in exhibit 6–3.

EXHIBIT 6–3 Scope and Role of Strategy Types in Strategy Formulation

Strategy Scope and Role

Directional Strategies The broadest strategies that set the fundamental direction of the organization by establishing a mission for the organization (Who are we?) and vision for the future (What should we be?). In addition, directional strategies specify the organization’s values and its strategic goals.

Adaptive Strategies These strategies are more specific than directional strategies and provide the primary methods for achieving the vision (adapting to the environment). These strategies determine the scope of the organization and specify how the organization will expand, reduce, or maintain scope.

Market Entry/Exit Strategies

These strategies provide the method of carrying out the adaptive strategies of expansion of scope and maintenance of scope strategies through purchase, cooperation, or internal development and reduction of scope through market exit.

Competitive Strategies Two types of strategies: one determines an organization’s strategic posture and one positions the organization vis-à-vis other organizations within the market. These strategies are market oriented and best articulate competitive advantage. When changes are not envisioned for adaptive or market entry/exit strategies, competitive strategies still may require changing.

Implementation Strategies

These strategies are the most specific and are directed toward value-added service delivery and the value-added support areas. In addition, individual organizational units develop objectives and action plans that support the market entry/exit strategies, competitive strategies, as well as the value-added service delivery and value- added support strategies.

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 2023-10-14 00:03:21.

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At each stage of the strategy formulation process, previous upstream decisions and the implications for subsequent downstream decisions must be considered. As leaders work through strategic choices, new insights and perspectives may emerge (strategic thinking) that suggest reconsideration of previous strategic decisions. therefore, although the decision logic for strategic decisions is generally sequential, in practice it is very much an iterative process. Strategy includes a plurality of inputs, a multiplicity of options, and an ability to accommodate more than one possible outcome. For example, where mission and vision are ignored, or where no linkage occurs between vision and strategy, strategy has no measurable end objective. in these situations, strategy suffers from being a means without an end, an end in itself, or a means of achieving an operational end, rather than being a design or plan for achieving the organiza- tion’s mission and vision.1

Strategic decisions should be based on as much information and strategic thinking as possible. Strategic thinking occurs in situational analysis and strat- egy formulation, as well as when managing strategic momentum. Before the strategic plan is adopted, it is important to remember that organization-wide consensus and commitment to the strategies must be established and actively promoted if they are to be managed successfully (strategic momentum). the choice of a strategic alternative creates additional direction for an organiza- tion and subsequently shapes its internal systems (technology, information systems, culture, policies, skills, and so on). Strategic momentum is rein- forced as managers understand, commit, and make decisions according to the strategy.

exhibit 6–4 presents a comprehensive strategic thinking map of the stra- tegic alternatives available to health care organizations. this map not only identifies the alternatives but also the general sequential relationships among them. using this organizing framework or decision logic keeps strategy for- mulation from becoming overwhelming and focuses strategic thinking. As strategic managers work through the strategic decisions, new understand- ings, insights, and strategies may (and in fact, should) emerge. therefore, decision makers must work through the decision logic and back again, ensur- ing that all the proposed strategies make sense together. Strategic thinkers must always be able to see the bigger picture. Decision makers should be prepared to adjust and refine earlier decisions in the decision logic as they make “downstream” decisions.

how-to formulas, techniques, or linear processes, of course, can never replace strategic thinking. Many of the greatest achievements in science, law, government, medicine, and other intellectual pursuits are dependent on the development of rational, logical thinkers; however, linear thinking can limit potential.2 leadership is essential to foster creativity and innovation and allow for the reinvention of the strategy formulation process. Strategy formulation involves managing dilemmas, tolerating ambiguity, coping with contradictions, and dealing with paradox.3 Often leaders must creatively resolve the tension between competing information and alternatives to generate new options and solutions.4 in addition, strategy development cannot ignore the entrepreneurial

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 211

spirit, politics, ethical considerations, and culture in an organization. the strat- egy formulation decision logic discussed in this chapter provides a starting point. it should foster strategic thinking, not limit it. the map starts the decision makers on their journey.

Step 2: Understand the Role of Directional Strategies Chapter 5 explored mission, vision, values, and strategic goals and indicated that these elements are part of both situational analysis and strategy for- mulation. they are a part of situational analysis because they describe the current state of the organization and codify its basic beliefs and philosophy. in many ways, as discussed in Chapter 5, they provide an operational con- text for the organization and an ethical and moral framework. in addition, directional strategies are a part of strategy formulation because they set boun- daries and indicate the broadest direction for the organization. the directional strategies should provide a sensible and realistic planning framework for the organization.

EXHIBIT 6–4 Strategic Thinking Map – Hierarchy of Strategic Decisions and Alternatives

Directional Strategies

Adaptive Strategies

Market Entry/ Exit Strategies

Competitive Strategies

Implementation Strategies

● Mission ● Vision ● Values ● Goals

Expansion of Scope ● Diversification ● Vertical

Integration ● Market

Development ● Product

Development ● Penetration

Reduction of Scope ● Divestiture ● Liquidation ● Harvesting ● Retrenchment

Maintenance of Scope ● Enhancement ● Status Quo

Purchase ● Acquisition ● Licensing ● Venture Capital

Investment Cooperation

● Merger ● Alliance ● Joint Venture

Development ● Internal

Development ● Internal Venture ● Reconfigure the

Value Chain Market Exit

● Fast/Slow ● Partial/Complete

Strategic Posture ● Defender ● Prospector ● Analyzer ● Reactor

Positioning – Marketwide

● Cost Leadership ● Differentiation

Positioning – Market Segment

● Focus/Cost Leadership

● Focus/ Differentiation

Service Delivery ● Pre-service ● Point-of-service ● After-service

Support ● Culture ● Structure ● Strategic

Resources Unit Action Plans

● Objectives ● Actions ● Timelines ● Responsibilities ● Resources ● Results/Measures

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 2023-10-14 00:03:21.

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212 StrAtegIc mAnAgement of HeAltH cAre orgAnIzAtIonS

Because formulation of the mission, vision, values, and strategic goals pro- vides fundamental direction for the organization, directional strategic decisions must be made first. then the adaptive strategies mobilize organizational goals by specifying the type and scope of product/market expansion, reduction, or maintenance. the adaptive strategies form the core of strategy formulation and are most visible to those outside the organization. After the adaptive strategies have been selected, the directional strategies should be re-evaluated. Seeing the directional strategies (ends) and the adaptive strategies (means) together may suggest refinements to either or both. this broader perspective is essential in strategic thinking.

Step 3: Understand Adaptive Strategy Alternatives From a practical standpoint, whether the organization should expand, reduce, or maintain scope is the first decision that must be made once the direction of the organization has been set (or reaffirmed). As shown in exhibit 6–5, several alter- natives are available to expand, reduce, or maintain the scope of operations. these alternatives represent major strategic choices for the organization.

Expansion of Scope Strategies if expansion is selected as the best way to perform the mission and realize the vision of the organization, several alternatives are available. the expansion of scope strategies grow an organization and include:

● Diversification. ● Vertical integration. ● Market development. ● Product development. ● Penetration.

Diversification Diversification is adding new related or unrelated products/ services (businesses) outside the organization’s core business(es). Diversification strategies, in many cases, are selected because markets have been identified out- side the organization’s core business that offer potential for substantial growth. Many hospitals have added hospice care as the increasing number of baby boomers are living longer and insurers (including Medicaid) began reimbursing for this type of care. Often, an organization that selects a diversification strat- egy is not achieving its growth or revenue goals within its current market, and these new markets provide an opportunity to achieve them. there are, of course, other reasons why organizations decide to diversify. For instance, health care organizations may identify opportunities for growth in less competitive or less regulated markets (such as medical office buildings, long-term care facilities, or outpatient care).

Diversification, at the level of the individual organization, is generally seen as a risky alternative because the organization is entering relatively unfamiliar markets or businesses. At the societal level it is sometimes thought of as a means of increasing the concentration of power among fewer firms and, again, is viewed

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 213

as possessing certain dangers or risk.5 Organizations have found that the risk of diversification can be reduced if markets and products are selected that com- plement one another. therefore, managers engaging in diversification seek syn- ergy between corporate divisions or strategic business units (SBus). Consider, for example, the discussion of hill-rom in Chapter 4. the core business of hill-rom is hospital beds and it dominates the market in this area. in recent years, however, the company has acquired Allen Medical (operating room beds), liko (specialized products for safe lifting and transfer of patients), Aspen Medical (surgical blades

EXHIBIT 6–5 Strategic Thinking Map of Adaptive Strategic Alternatives

Expansion of Scope

Reduction of Scope

Maintenance of Scope

Adaptive Strategies

• Diversification

Related

Unrelated

Backward

Total

Flexibility

Speed Innovation Efficiency

Quality

Products

Markets

Slow

Fast

Assets

Operations

Partial

Pricing

Distribution Promotion

Product Enhancements Product Line

Segment Geographic

Forward

• Status Quo

• Enhancement

• Retrenchment

• Harvesting

• Liquidation

• Divestiture

• Penetration

• Product Development

• Market Development

• Vertical Integration

Types

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 2023-10-14 00:03:21.

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214 StrAtegIc mAnAgement of HeAltH cAre orgAnIzAtIonS

and scalpels), Völker (long-term care beds), trumpf Medical (advanced operating room products, lighting, surgical assistance systems), and Welch Allen (medical instruments). note that these acquisitions are concentric in that they “revolve around” the core business of hospital beds. With these acquisitions hill-rom has taken on a risky but a highly diverse portfolio of medical products.

there are two types of diversification: related (concentric) and unrelated (con- glomerate). exhibit 6–6 illustrates possible related and unrelated diversification strategies for one type of primary health care organization.

Related diversification is adding new, similar products/services (businesses) that are outside the organization’s core business. this form of diversification is some- times called concentric diversification because the organization develops a “circle” of related businesses (products/services) and is illustrated by hill-rom’s venture into a more diversified series of medical markets while focusing the diversi- fication effort on a series of similar medical products (e.g. long-term care beds, patient mobility equipment, operating room beds, and so on).

the general assumption underlying related diversification is that the organiza- tion will be able to obtain some level of synergy (a complementary relationship

EXHIBIT 6–6 Related and Unrelated Diversification by a Primary Provider

Hospice

Diagnostic Lab

Radiation Treatment

Physician Group

Ambulatory Care

Long-Term Care

Home Health

Hospital

Related Diversi�cation Unrelated Diversi�cation

Health Care Environment • Pharmaceuticals • Medical Supplies • Insurance • Managed Care • Medical Schools • Others

General Environment • Restaurants • Health and Fitness • Parking Lots • Shopping Centers • Of�ce Buildings • Laundry

Within the Health Care System

Outside the Health Care System

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 215

where the total effect is greater than the sum of its parts) between the production/ delivery, marketing, or technology of the core business and the new related prod- uct or service. this form of diversification has been characteristic of many firms in the pharmaceutical industry.6 For hospitals, the two primary reasons for diversify- ing are to introduce non-acute care or sub-acute care services that reduce hospital costs, or to offer a wider range of services to large employers and purchasing coalitions through capitated contracts.7 the movement of acute care hospitals into skilled nursing care is an example of related diversification.

On the other hand, unrelated diversification is adding new unrelated products/ services (businesses) unlike the organization’s core business. this action creates a “portfolio” of separate products/services. unrelated diversification, or conglom- erate diversification, generally involves semi-autonomous divisions or strategic service units. An example of unrelated diversification would be a hospital diversi- fying into the operation of a restaurant, parking lot, or medical office building. in such a case, the new business is unrelated to the provision of health care although it may be complementary (synergistic) to the provision of health services.

research on diversification indicates that financial performance increases as organizations shift from single-business strategies to related diversification, but performance decreases as organizations change from related diversification to unrelated diversification.8 Single-business organizations may suffer from limited economies of scope whereas organizations using related diversification can con- vert underutilized assets and achieve economies of scope by sharing resources and combining activities along the value chain. unrelated diversification has been found to increase strain on top management in the areas of decision making, control, and governance. the stress increases in some cases because of the diffi- culties associated with integrating and managing diverse organizational cultures.9 in addition, unrelated diversification makes it difficult to share activities and transfer competencies between units; it has been particularly difficult in hospital diversification.10

Vertical Integration A vertical integration strategy is a decision to grow along the channel of distribution or stages in the continuum of care of core operations. thus, a health care organization may grow toward suppliers or toward patients. When an organization grows along the channel of distribution toward its sup- pliers or toward earlier stages on the continuum of care (upstream), it is called backward vertical integration. When an organization grows along the channel of distribution toward the consumer/patient or toward later stages in the continuum of care (downstream), it is called forward vertical integration.

A vertically integrated health care system offers a range of patient care and sup- port services operated in a functionally unified manner. the expansion of services may be arranged around an acute care hospital and include pre-acute, acute, and post-acute services or be organized around specialized services related solely to long-term care, mental health care, or some other specialized area.11 the purpose of vertical integration is to increase the comprehensiveness and continuity (or continuum) of care, while simultaneously controlling the channel of demand for health care services.12

One of the more familiar examples of vertical integration in health care has been the strategy of hospitals acquiring physician practices in a move to more effectively

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 2023-10-14 00:03:21.

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216 StrAtegIc mAnAgement of HeAltH cAre orgAnIzAtIonS

control the “patient flow.” this move, as with many others, has produced vary- ing results. Some have argued that tightly integrated relations between physician practices and hospitals have resulted in higher hospital prices and spending.13

Vertical integration can reduce costs and thus enhance an organization’s competitive position. Cost reductions may occur through lower supply costs and better integration of the “elements of production.” With vertical integration, management can better ensure that supplies are of the appropriate quality and delivered at the right time. For instance, some hospitals have instituted technical educational programs because many health professionals (the major element of production in health care) are in critically short supply. however, in many cases it seems that managerial incentives to build market share is the primary motivation for vertical integration.14

Because a decision to vertically integrate further commits an organization to a particular product or market, management must believe in the long-term viability of the product/service and market. As a result, the opportunity costs of vertical integration must be weighed against the benefits of other strategic alternatives such as diversification or product development. examples of vertical integration would be a hospital chain acquiring one of its major medical products suppliers (backward integration) or a drug manufacturer moving into drug distribution (forward integration).

Whether a strategic alternative is viewed as vertical integration or related diver- sification may depend on the objective or intent of the alternative. For instance, when the primary intent is to enter a new market to grow, the decision is to diver- sify. however, if the intent is to control the flow of patients to various units, the decision is to vertically integrate. thus, a decision by an acute care hospital to acquire a skilled-nursing unit may be viewed as related diversification (entering a new growth market) or vertical integration (controlling downstream patient flow). Vertical integration is the fundamental adaptive strategy for developing integrated systems of care and is central to many health care organizations’ strategies.

numerous extensive health networks are the result of integration strategies and some observers expected that the Patient Protection and Affordable Care Act (ACA) would increase the movement to integrated health care systems.15 Although there is limited data to support or refute this suspicion, according to the American hospital Association well over half of American hospitals may be affili- ated with a system or network.16 the major reason that hospitals join networks and systems is to help secure needed resources (financial, human, information systems, and technologies), increase capabilities (management and marketing), and gain greater bargaining power with purchasers and health plans.17 however, it appears that the pace of integration has slowed. in fact there has been some degree of “disintegration,” with health care systems divesting health plans, phys- ician groups, home health care companies, skilled care services, or facilities and selling or closing hospitals.18 the reason for this divesting trend is related to research that suggests that integrated health care networks have little or no signifi- cant effect on the improvement of overall organizational efficiencies and profits.19

to increase the supply of patients to various health care units, several patterns of vertical integration may be identified.20 in exhibit 6–7, an inpatient acute care facility is the strategic service unit or core technology that decides to vertically integrate. example 1 represents a hospital (D) that is not vertically integrated.

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 217

the hospital admits and discharges patients to and from other units outside the organization. example 2 illustrates a totally integrated system in which inte- gration occurs both upstream and downstream. in this case, patients flow through the system from one unit to the next, and upstream units are viewed as “feeder” units to downstream units.

example 3 represents a hospital that has vertically integrated upstream. in addition, more than one unit is involved at several stages of the integration. For instance, there are two wellness/health promotion units, three primary care units, and three urgent care units. the dashed line represents the receipt of patients via external or market transfers. example 4 illustrates a multihospital system engaged

EXHIBIT 6–7 Patterns of Vertical Integration Among Health Care Organizations

1

2

3

4

5

Upstream Downstream

Strategic Business Unit

A B C D E F G

A = wellness/health promotion unit B = primary care unit C = urgent care unit D = hospital (inpatient acute care unit) E = skilled-nursing unit F = rehabilitation unit G = home-health unit

Solid lines depict fully internal transfers

Dashed lines depict market or external transfers

i

Sources: Adapted in part from K. R. Harrigan, “Formulating Vertical Integration Strategies,” Academy of Management Review 9, no. 4 (1984), pp. 638–652. Reprinted by permission of Academy of Management. And adapted in part from Stephen S. Mick and Douglas A. Conrad, “The Decision to Integrate Vertically in Health Care Organizations,” Hospital and Health Services Administration 33, no. 3 (Fall 1988), p. 351. Reprinted by permission from Health Administration Press, Chicago.

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 2023-10-14 00:03:21.

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in vertical integration. three hospitals form the core of the system, which also con- tains three nursing homes, two rehab units, a home-health unit, three urgent care facilities, three primary care facilities, and a wellness center. it is important to note that simply adding members to create an integrated health system is not enough. institutions must be truly integrated and create a “seamless” system of care to achieve the desired benefits for patients (effectiveness) and cost savings (efficiency).

Finally, some health care systems are closed systems with fixed patient popu- lations entirely covered through prepayment. thus, whereas in example 2 the health care organization is vertically integrated, in example 5 patients are a part of the closed system. this insurance function (letter i in the example) is shown as an additional unit.

Market Development Market development is a divisional strategy used to enter new markets with the organization’s present products or services. Specifically, market development is a strategy designed to achieve greater volume, through geographic (service area) expansion or by targeting new market segments within the present geographic area (market niche strategies). typically, market devel- opment is selected when the organization is fairly strong in the market (often with a differentiated product), the market is growing, and the prospects are good for long-term growth. A market development strategy is strongly supported by the marketing, financial, information systems, organizational, and human resources functions. An example of a market development strategy would be a chain of out- patient clinics opening a new clinic in a new geographic area (current products and services in a new market).

One type of market development is called horizontal integration. Horizontal integration is a method of obtaining growth across markets (in essence buying market share) by acquiring or affiliating with direct competitors rather than using internal operational/functional strategies to take market share from them. Many hospitals and medical practices engage in horizontal integration, creating multi- hospital systems. Such systems were expected to offer several advantages such as increased access to capital, reduction in duplication of services, economies of scale, improved productivity and operating efficiencies, access to management exper- tise, increased personnel benefits, improved patient access, improvement in qual- ity, and increased bargaining power with insurers and suppliers. however, many of these benefits have not materialized and consolidation often raises prices with no measurable impact on quality – increasing scale without creating solutions.21

Another special type of market development is a market-driven or focused factory strategy. A focused factory in health care is an organization that provides comprehensive services across multiple markets (horizontal integration) for one specific disease category such as cancer, diabetes, renal disease, asthma, or car- diac disease. the fundamental principle underlying a market-driven or focused factory strategy is that an organization that focuses on only one function is likely to perform better. Such focus allows an organization to achieve very high levels of effectiveness and efficiency. the shift includes:

… replacing giant providers and huge managed care networks, located in hard-to-reach sites with what i call “focused factories” (a nomenclature bor- rowed from the manufacturing sector) that provide convenient, specialized

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 219

care for victims of a certain chronic disease, or for those who need a particu- lar form of surgery, or for those who require a diagnosis, checkup, or treat- ment for a routine problem.22

Focused factories become so effective (high quality, convenient, and so on) and efficient (less costly) that other providers are “forced” to use their services. Thus, these other providers can obtain higher-quality services at less cost by outsourcing to the focused factory. In turn, the focused factory commands a place in the payment systems. Focused factory tools for pro- viders of health care services are outlined in Essentials for a Strategic Thinker 6–1 “What Is a Health Services Focused Factory?”

ESSEnTIALS foR A STRATEgIC THInkER 6–1

What Is a Health Services focused factory?

The health care providers who flourish in this mar- ket-driven environment will give customers the mastery and convenience as well as the focused, cost-effective services they want by following the rules of successful service entrepreneurs:

PAy AttEntIon to thE CuStoMER

Don’t call them patients, don’t fight their asser- tiveness, don’t give them hype, give them real convenience and quality.

FoCuS, FoCuS, FoCuS

Throw out the general-purpose, everything- for-everybody model; focus on your strengths; design the system that will lower costs and opti- mize quality.

LEARn FRoM thE RoCkEttES

Make sure that all the elements of your operating systems are integrated, resembling a well- choreographed dance, where disparate elements have been integrated into a harmonious whole.

RESISt thE EDIFICE CoMPLEx

Bricks and mortar are distractions; fixed costs drag the enterprise down; many assets are really

liabilities (money pits that consume your time and capital).

LowER youR CoStS, Don’t RAISE youR PRICES

Successful enterprises succeed by achieving more output from every unit of input, not by raising prices; enterprises that lower their costs create sustainable competitive advantage.

uSE tEChnoLogy wISELy

Use technology to enhance the productivity of the health care process, not as a marketing tool.

Don’t LEt thE DogMA gRInD you Down

Be open to new and different ways of thinking; don’t be a prisoner of your own thinking; obtain advice from the widest possible range of sources about what works and what doesn’t.

BE EthICAL

Don’t seek competitive advantage in unethical ways such as discriminating against sick or poor people or by denying people the health care services they need.

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 2023-10-14 00:03:21.

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in health care, focused factories have not escaped criticism. the success of some focused factories (cardiac surgery and treatment) led some states to propose legis- lation restricting them. the Federal Medicare Prescription Drug improvement and Modernization Act became law in 2003. An important part of the law included a moratorium that limited physician investments in specialty hospitals. Specifically identified were cardiac, orthopedic, surgical, and “other” hospitals owned by physicians. these focused factories targeted profitable procedures from insured patients, requiring local not-for-profits to care for less profitable diseases/ treatments without being able to offset the costs through the more profitable procedures being captured by focused factories. therefore, many politicians are opposed to specialty hospitals and advocated for the federal legislation to become permanent.

Additionally, consternation has been expressed concerning whether health care-focused factories really reduce costs and in turn prices. Some experts sug- gest that price reductions are offset by the tendency of physicians with financial interest in the hospital to increase their volume with elective procedures. As for increasing quality, most experts agree that it is too early to judge. Some sug- gest that physicians referred easy cases to specialty hospitals and more complex patients to general hospitals, but there is no data to support that claim. Further, most experts agree that specialty hospitals initiated a “medical arms race” that might eventually drive up health care costs. the fear is that as general hospitals perceive the need to compete with the physician-owned specialty hospitals, they will develop dedicated centers as “hospitals-within-hospitals” or as freestanding facilities, forcing up overall costs.23

Product Development Product development is the introduction of new prod- ucts/services to present markets (geographic and segments). typically, product development takes the form of product enhancements and product line exten- sion. Product development should not be confused with related diversification.

BREADth BEAtS DEPth

Don’t fall for the lure of vertical integration; remember all the problems you have experienced in running just your corner of the health services world; a horizontally integrated chain of focused factories will amplify your strengths in each of the separate units that comprise the chain.

Don’t gEt BIg FoR BIgnESS’ SAkE

Don’t think of horizontal integration as a way of blocking competitors; think of it as getting really good at what you do.

MEASuRE RESuLtS: youR own AnD youR CoMPEtItoRS’

What gets measured gets done; don’t ignore results you don’t like and don’t bury the results in a file – use them actively in continually recreating your operations; don’t believe your own press – you are at your most vulnerable when your measurement results are at their most flattering.

Source: Regina E. Herzlinger, Market-Driven Health Care: Who

Wins, Who Loses in the Transformation of America’s Largest Service

Industry (Reading, MA: Addison-Wesley Publishing Company,

1997), pp. 283–287.

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 221

related diversification introduces a new product category (though it may be related to present operations), whereas product development may be viewed as refinements, complements, or natural extensions of present products. Product development strategies are common in large metropolitan areas where hospi- tals vie for increased market share within particular segments of the market, such as cancer treatment and open-heart surgery, and specialized women’s health clinics.

Penetration An attempt to better serve current markets with current products or services is referred to as a market penetration strategy. Similar to market and product development, penetration strategies are used to increase volume and market share. A market penetration strategy is typically implemented by market- ing activities such as promotional, distribution, and pricing strategies, and often includes increasing advertising, offering sales promotions, increasing publicity efforts, or increasing the number of sales representatives.

Although still using their sales force to pursue expansion strategies, some pharmaceutical companies have recently moved toward e-detailing (electronic physician education concerning drugs) as a key component of their pen- etration strategies. the use of e-detailing by pharmaceutical companies is on the rise because physicians increasingly prefer to replace sales calls with other forms of communication and are accessing physician-only informational web- sites, and other interactive communication formats. For example, one study of physicians and other medical professionals found that when e-detailing was used in combination with occasional visits by professional service represen- tatives the results were particularly effective. the argument was made that e-detailing and periodic, in-person visits are complementary in nature, less expensive, and that simultaneous use multiplied the effects of either approach on its own.24

Reduction of Scope Strategies Reduction of scope strategies decrease the size and reach of operations. reduction strategies include:

● Divestiture. ● liquidation. ● harvesting. ● retrenchment.

Divestiture Divestiture is a reduction of scope strategy in which an operating strategic service unit (SSu) is sold off as a result of a decision to leave all or a portion of the market despite its current viability. generally, the business to be divested has value and will continue to be operated by the purchasing organiza- tion.25 For example, in 2016 Community health Systems, inc. (ChS) announced it was divesting its majority stake (80 percent) in its home health division to pay down debt. the strategic plan was for Almost Family, inc. to purchase a majority interest and continue to operate the business.26

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 2023-10-14 00:03:21.

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the strategy of “unbundling” (divesting by a hospital of one or more of its ser- vices) has become common. hospitals are carving out non-core services previously performed internally and divesting them. typical services and products produced in a hospital that are not necessarily part of the core bundle of activities include laboratory, pharmacy, X-ray, physical therapy, occupational therapy, and dietary services. in addition, “hotel” services (laundry, housekeeping, and so on) formerly performed by hospitals are being contracted to outsiders. even medical services in such specialty areas as ophthalmology are increasingly being performed outside the hospital in “surgicenters” and may be candidates for divestiture.

Divestiture decisions are made for a number of reasons. An organization may need cash to fund more important operations for long-term growth or the div- ision/SSu may not be achieving management’s goals. in some cases health care organizations are divesting services that are too far from their core business or area of management expertise. For example, many multihospital systems have divested their hMO (purchased only a few years earlier) to concentrate on care delivery. A multihospital system purchasing a managed care organization actually represents unrelated diversification. Although the strategy appears logical and synergistic, managed care businesses are difficult to manage and there is little skill transfer from managing provider organizations. Moreover, research has shown that divestitures are more profitable when they are part of a carefully crafted strat- egy as compared to piecemeal sell-offs of various components of the business.27

Liquidation Liquidation is a reduction of scope strategy involving the termination of a unit through the sale of its assets. the assumption underlying a liquidation strategy is that the unit cannot be sold as a viable and ongoing operation. however, the assets of the organization (facilities, equipment, and so on) still have value and may be sold for other uses. Organizations may be partially or completely liquidated. Common reasons for pursuing a liquidation strategy include bankruptcy, the desire to dispose of non-productive assets, and the emergence of a new technology that results in a rapid decline in the use of the old technology.

One strategy of the MedCath Corporation illustrates an example of liqui- dation. On September 21, 2012 a Certificate of Dissolution was issued for MedCath Corporation. MedCath consisted of a series of hospitals that specialized in cardio- vascular care. its strategy was to operate these specialty hospitals in partnership with physician groups. Although the strategy was successful initially, the opposition of acute care hospitals resulted in a moratorium on specialty hospital development, which proved to be a mortal blow to the strategy and the company. MedCath’s board of directors approved a “liquidating distribution” of assets to stockholders, removed its stock from trading on the nASDAQ stock exchange, and ceased operations.

On leaving a market, an aging hospital building may be sold for its property value or an alternative use. in a declining market, a liquidation strategy may be a long-term strategy to be carried out in an orderly manner over a period of years. recently, many hospitals have been liquidating their emergency helicopter oper- ations, which had historically been allowed to operate as loss leaders because they brought prestige and positive public relations to the hospital. however, because of increasing costs and limited reimbursements, many hospitals have shut down and liquidated such operations.

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 223

Harvesting A harvesting strategy is a reduction of scope strategy to continue to operate a declining business and reap any remaining available profits while not investing additional resources. A harvesting strategy is selected when the market has entered long-term decline. the reason underlying such a strategy is that the organization has a relatively strong market position but industry-wide revenues are expected to decline over the next several years. therefore, the organization will “ride the decline,” allowing the business to generate as much cash as possible without further investment.

When implementing a harvesting strategy, the organization attempts to reap maximum short-term benefits before the product or service is eliminated. Such a strategy allows the organization an orderly exit from a declining seg- ment of the market by planned downsizing. harvesting has not been widely used in health care but will be more frequently encountered in the future as markets mature and organizations exit various segments. For instance, some regional hospitals that have developed rural hospital networks have experi- enced difficulty in maintaining their commitment to health care in small communities. the 20-bed hospitals frequently found in rural networks tend to struggle financially because of a lack of support from specialists and pri- mary care physicians, an aging population, and flight of the young to urban areas. twenty-bed rural hospitals are probably in a long-term decline with little hope for survival. On the other hand, 50-bed hospitals have managed to maintain or improve their financial position because of effective physician recruitment, good community image, and the continued viability of the com- munities themselves. therefore, regional hospitals with rural networks may have to employ a harvesting strategy for the 20-bed hospitals while using market development or maintenance of scope strategies for the 50-bed and larger hospitals.

Retrenchment A retrenchment strategy reduces the scope of operations, through redefining the target market, cutting geographic coverage, reducing the segments served, or reducing the product/service line. typically a retrenchment strategy is a response to declining profitability, usually brought about by increas- ing costs. the market is still viewed as viable, and the organization’s products/ services continue to have wide acceptance; however, costs are rising as a percent- age of revenue, placing pressure on profitability. retrenchment typically involves a redefinition of the target market and selective cost elimination or asset reduc- tion. retrenchment is directed toward reduction in personnel, the range of prod- ucts/services, or the geographic market served and represents an effort to reduce the scope of operations.

Over time, organizations may find that they are overstaffed given the level of demand. As a result, their costs are higher than those of competitors. When market growth is anticipated, personnel are added to accommodate the growth, but during periods of decline, positions are seldom eliminated. A reduction in the staff members who have become superfluous or redundant is often central to a retrenchment strategy.

Similarly, in an attempt to “round out” the product or service line, products and services are added. Over time, these additional products/services may tend to add more costs than revenues. in many organizations, less than 20 percent of

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 2023-10-14 00:03:21.

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the products account for more than 80 percent of the revenue. in these circum- stances, retrenchment may be in order.

Finally, there are times when geographic growth is undertaken without regard for costs. eventually, managers realize they are “spread too thin” to adequately serve the market. in addition, well-positioned competitors are able to provide quality products/services at lower costs because of their proximity. in this situation, geographic retrenchment (reducing the service area) is appro- priate. in many cases, a retrenchment strategy is implemented after periods of aggressive market development or acquisition of competitors (horizontal integration).

Maintenance of Scope Strategies Often organizations pursue a maintenance of scope strategy when management believes the past strategy has been appropriate and few changes are required in the target markets or the organization’s products/services. Maintenance of scope does not necessarily mean that the organization will do nothing; it means that management believes the organization is progressing appropriately. there are two maintenance of scope strategies: enhancement and status quo.

Enhancement Enhancement seeks to improve operations within present product or service categories in various ways, such as by implementing quality programs, increasing flexibility, increasing efficiency, improving speed of deliv- ery, and so on. When management believes that the organization is progressing toward its vision and goals but needs to “do things better,” an enhancement strat- egy may be used; neither expansion nor reduction of operations is appropriate but “something needs to be done.” typically, enhancement strategies take the form of quality programs (continuous quality improvement or CQi, total qual- ity management or tQM) directed toward improving organizational processes or cost-reduction programs designed to render the organization more efficient. in addition to quality and efficiency, enhancement strategies may be directed toward innovative management processes, speeding up the delivery of the products/services to the customer, and adding flexibility to the design of the products or services (marketwide customization). As discussed in essentials for a Strategic thinker 6–2, “What is health information technology (it)?” the adoption of information technology may be an enhancement strategy that cre- ates competitive advantage.

Many times after an expansion strategy, an organization engages in main- tenance/enhancement strategies. typically after an acquisition, organizations initiate enhancement strategies directed toward upgrading facilities, reducing purchasing costs, installing new computer systems, enhancing information systems, improving the ability to evaluate clinical results, reducing overhead costs, or improving quality.

Status Quo A status quo strategy is a maintenance of scope strategy seeking to maintain relative market share within a market and retain services at their current level. A status quo strategy is often based on the assumption that the market has

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 225

ESSEnTIALS foR A STRATEgIC THInkER 6–2

What Is Health Information technology (It)?

Health IT is a broad term that refers to a wide range of technologies and applications designed to store, share, and/or analyze health informa- tion. Health IT includes electronic health records (EHRs), health information exchanges (HIEs), and many other technologies. Whereas EHRs are computerized versions of patient records that allow clinicians secured access to patient information (e.g. prior history, test results, medi- cation information) and algorithms designed to assist clinicians to provide optimal care (e.g. dos- ing information, access to the newest medical guidelines), HIEs are the infrastructure that allow information from EHRs to be exchanged across different providers, settings of care, and time.

Ideally, health IT assists clinicians, managers, and public health officials to improve the quality of care, reduce inefficiencies, and lower health care costs. As such, federal policies have pro- moted the adoption and use of health IT by physicians, hospitals, and other providers. For example, the Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009 promoted the uptake of EHRs and HIEs by paying providers “bonus payments” for success- fully installing, upgrading, or using health IT that met certain basic requirements.

Likewise, changes in reimbursement models by Medicare, Medicaid, and private insurance companies have also incentivized the use of health IT. Historically, most insurance companies reimbursed providers on a fee-for-service basis. That is, for a given clinical service, insurance companies would pay doctors and hospitals a predetermined fee on behalf of patients. Under this model, providers earned more if they pro- vided a higher volume of services – and quality of care was not necessarily rewarded. As costs of

care increased and quality concerns grew, new federal policies such as the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015, introduced newer reimbursement models that sought to financially reward physicians and hos- pitals that provide the best care for the lowest costs. Collectively, these new reimbursement models are known as value-based purchasing arrangements. Value-based (as opposed to vol- ume-based) models promote the use of health IT because such technologies play a role in improving quality and efficiency.

Despite much national attention to health IT by insurance companies and providers, and des- pite substantial technological improvements to EHRs and HIEs, the U.S. health care system has not yet lived up to the full potential of health IT. In retrospect, whereas the HITECH Act may have spurred increased adoption of health IT, it may not have fostered an environment where health IT could be used innovatively. Moreover, many organizations struggled with the implementa- tion process of health IT because the challenges with such wide-scale changes were underesti- mated. Lastly, despite improvements to com- mercially available health IT products, there is still a perception that the products available do not meet every organization’s needs. As such, one can expect that health IT will continue to be tailored to individual organizational needs, and researchers will continue to find ways for health IT to be used more effectively to improve care, support population health, enable new analyt- ics, and generally be a necessary ingredient of the modern U.S. health care system.

Source: Nir Menachemi, PhD Professor and Chair, Indiana

University Richard M. Fairbanks School of Public Health, Affiliate

Scientist, Regenstrief Institute, Inc.

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 2023-10-14 00:03:21.

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matured and periods of high growth are over. in this situation, the organization has secured an acceptable market share that managers believe can be defended against competitors. in addition, a status quo strategy may be appropriate when an organization is in a period of “active waiting.” Active waiting is a temporary strategy for organizations operating in dramatically changing or volatile markets. During periods of active waiting, leaders must remain alert to market anomalies that signal potential threats and opportunities, build financial reserves, and pre- pare to make strategic changes.28

in a status quo strategy, the goal is to maintain market share and keep services at their current level. environmental influences affecting the products or services should be carefully analyzed to determine when significant change is imminent. typically, organizations attempt a status quo strategy in some areas while engaging in market development, product development, or penetration in other areas to bet- ter utilize limited resources. For instance, a hospital may attempt to hold its market share (status quo) in slow-growth markets such as cardiac and pediatric services and attempt market development in higher-growth services such as intense, short- term rehabilitation care, renal dialysis, ophthalmology, or intravenous therapy.

in mature markets, industry consolidation occurs as firms attempt to add volume and reduce costs. therefore, managers must be wary of the emergence of a single dominant competitor that has achieved a significant cost differential. A status quo strategy is appropriate when there are two or three dominant pro- viders in a stable market segment because, in this situation, market development or product development may be quite difficult and extremely expensive.

A brief definition of the adaptive strategies and their rationales for selection are summarized in exhibit 6–8.

EXHIBIT 6–8 Definition and Rationales of the Adaptive Strategies

Adaptive Strategy Definition Rationale

Expansion of Scope

Related Diversification

Adding new related product or service categories. Often requires the establishment of a new division.

● Pursuit of high-growth markets. ● Entering less-regulated segments. ● Not achieving current objectives. ● Synergy is possible from new business. ● Offset seasonal or cyclical influences.

Unrelated Diversification

Adding new unrelated product or service categories. Typically requires the establishment of a new division.

● Pursuit of high-growth markets. ● Entering less-regulated segments. ● Cannot achieve current objectives. ● Current markets are saturated or in decline. ● Organization has excess cash. ● Antitrust regulations prohibit expansion in current

industry. ● Tax loss may be acquired.

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 227

Adaptive Strategy Definition Rationale

Backward Vertical Integration

Adding new members along the distribution channel (toward a later stage) for present products and services or controlling the flow of patients from one institution to another.

● Control the flow of patients through the system. ● Scarcity of raw materials or essential inventory/supplies. ● Deliveries are unreliable. ● Lack of materials or supplies will shut down operations. ● Price or quality of materials or supplies variable. ● Industry/market seen as profitable for long term.

Forward Vertical Integration

Adding new members along the distribution channel (toward an earlier stage) for present products and services or controlling the flow of patients from one institution to another.

● Control the flow of patients through the system. ● Faster delivery required. ● High level of coordination required between one stage

and another – secure needed resources. ● Industry/market seen as profitable for long term. ● Gain bargaining power.

Market Development

Introducing present products or services into new geographic markets or to new segments within a present geographic market.

● New markets are available for present products. ● Provide comprehensive services across the market (focus

factory). ● New markets may be served efficiently. ● Expected high revenues. ● Organization has cost leadership advantage. ● Organization has differentiation advantage. ● Current market is growing.

Product Development

Improving present products or services or extending the present product line.

● Currently in strong market but product is weak or product line incomplete.

● Market tastes are changing. ● Product technology is changing. ● Maintenance or creation of differentiation advantage.

Penetration Seeking to increase market share for present products or services in present markets through marketing efforts (promotion and price).

● Present market is growing. ● Product/service innovation will extend product life cycle (PLC). ● Expected revenues are high. ● Organization has cost leadership advantage. ● Organization has differentiation advantage.

Reduction of Scope

Divestiture Selling an operating unit or division to another organization. Typically, the unit will continue in operation.

● Industry in long-term decline. ● Cash needed to enter new, higher-growth area. ● Lack of expected synergy with core operation. ● Required investment in new technology seen as too high. ● Too much regulation. ● Unbundling.

(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 2023-10-14 00:03:21.

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Step 4: Understand Market Entry/Exit Strategy Alternatives

the expansion of scope adaptive strategies require entering or gaining access to a new market, while the maintenance of scope strategies may call for organizational improvements; therefore, it is likely that both strategies will require new resources. On the other hand, reduction of scope strategies may provide additional resources or free up committed resources. thus, the next important decision that must be

Adaptive Strategy Definition Rationale

Liquidation Selling all or part of the organization’s assets (facilities, inventory, equipment, and so on) to obtain cash. The purchaser may use the assets in a variety of ways and businesses.

● Organization can no longer operate. ● Bankruptcy. ● Trim/reduce assets. ● Superseded by new technology.

Harvesting Products or services typically in late stages of the product life cycle (late maturity and decline) where industry- wide revenues are expected to decline. These products or services will ultimately be discontinued but may generate revenue for some time. Few new resources are allocated to these areas.

● Late maturity/decline of the product life cycle. ● Consider divestiture or downsizing. ● Short-term cash needed.

Retrenchment Reducing the scope of operations, redefining the target market, cutting geographic coverage, reducing the segments served, or reducing the product line.

● Market has become too diverse. ● Market is too geographically spread out. ● Personnel costs are too high. ● Too many products or services. ● Marginal or non-productive facilities.

Maintenance of Scope

Enhancement Seeking to improve operations within present product or service categories through quality programs, increasing flexibility, increasing efficiency, speed of delivery, and so on.

● Organization has operational inefficiencies. ● Need to lower costs. ● Need to improve quality. ● Improve internal processes.

Status Quo Seeking to maintain relative market share within a market.

● Maintain market share position. ● Maturity/late maturity stage of the product life cycle. ● Product/market generating cash but has little potential

for future growth. ● Extremely competitive market.

EXHIBIT 6–8 (Continued)

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made for these strategies concerns how the organization will enter and develop a market or exit the market. Market entry strategies carry out the expansion and maintenance adaptive strategies through purchase, cooperation, or internal development. reduction of scope strategies are carried out through market exit strategies.

there are three major methods to enter a market. As illustrated in exhibit 6–4, an organization can use its financial resources to purchase a stake in the new market, team with other organizations and use cooperation to enter a market, or use its own resources to develop its own products and services. it is important to understand that market entry strategies are not ends in themselves but serve a broader aim – supporting the expansion and maintenance of scope adaptive strat- egies. Any of the expansion and maintenance of scope strategies may be carried out using any of the market entry strategies but each one places different demands on the organization.

if a reduction of scope strategy is selected, the organization may choose to leave (exit) the market quickly or incrementally resulting in a partial withdrawal or a complete abandonment of the market. Similar to the market entry strate- gies, market exit strategies support a broader vision and may continue to require resources and careful management for a period of time before the strategy has been completed.

Purchase Strategies A purchase strategy uses financial resources to enter a market quickly. there are three purchase market entry strategies: acquisition, licensing, and venture capital investment.

Acquisition Acquisitions are entry strategies for expansion through the purchase of an existing organization, a unit of an organization, or a product/ service. thus, acquisition strategies may be used to carry out both corporate and divisional strategies such as diversification, vertical integration, market development, or product development. there are many reasons to purchase another organization, such as to obtain real estate or other facilities, to acquire brands, trademarks, or technology, and even to access employees. however, the most common reason is to acquire customers.29 One form of acquisition is inversion which has been used as a tax reduction strategy as well as a market development strategy. See essentials for a Strategic thinker 6–3, “What is inversion?”

the acquiring organization may integrate the operations of the newly acquired organization into its present operations or may run it as a separate business/ser- vice unit. Acquisitions offer a method for quickly entering a market, obtaining a technology, or gaining a needed channel member to improve or secure distri- bution. it is usually possible to assess the performance of an organization before purchase and thereby minimize the risks through careful analysis and selection. the “build internally” versus “acquire” decision is one where strategic leaders must determine whether the benefits of ownership justify the costs and whether the acquiring organization has the product and process knowledge to capital- ize on an opportunity quickly. if the acquiring organization does not have the

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 2023-10-14 00:03:21.

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ESSEnTIALS foR A STRATEgIC THInkER 6–3

What Is Inversion?

Inversion, also termed expatriation, results when a U.S.-based multinational company restructures and relocates the parent company to a low-tax country.1 Inversions typically involve a U.S. com- pany’s acquisition of a smaller corporation in a foreign country and the combined company moves its headquarters from the United States to the nation of the acquired firm. For example, in 2014, Mylan, Inc. of Pittsburgh acquired the European generic drug division of Abbott Laboratories and incorporated the resulting enter- prise in the Netherlands. Mylan’s new enterprise will be managed by its executive team located in Pittsburgh; however, the company will be located in the Netherlands and will be a Dutch company.2 The term “inversion” references the “upside-down” structure that results from the acquisition and headquarters relocation – the headquarters entity is smaller than the U.S.-based main entity.3

The strategic rationale for inversion usually focuses on reducing the corporate income tax burden of multinational companies.4 The United States uses a “world-wide” system of taxation in which both domestic and foreign income are combined for income tax reporting and, thus, may result in double taxation – first in the country of income origin and second in the United States.5 In the case of the Mylan–Abbott transaction, Mylan’s tax rate was reduced from 35 percent to 21 percent.6 In selecting an acquisi- tion target, U.S. companies are typically seeking suitable business locations in countries that use a regional taxation system where income is taxed only in the country where it originates.

Ireland, the UK, and the Netherlands have been prime locations for inverted multinationals because of: (1) business tax rates that are lower than U.S. rates, (2) flexibility in creating corporate

governance models (the Netherlands), (3) com- mon law legal framework (Ireland and the UK), (4) English-speaking (all three countries), and (5) offering market development opportunities in Europe (all three countries).7

The first inversion occurred in 1982 when McDermott International Inc., a construc- tion company previously domiciled (head- quartered and located) in Louisiana, moved its headquarters to Panama. In the health care system, inversion has been used mostly by pharmaceutical and medical device com- panies, such as Medtronic’s move to Ireland, Convatec Healthcare’s move to Luxembourg, Valeant Pharmaceuticals International’s move to Canada, Jazz Pharmaceuticals’ move to Ireland, Activas’ move to Ireland, and Wright Medical Group’s move to the Netherlands.8

REFEREnCES

1. Hale E. Sheppard, “Fight or Flight of US-Based

Multinational Businesses: Analyzing the Causes

for, Effects of, and Solutions to the Corporate

Inversion Trend,” Northwestern Journal of

International Law and Business 23 (2002), p. 551.

2. Michelle F. Cortez, “Mylan to Add Abbott’s

Generic-Drug Unit, Cut Tax Rate,”

www.Bloomberg.com, (2014) (accessed

March 1, 2017).

3. U.S. Treasury, “Corporate Inversion Transactions:

Tax Policy Implications,” Office of Tax Policy,

Washington, DC (2002).

4. Kimberly A. Clausing, “Multinational Firm Tax

Avoidance and Tax Policy,” National Tax Journal

(2009), pp. 703–725.

5. Joseph A. Tootle, “The Regulation of Corporate

Inversions and Substantial Business Activities,”

Virginia Tax Review 33 (2013), p. 353.

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expertise or capability and there is an organization that provides a good strategic fit that does have such expertise then purchase may be warranted.30 however, even a small acquired organization can be difficult to integrate into the existing culture and operations. Often it takes several years to “digest” an acquisition or to combine two organizational cultures.

Despite the difficulties of combining organizational cultures, the creation of health systems with unified ownership has been an effective strategy. health systems have been better able than health networks (looser contractually- or alliance-based strategies) to provide needed resources, competencies, and capa- bilities. Direct ownership of assets enables systems to achieve greater unity of pur- pose and develop more focused strategies, on average, than more decentralized networks. in addition, hospitals in health systems that have unified ownership generally have better financial performance than hospitals in contractually-based health networks.31

Much of the growth of for-profit hospital chains has been via a market devel- opment acquisition strategy also called horizontal integration (or buying market share). More specifically, horizontal integration is a type of market development – a method of obtaining growth across markets by acquiring or affiliating with direct competitors rather than using internal operational or functional strategies to gain/grow market share. Aggressive market development through acquisi- tion of independent hospitals has been used to build the nation’s largest private for-profit hospital chains. For example, in California the seven largest hospital systems control more than one-third of the hospitals and licensed beds in the state.32 horizontal integration and vertical integration through acquisitions and alliances have been key entry strategies for initiating rapid market growth by health care organizations.

Licensing Licensing is an agreement for rights to a technology, product, trade- mark, franchise, or exclusive geographic area (territory) developed by one organi- zation and used by another for a fee. the da Vinci laser “knife” was licensed to surgeons. Acquiring a technology or product through licensing may be viewed as an alternative to acquiring a complete company. licensing agreements obviate the need for costly and time-consuming product development and provide rapid access to proven technologies, generally with reduced financial and marketing risk to the organization. however, the licensee usually does not receive pro- prietary technology and is dependent on the licensor for support and upgrades. in addition, the upfront dollar costs may be high.

6. Cortez, “Mylan to Add Abbott’s Generic-Drug

Unit, Cut Tax Rate.”

7. Matthew Gilleard, “Inversions: The Trend

Turning Transactional Tax Planning Upside

Down,” International Tax Review 25 (2014), p. 8.

8. N. S. Rao, “Corporate Inversions and Economic

Performance.” NYU, Wagner Research Paper

No. 2566429, (September 6, 2015). Available at

SSRN: Retrieved from https://papers.ssrn.com/

sol3/papers.cfm?abstract_id=2566429.

Source: Andrew C. Rucks, PhD, Professor, School of Public Health,

University of Alabama at Birmingham.

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 2023-10-14 00:03:21.

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Another common form of licensing is a franchise – the granting of an exclusive territorial license assuring the licensee all rights that the licensor has with respect to a defined activity.33 this practice is most commonly found in the field of trade- mark licensing. Franchisees benefit from exploitation of the goodwill, uniform format, and uniform quality standards symbolized by the franchisor’s trademark. An example is the license agreement by and between Blue Cross and Blue Shield Association and the various regional Blue Cross and Blue Shield Plans. Blue Shield Plans are granted the right to use the Blue Cross and Blue Shield names and trademarks in the trade and corporate name and the right to use the licensed marks in the sale, marketing, and administration of health care plans and related services within a geographic area. in such agreements no other health insurance provider can encroach on the Plans’ license under the Blue Cross and Blue Shield name within the stated territory.34

Venture Capital Investment A venture capital investment is a purchase strat- egy that provides capital to an organization with a developing technology, prod- uct, or market to participate (have a share) in its growth (profitability). Venture capital investments offer an opportunity to enter or “try out” a market while keep- ing risks low. typically, venture capital investments are used to become involved in the growth and development of a small organization that has the potential to develop a new or innovative technology. By making minority investments in young and growing enterprises, organizations have an opportunity to become close to and – possibly later – enter into new technologies.35

in addition, venture capital investments are a way for new health care organiza- tions to grow. Venture capital investment in health care companies (including bio- technology, pharmaceuticals, medical devices, and health care delivery) in early 2012 fell to its lowest level since 2010; however, the number of deals remained relatively high. Venture capital investment in health care technology firms was strong throughout the decade of the 1990s but e-health (internet-related) com- panies began receiving a large share of health care venture capital beginning in 2000. During 2012 most of the venture capital investments were made in firms located in California and Massachusetts. By far the most investments were in mature companies rather than seed money for start-ups. unlike the 1990s, 2010s venture capital investments involved firms in genomic research (Warp Drive Bio), non-invasive prenatal testing (Ariosa Diagnostics), radiation therapy (Mevion Medical Systems), and endoscopic surgery (Apollo endosurgery).36

Since 2012 venture capital investments in health care companies have reached almost $150 billion and, for the first time in over a decade, accounted for a larger percentage of total venture capital than information technology. Juno therapeutics, for example, did its initial public offering (iPO) less than a year after receiving its initial venture capital funding.37 the Wall Street Journal reported that venture capital funding in health care companies rose 34 percent between 2014 and 2015 primarily in new disease treatment and other medical technologies.38

Cooperation Strategies Probably the most used – and certainly the most talked about – strategies of the late 1990s and early 2000s were cooperation strategies. A cooperation strategy

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 2023-10-14 00:03:21.

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occurs when organizations agree to work together to achieve a common goal through mergers, alliances, or joint ventures. Many organizations have carried out adaptive strategies – particularly diversification, vertical integration, prod- uct development, and market development strategies – through cooperation strategies.

Mergers Mergers are similar to acquisitions. in a merger, however, the two organizations combine through mutual agreement to form a single new organi- zation, often with a new name. Mergers have been used most often in the health care segment to combine two similar organizations (horizontal integration) in an effort to gain greater efficiency in the delivery of health care services, reduction in duplication of services, improved geographic dispersion, increased service scope, restraint in pricing increases, and improved financial performance.39 the expectation of increased merger activity has materialized, especially with regard to hospitals. Since 2009, for example, the number of hospital mergers per year has doubled from around 50 to over 100 per year.40 Another area that has experienced a substantial amount of merger and acquisition activity is medi- cal devices (pacemakers, surgical blades, catheters, and so on). According to PricewaterhouseCoopers, in the fourth quarter of 2012 alone medical device mergers and acquisitions amounted to $3.4 billion.41 the other primary use of merger strategies (as well as acquisitions and alliances) in health care has been to create integrated delivery systems (vertical integration). there are four motives underlying such mergers:

1. improve efficiency and effectiveness – by combining available resources and operations it is possible to exploit cost-reducing synergies and to take fuller advantage of risk-spreading managed care opportunities.

2. enhance access – by providing a broader range of sophisticated programs and services and offering services at a greater number of sites, quality of patient care is improved.

3. enhance financial position – by gaining market share, the sole or one of the dominant providers in the region’s health delivery system is able to increase total revenue.

4. Overcome concerns about survival – by merging, a free-standing health care organization is better able to survive in an increasingly aggressive, market- driven environment where huge and powerful networks are experiencing cutbacks in managed care, Medicare, and Medicaid reimbursement.42

nevertheless, managing organizations that merge to create integrated systems has been difficult. there are several reasons why integrated health systems encounter significant obstacles in realizing the proposed benefits. the most fre- quently cited reasons relate to the difficulty of creating an effective strategic fit, giving away too much money and power with respect to governance to the local governing board, inability to achieve operating efficiencies, and experiencing difficulties in realigning resources.43

As in acquisitions, a major difficulty in a merger is the integration of two separate organizational cultures. Mergers offer a more difficult challenge than acquisitions because a totally new organization must be forged. in an acquisition,

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 2023-10-14 00:03:21.

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the dominant culture remains and subsumes the other. in a merger, a totally new organizational culture (the way we do things) must be developed. typically, there are significant changes in the organizational structure, governance, senior and middle management, service mix, product mix, and outside relationships. therefore, merging two distinctly different corporate cultures requires a great deal of communication at all levels in the organization. Medical staff and employees should engage in a reformulation of the mission, vision, and statement of the shared values of the new organization. Work groups must be formed to address how to effectively and efficiently meet the needs of patients. As well as communi- cating internally, external communications must be given top priority. even with such efforts, truly merging the two organizational cultures into one generally takes years to complete.

Mergers and acquisitions and other forms of combination continue to be impor- tant market entry strategies for health care organizations. An environment con- ducive to large health care combinations, institutional coordination, demands for efficiency, and the continuum of care (seamless care) has fostered many of these mergers and acquisitions.

Alliances Alliances are loosely coupled agreements between two or more organizations to achieve some long-term strategic purpose not possible by the organizations separately. Alliances include configurations such as federations, consortiums, networks, and systems.44 Strategic alliances are cooperative contrac- tual agreements that go beyond normal company-to-company dealings but fall short of merger or full partnership.45 Alliances have been used to create health networks – loosely coupled or organized delivery systems. they are an attempt to strengthen the competitive position in a marketplace while maintaining the independence of the organizations involved. With all of the mergers, acquisitions, and alliances of hospitals, community blood centers are being affected as well. A new, larger hospital system with a larger footprint wants to know that blood will be available to meet all its needs. the result is aggressive merger or alliance activity among blood centers; more than two-thirds of independent blood centers in the united States are operating in the red in 2017 as is the American red Cross. Many are entering mergers or alliances to survive.

Some research suggests that organizations that develop these cooperative relationships are likely to have similar status in the marketplace and have complementary resources, competencies, and capabilities.46 two organizations may establish an alliance when each one possesses strength in a different stage of the service category value chain – for example, when one organization has expertise in service delivery and another controls the distribution channel. As an illustration, it has been found that community hospitals have success- fully used alliances to provide specific advantages for patients.47 Further, organizations may form coalitions to defray costs and share risk when they undertake high-cost capital or development-intensive initiatives. Sometimes the resources available from an alliance partner can facilitate an organiza- tion’s effort to alter its strategic position.48 For instance, research indicates that biotechnology start-up organizations, in particular, could enhance their initial performance and strategic position by establishing upstream and downstream alliances.49

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in health care, the term “alliance” is sometimes used to refer to the volun- tary organizations that hospitals join primarily to achieve economies of scale in purchasing. For some, this type of alliance provides the benefit of being part of a large system, yet allows them to exist as free-standing, self-governing insti- tutions. examples of some major hospital alliances include Vizient (includes the former VhA, university health Systems, Children’s hospital Association, and novation), Premier, intalere, and health trust. note that purchasing alliances are a different type from those based on an expansion/cooperation strategy.

Although they are not mergers, strategic alliances have many of the same problems – previously unrelated cultures have to learn to cooperate rather than compete; numerous “sessions” are required to determine what will be shared and what is proprietary, and how to balance the two; and efforts must be made to maintain cooperation over time within such an informal cooperative effort. On the other hand, strategic alliances offer several opportunities, including shared learning, access to expertise not currently “owned” by the organization, strengthened market position, and direction of competitive efforts toward oth- ers instead of each other. in addition, one of the advantages of integrated net- works and strategic alliances is the increased access to resources to obtain new technology or reduce the need to purchase duplicate equipment. Further, it has been suggested that these arrangements are promising mechanisms to reduce technology-driven health care cost inflation.50 in some cases, an alliance can lead to a merger. For example, Breech Medical Center in lebanon, Missouri moved its affiliation agreement with St. John’s health System of Springfield, Missouri to a full-asset merger over a several-year period (now St. John’s Beech regional Medical Center).

As the environment becomes more unpredictable, a number of health care providers have been seeking strategic alliances. Many primary providers have turned to alliances as vehicles for providing services, soliciting physician loyalty, and reducing investments in operations.51 hospitals form alliances with phys- icians for several reasons. Alliances serve to contract with the growing number of hMOs, to pose a countervailing bargaining force for providers in the face of hMO consolidation, and to accompany hospital downsizing and restructuring efforts.52 however, strategic alliances between physicians and hospitals should be anchored in their common purpose – improving patient care. the physicians involved may not agree with the hospital in its management of facilities, staffing, and so forth. in addition, conflict may emerge as hospitals diversify into areas that compete more directly with the physicians’ own clinics, such as ambulatory care centers, and diagnostic centers. Finally, although the hospital would prefer to have many qualified physicians admitted to the staff (who could refer more patients), allied physicians would prefer to limit credentialing of outside phys- icians (controlling competition).

Joint Ventures When projects get too large, technology too expensive, internal resources, competencies, or capabilities too scarce, or the costs of failure too high for a single organization, joint ventures are often used.53 A joint venture (JV) is a contractual agreement between two or more organizations to work together and combine resources to accomplish a designated task or project. A joint venture may involve a pooling of assets or a combination of the specialized talents or skills of

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 2023-10-14 00:03:21.

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each organization. the four most common organizational forms used in health care joint ventures are:

1. Contractual agreements. two or more organizations sign a contract agree- ing to work together toward a specific objective.

2. Subsidiary corporations. A new corporation is formed (called an equity JV), usually to operate non-hospital activities.

3. Partnerships. A formal or informal arrangement in which two or more par- ties engage in activities of mutual benefit.

4. not-for-profit title-holding corporations. tax legislation enacted in 1986 allowed not-for-profit organizations to form tax-exempt title-holding corpo- rations (providing significant benefits to health care organizations engaged in real estate ventures).54

Because of the dynamism in the health care environment, hospitals engage in joint ventures to lower costs and to improve and expand services. Joint ventures can be an innovative way to generate revenues, supplement operations, and remain competitive.55 through the first half of the 2000s, the most common joint venture was between hospitals and physicians. hospital/physician joint ventures are popular because they allow the hospital to pre-empt physicians as competitors and, at the same time, stabilize the hospital’s referral base. Often joint ventures with hospitals increase physicians’ profitability. Physicians enter joint ventures with hospitals to protect their incomes and autonomy, whereas hospitals are motivated to form joint ventures as a means of controlling medical care costs and gaining influence over physician utilization of hospital services. Changes in third- party payments have created competition based on price – joint ventures enable hospitals to reduce costs and compete more effectively.56

Although there are benefits to creating joint ventures, they have their own unique set of challenges. these challenges revolve around strategy, governance, economic interdependencies, and organization. For example, the parent organi- zations may hold different strategic interests and maintaining strategic align- ment across separate organizations with different goals, market pressures, and stakeholders can be difficult. in addition, sharing governance can complicate decision making, particularly with separate reporting systems and methods for measuring success. Further, problems develop in providing services, staffing, and other resources. Finally, building a cohesive, high-performing organization with a unique culture has proven difficult for many joint ventures.57

Development Strategies A development strategy is a decision to enter a new market using internal resources through internal development, internal ventures, or reconfiguring the value chain. Diversification and vertical integration through internal development or internal venture usually take considerably longer to achieve than through acquisition (although the costs may be lower). reconfiguring the value chain finds new ways to deliver value to customers and changes the “business model.”

Internal Development Internal development uses existing organizational resources to create new products/services or enter new markets and may be most appropriate for products or services that are closely related to existing products/

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services. internal development is common for growing organizations, particularly when they can exploit existing resources (especially financial), competencies, and capabilities (leveraging existing resources and other assets).

Internal Ventures Internal ventures typically set up separate, relatively indepen- dent entities (businesses) within the organization to develop new products/services or to enter new markets. internal ventures may be most appropriate for products or services that are unrelated to the current products or services.58 For instance, internal ventures may be appropriate for developing vertically integrated systems. thus, initial efforts by a hospital to develop home health care may be accomplished through an internal venture.

the number of health systems setting up their own venture funds has increased in recent years. Cedars-Sinai health System set up a fund to help start-ups and had 500 applications for 11 open spots. twenty percent of the most active inves- tors over the past five years in the area of digital health have been corporate or strategic funds. inova health System established a $100 million venture fund for personalized medicine investment. Providence Venture Fund has made seven internally financed investments since 2014.59

in 2015 venture groups invested $7.5 billion to fund start-ups, about 13 percent of all venture capital dollars. Of this amount, health care venture funds accounted for about 20 percent of the venture capital market and included some very fami- liar names such as Mayo Clinic Ventures, Partners innovation Fund (Brigham and Women’s hospital), and Flare Capital Partners (Cleveland Clinic). in total, more than 40 health care provider systems have started their own venture funds.60

Reconfiguring the Value Chain the value chain represents the fundamental way organizations create and deliver value to the customer. it represents the business model. the features of the model define the customer value proposition, cost/value formula, delivery mechanism, organization, processes, and so on.61 Dominant business models for product categories tend to emerge over time; how- ever, an organization may reconfigure the value chain by changing the activities or sequence of activities it performs and therefore change how value is delivered to the customer – change the basic business model. Value chain reconfiguration requires rethinking the ways in which existing organizations serve customers. For the most part, reconfiguration takes place in the service delivery components of the value chain (pre-service, service delivery, after-service) and thus is marketing and operations focused.

in many cases reconfiguring the value chain involves using new technology or organizations to perform activities in ways that were not possible in the past.62 For example, pharmaceutical companies might create a whole new way to pro- vide value to physicians by using podcasts for physician education. As discussed in the essentials for a Strategic thinker 6–4, “What Are health Care Platform Businesses?” platform technology offers great potential for reconfiguring the value chain in health care. Further, reconfigurations with the greatest potential for the development of a completely new business model in health care appear to be:

● new models applying a business model from another industry to health care. ● new models that are better tailored than the dominant models to meet cus-

tomers’ personal and immediate needs.

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● new models that reduce resource costs across partners. ● new models that share costly assets where sharing happens by means of

two-sided online marketplaces (demand-side and supply-side) that unlock value for both sides through platform organizations.

● new models employing usage-based pricing. ● new models that improve collaboration with partners.63

Market entry and penetration strategies coupled with reconfiguring the value chain can be powerful combinations for creating new business models and effec- tively entering the market. For example, when an organization bypasses brick- and-mortar outlets and sells its products through a website (penetration strategy – channel of distribution), it is reconfiguring the value chain.64

ESSEnTIALS foR A STRATEgIC THInkER 6–4

What Are Health care Platform Businesses?

One of the recent hallmarks of strategy for con- sumer-facing goods and services has been the rapid rise in platform businesses with their ability to dramatically outperform traditional producers. A platform business brings together supply and demand by providing a marketplace, or ecosys- tem, where producers and consumers can more effectively and efficiently interact. The platform does not control supply and demand, but does control the rules of exchange as well as how products or services are delivered or accessed (e.g. through a mobile phone). In contrast, tra- ditional pipeline businesses focus on turning raw materials into products and tend to compete on factors such as cost and quality. These businesses, such as WalMart or a traditional hospital system, implement the classic value-chain model to con- trol resources, optimize internal processes to cre- ate strategic advantage, and focus primarily on the end user as the recipient of the value created.

In a sense, platform businesses have existed for a long time; for example, commercial malls bringing together customers and retailers. Recent advances in information technology

have created the ability to build a much more efficient and scalable platform. Whether it is the Apple iPhone and its app store, the “sharing economy” in the form of Airbnb or Uber, or the “on demand” economy with such platforms as NetFlix, platform businesses introduce a funda- mentally different way of delivering value than traditional pipeline producers. As a result, they have the potential to significantly disrupt tra- ditional business. For example, Uber provides a platform for ride-sharing where producers (car owners) can find consumers (people want- ing rides). Uber controls how the platform is accessed (e.g. through mobile devices) as well as the rules of how rides are delivered (e.g. pricing). The speed with which Uber has changed the face of global transportation demonstrates the potential of modern platform businesses.

Health care has many features that make plat- form businesses an effective and efficient busi- ness model; however, it has some unique features that make the entry of platforms difficult. Factors complicating the entry of platform businesses in health care are: (a) consumers of health care are

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 239

Market Exit Strategies the reduction of scope strategies of divestiture, liquidation, harvesting, and retrenchment may be implemented quickly or incrementally over a period of time. Additionally, these strategies may result in only a partial withdrawal from the market or a complete exit. generally divestiture may be achieved fairly rapidly (or it may take some time if the price is too high or the organization does a poor job of marketing the unit to be divested) and represents a decision by the organization to “go in a different direction.” Similarly, liquidation can happen very quickly as it involves the sale of assets that have value to others (again, the process may take longer than expected if the value to others is not as great as the seller expects). retrenchment generally is carried out quickly as it is often a cost saving effort in response to declining revenue or an over extension of organizational resources. harvesting, on the other hand, is a decision to slowly leave the market primarily because the product category remains profitable, but is expected to decline or be replaced over time.

Divestiture and liquidation are generally decisions to completely leave the market. harvesting and retrenchment are generally seen as decisions to partially leave the market. reduction of scope strategies are relatively enduring and once they are implemented it is difficult to reverse the strategy or re-enter a market once exit is complete. A retrenchment strategy, although a partial market exit, may be the implementation of a redefinition of the target market(s) – reduc- ing the number of market segments served allowing for market development in more attractive market segments – or the narrowing of the product line to focus on market development for key products or services. Both harvesting and retrenchment continue operations, at least temporarily, and require an imple- mentation plan.

not the sole “purchaser” of their care, and b) large fixed-cost assets such as hospitals are necessary for consumption of certain services such as MRIs. Yet, there are many health care services where platforms can better deliver services.

Companies such as Pack Health, a digital coaching platform, are using these concepts to connect individuals diagnosed with chronic conditions with suppliers of appropriate ser- vices for these conditions in a scalable fashion. In many cases, individuals with chronic conditions are motivated to be members of the platform because services are often difficult to obtain and coordinate and the services are subsidized by their employer, insurer, or a drug company. For example, individuals diagnosed with Type 2

diabetes have to change many aspects of their lives and consume unique goods and services to manage their disease. These services may include getting an annual eye and foot exam, signing up for an exercise program, shopping for healthy foods, and accessing medications. As part of platform services, an advisor is assigned to identify and coordinate appropriate services for the platform members (patients) considering their personal limitations and situations. On the supply side, the platform allows for the inclusion of a variety of service suppliers that pay to be a part of the platform and provide discounted services to platform members.

Source: Mazi Rasulnia, PhD, President, Pack Health.

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 2023-10-14 00:03:21.

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Market Entry/Exit Strategy Linkage the definition, major advantages, and disadvantages of the market entry/ exit strategies are summarized in exhibit 6–9. the adaptive and market entry/exit strategies work in tandem. they are the means for accomplishing the adaptive strategies. this relationship is demonstrated as organizations struggle with cost containment and their managed care strategies. together the adaptive (scope of the organization) and market entry/exit strategies (means to achieve that scope) are shaping the health care landscape.

EXHIBIT 6–9 Definition, Advantages, and Disadvantages of Market Entry and Exit Strategies

Market Entry Strategy Definition Major Advantages Major Disadvantages

Purchase

Acquisition Strategy to grow through the purchase of an existing organization, unit of an organization, or a product/service.

● Rapid market entry. ● Image already established. ● Performance known before

purchase.

● New business may be unfamiliar to parent.

● Takes a long time to assimilate organization’s culture.

● New management team may be required.

● High initial cost.

Licensing Acquiring or providing a valued asset (product, technology, market, equipment, etc.) through contract.

● Rapid access to proven technology.

● Reduced financial exposure. ● Access to brand name. ● Exclusive territory.

● Not a substitute for internal technical competence.

● Not proprietary technology. ● Dependent on licensor. ● Rules and regulations. ● Ongoing expense.

Venture Capital Investment

Financial investment in an organization to participate in its growth or receipt of venture capital for start-up or expansion.

● Can provide window on new technology or market.

● Lowered risk.

● Alone, unlikely to be a major stimulus of growth.

● Extended time to profitability.

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 241

Market Entry Strategy Definition Major Advantages Major Disadvantages

Cooperation

Merger Combining two (or more) organizations through mutual agreement to form a single new organization.

● Uses existing resources. ● Retains existing markets and

products. ● Reduces competition.

● Takes a long time to merge cultures.

● Merger match often difficult to find.

● Big guppy eats the little guppy.

Alliance Formation of a formal partnership.

● Fills in product line gaps. ● Creates efficiencies (e.g.

bargaining power). ● Reduces competition in weak

markets. ● Stabilizes referral base. ● Shared risk.

● Potential for conflict between members.

● Limits potential markets/ products.

● Difficult to align resources. ● Governance issues.

Joint Venture Combination of the resources of two or more organizations to accomplish a designated task.

● Technological/marketing joint ventures can exploit small/large organizational synergies.

● Spreads risks.

● Potential for conflict between partners (shared vs. proprietary).

● Objectives of partners may not be compatible.

Development

Internal Development

Products or services developed internally using the organization’s own resources.

● Uses (leverages) existing resources.

● Organization maintains a high level of control.

● Presents image of developing (growth) organization.

● Time lag to break even. ● Unfamiliarity with new

markets. ● Obtaining significant gains in

market share against strong competitors may be difficult.

Internal Venture Establishment of an independent entity within an organization to develop products or services.

● Uses existing resources. ● May enable organization to

retain a talented entrepreneur. ● Isolates development from

organization’s bureaucracy.

● Mixed record of success. ● Organization’s internal climate

(culture) often unsuitable.

Reconfigure the Value Chain

Changing the activities or sequence of activities in the value chain thereby changing how value is delivered to the customer.

● New approach may not be seen as a threat by existing competitors.

● Captures a special niche of the market.

● May create a low-cost business model.

● Not always possible. ● Initially must focus on a niche

rather than the entire market. ● Must be first to recognize the

new business model.

(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 2023-10-14 00:03:21.

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Step 5: Understand Competitive Strategy Alternatives Competitive strategies are largely independent of the adaptive and market entry/exit strategies as they concern the basis for competing in a market or ser- vice area. As shown in the decision logic in exhibit 6–2, for many organizations, where there is no significant change in scope suggested by the directional strat- egies, the development of competitive strategies follow and are driven by the directional strategies. in all cases, managers must decide the strategic posture of the organization and how the products and services will be positioned vis-à-vis those of competitors. therefore, the results of competitor analysis and internal analysis play an important role in the selection of an organization’s competitive strategies.

Strategic posture concerns the organization’s fundamental behavior within the market – defending market position, prospecting for new products and markets, or balancing market defense with careful entry into selected new product areas and markets. in addition, an organization must consciously position its products and services within a market through one of the marketwide or market segment positioning strategies (generic strategies).

Market Exit Strategy Definition Major Advantages Major Disadvantages

Fast A decision to leave all or part of the market using divesture, liquidation, or retrenchment.

● The organization can move on to more viable market/products.

● Cash increase.

● Buyers may be difficult to identify.

● May have to sell at a discount.

Slow A decision to leave the market using harvesting.

● The organization reaps any remaining profitability from the product category.

● Some resources diverted to a declining product/ market.

● Deterioration of customer service hastens the exit.

Partial Serve fewer customers; reduce geographic areas served, or reduce the product line.

● Reduce costs while remaining in the product category accruing some profit.

● May allow for market development in more attractive segments or products.

● Reduces market prestige; may be a problem if retrenching.

Complete No longer attempting to satisfy any customers; geographic areas served and product lines eliminated.

● Allows management to refocus. ● Resources may be used more

effectively for more profitable products.

● No longer a player in a viable market.

● Some disappointed loyal customers.

EXHIBIT 6–9 (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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 243

Strategic Posture Organizations may be described by how they behave within their market segments or industry – their strategic posture. research has shown that there are at least four typical strategic postures for organizations – defenders, pros- pectors, analyzers, and reactors. Defenders, prospectors, and analyzers are explicit strategies that result in a pattern of consistent and stable behavior within a market. Defender, prospector, or analyzer strategic postures may be appropriate for certain internal, market, and environmental conditions. reactors, on the other hand, do not seem to have a strategy and may behave inconsistently; however, unless an organization exists in a protected environ- ment, such as a monopolistic or highly regulated market segment, it may not be able to continue to behave as a reactor indefinitely.65 Furthermore, an organization’s strategic posture should not be left to chance. health care organizations are able to change their strategic postures to match the demands of their environmental context and improve their performance.66 therefore, strategic decision makers should examine the current market behavior, explic- itly delineate the appropriate organization strategic posture, and redirect resources and competencies needed to transform themselves into a better environmentally suited posture.

Defender Strategic Posture Stability is the chief objective of a defender strategic posture. Managers using this strategy attempt to seal off a portion of the total market to create a stable domain. A defender posture focuses on a narrow market with a limited number of products or services and aggressively attempts to protect its market segment through pricing or differentiation strategies.

Defenders are organizations that engage in little search for additional oppor- tunities for growth and seldom make adjustments in existing technologies, struc- tures, or strategies. they devote primary attention to improving the efficiencies of existing operations. thus, cost efficiency is central to the defender’s success. in addition, defenders often engage in vertical integration to protect their market, control patient flow, and create stability. Defenders grow through penetration strategies and limited product development strategies.

Prospector Strategic Posture Organizations adopting a prospector strategic posture frequently search for new market opportunities and regularly engage in experimentation and innovation. A prospector’s major capability is that of finding and exploiting new products and market opportunities. As a result, the prospector’s domain is usually broad and in a continuous state of development. Prospectors are typically in rapidly changing environments or service categories such as health care technology and frequently engage not only in diversification and product and market development expansion strategies but also divestment and retrenchment strategies. One of the principal competitive advantages of a prospector strategic posture is that of creating change within the service category/ service area. Many times these changes come about because of disruptive innova- tions as discussed in essentials for a Strategic thinker 6–5, “What Are Disruptive innovations?”

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 2023-10-14 00:03:21.

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244 StrAtegIc mAnAgement of HeAltH cAre orgAnIzAtIonS

ESSEnTIALS foR A STRATEgIC THInkER 6–5

What Are Disruptive Innovations?

Disruptive innovations change both the way firms operate and the underlying business models they use to compete. Most indus- tries have experienced a steady stream of technological advances and process improve- ment activities that increase product qual- ity or reduce cost. Such improvements are “sustaining innovations” that are necessary to meet customers’ ever-rising expectations, but they are not “disruptive” to the underly- ing business model. Disruptive innovations allow new competitors to enter the mar- ketplace by undercutting incumbent firms’ product prices, service delivery modes, or both. In health care, there have been many sustained innovations, but relatively few dis- ruptive innovations that have significantly changed the dominant organizational forms’ business models (such as medical groups and hospitals).1

One example of a disruptive innovation in health care delivery is the introduction of freestanding ambulatory surgery centers (ASCs) in the mid-1970s.2 The number and variety of services delivered by ASCs grew rapidly through 2005.3 The expansion was fueled in part by physicians’ desire to have an ownership stake in the facilities that delivered care and be more than just a member of the medical group. As with most disruptive inno- vations, ASCs were able to compete on price but struggled to demonstrate that outcome quality was comparable to traditional hospi- tals. Over time, ASCs were able to establish legitimacy by being a more efficient deliv- ery mode and competing on quality with

traditional hospitals. As often happens after a disruptive innovation takes hold, incum- bent firms modify their business models to accommodate the new technology or process to compete. In 2017, most health care systems have established ASCs. Given the success of ASCs in improving quality, controlling cost, and increasing access to care, it begs the question: Why are there not more disruptive innovations in the health care sector?

There are three main reasons that the health care sector is resistant to disruptive innovations. First and foremost is the highly regulated nature of the industry. The health sector requires governmental permission to introduce new products or processes (see for example, Essentials for a Strategic Thinker 3–2: “What Is CON?”). The approval process cre- ates a significant barrier to new entrants and reduces the probability of disruptive innova- tions. A second factor that impedes innova- tion is the lack of consumer empowerment. Most disruptive innovations rely on consum- ers shopping for better prices on compa- rable goods. Such is not the case for most health care services because of the third-party payer system. Lastly, health care delivery is an integrated activity with providers referring patients to one another in a networked fash- ion. In effect, a new market entrant seeking to disrupt existing competitors would need consent from the competitors to gain access to consumers. Taken together, these factors impede the disruptive innovations needed to repair a health sector with unsustainable cost, quality, and access issues.

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 245

Analyzer Strategic Posture the analyzer strategic posture is a combination of the prospector and defender strategic postures. the analyzer tries to balance sta- bility and change through maintaining stable operations – typically in core busi- nesses – but also searches for new opportunities to engage in market innovation in other areas. Characteristically they watch competitors and rapidly adopt those strategic ideas that appear to have the greatest potential. Analyzers tend to use penetration strategies in their stable core products and markets whereas related diversification, product development, and market development are used to enter new promising areas.

Reactor Strategic Posture the defender, prospector, and analyzer pos- tures are all proactive strategies. those who are reactors may lack a strategy or plan or may be anticipating significant external changes or strategic moves by competitors. the reactor strategic posture may be the de facto result of a lack of strategy, leading to inconsistent and unstable responses to changes in the general environment, health care system, or the market segment and its competition. in such cases, reactors perceive opportunities and turbulence; but are uncertain or not able to adapt effectively (severe limitation of financial resources may be a factor). reactors lack consistent approaches to strategy and structure and make changes primarily in response to pressures in the environ- ment, especially competitive pressures. On the other hand, a “wait and see” strategy may sometimes be appropriate, as a short-term strategy, but seldom works in today’s rapidly changing world in the longer term. reasons that organizations become reactors include:

● top management may not have clearly articulated the organization’s strategy.

● Management does not fully shape the organization’s structure and pro- cesses to fit a chosen strategy.

● Management tends to maintain the organization’s current strategy– structure relationship despite overwhelming changes in environmental conditions.67

● the organization has consciously adopted a follower strategy.

REFEREnCES

1. J. Hwang and C. M. Christensen, “Disruptive

Innovation in Health Care Delivery: A

Framework for Business-Model Innovation,”

Health Affairs 27, no. 5 (2008), pp. 1329–1335.

2. A. D. Hecht, “Creating Greater Efficiency

in Ambulatory Surgery,” Journal of Clinical

Anesthesia 7, no. 7 (1995), pp. 581–584.

3. J. Bian and Michael A. Morrisey, “HMO

Penetration, Hospital Competition, and Growth

of Ambulatory Surgery Centers,” Health Care

Financing Review 27, no. 4 (2006), p. 111.

Source: Eric W. Ford, PhD, MPH, Professor, School of Public Health,

University of Alabama at Birmingham.

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 2023-10-14 00:03:21.

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246 StrAtegIc mAnAgement of HeAltH cAre orgAnIzAtIonS

● the organization anticipates a “game changing” external change or stra- tegic move by competitors and is pausing to gather information prior to attempting a more effective strategic posture.

if the internal analysis reveals that the organization has been reactive without a clear strategy or that there is a mismatch between the strategy and implementa- tion, changes will have to be made to move the organization toward a more effec- tive strategic posture. there is some evidence that reactors may be able to hone their competencies and transform themselves into more viable strategic postures over time.68

understanding the organization’s preferred strategic posture and communicat- ing it throughout the organization provides decision guidelines and will shape the culture of the organization. it is important that the strategic posture be consistent with the directional, adaptive, market entry/exit, and positioning strategies. the definition, major advantages, and disadvantages of the strategic posture strategies are summarized in exhibit 6–10.

EXHIBIT 6–10 Definition, Advantages, and Disadvantages of Strategic Postures

Strategic Posture Definition Major Advantages Major Disadvantages

Defender Focus on a narrow market with limited number of products or services and aggressively attempt to keep others out of this segment through pricing or differentiation.

● Limited set of products and services.

● Narrow market segment. ● Stable environment. ● Difficult for competitors to

enter this segment.

● Reliance on the success of narrow product line.

● Must have long/sustaining product life cycles.

● Market segment must be stable – slow change.

● May be unable to respond to major market/industry shifts.

● Difficult to enter new markets or technologies.

Prospector Continuously seek out new products and new markets.

● Always involved in “cutting- edge” developments.

● Organization shifts with changing environment.

● Allows for a rapid response to a changing environment.

● Organization is in a constant state of change.

● New products and markets always being developed.

● Multiple technologies being employed, seldom able to achieve efficiency.

● Tend to have lower profits because of continuous change.

● Tend to overextend resources. ● Tend to underutilize financial, human,

and physical resources.

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 2023-10-14 00:03:21.

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Positioning Strategies: Marketwide or focus Michael Porter, a well-known strategic management writer, proposes that an organization may serve the entire market using marketwide strategies or serve a particular segment of the market using focus strategies. Porter called these generic strategies because they were general strategies that any organization could use to position itself in the marketplace.69 For both marketwide and market segment focus there are two fundamental positioning strategies – cost leadership and differentiation.70

Marketwide strategies determine a product or service’s place in the market vis-à- vis competitors and position the products/services of the organization to appeal to a broad audience (the entire market). For example, a community hospital may be positioned to serve all area residents – serve a broad market with a broad range of services. these products and services, therefore, are not tailored exclusively to the needs of any special segment of the population such as children or the aged. As shown in exhibit 6–11, marketwide positioning strategies can be based on differentiation or cost leadership. thus, the community hospital may try to

Strategic Posture Definition Major Advantages Major Disadvantages

Analyzer Balance defense in some markets with selectively entering a limited number of new markets or products.

● Allows for the maintenance of a core of stable traditional products and services.

● Allows for high-risk products and services to be borne by prospectors.

● Lower investment in research and development.

● Difficult strategy to pursue. ● Must respond quickly to follow lead

of key prospectors while maintaining efficiency in core products/services.

● Complex structure (matrix). ● Management of both stable and

dynamic products and markets. ● Communication is often difficult. ● Lack of consistent approaches to

strategy and structure; make changes primarily in response to environ- mental pressures.

Reactor React to the strategies of competitors; expects stability and does not like or want change.

● Little strategic planning required (monopolis- tic or highly regulated environment).

● A follower or “wait and see” strategy allows for additional information on changing external conditions.

● Comfortable with things as they are (until they are not).

● Inconsistency in response to environmental change.

● Instability in organization. ● Organization becomes both

ineffective and inefficient. ● No effective guide for decision

making. ● Follower strategy may be ineffective,

especially with multiple products in later stages of the PLC.

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 2023-10-14 00:03:21.

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differentiate itself from other hospitals by emphasizing quality or convenience or may compete as a low-cost provider.

Market segment strategies are directed toward the particular needs of a well- defined market segment, such as pediatric oncology or women’s health, and often are called focus strategies. thus, a focus strategy identifies a specific, well-defined “niche” in the total market that the organization will concentrate on or pursue. Because of its attributes, the product or service, or the organization itself, may appeal to a particular customer group (niche) within the market. Similar to mar- ketwide strategies, focus strategies may be based on cost leadership (cost/focus) or differentiation (differentiation/focus).

Because of the complexity of medicine and the entire health care system, focus strategies are quite common. Just as physicians have specialized, the institutions within the field have tended to focus on specialized segments. examples of focus strategies are rehabilitation hospitals, psychiatric hospitals, ambulatory care cent- ers, Alzheimer’s centers, and so on. these specialty organizations may be further positioned based on cost leadership or differentiation. each of the generic strategies results from an organization making consistent choices for product/services, markets (service areas), and distinctive competencies – choices that reinforce each other.

Cost Leadership Cost leadership is a positioning strategy designed to gain an advantage over competitors by producing a product or providing a service at a lower cost. the product or service is often highly standardized to keep costs low. Cost leadership allows for more flexibility in pricing and relatively greater profit margins.

Cost leadership is based on economies of scale in operations, marketing, administration, and the use of the latest technology. Cost leadership may be used effectively as the generic strategy for any of the adaptive strategies and seems

EXHIBIT 6–11 Porter’s Matrix

Marketwide (broad)

Particular Segment Only

(narrow)

Uniqueness Perceived by the Customer

Differentiation Overall Cost Leadership

Cost/Focus

Low-Cost Position

Differentiation/Focus

Strategic Advantage

Strategic Target

Source: Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors. Copyright © 1980 by the Free Press. All rights reserved. Reprinted with permission of the Free Press, a divi- sion of Simon & Schuster Adult Publishing Group.

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 249

particularly applicable to the primary providers segment of the health care sys- tem. As Porter suggests:

Cost leadership requires aggressive construction of efficient-scale facilities, vigorous pursuit of cost reduction from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas such as r&D, service, sales force, advertising, and so on.71

to use cost leadership effectively, an organization must be able to develop a sig- nificant cost advantage and have a reasonably large market share; however, low cost is only an advantage if the organization in fact has the lowest cost and com- petitors know they cannot match it. Sustaining lowest cost is extremely difficult to achieve without extraordinary scale, market share advantages, or unique factor cost benefits.72 With an increase in value-based reimbursement, more availability of health outcomes information, consumers bearing a higher proportion of health care costs, and high deductible health plans opting for lower-cost narrowed net- works that limit access to more expensive providers, low-cost/high-value strate- gies will continue to be viable.73 As a result, low-cost, low-price strategies within the health care system are no longer perceived as necessarily meaning low quality.

A health care system segment where cost leadership is being used successfully is in the area of long-term care. long-term care facilities are a “thin-margin busi- ness” in which profit margins range from approximately 1.2 percent to 1.7 percent. however, long-term care facilities that have been able to drive costs down while maintaining quality have enjoyed higher margins. in addition, many of these facilities have been upgraded to be more efficient and have instituted tight cost controls. Advertising has been used to keep occupancy above 95 percent, which is often required in the industry to be profitable.

Differentiation Differentiation is a strategy to make the product/service not only different but also readily distinguishable from competitors’ products/ services. thus, consumers see the service as unique among a group of similar competing services. Differentiation is of no benefit unless that difference is both valuable to buyers and capable of being sustained against competitors.74

the product or service may be differentiated by emphasizing quality, a high level of service, ease of access, convenience, reputation, and so on. A number of ways to differentiate a product or service exist, however, the attributes that are to be viewed as different or unique must be valued by the consumer. therefore, organizations using differentiation strategies rely on brand loyalty (reputation or image), distinctive products or services, and the lack of good substitutes.

the most common forms of differentiation in the health care system have been based on quality and image. Many acute care hospitals emphasize and pro- mote quality care to differentiate themselves from other hospitals in their service area. note, however, that consumers expect to receive high-quality care at every hospital, making quality a difficult differentiating factor. A “high-tech” image is another basis for differentiation among health care organizations. Affiliation with a medical school – which performs the most sophisticated procedures or uses the latest (often expensive) technology – may promote the image of “the

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 2023-10-14 00:03:21.

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250 StrAtegIc mAnAgement of HeAltH cAre orgAnIzAtIonS

Step 6: Understand Combination Strategies Combination strategies are a number of different strategies used simultaneously to achieve goals/objectives for different products/services or service areas. Combination strategies are often used, especially in larger complex organizations, because no single strategy alone may be sufficient. in highly competitive markets, “…profitable growth comes when a company pushes out the boundaries of its core business into adjacent space.”76 Several ways have been identified to grow into an adjacent space – expand along the external value chain (penetration), grow new products and services (product development), enter new geographies

EXHIBIT 6–12 Definition, Advantages, and Disadvantages of Positioning Strategies

Positioning Strategy Definition Major Advantages Major Disadvantages

Cost Leadership Low-cost/price strategy directed toward entire market.

● Provides clear competitive advantage.

● Provides clear market position. ● Provides opportunities to

spend more than competition.

● Must obtain large volume. ● Product/service must be

standardized. ● Product/service may be viewed

as low quality. ● Relatively easy to copy in the

short run.

Differentiation Development of unique product/ service features directed toward entire market.

● Product/service viewed as unique.

● Often viewed as high quality. ● Greater control over pricing. ● Difficult to copy.

● Often difficult to adequately differentiate product or service.

● Product/service may be higher priced.

Focus – Cost Leadership

Low-cost/price strategy directed toward a particular market segment.

● Appeals to market segment seeking low price.

● May develop good relations with market.

● Low quality may be associated with low price.

● Expansion of market segment may be difficult.

Focus – Differentiation

Development of unique product/ service features directed toward a particular market segment.

● Product/service may be cus- tomized to the special needs of the segment.

● May develop close relationship with market segment.

● Market segment may remain small.

● Price will probably be high.

best possible care.” More recently, health care organizations are differentiat- ing through providing consumers with more choices – when selecting health insurance products, choosing clinicians, and facilities where they receive care.75 exhibit 6–12 presents the definition, advantages, and disadvantages of each of the positioning strategies.

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 251

(market development), and address new customer segments (market develop- ment). therefore, successful strategies often mix and match approaches, deploy- ing strategies simultaneously or sequentially. For example, an organization may concurrently divest itself of one of its divisions and engage in market develop- ment in another. Perhaps the most frequent combination strategy for hospital- based systems has been vertical integration through acquisition and alliances combined with market development through acquisition (horizontal integration). the intent of these strategies has been to create regional, fully integrated systems with wide market coverage and a full range of services (often referred to as pro- viding the continuum of care).

in addition to an organization using several different strategies at once, a strat- egy may have several sequential phases. it may be necessary to “string together” several strategic alternatives as phases to implement a broader strategic shift. in a two-phase strategy, for example, an organization may employ a retrenchment strategy in phase one and an enhancement strategy in phase two. As illustrated in exhibit 6–13, the strategic manager’s vision often extends through several strate- gic alternatives or phases. Such vision helps to provide long-term continuity for the entire management team. however, the strategic manager must be aware that, in a dynamic environment, circumstances may change and later phases may have to be modified or revised to meet the needs of the unique and changing situation. Strategic management is a continuous process of assessment and decision making.

the decision logic for the formulation of the strategic plan was illustrated in exhibit 6–2. At this point, it would be useful to return to exhibits 6–1 to 6–4 to review the complete strategy formulation process. After all the strategic

EXHIBIT 6–13 Vision of Combination Strategies

SSU 1

TIME

SSU 2

SSU 3

Boundary Set by Mission/Vision

External Environment

Boundary Set by Mission/Vision

Market DevelopmentVertical Integration (forward)Market

Development

Harvesting/Divest

Market Development

Retrenchment (Product)

Year 1 5raeY4raeY3raeY2raeYyadoT

External Environment

Cash

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 2023-10-14 00:03:21.

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252 StrAtegIc mAnAgement of HeAltH cAre orgAnIzAtIonS

alternatives have been considered, creation of a strategy map showing the desired directional, adaptive, market entry/exit, and competitive strategies together will help to ensure their consistency and fit. however, it is not enough to know the strategic logic and range of strategic alternatives. the strategic alternative (or set of alternatives) should be selected that best meets the requirements of the external environment, strengths and weaknesses of the organization, and the directional strategies. Chapter 7 will discuss methods for evaluating the strategic alternatives presented in this chapter and may lead to alterations or further refinements in strategy choice.

Chapter Summary

to understand the decisions that have to be made in strategy formulation, a stra- tegic thinking map depicting a hierarchy of strategic alternatives is useful. there are several types of strategies, and several strategic alternatives within each type are available to health care organizations. in addition, there is a general sequen- tial decision logic in the strategy formulation process. First, directional strategies must be articulated through the organization’s mission, vision, values, and goals. Second, adaptive strategies are identified, evaluated, and selected. the adaptive strategies are central to strategy formulation and delineate how the organization will expand, reduce, or maintain the scope of operations. expansion strategies include diversification, vertical integration, market development, product devel- opment, and penetration. reduction strategies include divestiture, liquidation, harvesting, and retrenchment. Finally, maintenance of scope strategies include enhancement strategies and maintaining the status quo.

the third type of strategic decision concerns the market entry/exit strategies. expansion and maintenance of scope strategies call for entering or gaining access to the desired market. Market entry strategies include acquisitions and mergers, internal development, internal ventures, reconfiguring the value chain, alliances and joint ventures, licensing, and venture capital investments. Any of the market entry strategies may be used to carry out an expansion or maintenance of scope adaptive strategy. Market exit may be quick or incremental or partial or complete depending upon the strategy and goals of the organization.

the fourth category of strategy includes the competitive strategies which are market-based strategies. Competitive strategies specify the strategic posture of the organization and position the products and services vis-à-vis competitors. the organization’s strategic posture should be carefully considered by its leadership. Strategic posture specifies the organization/market relationship and provides decision and culture guidelines for management. Strategic postures that may be adopted by an organization include defender, analyzer, prospector, or reactor (although the latter usually indicates the lack of a strategy). in addition, posi- tioning strategies (often called generic strategies) include cost leadership and differentiation, both of which can be applied as marketwide strategies or focus strategies (a market segment strategy). each of the generic strategies places dif- ferent demands on the organization and requires unique resources, competencies, and capabilities.

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 253

the strategy formulation decision logic provides a sequence for making the strategic decisions. however, the selected strategic alternatives must be viewed together to ensure their fit and consistency. in addition, it is unlikely that a single strategy will suffice for an organization. Several strategic alternatives may have to be adopted and used in combination. For instance, one service category may require market development whereas a different service category may require harvesting. One division may be a defender, positioned as a cost leader and another may be a prospector, pursuing differentiation. Furthermore, several strategic alternatives may be seen as phases or sequences in a broader strategic shift. Chapter 7 presents several frameworks to help managers think about and evaluate strategic alternatives that are most appropriate given the organization’s external environment, competitive advantages and disadvantages, and direc- tional strategies.

Practical Lessons for Health Care Strategic Thinkers

1. there is a logical order to strategic decisions – directional, adaptive, market entry/exit, competitive, and implementation. these decisions range from very broad to very narrow. Planning logic (an analytical approach) suggests that making the broadest (directional strategies) first and working toward the most specific (implementation strategies) is best; however, strategy is rarely developed de novo for an organization. in reality strategic manag- ers may begin by focusing on an alternative anywhere along the decision continuum and work for decision consistency both backward and forward along the continuum (an emergent approach). in the end, alternative deci- sions for each category must be made; strategic thinking helps one see the “big picture” and the implications of the series of decisions.

2. unanticipated strategic opportunities and threats will no doubt present themselves. the hierarchy of strategic decisions can help determine the implications of these issues. knowing the alternatives, the underlying rationale, and the implications provides insight into the next strategic move.

3. Organizations rarely have just one strategy; rather they have multiple strat- egies in various stages of implementation.

THE LAngUAgE OF STRATEgIC MAnAgEMEnT: KEy TERMS AnD COnCEPTS

Acquisition Adaptive Strategy Alliance Analyzer Strategic Posture Backward Vertical integration Business Model

Combination Strategy Competitive Strategy Concentric Diversification Conglomerate Diversification Cooperation Strategy Cost leadership

Defender Strategic Posture Development Differentiation Diversification Divestiture enhancement

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 2023-10-14 00:03:21.

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254 StrAtegIc mAnAgement of HeAltH cAre orgAnIzAtIonS

expansion of Scope Strategy Focus Focused Factory Forward Vertical integration Franchise generic Strategy harvesting horizontal integration implementation Strategy internal Development internal Venture Joint Venture

licensing liquidation Maintenance of Scope Strategy Market Development Market entry/exit Strategy Marketwide Strategy Merger Penetration Positioning Strategy Product Development Prospector Strategic Posture Purchase Strategy

reactor Strategic Posture reconfigure the Value Chain reduction of Scope Strategy related Diversification retrenchment Status Quo Strategic Posture Strategy Formulation unrelated Diversification Venture Capital investment Vertical integration

Questions for Class Discussion

1. What four types of strategies make up the strategy formulation process? Describe the role each plays in developing a strategic plan.

2. Why are the directional strategies both a part of situational analysis and a part of strat- egy formulation?

3. how is strategy formulation related to situational analysis?

4. name and describe the expansion, reduction, and maintenance of scope strategies. Which of the adaptive strategies are corporate and which are division level? under what conditions may each be appropriate?

5. explain how an understanding of an organization’s strategic alternatives provides structure for strategic thinking.

6. What is the difference between related diversification and product development? Provide examples of each.

7. What is a market-driven or focused factory strategy? identify some organizations that have employed this type of market development strategy.

8. Many health care organizations have engaged in vertical and horizontal integration. What is the rationale for these strategies?

9. Describe vertical integration in terms of patient flow.

10. explain the difference between an enhancement strategy and a status quo strategy.

11. how is market development different from product development? Penetration? Provide examples of each.

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 255

notes 1. Warnock Davies, “understanding Strategy,” Strategy

& Leadership 28, no. 5 (September–October 2000), pp. 25–30.

2. richard Farson, Management of the Absurd (new York: Simon & Schuster, 1996), p. 21.

3. g. tyge Payne, John D. Blair, and Myron D. Fottler, “the role of Paradox in integrated Strategy and Structure Configurations: exploring integrated Delivery in health Care,” in John D. Blair, Myron D. Fottler, and grant t. Savage (eds), Advances in Health Care Management (new York: elsevier Science, 2000), pp. 109–141.

4. roger Martin, “how Successful leaders think,” Harvard Business Review 85, no. 6 (June 2007), pp. 60–67.

5. Bruce C. Vladeck, “Viewpoint: Paradigm lost: Provider Concentration and the Failure of Market theory,” Health Affairs 33, no. 6 (2014), pp. 1083–1087.

6. liyohiro Oki, “What is the ideal Diversification Strategy? reconsideration of Diversification Strategy research of rumelt,” Annals of Business and Administrative Science 12, no. 4 (2013), pp. 199–212.

7. Jay greene, “Diversification, take two,” Modern Healthcare 23, no. 28 (1993), pp. 28–32. See also Shao- Chi Chang and Chi-Feng Wang, “the effect of Product Diversification Strategies on the relationship between international Diversification and Firm Performance,” Journal of World Business 42, no. 1 (2007), pp. 61–79.

8. leslie e. Palich, laura B. Cardinal, and C. Chet Miller, “Curvilinearity in the Diversification–Performance linkage: An examination of over three Decades of research,” Strategic Management Journal 21, no. 2 (February 2000), pp. 155–174.

9. todd Creasy and Jerry kinard, “health Care Mergers and Acquisitions: implications of robbers Cave

realistic Conflict theory and Prisoner’s Dilemma game theory,” Health Care Manager 32, no. 1 (2013), pp. 58–62.

10. Palich, Cardinal, and Miller, “Curvilinearity,” and Michael S. gary, “implementation Strategy and Performance Outcomes in related Diversification,” Strategic Management Journal 262 (2005), pp. 643–664.

11. Myron D. Fottler, grant t. Savage, and John D. Blair, “the Future of integrated Delivery Systems: A Consumer Perspective,” in John D. Blair, Myron D. Fottler, and grant t. Savage (eds), Advances in Health Care Management (new York: elsevier Science, 2000), pp. 15–32.

12. ibid. 13. lawrence C. Baker, “Vertical integration: hospital

Ownership of Physician Practices is Associated with higher Prices and Spending,” Health Affairs 33, no. 6 (2014), pp. 756–763.

14. Miriam J. laugeson and george France, “integration: the Firm and the health Care Sector,” Health Economics, Policy and Law 9, no. 3 (2014), pp. 295–312.

15. Patrick D. Shay, Stephen S. Mick, and Craig garner, “Post-Acute Care and Vertical integration after the Patient Protection and Affordable Care Act,” Journal of Healthcare Management 58, no. 1 (2013), pp. 27–28.

16. Hospital Statistics, 2015 Edition (American hospital Association, Chicago, il, 2015).

17. gloria J. Bazzoli, Benjamin Chan, Stephen M. Shortell, and thomas D’Aunno, “the Financial Performance of hospitals Belonging to health networks and Systems,” Inquiry 37, no. 3 (2000), pp. 234–252.

18. VhA, inc. and Deloitte & touche llP, Provider 2020: Strategies for Differentiation in an Uncertain Environment (irving, tX and Detroit, Mi: VhA, inc. and Deloitte &

12. Compare and contrast a divestiture strategy with a liquidation strategy.

13. Which of the market entry strategies provides for the quickest entry into the market? the slowest?

14. What is strategic posture? how does a decision concerning the strategic posture help create decision guidelines for management and affect the organization’s culture?

15. explain Porter’s generic strategies. how do they position the organization’s products and services in the market?

16. how might a retrenchment strategy and a penetration strategy be linked together? What are some other logical combinations of strategies? how may a combination of strategies be related to vision?

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 2023-10-14 00:03:21.

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256 StrAtegIc mAnAgement of HeAltH cAre orgAnIzAtIonS

touche, llP, 2012), pp. 1–9. See also Fottler, Savage, and Blair, “the Future of integrated Delivery Systems,” p. 18.

19. Carey thaldorf and Aaron liberman, “integration of health Care Organizations: using the Power Strategies of horizontal and Vertical integration in Public and Private health Systems,” Health Care Manager 26, no. 2 (2007), pp. 116–127.

20. Stephen S. Mick and Douglas A. Conrad, “the Decision to integrate Vertically in health Care Organizations,” Hospital & Health Services Administration 33, no. 3 (Fall 1988), p. 352. See also Frank t. rothaermel, Michael A, hitt, and lloyd A. Jobe, “Balancing Vertical integration and Strategic Outsourcing: effects on Product Portfolio, Product Success, and Firm Performance,” Strategic Management Journal 27, no. 4 (2006), pp. 1033–1056.

21. leemore S. Dafny and thomas h. lee, “health Care needs real Competition,” Harvard Business Review 94, no. 12 (2016), p. 78.

22. regina e. herzlinger, Market-Driven Health Care: Who Wins, Who Loses in the Transformation of America’s Largest Service Industry (reading, MA: Addison-Wesley Publishing Company, 1997), p. xxi.

23. “Do Specialty hospitals Promote Price Competition?” Medical Benefits 23, no. 3 (2006), pp. 3–4.

24. Banerjee and Sampada kumar Dash, “effectiveness of e-Detailing As An innovative Pharmaceutical Marketing tool in emerging economies: Views of health Care Professionals in india,” Journal of Medical Marketing: Device, Diagnostic, and Pharmaceutical Marketing 11, no. 3 (2011), pp. 204–214.

25. Caterina Moschieri and Johanna Mair, “research on Corporate Divestitures: A Synthesis,” Journal of Management and Organization 14, no. 4 (2008), pp. 399–422.

26. “Why ChS Cashed Out of home health,” Nashville Business Journal (October 21, 2016), p. 8 and “Struggling ChS Sells System,” Nashville Business Journal (november 25, 2016), p. 6.

27. Matthias Brauer and Markus Schimmer, “Performance effects of Corporate Divestiture Programs,” Journal of Strategy Management 3, no. 2 (2010), pp. 84–109.

28. Donald n. Sull, “Strategy as Active Waiting,” Harvard Business Review 83, no. 9 (2005) p. 129; Don Moyer, “Active Waiting,” Harvard Business Review 85, no. 7/8 (2007), p. 196.

29. larry Selden and geoffrey Colvin, “M&A needn’t Be a loser’s game,” Harvard Business Review 81, no. 6 (2003), p. 75.

30. Dennis Carey (Moderator), “A CeO roundtable on Making Mergers Succeed,” Harvard Business Review 78, no. 3 (May–June 2000), pp. 145–154.

31. Bazzoli et al., “the Financial Performance of hospitals Belonging to health networks and Systems,” pp. 234–252.

32. California health Care Foundation, www.chcf.org/ California Facts and Figures, 2012.

33. Jeffrey F. Allen, “Franchise issues – exclusivity of territory,” Inquiry 39, no. 1 (2000), pp. 8–11.

34. ibid. 35. edward B. roberts and Charles A. Berry, “entering

new Businesses: Selecting Strategies for Success,” Sloan Management Review 25 (Spring 1985), p. 7.

36. www.entrepreneurship.org and www.medcitynews. com/2011.

37. http://pitchbook.com/news/articles/record-41b-of- series-a-capital-invested-in-healthcare-in-2015.

38. “Venture Capital Dispatch: the Daily Startup: health Care Venture investment Sets records in 2015,” Wall Street Journal (January 25, 2016), p. 1.

39. Sharon roggy and ron gority, “Bridging the Visions of Competing Catholic health Care Systems,” Health Care Strategic Management 11, no. 7 (1993), pp. 16–19.

40. Dafny and lee, “health Care needs real Competition,” pp. 76–87. Data quoted from American hospital Association and irving levin Associates.

41. Danielle Fugazy, “Medical Devices Drive health Care M&A,” Mergers and Acquisitions 48, no. 6 (2013), pp. 26–32.

42. thomas P. Weil, “Management of integrated Delivery Systems in the next Decade,” Health Care Management Review 25, no. 3 (Summer 2000), pp. 9–23.

43. ibid. 44. howard S. Zuckerman and Arnold D. kaluzny,

“Strategic Alliances in health Care: the Challenges of Cooperation,” Frontiers of Health Services Management 7, no. 3 (1991), p. 4.

45. Michael e. Porter, The Competitive Advantage of Nations (new York: Free Press, 1990), p. 65.

46. Seungwha (Andy) Chung, harbir Singh, and kyungmook lee, “Complementarity, Status Similarity, and Social Capital as Drivers of Alliance Formation,” Strategic Management Journal 21, no. 1 (January 2000), pp. 1–22.

47. Mary helen McSweeney-Feld, Suzanne Discenza, and george DeFeis, “Strategic Alliances and Customer impact: A Case Study of Community hospitals,” Journal of Business and Economics Research 8, no. 9 (2010), pp. 13–21.

48. toby e. Stuart, “interorganizational Alliances and the Performance of Firms: A Study of growth and innovation rates in a high-technology industry,” Strategic Management Journal 21, no. 8 (August 2000), pp. 791–811.

49. Joel A. C. Baum, tony Calabrese, and Brian S. Silverman, “Don’t go it Alone: network Composition and Startups’ Performance in Canadian Biotechnology,” Strategic Management Journal 21, no. 3 (March 2000), pp. 276–294.

50. leonard h. Friedman and James B. goes, “the timing of Medical technology Acquisition: Strategic Decision Making in turbulent environments,” Journal of Healthcare Management 45, no. 5 (September–October 2000), pp. 317–330.

51. Sandra Pelfrey and Barbara A. theisen, “Joint Ventures in health Care,” Journal of Nursing Administration 19, no. 4 (April 1989), p. 39.

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 2023-10-14 00:03:21.

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Chapter 6 IdentIfyIng StrategIC alternatIveS 257

52. lawton r. Burns, gloria J. Bazzoli, linda Dynan, and Douglas r. Wholey, “impact of hMO Market Structure on Physician–hospital Strategic Alliances,” Health Services Research 35, no. 1 (April 2000), pp. 101–132; Michael A. Morrisey, Jeffery Alexander, lawton r. Burns, and Victoria Johnson, “the effects of Managed Care on Physician and Clinical integration in hospitals,” Medical Care 37, no. 4 (1999), pp. 350–361.

53. roberts and Berry, “entering new Businesses,” p. 6. 54. Pelfrey and theisen, “Joint Ventures in health Care,”

pp. 39–41. 55. ibid., p. 42. 56. robert Pitts and David lei, Strategic Management:

Building and Sustaining Competitive Advantage, 3rd edn (Mason, Oh: thomson Southwestern, 2003), p. 346.

57. James Bamford, David ernst, and David g. Fubini, “launching a World-Class Joint Venture,” Harvard Business Review 82, no. 2 (2004), pp. 90–100.

58. Marshall W. Van Alstyne, geoffrey g. Parker, and Sangeet Paul Choudary, “Pipelines, Platforms, and the new rules of Strategy,” Harvard Business Review 94, no. 4 (2016), p. 56.

59. examples adapted from Beth kutscher, “hospitals Discover their inner Venture Capitalist,” Modern Healthcare (April 9, 2016) at www.modernhealthcare. com/.

60. Mary Jo Potter and rick Wesslund, “Provider Venture Capital Funds investing in innovation,” Healthcare Financial Management 70, no. 5 (2016), pp. 50–59. Data reported in this article obtained from thomson reuters published by PwC.

61. Van Alstyne et al., “Pipelines, Platforms, and the new rules of Strategy,” p. 56.

62. David J. Bryce and Jeffrey h. Dyer, “Strategies to Crack Well-guarded Markets,” Harvard Business Review 85, no. 5 (May 2007), p. 91.

63. Van Alstyne et al., “Pipelines, Platforms, and the new rules of Strategy,” p. 56.

64. Bryce and Dyer, “Strategies to Crack Well-guarded Markets,” pp. 87–88.

65. raymond e. Miles, Charles C. Snow, Alan D. Meyer, and henry J. Coleman Jr., “Organizational Strategy, Structure, and Process,” Academy of Management Review 3, no. 3 (1978), pp. 546–562.

66. Monique Forte, James J. hoffman, Bruce t. lamont, and erich n. Brockmann, “Organizational Form and environment: An Analysis of Between-Form and Within-Form responses to environmental Change,” Strategic Management Journal 21, no. 7 (July 2000), pp. 753–773.

67. Miles et al., “Organizational Strategy, Structure, and Process,” pp. 546–562.

68. Forte et al., “Organizational Form and environment,” pp. 753–773.

69. For a review of research on Porter’s generic strategies, see Colin Campbell-hunt, “What have We learned About generic Competitive Strategy? A Meta-Analysis,” Strategic Management Journal 21, no. 2 (February 2000), pp. 127–154.

70. Michael e. Porter, Competitive Strategy (new York: Free Press, 1980), p. 35.

71. ibid. 72. george Yip and gerry Johnson, “transforming Strategy,”

Business Strategy Review 18, no. 1 (Spring 2007), p. 12. 73. Dafny and lee, “health Care needs real Competition,”

pp. 76–87. 74. Yip and Johnson, “transforming Strategy,” p. 13. 75. Dafny and lee, “health Care needs real Competition,”

pp. 82–83. 76. Chris Zook and James Allen, “growth Outside the

Core,” Harvard Business Review 81, no. 12 (2003), pp. 66–73.

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 2023-10-14 00:03:21.

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