Value-Adding Support Strategies

Chapter 9 Value-Adding Support Strategies

Why Value-Adding Support Strategies Are Important

As advanced by Michael Porter, the value chain may be used to identify and analyze the strategically relevant activities that create value and ultimately com- petitive advantage for an organization. Strategically relevant value-adding sup- port activities include the organization’s culture, organizational structure, and strategic resources (financial resources, human resources, information systems resources, and strategic technologies resources). In a similar manner to service delivery, the support strategies must be linked to demands of the overall strategy and the organization’s strengths and weaknesses. Developing strategies for the strategically relevant support activities is crucial because of the ways these activi- ties add value and differentiate the organization. The support activities may be less visible than service delivery activities, yet are profoundly important.

“The value chain disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation.”

—MIchAel PorTer, STrATegy AuThor AnD ProfeSSor

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-21 14:57:09.

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Ideology or culture is at the center of determining the ability of an organization to support service delivery and the overall organizational strategy. The organiza- tion’s culture is not separate from the organization but inherent to it. In addition, an organization’s culture infuses life into the organization’s structure as well as into the strategic resources. If the organizational culture is adaptive, it can respond to the periodic changes that must be made in all elements of the value chain that enable the organization to remain relevant.

The organization’s structure is critical to accomplishing the strategy – structure should probably follow strategy. Whether the organization structure will be flat or tall; whether the organization will make decisions centrally or will decentralize deci- sion making, will be tied not only to the organization’s strategy but also to its culture. Therefore, the organization’s structure is dependent on the culture.

further, culture infuses life into the strategic resources – the strategically rel- evant support activities that make the service delivery and broader organizational strategies possible. Without the right people, adequate financial resources, a strate- gic information system, and appropriate technology, service delivery will be ham- pered and the overall strategy will not be accomplished. Pulling these strategic resources together is essential for successful implementation of the strategic plan.

Developing effective value-adding support strategies is aided by processes and guidelines that determine whether the support functions need to remain the same or change to meet the demands of the strategy and align with the organization’s strengths. Proper translation of the strategy, an adaptive culture, and the appro- priate strategic resources are necessary for a successful organizational strategy.

use the concepts in this chapter to develop effective value-adding support strategies for a health care organization!

learning objectives

After completing the chapter you will be able to: 1. Explain why the value-adding support strategies are important elements in the

implementation of strategy. 2. Align the value-adding support strategies to ensure they point the organization

toward achieving its mission, vision, and goals. 3. Link the results of internal analysis of the support activities to the implementa-

tion of value-adding support strategies. 4. Demonstrate how the culture, structure, and strategic resources of an organiza-

tion must be explicitly linked to directional, adaptive, market entry/exit, and competitive strategies, as well as the value-adding service delivery strategies.

5. Discuss how the value-adding support strategies may be used to create or solidify competitive advantages and strengthen weaknesses to overcome com- petitive disadvantages.

6. Explain how the value-adding support strategies provide guidance for the devel- opment of organizational objectives and action plans.

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 361

Strategic Management Competency After completing this chapter you will be able to create effective value-adding support strategies for a health care organization.

Implementing Support Strategies

As indicated in chapter 8, implementation strategies take a decidedly internal focus. effective and efficient operations make strategies work. Along with the pre-service, point-of-service, and after-service strategies, the value-adding support strategies should be developed and specified. Similar to the service delivery strategies, the value-adding support strategies are implementation strate- gies directed toward accomplishment of all the other strategies including the directional, adaptive, market entry/exit, competitive, and service delivery strategies.

unfortunately, as with service delivery strategies, value-adding support strate- gies may not succeed because of a lack of proper implementation. Three pillars of effective execution are necessary for successful implementation of strategies – direction, structure, and people.1 Direction involves stepping down the strategic plan to the specifics of getting things done. Structure is the organization of the processes necessary to accomplish the strategy and people means that the organi- zation must have the engaged individuals required to make strategy happen. for organizations to reach ambitious strategies, they must thoughtfully and purpose- fully manage the way the strategy is implemented.2

Similar to service delivery, the value chain provides a strategic thinking map of the support activities that create value for the organization and may be a source of competitive advantage or disadvantage. The value-adding support strategies are based on the elements of the lower portion of the value chain and are the means for accomplishing the decisions made in strategy formulation (see exhibit 9–1). once the support strategies are determined, more specific action plans may be developed (see chapter 10).

Decision Logic for the Value-Adding Support Strategies

once the service delivery strategies (the primary value-adding activities) are for- mulated, support strategies that provide the appropriate organizational context and resources to carry out the organization’s strategy are needed. As illustrated in exhibit 9–2, the support strategies are dependent primarily on the organiza- tion’s market entry/exit strategies (which achieve the adaptive strategies), com- petitive strategies (strategic posture and positioning), and the service delivery strategies. The success of these strategies may be dependent on the effectiveness of the organization’s culture, structure, or strategic resources. for example, an

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 2023-10-21 14:57:09.

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362 StrAtegic mAnAgement of HeAltH cAre orgAnizAtionS

ExhIbIt 9–1 The Value Chain

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

POINT-OF-SERVICE Clinical Operations

Quality Process Innovation

Marketing Patient Satisfaction

AFTER-SERVICE Follow-up

Clinical Marketing

Billing Follow-on

Clinical Marketing

ORGANIZATIONAL STRUCTURE Function Division Matrix

STRATEGIC RESOURCES Financial Human Information Technology

A dd

Va lu

e A

dd Va

lu e

S er

vi ce

D el

iv er

y S

up po

rt A

ct iv

iti es

ORGANIZATIONAL CULTURE Shared Assumptions Shared Values Behavioral Norms

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

acquisition or merger market entry strategy may require the combining of two very different organization cultures. Similarly the demands of a differentia- tion positioning strategy may require additional technical, human, or financial resources. Additionally, changes in the service delivery strategy will likely initiate culture and structure modifications.

Process for Developing Support Strategies

Just as a step-wise process was helpful in developing the broader strategies and service delivery strategies, a similar process for formulating the support strategies is presented in exhibit 9–3. for each of support activities – culture, structure, and strategic resources – the demands of the broader strategies (market entry/exit, competitive strategies, and service delivery strategies) must be matched to the results of the internal analysis to determine if the sup- port strategies need to be maintained or changed to accomplish the selected strategies. once the strategy is determined, guidance can be provided to the organizational units.

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 363

ExhIbIt 9–2 Decision Logic for Developing Support Strategies

Directional Strategies

Adaptive Strategies • Expansion of Scope • Reduction of Scope • Maintenance of Scope

Market Entry/Exit Strategies

• Purchase • Cooperation • Development • Market Exit

Competitive Strategies • Strategic Posture • Positioning

Implementation Strategies

• Organizational Culture • Organizational Structure • Strategic Resources

Implementation Strategies • Service Delivery Strategies

Implementation Strategies • Unit Action Plans

Unit-level Strategies

Organization-level Strategies

Corporate- and Divisional-level Strategies

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 2023-10-21 14:57:09.

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364 StrAtegic mAnAgement of HeAltH cAre orgAnizAtionS

Step 1: Identify the Support Requirements of the Strategy and Support Value-Adding Potential

The appropriate directional, adaptive, market entry/exit, and competitive strate- gies have been discussed in chapters 5 through 7. As illustrated in exhibit 9–2, the market entry/exit, competitive, and service delivery strategies place the great- est demands on the support strategies. The value-chain support strategies must aid in the accomplishment of these strategies. Although the requirements of the market entry/exit, competitive, and service delivery strategies will be unique to each particular situation and organization, general internal resource, competency, and capability requirements for the market entry/exit strategies were presented in exhibit 7–19, for the posture strategies in exhibit 7–22, and for the positioning strategies in exhibit 7–24. using these tables can stimulate strategic thinking for most any organization. for example, an internal venture market entry strategy

ExhIbIt 9–3 Process for Developing Support Strategies

Step 1 – Identify the Support Requirements of the Strategy and Support Value-Adding Potential

Step 2 – Compare the Strategy Requirements with the Results of the Support Activities Internal Analysis

Step 3 – Decide to Maintain or Change Organizational Culture

Step 4 – Decide to Maintain or Change Organizational Structure

Step 5 – Decide to Maintain or Change Strategic Resources

Step 6 – Provide Guidance to Organizational Units

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 365

will require financial resources, an entrepreneurial culture, and marketing exper- tise. A defender strategy will require development of a single core technology, cost efficiency, and management emphasis on centralized control and stability. further, a cost leadership strategy will require investments in efficiency, process engineering skills, focus on minimizing labor costs, and so on. finally, there may be additional requirements of the support activities depending upon the adopted service delivery strategies.

Importantly, strategic managers must think through how the support strat- egies are able to assist in carrying out the broader organizational strategies. unfortunately, no formula or template exists for determining strategy require- ments; each organization, service category, and service area has its own particular considerations. focused strategic thinking will be needed to work out a plan, then learning what works – and what does not – as the plan unfolds, will be essential.

Value-Adding Support Strategies Potential The lower portion of the value chain provides direction for the development of the value-adding support strategies and includes the organization’s culture, structure, and strategic resources. More specifically, the support strategies concern areas such as the behavioral norms, organization structure and flexibility, human resources, finance, information systems, and technology, and play a major role in the implementation of the organization’s overall strategy. each area adds value in the organization. Thus, strategies are required to maintain or enhance the organi- zation’s competitive advantages and to strengthen competitive disadvantages. Increasingly, health care managers are trying to implement evidence-based man- agement practices to improve the organization’s culture, structure, and strategic resources (see essentials for a Strategic Thinker 9–1, “What Is evidence-Based Management?”).

ESSEntIALS foR A StRAtEgIC thInkER 9–1

What is evidence-Based management?

Evidence-based management (EBMgt or EBM) is an emerging philosophy of management that employs current best management practices that have been tested in real-world organiza- tional settings and are supported by data docu- menting their effectiveness or efficiency. The approach involves hypothesis development and testing, documentation of results, and the syn- thesis of best management practices. Spurring this movement is the belief that when manag- ers act on better logic and the best available

evidence, their organizations will fare better than organizations not using best practices.1 Evidence-based management uses a systems approach to identify components of a manage- ment problem and to identify sound evidence supporting a solution. This approach can be particularly helpful when conducting external analysis during strategic planning. Both external and internal analyses require the collection and analysis of data, and can benefit from the incor- poration of best practices (including thinking

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 2023-10-21 14:57:09.

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366 StrAtegic mAnAgement of HeAltH cAre orgAnizAtionS

through future implications of current trends, etc.). Once a part of the culture, managers can practice evidence-based management system- atically so that it becomes second nature.

Evidence-based management has its origins in evidence-based medicine. In an attempt to rely less on traditional, more subjective, practices, evidence-based medicine focuses on the devel- opment of medical best practices using data from well-designed empirical research concern- ing the outcomes of medical procedures, drugs, and practices. An emphasis on evidence-based medicine helped to generate the field of medical decision making and outcomes research.

Much of the activity of developing evidence of effective management begins with organiza- tional experiments and is a matter of developing management practices, putting those practices in place, measuring the practices’ effectiveness against objectives, and redesigning best prac- tices based on results. Thus, the evidence in evidence-based management  comes largely from scientific research, but internal business information and even professional experience can count as evidence as well.2

Management professors and authors, Jeffrey Pfeffer and Robert Sutton conclude:

As with medicine, management is and will

likely always be a craft that can be learned

only through practice and experience. Yet

we believe that managers (like doctors) can

practice their craft more effectively if they

are routinely guided by the best logic and

evidence – and if they relentlessly seek new

knowledge and insight, from both inside

and outside their companies, to keep updat-

ing their assumptions, knowledge, and

skills. We aren’t there yet, but we are getting

closer. The managers and companies that

come closest already enjoy a pronounced

competitive advantage.1

RefeRences

1. Jeffrey Pfeffer and Robert I. Sutton, “Evidence-

Based Management,” Harvard Business Review

84, no. 1 (2006), pp. 62–74, 133.

2. www.cebma.org/faq/evidence-based-

management (accessed July 1, 2017).

As with the service delivery strategies, value-adding support strategies must be consciously aligned. Strategic managers should take care to ensure that the support strategies are consistent and compatible with each other and that they contribute to the accomplishment of the organization’s overall strategy. Therefore, the support strategies for each area cannot be developed or evaluated in isolation. It is the strategic manager’s responsibility to make decisions concerning each support strategy and ensure that these elements are coordinated to help achieve the overall strategy of the organization. Strategic thinking, strategic planning, and managing strategic momentum are central to this process. A brief review of value- chain support strategies demonstrates their potential for achieving organizational goals and strategies.

organizational Culture Strategies Organizational culture is unique and exerts a powerful influence on how people function and act as a key factor in how well the organization performs. Studies have demonstrated that in addition to strategy, execution, and structure, 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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 367

proper culture is imperative for organizations that outperform their industry peers.3 Moreover, effective culture has been shown to vary significantly from industry to industry.4 Successful strategic managers understand the importance of organizational culture and that shaping organizational culture is an essential part of leadership.5 Therefore, strategic leaders implementing strategy must effectively integrate operational changes, as well as cultural changes, into the fabric of the organizations they lead.6 In the case of health care delivery, cultural factors such as excellence in health care delivery, ethical values, involvement, professional- ism, value for money, cost of care, commitment to quality, strategic thinking, plus diversity and inclusion are important determinants of the quality of care7 (see essentials for a Strategic Thinker, 9–2, “What Are Diversity and Inclusion?”).

ESSEntIALS foR A StRAtEgIC thInkER 9–2

What Are Diversity and inclusion?

Diversity and inclusion are often used inter- changeably, but these terms are not synonymous. Diversity is the breadth of lived experiences by people from different backgrounds. These differ- ent backgrounds may relate to identities such as race, ethnicity, age, gender, gender identity, sexual orientation, disability, social class, religion, political identity, and national origin. Whereas diversity rec- ognizes the differences among people, inclusion goes beyond recognition and focuses on valuing these differences. It is the intentional engagement of people from different backgrounds that fosters inclusion. As consultant, Vernā Myers, masterfully states: “Diversity is being invited to the party; inclu- sion is being asked to dance.”1

Diversity is typically measured by review- ing data on the number of people from differ- ent backgrounds within an organization. For example, organizations may review annual data regarding the recruitment, interviewing, and hiring of women and individuals from histori- cally underrepresented groups. These efforts to collect and monitor data are necessary; how- ever, diversity in numbers is just the first step. It is not sufficient to increase the numerical repre- sentation of people from different backgrounds,

without also developing an organizational cul- ture that values the lived experiences of every individual. The intentional engagement of peo- ple from diverse backgrounds is needed to create and cultivate an inclusive culture.

For diversity and inclusion, the adage “every organization is perfectly designed to get the results that it is getting” is poignant, yet real. A diverse and inclusive culture will not occur by happenstance. Organizations that make lit- tle to no progress in the areas of diversity and inclusion seek members who will acclimate to the existing culture and make a good “fit.” In contrast, organizations that make diversity and inclusion a priority seek a cultural environment that is welcoming to members from different backgrounds. For the latter, “fit” is no longer about whether the individual will conform to the current environment, but about how the individual will enrich the current environment. Initial assessments of whether an organiza- tional culture embodies diversity and inclusion may examine:

● Do the vision, mission and values of the organization embrace diversity and inclusion?

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 2023-10-21 14:57:09.

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368 StrAtegic mAnAgement of HeAltH cAre orgAnizAtionS

In some situations culture may be more important than strategy, as an organiza- tion can copy a strategy, but replicating culture is much more difficult.8 Strategy implementation is most likely to be successful when the culture of the organi- zation is appreciated and considered. Indeed, culture should serve strategy.9 A cognitive culture, as well as an underlying emotional culture, are operating in organizations. The cognitive culture is made up of its stated intellectual values, norms, artifacts, and assumptions that serve as a guide for behavior and might include such values as customer focus, teamwork, and quality.10 The cognitive cultural values are typically promoted and documented in an organization’s strat- egy and provide meaningful behavioral guidance.

The cognitive culture is shaped by strategic managers largely through the directional strategies and the organizational systems, practices, and processes. The cognitive assumptions, values, and behavioral norms set the tone for how employees think and behave and persists over time even when the membership of the organization changes.11 Cognitive assumptions include a common understand- ing of “who we are” (mission) and “what we are trying to accomplish” (vision and strategic goals) and the belief in the values of the organization. Cognitive values represent the understanding of “the way we do things” and reflect the organiza- tion’s shared values. The cognitive behavioral expectations or behavioral norms are common understandings among the members of a group or organization concern- ing appropriate ways to act and interact.

The emotional culture is reflected in the shared values, norms, artifacts, and shared assumptions and reflect how people feel in the workplace; it is manifest as emo- tions such as happiness, sadness, fear, joy, caring, indifference, and so on.12 People in organizations are socialized by the organization through the cognitive culture,

● Do the organization’s structure, function, and processes denote a diverse and inclu- sive culture?

● Does the organization foster a sense of belonging for each individual?

The responsibility for ensuring a diverse and inclusive culture belongs to each member of the organization – not just to those individuals who are the focus of targeted diversity efforts (e.g. women, minority groups). Leaders must lead to create a culture in which diversity and inclusion are ingrained in the foundation of the organization. Diversity without inclusion or inclusion without diversity will not work. Both diversity and inclusion are critical for meaningful change to ensure all people and

their unique identities and contributions are recognized and valued.2

RefeRences

1. Vernā Myers, The Vernā Myers Company.

Baltimore, MD. http://vernamyers.com/

(accessed May 2017).

2. L. Sherbin, and R. Rashid, “Diversity

Doesn’t Stick without Inclusion.” Harvard

Business Review (2017). https://hbr.

org/2017/02/diversity-doesnt-stick-without-

inclusion?referral=03759&cm_vc=rr_item_

page.bottom.

Source: April P. Carson, PhD, MSPH, FAHA, Associate Professor

and Director of Office of Diversity, Equity and Inclusion, 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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 369

but also have a self with capacities for self-reflection and purposeful action.13 Most leaders are focused on the cognitive culture; however, the emotional culture influ- ences commitment, decision making, teamwork, burnout, turnover, absenteeism, and work quality.14 People’s emotions are drivers of organizational processes.15 for instance, in health care the emotional culture may deliver a callous and indif- ferent care rather than compassionate care that would support the strategy.

The attitudes and behaviors of management of the organization largely set the tone for the emotional culture. A positive attitude and optimism demonstrated by management can go a long way in creating a positive emotional culture. In addi- tion, encouraging creativity and innovation, joy and fun, and instilling pride in quality work further shape a positive emotional culture and tend to be contagious in organizations. furthermore, a caring and kind emotional culture will foster organizational loyalty.

Strategic managers must focus on both the cognitive and emotional cultures to successfully shape and create an adaptive organizational culture. The cur- rent culture may already be supportive of strategic efforts and, thus, there is no requirement to dramatically change the culture. In this case, maintaining cognitive culture and nurturing the emotional culture may be all that is neces- sary. on the other hand, the cognitive or emotional culture may not support required strategic changes. If this situation occurs, the implementation process may require a change in and management of the stated values of the cognitive culture, and active management of the emotional culture, to encourage people to experience the emotions valued by the organization. Although culture change is difficult, it is often an important factor in moving the organization toward realizing its vision.

organizational Structure Strategies Similar to culture, the organizational structure must facilitate rather than impede the implementation of the overall strategy. “Whenever the execu- tives responsible for the firm fail to create the offices and structure necessary to bring together effectively the several administrative offices into a unified whole, they fail to carry out one of their most basic economic roles.”16 The relationship among strategy, structure, and performance continues to be a topic of great interest and receives much attention.17 A long-standing, although not universally accepted, tradition in strategy research, known as configuration theory, argues that in specific cases (e.g. industries, locations, and so on) certain organizational structures are more effective in accomplishing the mission than others.18 This view has been confirmed in a number of settings and reinforces configuration theory.19

once the directional, market entry/exit, competitive, and service delivery strat- egies have been developed, management must determine what organizational structure will best facilitate the strategy. This strategic thinking activity matches the requirements of strategy with the advantages and disadvantages of various organizational structural options. In addition, it should be acknowledged that an organization’s current organizational structure might limit the strategic options or at least their initiation in the short run. over time, the structure can be changed to

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 2023-10-21 14:57:09.

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370 StrAtegic mAnAgement of HeAltH cAre orgAnizAtionS

meet the needs of the proposed strategy. At some point, the strategist must decide if the present structure should be maintained or changed. This decision must be carefully made to facilitate the accomplishment of the long-term strategy and not merely capitalize on a few profitable activities in the short term.20

organizational hierarchy remains the basic structure of most large organiza- tions.21 organizations, whether loosely coupled, networked, or divisionalized, are no more than modifications of the same basic design and hierarchies remain the best available mechanism for doing complex work.22 There are three funda- mental organizational hierarchical designs that form the basic building blocks for organizations:

1. functional structure. 2. Divisional structure (strategic business or service units). 3. Matrix structure.

Functional Structure A functional structure is an organization structure based on the primary activities or processes required for producing the product/service of the organization. functional structures organize activities around the mission- critical activities or processes of the organization and are the most prevalent structures for single product/service and narrowly focused organizations. A func- tional structure might include departments such as clinical operations, marketing, finance, information systems, and so on. however, activities will vary from one organization to another. often parts of an organization are structured around pro- cesses. for example, in health care organizations, clinical operations are mission critical and the clinical function may be at the center of a functional structure. The clinic may then be organized around separate clinical processes such as registra- tion, testing, examination, lab, and so on.

A functional structure builds a high degree of specialization and expertise within the functions or processes and can foster efficiency, particularly when tasks are routine and repetitive (such as in clinics). Moreover, in this type of organi- zational structure, control of strategic decisions is highly centralized. however, functional structures sometimes foster “silo thinking,” slowing down decision making and inhibiting horizontal communication. As a result, it becomes a major task of strategic management to keep functional managers focused on the broader mission and the organization’s vision (beyond their own functions) and to ensure coordination and communication across the functions. exhibit 9–4 illustrates a functional organizational structure for clinical operations (organized around processes) and summarizes the advantages and disadvantages of functional structures.

Divisional Structure A divisional structure is developed on the basis of the organization’s products/services, geographic markets, or customers (semi- autonomous business or service units). Divisional structures are common in organizations that have grown through diversification, vertical integration, and aggressive market or product development. As organizations grow and become

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 371

more diverse, divisional structures are used to break the organization down into more manageable and focused parts. Therefore, a divisional structure creates several smaller, more focused, semi-autonomous strategic business/service units (SBus/SSus).

Structures with geographic divisions allow each division to tailor strategy and differentiate products/services based on the unique needs or characteristics of the geographic area or market. local responsiveness will usually result in enhanced performance because communication and coordination with a target market will be improved. When organizations have multiple unique products/services, a divisional structure that places organizational emphasis on these products/ser- vices may be most appropriate. This structure gives product division managers authority and responsibility to formulate and implement a product/service strat- egy. In addition, the structure allows functional areas to specialize around each product/service, thus increasing coordination and communication. Divisions based on products/services increase the focus on products, markets, and quick response to change.

Divisional structures are not without problems. Divisional structures make it difficult to maintain a consistent image or reputation, add layers of management because of duplicate services and functions, and require carefully developed policy guidelines for the SBu/SSu. In addition, divisional structures may create competition for resources among the divisions. exhibit 9–5 illustrates an organi- zational structure with product divisions (organized geographically) and summa- rizes the advantages and disadvantages of divisional structures.

ExhIbIt 9–4 Functional Structure Combined with Process Structure

CEO

Maintenance; Housekeeping

Information Systems

Finance & Accounting

Clinical Operations

Human Resources

Marketing Functional Structure

Functional Structure

Medicine Surgery Obstetrics Pediatrics Clinical

Services

Post-Op Recovery

Surgical Procedure

Anesthesia Prep & Adm.

Pre-Op Preparation

Process Structure

Functional Structure Strategic Advantages

• Builds a high degree of specialization • Fosters efficiency • Centralizes control and decision making • Develops functional expertise

Functional Structure Strategic Disadvantages

• Fosters “silo thinking” − narrow specialization • Slows down decision making • Makes horizontal communication difficult • Makes coordination difficult • Limits the development of general managers

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 2023-10-21 14:57:09.

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372 StrAtegic mAnAgement of HeAltH cAre orgAnizAtionS

Matrix Structure A matrix structure is an organization structure based on the organization’s projects or programs where centralized functional specialists interact with and provide services to project or program teams. A matrix structure may be most appropriate when organizations have numerous products or projects that draw on common functional expertise. The fundamental rationale underly- ing a matrix structure is to organize around problems to be solved rather than functions or products or geography. Matrix organizations develop expertise and allow product areas or projects to use that expertise as needed. Therefore, in this structure, functional specialists may work on a number of different projects and with a number of project managers over time. Matrix structures foster creativity and innovation in the organization; therefore, the structure is particularly effective for rapid product development and can accommodate a wide variety of product or project activities.

Matrix structures are difficult to manage – no one disputes that fact. The struc- ture violates the “unity of command” (a person reports to only one boss) principle and, as a result, employees are often confused on priorities and “who is the boss.” Therefore, this type of structure requires a great deal of coordination and commu- nication, plus some degree of negotiation and shared responsibility between pro- ject managers and functional managers. exhibit 9–6 illustrates a matrix structure, summarizing the advantages and disadvantages.

ExhIbIt 9–5 Divisional Structure – Product with Geographic Divisions

CEO

Professional Services

Product Structure

Eastern Division

Southern Division

Western Division

Geographic Structure

Divisional Structure Strategic Advantages

• Forces decision making down the organization

• Allows different strategies among divisions • Fosters improved local responsiveness • Places emphasis on the geographic region

or product/service • Improves functional coordination within

the division • Identifies responsibility and accountability • Develops general managers

Divisional Structure Strategic Disadvantages

• Makes it difficult to maintain a consistent image/reputation

• Adds layers of management • Duplicates services and functions • Requires carefully developed policies and

decision-making guidelines • Creates competition for resources

Medical Management

Affiliated Services

HospitalsFoundationInsurance

Corporate Services

• Legal • Planning • Marketing • Administrative Services

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 373

Combination Structures and Teams Determining the most effective basic structure to carry out the strategy is critical for all organizations; however, health care organizations are rarely organized using just a single structural building block. rather, health care organizations commonly find it necessary to create combination structures to mix and often supplement the basic design. Combination structures use more than one type of organizing approach. for example, functional organizations are often supplemented with cross-functional teams to improve coordination and communication. furthermore, geographic divisions may be organized around functions or products. Product divisions may have geographic divisions as well as func- tional components. organizational structure should enable the strategy; managers should select the most appropriate set of organizational structure building blocks.

Although the organizational structure building blocks set the basic design of the organization, seldom are they adequate for carrying out the strategy and work of the organization. Therefore, most organizations modify their basic structure

ExhIbIt 9–6 Matrix Structure

CEO

Maintenance; Housekeeping

Information Systems

Finance & Accounting

LegalHuman Resources

MarketingClinical

Clinical Services

Matrix Structure Strategic Advantages

• Develops functional expertise • Allows for a variety of product/project developments • Allows for the efficient use of functional expertise • Encourages rapid product development • Fosters creativity and innovation

Medicine

Surgery

Obstetrics

Pediatrics

Matrix Structure Strategic Disadvantages

• Causes difficulties in management • Violates the unity of command principle • Creates coordination and communications problems • Requires negotiation and shared responsibility • Allows for confusion on priorities

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 2023-10-21 14:57:09.

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with some type of coordinating structures. These coordinating structures are sometimes referred to as the collateral organization – a system of teams, task forces, committees, and ad hoc groups that supplement the basic organization structure and are used to bring different perspectives to the table for discussion and resolu- tion. no organization can function for long without an effective collateral organi- zation.23 collateral structures include:

Project and product teams created to undertake well-focused projects (typically short term) or to develop new products.

Cross-functional task forces created to bring together specialists from several functional areas and address threats or opportunities. Typically, task forces take on a major project such as reorganization or the building of new facilities.

Venture teams created outside the normal organizational structure, they are not bound by the normal “rules” of the organization. Because they develop new products or processes, the creation of venture teams is sometimes called “intrapreneuring.”

Re-engineering teams created to evaluate and reconfigure an organizational process (such as service delivery). Such teams are asked to disregard the current way of doing things and to redesign a process from scratch.

Executive and standing committees created to make organization-wide deci- sions. executive and standing committees provide wide representation for key decisions and facilitate communication of the organization’s direction and strat- egy implementation.

greater diversity in the composition and function of teams is occurring than in the past. for example, team members may be dispersed in different locations, interact only electronically, and membership adjustments may be quite dra- matic.24 Therefore, it is important that both traditional teams and virtual teams have strong cultures motivated by a clear and motivating direction, the right mix of members, support from the organization’s leadership, and a sense of identity – common understandings concerning the mission and values of the team.25 Where a sense of identity and common understandings exists, self-managed teams may be utilized. Self-managed teams eliminate organizational hierarchy; leader- ship, authority, accountability, goal setting, and decision making are dispersed throughout the team. Self-managed teams are often called holacracies, pods, cir- cles, or organic organizations, and foster flexibility, adaptability, engagement, and productivity.26

Strategic Resources Strategies effective development and use of key organizational resources are critical in car- rying out the selected strategies. Strategic resources (resources, competencies, and capabilities) include financial, human, information systems, and technological assets of the organization.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 375

Financial Resources The financial resources of the organization are evalu- ated during internal analysis and contribute to strategy formulation. Therefore, to this point the financial resources have provided a framework for developing a realistic strategy. once the strategy has been selected, finance becomes a way to implement the strategy. All organizational strategies have financial implications and most will require an assessment of needed capital and a method to access cap- ital. In addition, strategies require an understanding of the relationship between the organization’s business model, reimbursement methods, and the mission.27 expansion, reduction, or maintenance of scope adaptive strategies will require a financial implementation strategy.

expansion and maintenance of scope strategies frequently make it necessary for health care organizations to enter the capital market or make arrangements to borrow money from one or more financial institutions. expansion of scope, such as market development, may be realized through acquisition of a competitor (horizontal integration) and involve hundreds of millions of dollars. In addition, expansion carried out through cooperation strategies may require additional financial resources. Joint ventures are often financed by attracting other individu- als, such as physicians, to invest in promising ideas or equipment along with the hospital. Similarly, maintenance of scope strategies directed toward enhancement of facilities, equipment, quality of services, and so on will often require new capital and operating funds. An organization may have to acquire new property and relocate in its efforts to change the image held by physicians who might join its staff and the patients who might use its facilities. new technology may be demanded as well for this change in image or for significant improvement of services.

reduction of scope strategies require equally challenging financial decision making. Divestiture, liquidation, harvesting, and, in some cases, retrenchment all convert financial resources, at least temporarily, into cash or near cash assets. An inflow of cash forces strategic managers to consider alternatives for the funds to ensure that they are appropriately invested until they are needed for other uses. reduction of scope requires careful re-evaluation and possible redirection of financial resources. for example, a hospital experiencing financial distress, after careful analysis, might decide that its emergency room is too expensive to continue to operate in view of limited demand by the community. The high level of specialized staffing for around-the-clock operations is a financial burden that cannot be justified economically. The decision to close the emergency room would temporarily free financial resources that could be allocated to more profitable areas and relieve some of the cost pressure on the hospital.

In developing financial strategies to carry out the organization’s overall strat- egy, two issues typically predominate – increasing financial resources (equity and debt capital acquisition in addition to fund raising) and better management of the organization’s current financial resources including cash flow management, budgeting, and financial planning. financial leasing as a financing alternative is examined in essentials for a Strategic Thinker 9–3, “What is financial leasing?” In addition, analysis of accounting and financial issues, as well as interpretation and analysis of balance sheet and income statement issues, are reviewed in this textbook in resource 2 – health care organization Accounting, finance, and Performance Analysis.

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-21 14:57:09.

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ESSEntIALS foR A StRAtEgIC thInkER 9–3

What is financial leasing?

The delivery of health care is typically capital- intensive with extensive investments in equip- ment and real estate. Capital intensity motivates health care organizations to seek access to all forms of financing. In addition to equity and debt financing, it is a common practice for health care organizations to enter into lease arrangements for facilities and equipment.1 In other words, health care organizations use leases to finance assets that would otherwise be financed by equity or debt. A lease is “an agreement convey- ing the right to use property, plant, or equipment (land and/or depreciable assets) usually for a stated period of time.”2 In a lease arrangement, the organization with the right to use an asset is known as the “lessee” and the organization actually owning the asset is the “lessor.” Long-life assets present two forms of risk: (1) ownership risk – obsolescence or default on debt and (2) operating risk – inefficient or ineffective use of the asset resulting in financial losses. In buy-and- use, the buyer is exposed to both ownership and operating risks. Lease arrangements, on the other hand, separate the risks such that the les- see bears only the operating risk and the lessor bears the ownership risk.3

Leasing is often an attractive financing alternative for a health care organization to: (1) avoid technological obsolescence – with fre- quent changes in technology, lessees are able to upgrade as needed; (2) improve maintenance – lessors usually include expert maintenance with a lease and incur the cost of training and equipping maintenance personnel; (3) off-set project-life uncertainty – leases often include cancellation clauses useful for lessees with uncertainty about the length of time an asset

will be needed, lessors accept such clauses because they are in a good position to remarket the asset; (4) maintain credit availability – it is often possible for a lessee to obtain larger amounts of financing for a longer period of time in a lease financing versus a loan financing for an asset; and (5) preserve liquidity – by leasing an organization avoids a potential large cash outlay frequently required in a purchase.4,5

Some health care organizations have used long-term leases as a form of “off-balance sheet financing,” a situation where the value of the lease is not reported on the balance sheet, thus, the organization gains access to high-value assets without having to record a debt (long- term leases are reported in the debt portion of the balance sheet).6 The use of off-balance sheet finances permits organizations to portray their financial health as being better than it is in reality – through a lower debt ratio. In 2019, new accounting rules are to be implemented that significantly curtail the practice of off-balance sheet financing.7 Under these accounting rules, the value of the leases must be placed on the balance sheet. The impact of this change for health care organizations is that some organi- zations may be reporting more debt on their balance sheets making future debt financing costlier. For the most part, cash flow will be unaf- fected by the change in requirement since lease payments will be treated in much the same way as interest payments.8

RefeRences

1. M. Berman, “New Lease Accounting and Health

Care: the FASB’s New Standard for Lease

Accounting Will Bring Significant Change

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 377

Human Resources Successfully implemented strategy is inextricably con- nected with having committed, high-performing employees.28 It takes strong leadership and a positive organizational culture to keep employees motivated and productive. Motivated employees are the key to any strategy; however, human resource requirements of the selected strategies will vary considerably depending on whether the organization is expanding, reducing, or maintaining scope. for example, expansion strategies, such as related diversification, will make it neces- sary to recruit new personnel with skills and talents similar to those already in the organization. on the other hand, unrelated diversification or backward/forward vertical integration will create the need for human resources with skills and tal- ents quite different from those presently employed. The necessity of recruiting, hiring, and leading individuals with different skills and talents is a major reason that these strategies are “riskier” than related diversification. Any one of these strategies requires the merger of organizational cultures, presenting yet another human resources challenge.

Diversification and integration are two very different strategic choices, but they require similar types of organizational and human resources management responses. When diversification or integration is selected as a strategic alternative, organizational size and diversity may increase, along with the demand for more specialized human resources management services.

Although the problems are difficult and demanding, expansion is always more fun to manage than maturity and decline. During maturity, the emphasis is on efficiency. human resources management practices must be constantly refined and improved to ensure that things are done in the best way at the least

to Real Estate and Contract Transactions for

Healthcare Organizations,” Healthcare Financial

Management 70, no. 5 (2016), pp. 78–84.

2. Financial Accounting Standards Board.

“Statement of Financial Accounting Standards

No. 13, Accounting for Leases,” (1976).

Retrieved from: www.fasb.org/resources/

ccurl/62/358/fas13.pdf.

3. A. Gavazza, “Asset Liquidity and Financial

Contracts: Evidence from Aircraft Leases,”

Journal of Financial Economics 95, no. 1 (2010),

pp. 62–84.

4. L. C., Gapenski and G. H. Pink, Understanding

Healthcare Financial Management (Washington,

DC: Health Administration Press, 2015).

5. William N. Zelman, Michael J. McCue, Alan

R. Millikan, and Noah D. Glick, Financial

Management of Health Care Organizations: An

Introduction to Fundamental Tools, Concepts,

and Applications (New York: John Wiley & Sons,

2009).

6. J. C. Murray, “Off-Balance-Sheet Financing:

Synthetic Leases,” Real Property, Probate and

Trust Journal (1997), pp. 193–253.

7. Financial Accounting Standards Board “FASB

Accounting Standards Update, No. 2016–02,

Leases (Topic 842) 2016. www.fasb.org/jsp/

FASB/Document_C/DocumentPage?cid=11761

67901010&acceptedDisclaimer=true.

8. A. D. Gross, G. R. Huston, and J. M. Huston,

“The Path of Lease Resistance: How Changes to

Lease Accounting Treatment May Impact Your

Business” Business Horizons 57, no. 6 (2014), pp.

759–765.

Source: Andrew C. Rucks, PhD, 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 2023-10-21 14:57:09.

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cost. however, organizations do not always successfully manage maturity, hence markets erode and even disappear. Therefore, the strategic health care manager needs to understand how to manage organizational and human resources during market contraction.

reduction of scope involves different human resources management skills. Incentives must be devised to encourage employees to find other jobs or to retire earlier than anticipated. for some, layoffs may be necessary, and the organization will be forced to determine its responsibility in assisting displaced employees to find alternative employment opportunities. At times, health care organizations may assist employees by retraining them for different tasks that will be needed as reduction of scope takes place.

In chapter 6, several reduction strategies, such as divestiture and liquidation, were discussed. Although terms such as “divestiture” and “liquidation” imply financial actions, they have important human resource implications in the form of restructuring and reorganizing, early retirements, layoffs, and so on.

The benefits of systematically managing the human resources dimension under expansion and reduction strategies are somewhat obvious. The need for carefully managing maintenance of scope strategies is equally important, if not as obvi- ous. Maintenance strategies almost always require training and development activities. enhancement strategies, through total quality management programs, involve significant commitments to continuous learning on the part of the indi- vidual and the organization. Status quo requires the challenging task of keeping people motivated in the face of career plateaus.

When an organization reaches a point in its life cycle where it is no longer growing, it must work extremely hard to keep from contracting. Strategic decision makers may adopt a conservative strategy, such as managing the steady state or status quo. As was noted in chapter 6, the assumption underlying this strategy is that the expansion phase of the organization’s evolution is over, maturity has been achieved, and acceptable market shares have been attained. The organiza- tion attempts to replace personnel with employees of similar skills and training, and works to keep existing personnel up-to-date and technologically prepared to perform their jobs at high levels of effectiveness.

Maintaining scope can present an opportunity to enhance current levels of operation. This stage of organizational development can be thought of as a tempo- rary “breather,” allowing preparation to commence for the next period of growth. or, decision makers may simply think of maintaining scope in a dynamic sense and recognize that they must work hard just to hold their current position. In this case, they may choose to enhance their facilities, improve the quality of their services, increase the speed with which they respond to patients and make deci- sions, and create new and better ways of doing things. human resource strategies are important to support any attempt at enhancement because ultimately it is the employees that must promote quality, innovate, and work faster if things are to improve.29

Information Resources Information systems (IS) are an essential competi- tive resource for health care organizations and are critical in supporting strategic decision making, administrative operations, and patient care in an increasingly information-intensive industry. Although much attention has been focused on

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 379

the competitive nature of sophisticated information technology, health informa- tion systems are no less important in the public sector.30 Information systems in health care may be divided into four general categories: clinical, management, strategic decision support, and electronic networking and e-health applications.31 competitive advantage may be created in each of these areas, and strategic man- agers should therefore play a key decision-making role in defining and shaping these systems. Such systems draw on both internal data from clinical and admin- istrative systems in the organization and external data on community health, market demography, and activities of competitors.32 To meet strategic objectives and develop high-priority applications, the health care organization must make decisions about hardware configurations (architecture), network communica- tions, degree of centralization or decentralization of computing facilities, and types of computer software required to support the network.33 one type of health information system, the electronic health record, may be used effectively to cre- ate competitive advantage (see essentials for a Strategic Thinker 9–4, “What Is an electronic health record?”).

ESSEntIALS foR A StRAtEgIC thInkER 9–4

What is an electronic Health record?

The electronic health record (EHR) is a digital version of a patient’s medical chart and other important information designed to improve care communication and coordination.1 EHRs are designed to be a secure information platform where patients, providers, and other stakehold- ers are able to: (1) post and retrieve relevant data; (2) access evidenced-based decision support tools; and (3) streamline activities to improve care processes. In the United States, efforts in the ambulatory and inpatient environments to implement EHRs that meet these design aims have been underway for many years.2

When EHRs were first developed in the early 1990s, they were primarily used to document clinical encounters by an individual provider. Despite this limited scope, the EHR’s potential benefits were quickly recognized by the Institute of Medicine (IOM) that issued a report calling for a “paperless” care environment within ten years.3 In particular, the IOM realized that through pro- gressive innovations, the EHR would become a

technology platform linking a wide variety of hardware and clinical data sources. The EHR’s potential to promote care quality improvement and operational efficiency was slowed by pro- viders’ concerns about the system’s costs and potential disruptions to workflows.

Providers’ slow uptake of EHRs may have continued except for passage of the Health Information Technology for Economic and Clinical Health Act in 2009.4 The law stipulated that most doctor’s offices and hospitals should implement progressively more sophisticated EHR technologies in stages. The Meaningful Use program, as it came to be known, acceler- ated EHR adoption in both the ambulatory and inpatient settings. Nearly every U.S. hospital has at least a basic EHR capable of capturing clinical data from providers. Moreover, the benefits to care quality and improved efficiency associated with EHR use are beginning to become appar- ent. As a result, many U.S. health systems are implementing EHR platforms with increased

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 2023-10-21 14:57:09.

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capabilities as a means of creating a sustained competitive advantage.

Early adopters of EHR platforms have a first- mover advantage that is difficult for others to overcome in the near-term. The reason for the advantage is that EHRs require lower-level, basic functionalities be in place before higher order clinical applications can be effectively integrated into the system.5 Hence, EHR platforms follow a path dependent model of technology innova- tion and diffusion with early adopters able to stay ahead of the competition. In addition, EHR’s technological advantages enable hospitals to deliver higher quality care and avoid unneces- sary costs. Because EHR platforms become more robust as the network of providers and systems feeding into it grows, the potential competitive advantage increases as well. Moreover, having a robust EHR provides the information needed to meet reporting requirements contained in many of the rewards and incentive programs being created by insurers.

Public and private insurers are creating new reimbursement plans designed to increase care quality while simultaneously reducing costs. Value-based purchasing or VBP plans rely heav- ily on doctors and hospitals tracking care pro- cesses and health outcomes. The amount of care-process details needed to achieve reward thresholds of most VBP plans, necessitates the use of advanced EHR capabilities. Therefore, having a fully-functioning EHR will gradually

transform from a competitive advantage to a business sustainability requirement – as has happened with technological advances in many other sectors throughout history.

RefeRences

1. HealthIT.gov. 2013. www.healthit.gov/provid-

ers-professionals/faqs/what-electronic-health-

record-ehr (accessed March 5, 2013). Available

at: www.healthit.gov/providers-professionals/

faqs/what-electronic-health-record-ehr.

2. J. R. Vest, J. Yoon, and B. H. Bossak, “Changes to

the Electronic Health Records Market in Light

of Health Information Technology Certification

and Meaningful Use,” Journal of the American

Medical Informatics Association 20, no. 2, (2013),

pp. 227–232.

3. Institute of Medicine. The Computer-Based

Patient Record: An Essential Technology for

Health Care (Washington, DC: National

Academy Press, 1991).

4. D. Blumenthal, “Launching HITECH,” New

England Journal of Medicine 362 (2010),

pp. 382–385.

5. E. W. Ford, N. Menachemi, T. R. Huerta, and F.

Yu, “Hospital IT Adoption Strategies Associated

with Implementation Success: Implications

for Achieving Meaningful Use,” Journal of

Healthcare Management 55, no. 3 (2010),

pp. 175–188; discussion 188–189.

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

Health, University of Alabama at Birmingham.

A strategic information system (SIS), sometimes referred to as a decision support system, takes vast quantities of unorganized data and converts them into useful information to enable managers to make better decisions. Such information sys- tems involve organizing the data, selecting the models that will be used to analyze the data, and interpreting the output; nevertheless, it is not sufficient simply to provide the reports to the strategist. Sometimes there is a need to interpret and clarify the data relative to the assumptions that were used. Because decision sup- port systems attempt to investigate future activities, the assumptions are criti- cal. The organization that can design a SIS that is pertinent, relatively accurate, and timely will have developed a competitive advantage. “Inappropriate use

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 381

and interpretation of decision support models can be dangerous, but appropriate use of these models can be a powerful tool in the hands of an informed decision maker.”34 geographic Information Systems (gISs) are increasingly being used in health care to provide decision support (see essentials for a Strategic Thinker 9–5, “What Is a geographic Information System?”).

ESSEntIALS foR A StRAtEgIC thInkER 9–5

What is a geographic information System?

A geographic information system (GIS) is com- puter software used for the collection, storage, management, analysis, and visualization of data. That data has associated location information such as latitude and longitude or a physical address that can be translated into geographic coordinates and mapped to a physical location. Maps created using GIS help individuals and organizations integrate, aggregate, and inter- pret data elements by organizing related data and using location as the unifying common denominator.

Using maps to display health care data can aid in understanding and interpreting patterns, trends, and interrelationships of complex data. For example, GIS data can be used to track the influence of vaccination policy on the distribu- tion of disease, identify high-risk populations with special health care needs, track the effects of health care resources on health outcomes, as well as monitor diseases or track medical mistakes across organizations. In addition, GIS makes it possible to aggregate and track infor- mation at the individual patient level within an individual health care institution, a health care system, or across a community, state, or region through information contained in electronic health records (EHRs).

GIS has been evolving and its use in health care has been expanding as its applications have become better understood. For example, GIS is now being used by health care professionals

to manage supply chain networks, identify new service locations, understand specific popula- tion health needs, understand the health care access needs of different patient populations, track assets within an organization, and track health service utilization.

Combining and layering datasets can yield even more information. For example, a data layer of hospital locations that contains each hospital’s capacity and trauma level combined with a data layer of the state’s highways plus a layer of popu- lation density, results in a map that paints a more robust picture of the health care landscape. Additional analysis using spatial statistics (sta- tistics that incorporate the spatial relationships between data) creates an even more detailed picture identifying counties in need of addi- tional hospital resources (quantifying that need based on drive times and incorporating predic- tive modeling of projected population growth).

Similarly, GIS is being used to add context and meaning by adding a geospatial component to current in-house datasets. For example, the Northern California Kaiser Permanente health system has used the spatial statistical capabili- ties of GIS and vaccination data from members’ EHRs to identify significant clusters or “hotspots” of children considered to be underimmunized for childhood illnesses, which can be associated with increased risk to the insurer’s members and the community at large. By identifying these areas, public health officials and health care

Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-21 14:57:09.

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providers can efficiently target additional educa- tional efforts and interventions in the locations most impacted.1

RefeRence

1. Kaiser Permanente. “Geographic Clusters

of Under-immunization Identified in

Northern California,” ScienceDaily (January

19, 2015). www.sciencedaily.com/

releases/2015/01/150119083251.htm (accessed

April 27, 2017).

Source: Ariann Nassal, MFA, Evaluation and Assessment

Unit, School of Public Health, University of Alabama at

Birmingham.

Administrative information systems support financial information systems, human resources systems, payroll, billing, purchasing, materials and facilities management, outpatient clinic scheduling, office automation, and so on (other than direct patient care). clinical information systems support patient care and include computerized patient records systems, automated medical instrumen- tation, patient monitoring systems, nursing information systems, laboratory information systems, pharmacy information systems, clinical decision support systems, and information systems that support clinical research and education. Most information systems in the health care system focus on the financial and administrative aspects of the practice of medicine and much less on the clinical decision making.35 however, clinical information systems are growing in impor- tance, creating significant competitive advantage through increased efficiency and effectiveness in patient care. Basic clinical information systems provide a “dictionary” of health problems for clinicians or display background information on specific patients. More sophisticated systems, often referred to as expert or knowledge-based systems, can actively assist clinicians in the decision-making process.36 Such functions include:

● Assistance with diagnosing a patient’s condition. ● Assistance in determining proper drug dosage. ● reminders to administer preventive services to patients at specific

times. ● Assistance in carrying out diagnostic or therapeutic procedures, such as

recommending specific treatments, reminders to perform procedures, alerts regarding potential adverse events, feedback based on previous orders, and prompts for testing or treatment options.37

In today’s information-intense environment, seamless integration and infor- mation sharing are becoming increasingly important. Most health care organiza- tions interchange electronic data within their own organizations as well as with other organizations for insurance billing and claims processing, accessing clinical information from regional and national databases, online purchasing, and com- munications between affiliated providers.38 Telemedicine is a part of such sys- tems and has the potential to create additional competitive advantage for health care organizations. newer technologies include the use of mobile technologies

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 383

for improving pharmacy utilization.39 Perhaps equally important is the fact that although there are still some resisters, most of the evaluations of the use of health information systems have been positive.40

Strategic Technologies The technologies selected by the organization are dictated by the chosen strategies. Broadly, strategic technologies concern the type of facilities, type and sophistication of equipment, and management of technology employed within the organization. each of these activities is critical to the success- ful implementation of the organization’s strategy.

Facilities is the broad term used to delineate the physical environment of the health care organization. It is the “shell” in which health care is delivered. It gen- erally includes such diverse areas as design and construction of new facilities and renovation of older facilities, key equipment, clinical engineering, environmental services, safety and security, materials management, and food service. each com- ponent affects the health care organization’s ability to implement its strategy.

facilities management is an area of increasing concern to strategic managers of health care organizations for a variety of reasons. one of the most important is changing technology that has fostered tremendous growth in the number and kind of alternative delivery systems requiring different strategies for success. free- standing outpatient clinics, ambulatory (same-day) surgery centers, diagnostic and imaging centers, and others, are challenging traditional inpatient health care delivery. To survive, hospitals have expanded vertically and horizontally to diversify into these new delivery systems; however, each type is subject to different regulatory guidelines as well as entirely different design needs for buildings – a challenge for the facilities manager.

A variety of components should be considered in the design of a health care facility: medical technology, the full range of medical procedures from routine exams to complicated life-saving activities, medical staff, sanitation, prevention of injury, economics, patients, and visitors. from the patients’ perspective, the facil- ity includes “curb appeal,” ease of access to the main entrance, ease of parking, ease of wayfinding (finding the department, room, diagnostic area, or other area where the patient is expected), comfort, and convenience. Designing the facility with the human experience in mind recognizes that people’s perceptions of health care are multidimensional; the facility helps them to define the care they receive. Sending a “we care” message cannot stop with the staff but must be designed into the facility itself.41

When the health care organization decides on a high-tech, high-touch, or some other strategy, the facility provides the first impression. The design, layout, color scheme, and so on should reflect the desired image to improve the implementa- tion of the strategy. “unlike the quality of medical care, health facility design is something that can readily be understood and judged, for better or worse, by the public.”42

closely associated with facilities is the choice of the type and sophistication of equipment and effective management of technology; these are integral parts of strategic management and should be approached in a systematic way. Because health care technology changes rapidly, is costly, and often requires changes in the facility, it must be assessed and planned for carefully to reach its greatest potential. Physicians generally want the latest technology – using the “latest”

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 2023-10-21 14:57:09.

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384 StrAtegic mAnAgement of HeAltH cAre orgAnizAtionS

equipment or newest procedure earns prestige with colleagues and patients and may save more lives or prevent discomfort. The decision concerning the use of the latest technology must fit with the strategy (differentiation based on high- technology image).

Another consideration concerning technology is determining how rapidly a new technology will supplant an older one. new technologies that are not dependent on co-innovations and new infrastructure will be adopted much faster than new technologies that require new supporting infrastructure complements.43 Where there is substantial commitment to an old technology or the supporting infrastructure can be improved, change to a new technology might come very slowly.44 Therefore, adopting a new technology too soon may create a competitive disadvantage just as adopting too late might.

Technology decisions involve technology assessment, planning, acquisition, and management.45 Strategists advocate that a committee assess requests for new and emerging technology alongside the capital budget requests for new and replacement technology. The committee should report to senior management and should set mission-based, strategic priorities for new, emerging, and replace- ment technologies. Many hospitals do not incorporate into the budget the costs of redesign and “space” for new technology; nor do they investigate ways to reduce maintenance, insurance, and outside service contract costs. The planning process has to take into account what the competition is planning to acquire in terms of new and emerging technology as well as assessing the services offered by competitors.

clinical engineering (sometimes called biomedical engineering) is a relatively new area in most health care organizations. Its responsibilities include: applying engineering technology to diagnostic and treatment devices used by health care facilities through testing, maintaining, and repairing equipment; training; consul- tation with clinical staff concerning the capabilities, efficiencies, and accuracy of the equipment; environmental testing; and incident and recall investigations that involve diagnostic or treatment equipment. The number and sophistication of technologies within health care institutions has increased significantly over time. Because of the expertise required for such a large variety of equipment, some health care organizations use outside service contracts for some or all of their technological equipment.

Step 2: Compare the Strategy Requirements with the Results of the Support Activities Internal Analysis

each value chain support area was evaluated in situational analysis (chapter 4) and the conclusions were used in strategy formulation. As with the value-adding service delivery strategies, the results of the internal analysis identify the competi- tively relevant strengths and weaknesses for the support activities. Depending on the results of this comparison, the support areas may need to be maintained or changed to carry out the selected strategy.

A strategic thinking map depicting this rationale in the form of a table is shown in exhibit 9–7. The table organizes strategic thinking about what elements of the support strategies may need to be maintained or changed to meet the needs of the selected 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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 385

Step 3: Decide to Maintain or Change organizational Culture

Mission, vision, values, and strategic goals (discussed in chapter 5) provide an explicit linkage between strategy and culture. Just as these directional strate- gies were a major input to the selection of the adaptive, market entry/exit, and competitive strategies, they play a major role in shaping the appropriate organi- zational culture. how the organization defines itself, what it wants to be, how it accomplishes its tasks, and what it wants to achieve, shape the culture of the organization. The directional strategies can be powerful forces in maintaining or changing the culture. Similarly, management’s attitudes, style, and behaviors shape the organizational culture and play a major part in creating a positive and adaptive culture.

Strategic managers must decide whether the organizational culture can help achieve the strategy. Therefore, they must assess what cognitive and emotional assumptions, values, and behavioral norms are necessary to most effectively carry out the strategy. Attributes of the current assumptions, values, and behavioral norms must be compared with the assumptions, values, and behavioral norms required by the strategy. for example, if a market development strategy is being pursued, strategic managers may have to maintain the current culture; for new entrepreneurial ventures or product development, however, the culture may have to change. As discussed in chapter 6, strategies that involve acquisitions, merg- ers, and alliances usually have organizational culture implications. Incompatible cultures may contribute to failure of the strategy.

ExhIbIt 9–7 Strategic Thinking Map for Developing Value-Adding Support Strategies

Value-Adding support strategies

Results of Internal Analysis

Requirements of selected strategies

comparison of strategy Requirements and Internal Analysis

Maintain or change

Organizational Culture Shared Assumptions Shared Values Behavioral Norms

Organizational Structure Functional Divisional Matrix

Strategic Resources Financial Human Resources Information Systems Technology

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 2023-10-21 14:57:09.

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386 StrAtegic mAnAgement of HeAltH cAre orgAnizAtionS

During the situational analysis of the strategic management process, the mis- sion, vision, values, and strategic goals (the directional strategies) were evaluated. The leader must assess whether these directional strategies are still appropriate and are actually reflected in the culture of the organization. results of this assess- ment will determine whether the leader needs to create implementation strategies to maintain or change organizational culture. In addition, the current management style should be assessed to determine whether it is supportive of the strategy.

In addition to the comparison of the requirements of the overall strategy to cur- rent culture, results of the internal analysis itself may suggest action. The internal analysis specifies whether the organization’s culture is a strength or weakness and whether it might create a competitive advantage or disadvantage. Therefore, the results of the internal analysis must also be considered in the decision to maintain or change the culture. The culture of an organization will greatly influence the extent to which individuals are willing to share decision making, how open indi- viduals are to ideas from patients, and the quality of cooperation among diverse organizational units.46

Maintain Organizational Culture Despite a good match between the attributes of the current culture and requirements of the strategy, the work of man- agement is not complete. Maintaining culture often requires a great deal of hard work. In internal analysis, if aspects of culture are evaluated as strengths having high value (h), being rare (y), easy or difficult to develop (e or D), and sustainable (y) – resulting in hyey or hyDy – maintaining culture is particularly important because culture can be a source of short-term or long-term competitive advan- tage. culture can be a powerful weapon in recruiting, efficiency, and innovation. Allowing this strength to deteriorate will lead to competitive disadvantage, par- ticularly when it is common (not rare) among competitors.

Therefore, in maintaining culture, managers should:

● communicate often the mission, vision, values, and goals – verbally and in writing.

● Behave in ways that are consistent with the values and vision – first through their personal behavior, and then through new hires, promotions, and rewards.

● review and discuss the values and behavioral norms periodically. ● ensure that organizational roles, responsibilities, and relationships are

supportive of the culture. ● explicitly communicate which emotions will help the organization be

successful. ● continue to cultivate desirable emotions.47

Change Organizational Culture changing organizational culture can be difficult and requires a great deal of planning, time, and energy. Strategists Michael Beer and russell eisenstat noted that “[w]e’ve become convinced that

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 387

the most powerful way for leaders to realign their organization is to publicly con- front the unvarnished truth about the barriers blocking strategy implementation. Typically, this realignment involves looking closely at the roles and decision rights of various parts of the business, as well as changing the behavior of people at all levels.”48 further, a reworking of the fundamental practices required by matching the current culture with the requirements of the strategy will lead to new values, behaviors, and standards to reinforce the new direction.

When culture is viewed as a weakness (from internal analysis) or the require- ments of the strategy call for a different culture, culture-change strategies should be initiated. In cases where ineffective culture is assessed as a common weakness, competitors may be moving to build their own organizational culture to create competitive advantage; therefore, culture-change actions should be initiated. When effective culture is a weakness, the weakness is not common among competitors, and is difficult to develop (hnDy and hnDn), change strategies should be initi- ated, particularly where competitors may act and achieve a significant competitive advantage. The most serious situation, of course, is where an organization has a weak culture and other organizations have effective cultures (weak culture is not common), and it is difficult to develop a new culture (hnDy and hnDn) resulting in a significant competitive disadvantage. Strategic managers who want to create culture change should focus their energies on a few critical activities:

● clearly define the desired values and an inspiring direction. ● redesign the organization’s roles, responsibilities, and relationships to

support the strategy. ● Discuss and codify behavioral norms. ● live by the values from the very beginning. ● clarify the vision and indicate what changes are necessary to achieve the

vision. People need a clear sense of where the organization is going and where they should be headed.

● use simple, powerful, and consistent language. ● Model the kinds of behaviors and practices that management wants

infused into the organization through actions. “Walking the talk” gives credibility to the words and provides examples to others in the organiza- tion of what behavior is expected.

● empower other people to start acting in ways that are consistent with the desired values, and to implement new behaviors and practices. Part of empowering others is removing barriers within the organization that are in the way of the desired behavior.

● look for some quick but sustainable successes. Short-term successes are critical to provide the change effort with some credibility, keep people motivated, and demonstrate positive results to the organization.

● Demonstrate patience and persistence. Major culture change takes a long time – years not months – and the willingness to persist in the face of obstacles and setbacks is critical.49

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 2023-10-21 14:57:09.

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● explicitly communicate which emotions will help the organization be successful.

● cultivate desirable emotions.50

Step 4: Decide to Maintain or Change the organization Structure

Strategic managers should strive to keep their structures (and processes) as sim- ple as possible and trim every vestige of unnecessary bureaucracy – for example, extra layers of management.51 fundamentally, the structural decision is one of prioritizing standardization versus flexibility and selecting the basic structure that best achieves the required priority. Therefore, strategic managers must evalu- ate the advantages and disadvantages of each of the structural building blocks and match them with the requirements of the strategy. for example, a different structure may be required to carry out a defender/cost leadership competitive strategy than that for a prospector/differentiation strategy. Defender strategies require a high degree of structural standardization to create cost efficiencies while prospector strategies require a great deal of structural flexibility to develop new technologies and innovative products and services. The strategic thinking map shown in exhibit 9–8 provides guidance concerning the most appropriate organizational structure based on the strategy requirements of standardization or flexibility.

Maintain the Structure If there is a good match between the characteristics of the current organizational structure and the requirements of the strategy, then the present basic structure should be maintained, although additional coordinat- ing mechanisms may be required. It is not often that organizational structure alone will create long-term competitive advantage; however, structure is a key implementation area (especially when coupled with an effective culture). When it is viewed as a competitively relevant strength, efforts should be made to keep it effective – whether or not it is rare among competitors. In maintaining the present structure, management should:

● evaluate the present level of communication and coordination and discuss needed additional communication channels and coordinating mechanisms.

● evaluate the present structure to ensure that there are opportunities for innovation where appropriate.

● evaluate the management team to ensure that the leadership skills match their positions.

● Inventory the present skills to ensure that they are matched to the structure and strategy.

Change the Structure If the comparison of the present structure and require- ments of the strategy suggest a need to change the basic organizational structure, then management must develop a plan and move very carefully. Ineffective or

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 389

inappropriate organizational structure can debilitate the organization’s strategy – such as might be the case with too many organizational layers, thus delaying deci- sion making – but by itself structure is not generally seen as a significant long-term competitive disadvantage. however, where the organizational structure is viewed as a competitive disadvantage, action must be taken. reorganization represents a significant change for employees and is often viewed as threatening. research suggests that reorganizations can cause greater stress and anxiety over possible layoffs that may decrease productivity. To help managers think through reorgani- zation, a re-engineering approach may be taken. re-engineering reconsiders and

ExhIbIt 9–8 Strategy Requirements and Organizational Structure

strategy Requirements functional High standardization Divisional

Matrix High flexibility

High level of coordination X

High level of standardization X

Area/functional expertise X

Main goal of efficiency X

High level of control X

Develop general managers X X

High degree of operating autonomy X

Decentralized decision making geared to the market

X

High need to customize product or services to market

X

Consistent image X

Need local coordination X

Many projects using similar technologies X

Need high level of creativity and innovation X X

Need high level of stability X

Need to develop new technologies X

Need to be a cost leader X

Need to have service diversity X

Large organization X

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 2023-10-21 14:57:09.

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390 StrAtegic mAnAgement of HeAltH cAre orgAnizAtionS

changes how tasks connect to each other to produce more efficient overall systems of work.52 Therefore, when changing the structure, management should:

● follow a rigorous disciplined process with clear objectives for added value. ● Develop a flow chart of the total process, including its interfaces with other

value chain activities. ● Simplify first, eliminating tasks and steps where possible and analyzing

how to streamline the performance of what remains. ● Determine which parts can be automated (usually those that are repetitive,

time consuming, and require little thought or decision). ● Introduce advanced technologies that can be upgraded to achieve next-

generation capability and provide a basis for further productivity gains in the future.

● evaluate each activity to determine whether it is strategy critical (strategy- critical activities are candidates for benchmarking to achieve best-in-industry performance status).

● Weigh the pros and cons of outsourcing activities that are non-critical or that contribute little to the organizational capabilities and core competencies.

● compare the advantages and disadvantages of the organizational building blocks regarding standardization and flexibility.

● Design a structure for performing the activities that remain, then reorgan- ize the personnel and groups who perform these activities into the new structure.53

changing the organizational structure can be a difficult task and may require some new thinking and new approaches to old problems. re-engineering efforts that have been undertaken by health care organizations indicate that the use of integrating mechanisms, such as codifying the process, and the use of internal teams and committees during implementation appear to be most effective.54 In addition, as they undertake restructuring, strategic managers need to evaluate what competitive benefits are actually accruing to ensure that managers are not just reorganizing to be like everyone else, but for improved outcomes – they must understand how re-engineering affects the organization’s competitive position.55

Step 5: Decide to Maintain or Change Strategic Resources

Strategic resources are particularly important in implementing strategy. essentially an organization must have the financial resources, human resources, information systems, and technology to carry out the strategy. Although these factors were, no doubt, considered in the adoption of the broader strategies, external and com- petitive changes constantly challenge strategic resources. for example, changes in health care policy may place new demands on the organization’s technology

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 391

in terms of tracking quality, or the competition may build new state-of-the-art facilities. Initiating a response requires new financial resources and substantial changes in equipment and facilities. Strategic resources are a key building block in implementing strategy.

Maintain Strategic Resources If there is a match between the present level of strategic resources and the requirements of the strategy, then efforts should be made to maintain the financial, human, information, and technology resources. These areas may represent key competitive advantages or disadvantages for an organization. care should be taken to maintain those areas that are valued by cus- tomers and are a strength of the organization. In maintaining strategic resources the leader should do the following:

Financial ● evaluate whether current financial resources are being used efficiently. ● Determine whether the liquidity is appropriate for meeting ongoing

expenses. ● Seek ways to increase profitability without sacrificing other mission-critical

factors. ● Assess the current level of leverage to determine if there is an appropriate

level of risk. ● Determine whether asset activity can be improved. ● Assess cash-flow management. ● consider investment opportunities for idle cash.

Human Resources ● Develop training programs to maintain the current human expertise and

capabilities. ● create a talent identification/development program. ● Develop a management succession plan. ● Develop a job market network.

Information Systems ● Assess information systems growth needs. ● Develop information systems plans for operations and upgrades. ● hire staff or an outside agency with capabilities to manage Big Data if

being generated currently or necessary to be competitive.

Technologies ● Make sure there is a plan for facilities and equipment maintenance. ● Develop a facilities and equipment replacement schedule.

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 2023-10-21 14:57:09.

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392 StrAtegic mAnAgement of HeAltH cAre orgAnizAtionS

● Periodically review the operating procedures, policies, and rules to keep them “leAn.”

● review environmental services activities and procedures. ● evaluate current security procedures. ● evaluate food service activities. ● evaluate operation and maintenance procedures.

Change Strategic Resources If there is a poor match between the present level of strategic resources and the requirements of the strategy, the goal should be to change the financial and human resources, information systems, and stra- tegic technologies to meet the needs of the strategy. As with the service delivery strategies and other support strategies, the organization must be particularly sensitive to situations where it is easy to build a strength (its own or the competi- tion’s) because the competition may create a short-term competitive advantage. for example, evidence suggests that the early adoption of technology is often driven by technological competition where competitive rivalry is high (thus the need to eliminate competitive disadvantage). on the other hand, late adoption of technology may be more a result of revenue considerations (the threat of losing revenue).56

changing the type or nature of the financial and human resources, information systems, or facilities and equipment can be a difficult and long-term project. To change these strategic resources, the leader should do the following:

Financial ● Assess whether the current revenue can finance the change. ● Investigate the opportunities to finance the change through the issuance of

stock and the infusion of additional equity. ● Investigate the opportunities to finance the change through bonds, mortgages,

bank loans, fund raising, or philanthropy.

Human Resources ● Assess job markets to determine the availability of individuals possessing

the new required skills. ● Begin recruiting for new skills. ● Develop training programs to retrain individuals with skills no longer

needed.

Information Systems ● consider outsourcing needed changes in information systems. ● Assess the impact of needed changes on the current information systems. ● Assess needs of information systems in pre-service, point-of-service, and

after-service activities.

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 393

Technologies ● Determine the probable rate of new technology adoption. ● Identify the exact specifications of the need for facilities, equipment, or

processes, including space needs. ● Perform cost analysis on the required changes. ● Develop timelines for changing the technologies. ● Investigate the financing alternatives for the required changes. ● Investigate any new required skills or experience to operate or maintain the

new facilities or equipment. ● Specify any new required processes or ways of doing things. ● Initiate the facilities, equipment, and technology management renewal.

Step 6: Provide guidance to organizational Units There are many ways to add value in organizations. The value-adding sup- port strategies provide a powerful means to change the organization and create competitive advantage, especially because some of the value-adding support activities are less visible to those outside the organization, making the competitive advantage much more difficult to imitate or duplicate. Decisions concerning the organization’s culture, structure, and resources are strategic in nature and should be made by strategic thinkers.57 The effectiveness of the organization’s overall strategy may be influenced or even determined by the effectiveness of these implementation strategies. exhibit 9–9 shows a completed strategic thinking map that compares the results of an internal analysis, the selected strategy require- ments, and proposed value-adding support strategies for a skilled nursing facility. This map extends and further articulates the strategic thinking maps developed in strategy formulation and the development of the value-adding service delivery strategy. In addition, as with the service delivery strategies, guidance for manag- ing the strategic momentum is provided so that unit managers may develop effec- tive action plans that are tied directly to the organization’s strategy.

Strategic Momentum: Support Strategies

The actual management of the support strategies includes the managerial pro- cesses, procedures, style, and technologies of the organization and is an inherent part of the organization and the way it operates. Strategic thinking and strategy evaluation should be regarded as normal and necessary parts of what the organi- zation and its managers do. Through the setting of objectives, the performance appraisal process, the compensation program, and so on, managers’ actions are coordinated toward agreed-on organizational objectives. Strategic thinking and strategic evaluation become part of the operating procedures and culture (shared values) of the organization. Additional questions to aid strategic managers in managing the support strategies and evaluating their progress and appropriate- ness are presented in exhibit 9–10.

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 2023-10-21 14:57:09.

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Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 395

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Ginter, P. M., Swayne, L. E., & Duncan, W. J. (2018). The strategic management of health care organizations. John Wiley & Sons, Incorporated. Created from franklin-ebooks on 2023-10-21 14:57:09.

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396 StrAtegic mAnAgement of HeAltH cAre orgAnizAtionS

Chapter Summary

The value chain activities provide the basis for strategy implementation. After the value-adding service delivery strategies have been developed, the value-adding support strategies should be formulated. The value-adding support strategies are important in implementing the overall strategy and include organizational culture, organizational structure, and strategic resources. These strategies work together with the service delivery strategies to effectively implement the organization’s strategy.

The organizational culture permeates the organization and is defined in terms of the shared assumptions, shared values, and accepted behavioral norms. Strategic managers must decide whether the organization’s culture will contribute to the accomplishment of the strategy or must change over time. Therefore, the current assumptions, values, and norms must be compared with the requirement of the selected strategy.

The organizational structure should help to implement the strategy. The funda- mental building blocks of organizational structure are the functional, divisional, and matrix designs. each structure has its advantages and disadvantages, and the decision concerning which structure is best to carry out the strategy is based on the need for standardization versus flexibility. Where a high degree of stand- ardization is required, functional structures are desirable. Where a high level of flexibility is required because of diversity of product or markets, or where markets are rapidly changing, divisional or matrix structures may work best. Most organi- zations use a combination of designs supplemented with coordinating structures such as project teams and cross-functional task forces.

ExhIbIt 9–10 Strategic Thinking Map for Evaluating Support Strategies

1. Is the organization’s culture appropriate for the overall strategy? 2. Are the organization’s values reflected in the service delivery? 3. Are the behavioral norms appropriate for the strategy? 4. Are the management processes (the way we do things) appropriate for the strategy? 5. Does the organizational structure help to facilitate the overall strategy? 6. Is there a balance between standardization and flexibility? 7. Are additional coordinating or collateral structures required? 8. Does the organization have the financial resources to carry out the strategy? 9. Does the organization have the appropriate human resources, skills, policies, and

procedures for the strategy? 10. Is the management talent appropriate? 11. Do the information systems help to facilitate the strategy? 12. Are the facilities and equipment up to date and appropriate to carry out the overall

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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 397

An organization’s strategic resources are critical for most strategies. Adequate resources allow for a number of strategic alternatives, whereas having few strate- gic resources inhibits strategy implementation. Strategic resources include finan- cial, human, information, and technological resources. People are always key and different strategies require different human talents. responsibility for recruiting and developing the best human resources for the strategy falls to leadership. Strategic information systems and decision support systems can create competi- tive advantage for organizations through improved customer service and more efficient and effective service delivery. The selection of the strategic technologies is a decision of the strategic leader and is central to strategy implementation. Strategic technologies include the type of facilities and the type and sophistication of equipment. The strategic technologies decisions set the physical context and level of sophistication for service delivery and affect everything from the organi- zation’s image to patient satisfaction.

As with the service delivery strategies, the results of the internal analysis for each of the support activities in the value chain must be compared with the requirements of the strategy selected in the strategic management process. results of that comparison indicate whether there needs to be a strategy that maintains the current status of the support activity or a strategy that changes the support area. Value-adding support strategies typically maintain current strengths or build new ones, or correct weaknesses in the support activities. for each of the value-adding support areas, actions for maintaining or changing the area are rec- ommended as a way to initiate strategic thinking.

An example of value-adding support strategies developed through a com- parison of the results of an internal analysis and the requirements of the selected strategies for each are presented to extend strategic thinking. chapter 10 demon- strates how individual organizational units must set objectives and develop action plans based on the value-adding service delivery strategies and support strategies selected to achieve directional and adaptive strategies.

Practical Lessons for health Care Strategic thinkers

1. culture, structure, and strategic resources should probably follow strategy; however, the reality is that often strategy follows culture, structure, and the resources of the organization. often what we do is dependent on what we are able to do with the organization’s current culture, structure, and strate- gic resources.

2. often it is necessary to change the culture, structure, and strategic resources to successfully compete. These types of changes may take years – time an organization may not have. When the gap between the requirements of the strategy and the results of the internal analysis is too great, strategic managers may have to rethink the strategy itself.

3. Do not underestimate the critical importance of the support services in implementing 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 2023-10-21 14:57:09.

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398 StrAtegic mAnAgement of HeAltH cAre orgAnizAtionS

THE LANGuAGE OF STRATEGIC MANAGEMENT: KEy TERMS AND CONCEPTS

Behavioral norms cognitive Assumptions cognitive culture cognitive Values collateral organization combination Structure Decision Support System

Direction Divisional Structure emotional culture facilities functional Structure Matrix Structure organizational culture

Shared Assumptions Shared Values Strategic Information System (SIS) Strategic resources Strategic Technologies Structure Value-Adding Support Strategies

Questions for Class Discussion

1. What part does internal analysis play in the development of value-adding support strategies? What part does strategy formulation play?

2. how do the value-adding support strategies create the “context” for strategy implementation?

3. What is organizational culture? how does it implement strategy?

4. What are the basic building blocks of structure? What are the advantages and disad- vantages of each?

5. In what circumstances might a high level of standardization be required? A high level of flexibility?

6. Which do you think changes first, strategy or structure? After formulating your answer and making your case, argue the opposite position.

7. What are the primary differences in the financial strategies needed for expansion, reduction, and maintenance of scope?

8. What are the primary differences in the human resources strategies needed for expan- sion, reduction, and maintenance of scope? Which type of adaptive strategy is most dif- ficult to implement from a human resources perspective? Why?

9. how can information systems be used to develop competitive advantage?

10. What changes are information systems bringing to health care?

11. Why is facilities management an increasing concern for strategic management?

12. how do facilities affect a health care organization’s strategy?

13. how can the technology/equipment decisions create competitive advantage?

14. how might future internal analyses be affected by the value-adding 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 2023-10-21 14:57:09.

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Chapter 9 Value-adding Support StrategieS 399

notes 1. gary getz and Joe lee, “Why your Strategy Isn’t

Working,” Business Strategy Series 12, no. 6 (2011), pp. 303–307.

2. Ibid., p. 303. 3. nitin nohria, William Joyce, and Bruce roberson,

“What really Works,” Harvard Business Review 81, no. 7 (2003), p. 47.

4. Bindu gupta, “A comparative Study of organizational Strategy and culture across Industry,” Benchmarking 18, no. 4 (2011), pp. 510–528 and larry yarbrough, neil A. Morgan, and Douglas Vorhies, “The Impact of Product Market Strategy – organizational culture fit on Business Performance,” Academy of Marketing Science 39, no. 4 (2011), pp. 555–573.

5. John Kotter, A Force for Change: How Leadership Differs from Management (new york: The free Press, 1999).

6. gerald r. ledlow and M. nicholas coppola, Leadership for Health Professionals (Burlington, MA: Jones & Bartlett learning, 2014), p. 80.

7. Marie carney, “Influence of organizational culture on Quality healthcare Delivery,” International Journal of Health Care Quality Assurance 24, no. 7 (2011), pp. 523–533.

8. rené carayol, “Why culture Beats Strategy every Time,” Director 66, no. 4 (2013), p. 26.

9. John D. hanson and Steven A. Melnyk, “culture eats Strategy .  .  . and how to Deal with It,” Supply Chain Management Review 18, no. 4 (2014), p. 26.

10. Sigal Barsade and olivia A. o’neill, “Manage your emotional culture,” Harvard Business Review 94, no. 1/2 (2016) p. 60.

11. Ibid. 12. Ibid. 13. Maxim Voronov and Klaus Weber, “The heart of

Institutions: emotional competence and Institutional Actorhood,” Academy of Management Review 41, no. 3 (2016), p. 456.

14. Barsade and o’neill, “Manage your emotional culture,” p. 60.

15. Voronov and Weber, “The heart of Institutions,” p. 456. 16. Alfred c. chandler, Strategy and Structure (cambridge,

MA: MIT Press, 1962), p. 16. 17. Thomas g. Marx, “The Impacts of Business Strategy

on organizational Structure,” Journal of Management History 22, no. 3 (2016), pp. 249–268.

18. T. c. reeves, W. J. Duncan, and P. M. ginter, “Strategic configurations in health Service organizations,” Journal of Business Research 56, no. 3 (2003), pp. 31–43.

19. nir Menachemi, Valerie A. yeager, W. Jack Duncan, charles r. Katholi, and Peter M. ginter, “A Taxonomy of State Public health Preparedness units: An empirical examination of organization Structure,” Public Health Management and Practice 18, no. 3 (2010), pp. 250–258 and W. J. Duncan, P. M. ginter, A. c. rucks, M. S.

Wingate, and l. c. Mccormick, “organizing emergency Preparedness within the united States Public health Departments,” Public Health 121, no. 4 (2007), pp. 241–251.

20. Dale e. Zand, “Strategic renewal: how An organization realigned with Structure and Strategy,” Strategy & Leadership 37, no. 3 (2009), pp. 23–28.

21. harold J. leavitt, “Why hierarchies Thrive,” Harvard Business Review 81, no. 3 (2003), p. 98.

22. Ibid., p. 102. See also Andrew B. Whitford, “unitary, Divisional, and Matrix forms as Political governance Systems,” Journal of Management Governance 10, no. 2 (2006), pp. 435–454.

23. John r. griffith and Kenneth r. White, The Well-Managed Healthcare Organization, 5th edn (chicago, Il: health Administration Press, 2002), p. 163; M. c. Moldeveanu and robert M. Bauer, “on the relationship between organizational complexity and organizational Structuration,” Organization Science 15, no. 1 (2004), pp. 98–119.

24. Martine hass and Mark Mortensen, “The Secrets of great Teamwork,” Harvard Business Review 94, no. 6 (2016), pp. 70–90.

25. ethan Bernstein, John Bunch, niko canner, and Michael lee, “Beyond the holacracy hype,” Harvard Business Review 94, no. 7/8 (2016), pp. 38–49.

26. Stephen heidari-robinson and Suzanne heywood, “getting reorgs right,” Harvard Business Review 94, no. 11 (2016), p. 86.

27. Per nikotaj Bukh and christian nielsen, “understanding the health care Business Model: The financial Analysts Point of View,” Journal of Health Care Finance 37, no. 2 (2010), pp. 8–27.

28. Joseph f. Michlitsch, “high-Performing, loyal employees: The real Way to Implement Strategy,” Strategy & Leadership 28, no. 6 (2000), pp. 28–33; Barry A. colbert, “The complex resource-Based View: Implications for Theory and Practice in Strategic human resource Management,” Academy of Management Review 29, no. 3 (2004), pp. 341–358.

29. Bryan Dieter and Doug gentile, “Improving clinical Practices can Boost the Bottom line,” Healthcare Financial Management 47, no. 9 (1993), pp. 38–40; lynda gratton and catherine Truss, “The Three-Dimensional People Strategy: Putting human resources Policies into Action,” Academy of Management Executive 17, no. 3 (2003), pp. 74–86.

30. John f. crilly, robert h. Keffe, and fred Volpe, “use of electronic Technologies to Promote community and Personal health for Individuals unconnected to health care Systems,” American Journal of Public Health 101, no. 7 (2011), pp. 1163–1167.

31. gerald l. glandon, Detlev h. Smaltz, and Donna J. Slovensky, in Austin and Boxerman’s Information Systems

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 2023-10-21 14:57:09.

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for Health Services Administration, 7th edn (chicago, Il: health Administration Press, 2003) and Alan h. Williams and richard A. cookson, “equity–efficiency Trade-offs in health Technology Assessment,” International Journal of Technological Assessment in Health Care 22, no. 1 (2006), pp. 1–9.

32. Ibid. See also Johanna gummerus, “e-Services as resources in customer Value creation: A Service logic Approach,” Managing Service Quality 20, no. 5 (2010), pp. 425–434.

33. Ibid. 34. homer h. Schmitz, “Decision Support: A Strategic

Weapon,” in Marion J. Ball, Judith V. Douglas, robert I. o’Desky, and James W. Albright (eds), Health Information Management Systems (new york: Springer-Verlag, 1991), p. 47; Paul Morton, “using critical realism to explain Strategic Information Systems Planning,” Journal of Information Technology Theory and Application 8, no. 1 (2006), pp. 1–20.

35. holly J. Wong, “The Diffusion of Decision Support Systems in healthcare: Are We There yet?” Journal of Healthcare Management 45, no. 4 (2000), pp. 240–249.

36. Ibid. 37. office of Technology Assessment, Bringing Health Care

Online: The Role of Information Technologies (Washington, Dc: u.S. government Printing office, 1995).

38. glandon, Smaltz, and Slovensky, Information Systems. 39. robert oscar, “Smart choices: using Mobile Technology

to Improve Pharmacy utilization,” Employee Benefit Review 67, no. 12 (2013), pp. 25–27.

40. Melinda Beeuwkes Buntin, Matthew f. Burke, Michael hoaglin, and David Blumenthal, “The Benefits of health Information Technology: A review of relevant literature Shows Predominantly Positive results,” Health Affairs 30, no. 3 (2011), pp. 464–467.

41. Janet r. carpman and Myron A. grant, Design That Cares: Planning Health Facilities for Patients and Visitors, 2nd edn (chicago, Il: American hospital Publishing, 1993).

42. Ibid., p. 19. 43. ron Adner and rahul Kapoor, “right Tech, Wrong

Time,” Harvard Business Review 94, no 11 (2016), pp. 60–67.

44. Ibid. 45. David A. Berkowitz and Melanie M. Swan, “Technology

Decision Making,” Health Progress 74, no. 1 (1993), pp. 42–47.

46. Barsade and o’neill, “Manage your emotional culture,” p. 60.

47. Ibid. 48. Michael Beer and russell eisenstat, “how to have an

honest conversation about your Business Strategy,” Harvard Business Review 82, no. 2 (2004), p. 85.

49. James M. higgins and craig McAllister, “If you Want Strategic change, Don’t forget to change your culture,” Journal of Culture Change 4, no. 1 (2004), pp. 63–74.

50. Barsade and o’neill, “Manage your emotional culture,” p. 60.

51. nohria, Joyce, and roberson, “What really Works,” p. 49 and Bruce A. Waters and Shahid n. Bhuian, “complexity Absorption and Performance: A Structural Analysis of Acute-care hospitals,” Journal of Management 30, no. 1 (2004), pp. 97–122.

52. Stephen l. Walston and richard J. Bogue, “The effects of reengineering: fad or competitive factor?” Journal of Healthcare Management 44, no. 6 (1999), pp. 456–474.

53. Judy Wade, “how to Make reengineering really Work,” Harvard Business Review 71, no. 6 (1993), pp. 119–131.

54. Stephen lee Walston, lawton robert Burns, and John r. Kimberly, “Does reengineering really Work? An examination of the context and outcomes of hospital reengineering Initiatives,” Health Services Research 34, no. 6 (2000), pp. 1363–1388.

55. Ibid. 56. 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 (2000), pp. 317–330.

57. eva M. Pertusa-ortega, Jose f. Molina-Azorin, and enrique claver-cortés, “competitive Strategy, Structure and firm Performance: A comparison of the resource-Based View and the contingency Approach,” Management Decision 48, no. 8 (2010), pp. 1282–1303.

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 2023-10-21 14:57:09.

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