W5 Assignment Healthcare Strategic Management
Serenity3203
W5Lecture1and2.docxW5 Lecture 1 "Competitor Analysis"
Healthcare Strategic Management
Competitor Analysis
When you ask most general managers about what tool they use to learn about their competitors, most will recite the SWOT analysis; strengths weaknesses, opportunities, and threats. However, if you ask a strategist what tool they use, they will mention the focused competitor analysis. To summarize the difference between the tools, if the SWOT analysis were a wading pool the focused competitor analysis would be a large lake. This lecture will review the competitor analysis, what questions surrounds its use, and the obstacles that might prevent its successful completion. Lecture 2 will review strategy ethics and their importance in terms of social responsibility.
On the simplest possible level, businesses exist to create a means of living for its owners. Some would argue that the simplest level is to make a profit. However, if you owned a business, were paying your bills, covering overhead, and making ends meet, profit would be the extra fluff (you could buy a large boat for the large lake mentioned above.) Nevertheless, in order to make a living (profit) an entity needs to fully understand their competitors. To do so, an organization needs to ask the following questions (questions taken from Strategic Management 9th Ed):
· What are the industry’s dominant economic traits? In the health field, we would be concerned about the “triangle of healthcare”: access, quality, and cost. Being interconnected, if we moved one side of the triangle, the other sides move in tandem. As mentioned before, we could have the best healthcare system in the world if we had unlimited funds.
· What is competition like and how strong are each of the competitive forces? Michael Porter of the Harvard Business School has identified the Five Forces Model of Competition
. The rivalry among competing sellers. In healthcare, if one hospital focuses on women’s health and wellness and the neighboring hospital specializes in cardiology, the level of heated competition is extremely low. As another example, if there were two skilled nursing facilities competing for the same patient, heated competition becomes high and animosity, even unethical behavior (discussed in the next lecture) may become an issue.
. The market attempts of companies in other industries to win customers over to their own substitute products. For purposes of this course, while agreeing with Dr. Porter’s position on customer, those of us in healthcare would also insert “employees” in the above phrase. Healthcare is in the middle of a ‘labor tug of war’. In addition to winning customers, the healthcare field also needs to win its labor force. In many markets, entry level healthcare employees are earning far less than those in the fast food industry. Such competition thwarts the customary upward mobility so normally associated with healthcare. As an example, many employees would enter as primary caregivers – primary caregivers move to certification and become certified nursing assistants – certified nursing assistants move up to licensed nursing (LPN/LVN and RN). Unfortunately, fewer employees entering the healthcare profession mean less employees moving through this pipeline. In essence, we also need to have a complete understanding of competitor wages and benefits.
. The potential entry of new competitors. With the aging population, those providers specialized in elderly services should fully expect a rapid rise in competition.
. The bargaining power and leverage exercisable by suppliers of inputs. In essence, if a patent is extremely expensive, the likelihood of competition entering the arena will be significantly lower. As an example, Hoopes’ Vision in SLC, UT specializes in LASIK eye surgery. The patent on the lasers used is so high that few individuals can afford the initial and ongoing investment.
. The bargaining power and leverage exercisable by buyers of the product. The Hospital Corporation of America operates 162 hospitals and 113 free-standing surgical centers in 20 states. In comparison, MountainStar Healthcare operates 9 hospitals/medical centers in the state of Utah. Obviously, the purchasing power of HCA as opposed to MountainStar would be a formidable force should the latter want to expand into other markets.
· Which companies are in the strongest/weakest positions? Who controls what resources and what footprint do each serve?
· What moves are rivals likely to make next? Who is sitting at the head of your competition? Does s/he have a knack for expansion or are they more focused on internal improvements? Predicting a competitor’s next move is a multi-billion dollar industry. When you sit back and think about this, prediction is one of the largest components of Wall-Street. Prediction takes a lot of detective work. Many agencies employ secret shoppers to assess such things as price, customer service, and any discounts offered. Some less ethical companies actually employ “salts.” Salts are employees of company A who get hired by company B to steal their internal secrets. More about ethics in the next lecture (if we ever get there).
· What is the potential for above average profitability? This last question piggy-backs off of Dr. Porter’s potential of new entrants into the field. As a trillion dollar industry in the United States alone, healthcare will constantly face stiff competition regardless of niche.
The last part of this lecture concludes with a brief summary of the obstacles organizations face when attempting to complete an in depth analysis. As was mentioned in a previous lecture one of the biggest mistake managers can make is the failure to know of competitor presence. Another error in competitive analysis comes from an over emphasis of where to compete instead of understanding how to compete. The last obstacle an organization faces is the common practice of getting stuck in planning and lacking action. Over-analysis leads to paralysis (Zahra and Chaples). In the next lecture, we will discuss ethics in strategic management
W5 Lecture 2 "Ethics in Strategic Management"
Healthcare Strategic Management
Ethics in Strategic Management
In the 1960’s the American public was looking for compact cars that were both economical and easy on gas consumption. Toyota introduced the Corolla brand and Ford rolled out its Pinto. Both were large successes with the public. However, trouble was on the horizon for Ford and the Pinto.
In 1972, a woman and her male passenger in a Ford Pinto were struck from behind by a car traveling 30 miles per hour. The Pinto erupted into flames severely injuring both occupants. Similar incidents concerning the Pinto’s vulnerabilities drew Ford into several lawsuits. The central tenet of the cases was the fact that the Pinto was designed with the fuel tank located behind the rear axle instead of over it. When struck from behind, the Pinto had a much higher incidence of catching fire.
When faced with a decision, as the Pinto was a big seller, Ford based its strategic management on the following. For $11.00 per vehicle, Ford could solve the problem of the rear fuel tank and modify the design to increase safety. Ford analysts believed that the design could save over 180 lives. The cost to recall all vehicles and provide the safety fix was $137 million. Ford analysts concluded that each death would cost Ford $200,000 per death in lawsuits, $67,000 per injury, and $700 per vehicle claim. In total, the “societal benefit” cost was $49.5 million. Ford consciously chose not to alter their strategy and opted not to fix the vehicles.
On a different note, the pain reliever Tylenol has been a household name for decades despite having a scare of its own. In 1982 seven individuals were poisoned and the only common link was that each of them had taken a Tylenol several hours before their deaths. As a result of the Tylenol scare, Johnson and Johnson the manufacturer of the pain reliever, voluntarily withdrew all of its product from everywhere that it was sold. Although the killings were isolated to the Chicago area, Johnson and Johnson chose to take no risks. This decision cost the company millions of dollars in lost revenue however bolstered the trust the public had in the company. In the long run, the decision more than likely saved the company from reputational damage.
In both cases, the business strategy of each organization revolved around ethics. In the field of healthcare, perhaps more than any other field, the potential for fraud and unethical behavior is ever present. Although safeguards exist to curb unethical behavior, billions of dollars are lost annually to questionable practices. As an example, a doctor’s visit has multiple levels of billing associated with the patient. The levels depend on the time and skill level required at the time of visit. If someone presented to a physician merely to refill a prescription, we would expect the reimbursement to be much lower than someone who was complaining of dizziness and fatigue. A CPT code of 99221 is an ordinary visit, however 99222 (one level up) requires more time and skills. The difference in reimbursement could be as much as $100 for one level. There are five such levels. If you were a physician with a struggling practice, the difference in one level of coding could mean success or bankruptcy. Upcoding as it is called, is wide spread and difficult to catch.
When strategy is formulated, the organization must ask itself, is this something that would be construed as usual and customary or does it float into unethical boundaries. Just because something is legal does not always make it ethical. Conversely, just because something is ethical does not make it legal. Imagine a burn unit with a patient in excruciating pain. The nurse on duty cannot reach the covering physician to receive orders for additional assistance with pain control. The nurse, acting in the patient’s best interest, proceeds with administering additional pain medicine. Although the nurse acted with kindness and assisted the patient, the action itself is highly illegal.
In healthcare, the gray areas of ethical versus unethical is so vast that many organizations have standalone ethics boards and might even employ an ethical compliance officer. In a recent study, those organizations that are viewed by the public as ethical and trustworthy outperform their unethical counterparts in every category including financial. If you were an investor, you would more than likely place your money in an organization that is ethically sound. In summary, finally the good guy no longer finishes last.
