1. Chapter One Basic Strategy Concepts

2. What is Strategy? Strategy is the overall plan for deploying resources to establish a favorable position. Tactic is a scheme for a specific maneuver.

3. The Concept of “Strategy” Overall direction Long time horizon Organization-wide impact Fully utilizes all assets Matches organization to environment

4. The Concept of “Strategy” Major resource commitments Seeks advantage over competitors Pursue few strategies at one time Rarely changed

5. The Concept of “Strategy” Requires change throughout the organization Requires collaboration throughout the organization Future-oriented Marked by uncertainty and risk

6. Types of Health-Related Organizations Large for-profit corporations Small for-profit corporations Mom-and-pop small businesses Entrepreneurial startups or new ventures Large not-for-profit corporations Small not-for-profit corporations Federal government agency State government agency Municipal government agency

7. The Corporate Planning Hierarchy Strategic Plan (Three to five years) Operational Plan (One year) Tactical Plan (Weeks or months) Tactical Plan (Weeks or months) Tactical Plan (Weeks or months)

8. Strategic Plan Three to five years to implement Wide range of organizational activities Covers broad geographic area Large number of employees High monetary cost

9. Operational Plan Extends for no more than a year Narrower range of activities Impacts subgroups of employees Lower level of expenditure

10. Tactical Plan Few days or weeks to complete Quite modest expenditures Participation of just a few people Affects smaller units of the organization

11. Purposes of Strategic Planning Satisfy and reward stakeholders Pursue and fulfill the mission Survive

12. Stakeholders of a Health Care Organization Shareholders/bondholders/lenders/creditors Customers/patients Payers Suppliers Employees Government regulators Competitors Media Politicians

13. Groups who are affected by a firm’s performance and who have claims on its wealth The firm must maintain performance at an adequate level in order to retain the participation of key stakeholders The Firm and Its Stakeholders Stakeholders

14. Capital Market Stakeholders The Firm and Its Stakeholders Shareholders Major suppliers of capital Banks Private lenders Venture capitalists Stakeholders

15. Capital Market Stakeholders Product Market Stakeholders The Firm and Its Stakeholders Primary customers Suppliers Host communities Unions Stakeholders

16. Capital Market Stakeholders Product Market Stakeholders Organizational Stakeholders The Firm and Its Stakeholders Employees Managers Nonmanagers Stakeholders

17. Values Johnson & Johnson’s credo sets its responsibilities to: 1. J&J product users. 2. J&J employees. 3. Communities in which J&J employees live and work. 4. J&J stockholders. Source: Courtesy of Johnson & Johnson.

18. Johnson & Johnson Credo* First Responsibility Is to Those Who Use J&J Products Next Come Its Employees Next, the Communities in Which the Employees Live and Work Its Final Responsibility Is to Its Stockholders

19. Competition in Health Care Does it take place? – Among FPs – Among NFPs – Between FPs and NFPs – Among public agencies – Between NFPs and public agencies

20. Competition in Health Care Should it take place? – Public good vs market good – Positive effects of competition – Alternatives to competition

21. Competition in Health Care In what forms does it take place? – For customers/clients – For revenues and profits – For financial capital – For funding – For space – For policy support – For public and media attention

22. The Essence of Competition Doing the same things “better” doesn’t work What does work: – Performing activities that are “different” from competitors – Performing same activities in different ways – Performing same activities at lower cost

23. Strategy Variations Incremental Substantial Revolutionary

24. Incremental vs Revolutionary Incremental encounters less resistance than revolutionary Only revolutionary will achieve sustainable competitive advantage Well-conceived incremental better than poorly-conceived revolutionary Consistent with organization’s risk culture Supported by sufficient resources

25. Strategy Variations Intended Actual implemented Failed Emergent

26. Emergent and Deliberate Strategies Intended Strategy Realized Strategy Deliberate Strategy Unrealized Strategy Emergent Strategy From “Strategy Formation in an Adhocracy” by Henry Mintzberg and Alexandra McHugh, Administrative Science Quarterly, Vol. 30, No. 2, June 1985. Reprinted by permission of Administrative Science Quarterly.

27. Strategic Management Process for Intended Strategies Missions and Goals Strategic Choice Organizing for Implementation Internal Analysis External Analysis INTENDED STRATEGY

28. Strategic Management Process for Emergent Strategies Missions and Goals Internal Analysis External Analysis EMERGENT STRATEGY Strategic Choice Does It Fit? Strategic Choice Does It Fit? Organizational Grassroots

29. Intended vs Actual Strategy-making is not always successful Intended outcomes not always realized Assumptions about environment no longer valid Stakeholder support not forthcoming

30. Intended vs Actual Small activities move in unintended directions Inappropriate resource allocation Culture-driven actions distort strategic intention Organization politics confound strategic plans

31. Organizational Levels of Strategy Corporation or organization-wide Strategic business unit or product/service line Functional area Department (?) Task force (?) Individual employee (?)

32. Strategic Business Unit (SBU) Serves a unique market niche (different from other SBUs) Offers unique product or service lines (different from other SBUs) Separate structural component (within parent organization) Operates as profit center (like an independent business)

33. Strategic Thinking View organization in broad situational and environmental context View organization with long time perspective Project analysis and conclusions far into future and far outside the organization

34. Strategic Thinking A form of “systems thinking” Becomes more important, the higher one moves in the organization Balance with operational issues and thinking

35. ‪Strategy dictated by the external environment of the firm (what opportunities exist in these environments?) ‪Firm develops internal skills required by external environment (what can the firm do about the opportunities?)GeneralEnvironment Global Technological Economic Sociocultural Political/Legal Demographic 1. External Environments Industry Environment Competitor Environment I/O Model of Above-Average Returns

36. Four Assumptions of the I/O Model ‪ The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns ‪ Most firms competing within a particular industry or within a certain segment of it are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources

37. Four Assumptions of the I/O Model ‏ Resources used to implement strategies are highly mobile across firms ‏ Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests, as shown by their profit-maximizing behaviors

38. Industrial Organization Model I/O Model of Above-Average Returns ‏Study the external environment, especially the industry environment economies of scale barriers to market entry diversification product differentiation degree of concentration of firms in the industry The External Environment

39. I/O Model of Above-Average Returns ‪Locate an attractive industry with a high potential for above- average returns Attractive industry: one whose structural characteristics suggest above-average returns Industrial Organization Model The External EnvironmentAn Attractive Industry

40. I/O Model of Above-Average Returns Identify the strategy called for by the attractive industry to earn above- average returns Strategy formulation: selection of a strategy linked with above-average returns in a particular industry Industrial Organization Model The External EnvironmentAn Attractive IndustryStrategy Formulation

41. I/O Model of Above-Average Returns ‪ Develop or acquire assets and skills needed to implement the strategy Assets and skills: those assets and skills required to implement a chosen strategy Industrial Organization Model The External Environment An Attractive Industry Strategy FormulationAssets and Skills

42. I/O Model of Above-Average Returns Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy Strategy implementation: select strategic actions linked with effective implementation of the chosen strategy Industrial Organization Model The External EnvironmentAn Attractive IndustryStrategy FormulationAssets and SkillsStrategy Implementation

43. I/O Model of Above-Average Returns Industrial Organization Model The External EnvironmentAn Attractive IndustryStrategy FormulationAssets and SkillsStrategy ImplementationSuperior Returns Superior returns: earning of above-average returns

44. ‏Strategy dictated by the firm’s unique resources and capabilities ‏Find an environment in which to exploit these assets (where are the best opportunities?) Resource-based Model of Above Average Returns 1. Firm’s Resources

45. ‬Identify the firm’s resources-- strengths and weaknesses compared with competitors Resources: inputs into a firm’s production process Resource-based Model of Above Average Returns Resource-based Model Resources

46. ‏Determine the firm’s capabilities--what it can do better than its competitors Capability: capacity of an integrated set of resources to integratively perform a task or activity Resource-based Model of Above Average Returns Resource-based Model ResourcesCapability

47. ‏Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage Competitive advantage: ability of a firm to outperform its rivals Resource-based Model of Above Average Returns Resource-based Model ResourcesCapabilityCompetitive Advantage

48. Locate an attractive industry An attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities Resource-based Model of Above Average Returns Resource-based Model ResourcesCapabilityCompetitive AdvantageAn Attractive Industry

49. ‏Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment Strategy formulation and implementation: strategic actions taken to earn above average returns Resource-based Model of Above Average Returns Resource-based Model ResourcesCapabilityCompetitive AdvantageAn Attractive IndustryStrategy Form/Impl

50. Resource-based Model of Above Average Returns Resource-based Model ResourcesCapabilityCompetitive AdvantageAn Attractive IndustryStrategy Form/ImplSuperior Returns Superior returns: earning of above-average returns

51. Steps in the Strategic Planning and Management Process Mission Vision Values Grand strategic objectives Individual strategic plans

52. Steps in the Strategic Planning and Management Process Goals and metrics for each plan Functional area strategic plans Action plans Implementation Monitoring and adjustment

53. Benefits of Strategic Planning and Management Aggressive and proactive Create a desired future Clarity of strategic vision Motivate greater organizational achievement Direct attention to the long term

54. Benefits of Strategic Planning and Management Awareness of external environment Efficient allocation of resources Inspire and energize employees Basis of metrics for success

55. Mistakes in Strategic Management Passive reactive approach Created at the top Failure to build consensus No implementation “Analysis paralysis” in planning

56. Mistakes in Strategic Management No adjustment during implementation Timid, unambitious goals Lack of top management support Functional areas not involved Crucial strategic issues ignored