1. 1 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. CHAPTER 3 Formulating Organizational Strategy S. Robert Hernandez, DrPH Elena Platonova, PhD

2. 2 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Planning Methods Evolved over the years Four methods 1.Financial planning (1950s) 2.Long-range planning (1960s) 3.Strategic planning (1970s) 4.Strategic management (1980s)

3. 3 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Planning Methods Financial planning – Budgets for a given time period Long-range planning – Organizational goals, objectives, programs, and budgets – Forecasting from historical environmental trends

4. 4 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Strategic planning – Mission, objectives, strategy, policies, programs, goals, and major resource allocations – Matches internal resources and skills to environmental opportunities and risks Strategic management – Integrates administrative systems, organizational structure, and organizational culture – Blended with other management processes Planning Methods

5. 5 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Budgeting Financial plans in monetary terms Helps management implement strategies Essential information for decision making Raises the priority of planning Structure for the planning activity Keeps employees informed

6. 6 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Budgeting Benchmark for the organization Motivator for employees Typical process – Board: Establishes goals and approves – Management: Operational objectives, priorities, final administrative review – Line management: Specify resources

7. 7 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Budget Preparation Planning of utmost importance

8. 8 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Budget Preparation Zero-based method – Start from scratch – Historical data only a reference point – Each department defends budget requests – Time consuming Need more than just budgeting in planning

9. 9 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Long-Range Planning Integrated approach Marketing, production, finance, HR Implementation plans Short and long-range priorities Plant, people, and financial requirements

10. 10 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Long-Range Planning Major improvement over budgeting Advantage – Increases managerial awareness/responsibility Weaknesses – Predictions from historical patterns – Rapidly changing environment – Overly optimistic objectives

11. 11 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Strategic Planning Increasing uncertainty in environment Articulation, elaboration, and formalization of existing strategies Evolved into strategic thinking Strategic planning is a process Takes place after strategic thinking

12. 12 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Strategic Thinking Crucial to staying competitive Holistic approach Creativity Vision for the organization Organizations must facilitate – Structures, processes, systems

13. 13 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Strategic Planning Focus on the environment – Market segmentation, portfolio analysis Four steps 1.Analysis of Anticipated Results 2.Competitive Analysis 3.Portfolio Analysis 4.Diversification Analysis

14. 14 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Strategic Management Focus on concepts that affect performance Strategic planning and implementation Measure is competitive advantage Flexibility and prompt responses Basis for learning and adaptation Not a permanent plan

15. 15 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Organizational Strategy What is our business? What should it be? Business areas in which the organization will compete Corporate level strategy Build, hold, harvest, divest

16. 16 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Organizational Strategy Build – Invest to increase market share Hold – Maintain market share Harvest – Increase short-term cash flows Divest – Abandon the market

17. 17 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Competitive Advantage Cost leadership Differentiation Focus – Cost focus – Differentiation focus

18. 18 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Formulating Strategy

19. 19 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Formulating Strategy Identifying strategic business units Define market – Geographic area – Consumers that desire the product/service Determine distinct competence – Advantage of the firm over competitors

20. 20 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Strategy Formulation External analysis – Patient groups or consumers – Competitors – Industry conditions – General environmental factors

21. 21 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Strategy Formulation Environmental factors – Technology – Government – Economics – Culture – Demographics

22. 22 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Strategy Formulation Internal environment – Management and governance – Functional programs and services – Human resources – Medical staff – Financial resources and results – Physical facilities – Basic values and culture of the organization

23. 23 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Portfolio Assessment Boston Consulting Group (BCG) Business Grid

24. 24 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Portfolio Assessment Product Life-Cycle Matrix

25. 25 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Strategy and HR Direct, supportive relationship Achieve organizational business goals – Recruitment and selection – Development – Appraisal – Compensation Aligned with organizational strategy

26. 26 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved. Strategy and HR HR strategies in stages of life cycle – Introduction – Growth – Maturity – Decline

27. CASE STUDY »Lakeview Medical Center was founded in 1895 when civic leaders in a midwestern town united to establish a home for the sick poor. Over time, the scope of services was expanded to include maternity care, sick infants and children, and a full array of health services needed by the community. The Medical Center increased in size to become a 577- bed, acute care hospital with numerous affiliated activities. The foundation that controls the hospital also controls a family practice center, a fitness and sports medicine program, a health promotion center, three urgent care centers, a hospice, two skilled nursing facilities, and a patient transport service with several helicopters and ground ambulance capabilities. There is a feeling among some of the administrative staff that the organization has become “overstretched” in its attempt to provide the number of services that it does. Additionally, numerous opportunities arise to develop new service ventures at the Medical Center. The management team is in the process of considering methods that can be used to prioritize the services currently provided as well as to help in the process of considering new ventures. 27 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved.

28. CASE STUDY The team’s concern is that each of the services currently offered makes a somewhat different contribution both to the Medical Center and to the community. Additionally, numerous stakeholders have desired outcomes that are achieved by the operation of some services and not others. 28 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved.

29. CASE STUDY QUESTIONS 1. Describe the method or methods you would use to determine priorities for both existing and potential services that the Lakeview Medical Center might offer. 2. What criteria would you choose for selecting among the various services and how would you choose the criteria? 3. The business units of the Medical Center provide services at different stages of the product life cycle. What implications does this situation have for the human resources functions of the Medical Center? 29 Copyright © 2010 Delmar, Cengage Learning. All Rights Reserved.