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Chapter One Basic Strategy Concepts. What is Strategy?. Strategy is the overall plan for deploying resources to establish a favorable position. Tactic is a scheme for a specific maneuver. The Concept of “Strategy” . Overall direction Long time horizon Organization-wide impact

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Chapter One

Basic Strategy Concepts


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What is Strategy?

Strategy is the overall plan for deploying resources to establish a favorable position.

Tactic is a scheme for a specific maneuver.


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The Concept of “Strategy”

  • Overall direction

  • Long time horizon

  • Organization-wide impact

  • Fully utilizes all assets

  • Matches organization to environment


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The Concept of “Strategy”

  • Major resource commitments

  • Seeks advantage over competitors

  • Pursue few strategies at one time

  • Rarely changed


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The Concept of “Strategy”

  • Requires change throughout the organization

  • Requires collaboration throughout the organization

  • Future-oriented

  • Marked by uncertainty and risk


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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



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Strategic Plan

  • Three to five years to implement

  • Wide range of organizational activities

  • Covers broad geographic area

  • Large number of employees

  • High monetary cost


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Operational Plan

  • Extends for no more than a year

  • Narrower range of activities

  • Impacts subgroups of employees

  • Lower level of expenditure


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Tactical Plan

  • Few days or weeks to complete

  • Quite modest expenditures

  • Participation of just a few people

  • Affects smaller units of the organization


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Purposes of Strategic Planning

  • Satisfy and reward stakeholders

  • Pursue and fulfill the mission

  • Survive


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Stakeholders of a Health Care Organization

  • Shareholders/bondholders/lenders/creditors

  • Customers/patients

  • Payers

  • Suppliers

  • Employees

  • Government regulators

  • Competitors

  • Media

  • Politicians


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THE FIRM

The Firm and Its Stakeholders

Stakeholders

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


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The Firm and Its Stakeholders

Stakeholders

Capital Market Stakeholders

  • Shareholders

  • Major suppliers of capital

    • Banks

    • Private lenders

    • Venture capitalists


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The Firm and Its Stakeholders

Stakeholders

Capital Market Stakeholders

Product Market Stakeholders

Primary customers

Suppliers

Host communities

Unions


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The Firm and Its Stakeholders

Stakeholders

Capital Market Stakeholders

Product Market Stakeholders

Organizational Stakeholders

Employees

Managers

Nonmanagers


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Values

  • Johnson & Johnson’s credosets its responsibilities to:

    • J&J product users.

    • J&J employees.

    • Communities in which J&Jemployees live and work.

    • J&J stockholders.

Source: Courtesy of Johnson & Johnson.


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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


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Competition in Health Care

  • Does it take place?

    • Among FPs

    • Among NFPs

    • Between FPs and NFPs

    • Among public agencies

    • Between NFPs and public agencies


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Competition in Health Care

  • Should it take place?

    • Public good vs market good

    • Positive effects of competition

    • Alternatives to competition


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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


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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


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Strategy Variations

  • Incremental

  • Substantial

  • Revolutionary


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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


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Strategy Variations

  • Intended

  • Actual implemented

  • Failed

  • Emergent


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Emergent and Deliberate Strategies

IntendedStrategy

DeliberateStrategy

RealizedStrategy

EmergentStrategy

UnrealizedStrategy

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.


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Strategic Management Process for Intended Strategies

Missionsand Goals

InternalAnalysis

Strategic Choice

ExternalAnalysis

INTENDED STRATEGY

Organizing forImplementation


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InternalAnalysis

ExternalAnalysis

Missionsand Goals

Strategic Choice

Does It Fit?

EMERGENT STRATEGY

OrganizationalGrassroots

Strategic Management Process for Emergent Strategies


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Intended vs Actual

  • Strategy-making is not always successful

  • Intended outcomes not always realized

  • Assumptions about environment no longer valid

  • Stakeholder support not forthcoming


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Intended vs Actual

  • Small activities move in unintended directions

  • Inappropriate resource allocation

  • Culture-driven actions distort strategic intention

  • Organization politics confound strategic plans


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Organizational Levels of Strategy

  • Corporation or organization-wide

  • Strategic business unit or product/service line

  • Functional area

  • Department (?)

  • Task force (?)

  • Individual employee (?)


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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)


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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


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Strategic Thinking

  • A form of “systems thinking”

  • Becomes more important, the higher one moves in the organization

  • Balance with operational issues and thinking


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General

Global

Political/Legal

Demographic

Economic

Sociocultural

Technological

Environment

I/O Model of Above-Average Returns

1. External Environments

  • 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?)

Industry Environment

Competitor Environment


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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


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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


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The External Environment

I/O Model of Above-Average Returns

Industrial Organization Model

  • 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


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The External Environment

An Attractive Industry

I/O Model of Above-Average Returns

Industrial Organization Model

  • Locate an attractive industry with a high potential for above-average returns

Attractive industry: one whose structural characteristics suggest above-average returns


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The External Environment

An Attractive Industry

Strategy Formulation

I/O Model of Above-Average Returns

Industrial Organization Model

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


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The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills

I/O Model of Above-Average Returns

Industrial Organization Model

  • Develop or acquire assets and skills needed to implement the strategy

Assets and skills: those assets and skills required to implement a chosen strategy


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The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills

Strategy Implementation

I/O Model of Above-Average Returns

Industrial Organization Model

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


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The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills

Strategy Implementation

Superior Returns

I/O Model of Above-Average Returns

Industrial Organization Model

Superior returns: earning of above-average returns


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The Firm

Resource-based Model of Above Average Returns

1. Firm’s Resources

  • Strategy dictated by the firm’s unique resources and capabilities

  • Find an environment in which to exploit these assets (where are the best opportunities?)


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Resources

Resource-based Model of Above Average Returns

Resource-based

Model

  • Identify the firm’s resources-- strengths and weaknesses compared with competitors

Resources: inputs into a firm’s production process


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Resources

Capability

Resource-based Model of Above Average Returns

Resource-based

Model

  • 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


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Resources

Capability

Competitive Advantage

Resource-based Model of Above Average Returns

Resource-based

Model

  • 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


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Resources

Capability

Competitive Advantage

An Attractive Industry

Resource-based Model of Above Average Returns

Resource-based

Model

Locate an attractive industry

An attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities


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Resources

Capability

Competitive Advantage

An Attractive Industry

Strategy Form/Impl

Resource-based Model of Above Average Returns

Resource-based

Model

  • 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


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Resources

Capability

Competitive Advantage

An Attractive Industry

Strategy Form/Impl

Superior Returns

Resource-based Model of Above Average Returns

Resource-based

Model

Superior returns: earning of above-average returns


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Steps in the Strategic Planning and Management Process

  • Mission

  • Vision

  • Values

  • Grand strategic objectives

  • Individual strategic plans


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Steps in the Strategic Planning and Management Process

  • Goals and metrics for each plan

  • Functional area strategic plans

  • Action plans

  • Implementation

  • Monitoring and adjustment


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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


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Benefits of Strategic Planning and Management

  • Awareness of external environment

  • Efficient allocation of resources

  • Inspire and energize employees

  • Basis of metrics for success


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Mistakes in Strategic Management

  • Passive reactive approach

  • Created at the top

  • Failure to build consensus

  • No implementation

  • “Analysis paralysis” in planning


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Mistakes in Strategic Management

  • No adjustment during implementation

  • Timid, unambitious goals

  • Lack of top management support

  • Functional areas not involved

  • Crucial strategic issues ignored


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