Chapter One Basic Strategy Concepts. What is Strategy? Strategy is the overall plan for deploying resources to establish a favorable position. Tactic

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 Fully utilizes all assets Matches organization to environment


Major resource commitments Seeks advantage over competitors Pursue few strategies at one time Rarely changed


Requires change throughout the organization Requires collaboration throughout the

organization Future-oriented Marked by uncertainty and risk

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

The Corporate Planning Hierarchy

Strategic Plan(Three to five years)

Operational Plan(One year)

Tactical Plan(Weeks or months)



Strategic Plan

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

Operational Plan

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

Tactical Plan

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

Purposes of Strategic Planning

Satisfy and reward stakeholders Pursue and fulfill the mission Survive

Stakeholders of a Health Care Organization

Shareholders/bondholders/lenders/creditors Customers/patients Payers Suppliers Employees Government regulators Competitors Media Politicians

Groups who are affected by a Groups who are affected by a firm’s performance and who firm’s performance and who have claims on its wealthhave 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

Capital Market Stakeholders


ShareholdersMajor suppliers of capital

•Banks•Private lenders•Venture capitalists

Stakeholders


Product Market Stakeholders


Primary customersSuppliersHost communitiesUnions

Stakeholders


Product Market Stakeholders

Organizational Stakeholders


EmployeesManagersNonmanagers

Stakeholders

Values

Johnson & Johnson’s credosets its responsibilities to:

1. J&J product users.

2. J&J employees.

3. Communities in which J&Jemployees live and work.

4. J&J stockholders.

Source: Courtesy of Johnson & Johnson.

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

Competition in Health Care

Does it take place?– Among FPs– Among NFPs– Between FPs and NFPs– Among public agencies– Between NFPs and public agencies


Should it take place?– Public good vs market good– Positive effects of competition– Alternatives to competition


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

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

Strategy Variations

Incremental Substantial Revolutionary

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

Strategy Variations

Intended Actual implemented Failed Emergent

Emergent and Deliberate Strategies

IntendedStrategy

RealizedStrategy

DeliberateStrategy

UnrealizedStrategy

EmergentStrategy

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.

Strategic Management Process for Intended Strategies

Missionsand Goals

Missionsand Goals

Strategic Choice

Strategic Choice

Organizing forImplementation

Organizing forImplementation

InternalAnalysis

InternalAnalysis

ExternalAnalysis

ExternalAnalysis

INTENDED STRATEGY

Strategic Management Process for Emergent Strategies

Missionsand Goals

Missionsand Goals

InternalAnalysis

InternalAnalysis

ExternalAnalysis

ExternalAnalysis

EMERGENT STRATEGY

Strategic ChoiceDoes It Fit?

Strategic ChoiceDoes It Fit?

OrganizationalGrassroots

OrganizationalGrassroots

Intended vs Actual

Strategy-making is not always successful Intended outcomes not always realized Assumptions about environment no longer

valid Stakeholder support not forthcoming

Intended vs Actual

Small activities move in unintended directions

Inappropriate resource allocation Culture-driven actions distort strategic

intention Organization politics confound strategic

plans

Organizational Levels of Strategy

Corporation or organization-wide Strategic business unit or product/service

line Functional area Department (?) Task force (?) Individual employee (?)

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)

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

Strategic Thinking

A form of “systems thinking” Becomes more important, the higher one

moves in the organization Balance with operational issues and thinking

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?)

GeneralGeneral

EnvironmentEnvironment

GlobalGlobal

TechnologicalTechnological

Eco

nom

ic

Eco

nom

ic

Sociocultural

Sociocultural

Polit

ical

/Leg

al

Polit

ical

/Leg

al Dem

ographic

Dem

ographic

1. External Environments

Industry Environment

Competitor Environment

I/O Model of Above-Average Returns

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 returnsMost 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

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

Industrial Organization Model


Study the external environment, especially the industry environmenteconomies of scalebarriers to market entrydiversificationproduct differentiationdegree of concentration of

firms in the industry

The External Environment


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

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



An Attractive Industry


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




Strategy Formulation


Develop or acquire assets and skills needed to implement the strategy

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



An Attractive IndustryAn Attractive Industry


Assets and Skills


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





Assets and Skills

Strategy Implementation






Assets and Skills

Strategy Implementation

Superior Returns

Superior returns: earning of above-average returns

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

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

Resources: inputs into a firm’s production process


Resource-based Model

Resources

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



Resources

Capability

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



Resources

Capability

Competitive Advantage

Locate an attractive industry

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



Resources

Capability



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



Resources

Capability



Strategy Form/Impl



Resources

Capability



Strategy Form/Impl

Superior Returns

Superior returns: earning of above-average returns

Steps in the Strategic Planning and Management Process

Mission Vision Values Grand strategic objectives Individual strategic plans

Steps in the Strategic Planning and Management Process

Goals and metrics for each plan Functional area strategic plans Action plans Implementation Monitoring and adjustment

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

Benefits of Strategic Planning and Management

Awareness of external environment Efficient allocation of resources Inspire and energize employees Basis of metrics for success

Mistakes in Strategic Management

Passive reactive approach Created at the top Failure to build consensus No implementation “Analysis paralysis” in planning

Mistakes in Strategic Management

No adjustment during implementation Timid, unambitious goals Lack of top management support Functional areas not involved Crucial strategic issues ignored

Documents

Chapter One Basic Strategy Concepts. What is Strategy? Strategy is the overall plan for deploying resources to establish a favorable position. Tactic