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Strategic Thinking for Hospital CXOs
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STRATEGIC THINKING FOR HOSPITAL CXOS
CHIRANTAN CHATTERJEE
DOES STRATEGY MATTER?
2
MAYBE IF WE THINK OF ITS VIEWS
3
VIEW 1: PORTER’S 5 FORCES
4
PORTER’S 5 FORCES
5
GOVERNMENT
COMPLEMENTORS
AN IDEAL INDUSTRY
6
LOWLOW LOWLOW
LOW
DECIDES ATTRACTIVENESS OF INDUSTRIES
7
Profitability Index
-30.00 -20.00 -10.00 0.00 10.00 20.00 30.00 40.00 50.00 60.00
Airlines
Telecom
Liquor
Auto Anciliaries
Information Technology
Iron & Steel
Median
Hotels
Automobile
Cement
Pharma
Toiletries
-25.73
6.61
13.06
13.11
14.17
15.17
15.17
16.05
18.64
19.93
24.91
51.40
ROIC
Weighted Average Return on Invested Capital (in %)
Jaiswal and Nath (2012), CCS, IIMB
OR DOES IT?
8
Do industries make firms or firms make industries?
VIEW 2: THE RESOURCE-BASED VIEW OF THE FIRM
9
EXPLAINS WHY SOME FIRMS MORE SUCCESSFUL THAN OTHERS
Avg. Spread
(1984-2002)
Avg. Equity ($B) (1984-2002)
(80%)
(60%)
(40%)
(20%)
0%
20%
40%
0 5 10 15 20 25 30 35 40 45 50
Merck & Co
Schering-PloughBristol Myers Squibb
Pfizer Inc WyethLilly (Eli) & Co
Barr Laboratories IncNovartis AG - ADR
King Pharmaceuticals Inc
Albany Molecular Resh Inc
Covance Inc
Mylan Laboratories Watson Pharmaceuticals IncForest Laboratories -Cl APharmaceutical Prod Dev Inc
Novo-Nordisk A/S -ADRIdec Pharmaceuticals Corp
Perrigo CoIvax Corp
Andrx Corp
Medicis Pharmaceut Cp -Cl AGenzyme Corp
Parexel International CorpAventis Sa -ADR Chiron Corp
Protein Design Labs IncSicor Inc
Gilead Sciences IncEnzon Pharmaceuticals Inc
Abgenix IncCephalon Inc
Neurocrine Biosciences IncTularik Inc
Medimmune IncMedarex Inc
Celgene Corp Nektar Therapeutics
Quintiles Transnational CorpIcn Pharmaceuticals Inc
Avg. Spread
(1984-2002)
Avg. Equity ($B) (1984-2002)
(80%)
(60%)
(40%)
(20%)
0%
20%
40%
0 5 10 15 20 25 30 35 40 45 50
Merck & Co
Schering-PloughBristol Myers Squibb
Pfizer Inc WyethLilly (Eli) & Co
Barr Laboratories IncNovartis AG - ADR
King Pharmaceuticals Inc
Albany Molecular Resh Inc
Covance Inc
Mylan Laboratories Watson Pharmaceuticals IncForest Laboratories -Cl APharmaceutical Prod Dev Inc
Novo-Nordisk A/S -ADRIdec Pharmaceuticals Corp
Perrigo CoIvax Corp
Andrx Corp
Medicis Pharmaceut Cp -Cl AGenzyme Corp
Parexel International CorpAventis Sa -ADR Chiron Corp
Protein Design Labs IncSicor Inc
Gilead Sciences IncEnzon Pharmaceuticals Inc
Abgenix IncCephalon Inc
Neurocrine Biosciences IncTularik Inc
Medimmune IncMedarex Inc
Celgene Corp Nektar Therapeutics
Quintiles Transnational CorpIcn Pharmaceuticals Inc
Average Economic Profits in the Pharmaceutical Industry, 1984-2002
Ghemawat (2006)
RBV UNPACKED
11
The source of
Capability• Integration of a team of
resources
Does the capability satisfy the criteria of sustainable competitive advantage?
YES
NO
Resources• Inputs to a firm’s production
process
Core Competence• A strategic capability
Capability
SO WHAT ARE RESOURCES?
12
WHAT ARE RESOURCES?
Firm resources
TANGIBLE RESOURCES• Land• Buildings• Materials• Money RELATIONAL RESOURCES
• Relationships`contracts’
• Reputation`brands’
INTANGIBLE RESOURCES
CAPABILITIES• Knowledge(CI, mkt insight)
•NPD (R&D, MktRes, IBS)
•MindsetRBV argues that…..
the heterogeneous market positions of close competitors arise from each firm’s unique bundle of resources and capabilities
How to Choose the RIGHT-SET OF RESOURCES
Is a Resource…
Valuable RareDifficult to Imitate
Without Substitutes
Implications for Competitiveness
No No No No COMPETITIVE DISADVANTAGE
Yes No No No COMPETITIVE PARITY
Yes Yes No No TEMPORARY COMPETITIVE
ADVANTAGE
Yes Yes Yes Yes SUSTAINABLE COMPETITIVEADVANTAGE
BOTH INDUSTRY & FIRM-EFFECTS MATTER
Industry Effects
SCP5-Forces
Within Industry Strategic Groups
Value Position
Cost Position
Generic Strategies
Firm Effects
Competitive AdvantageINSTITUTION
BASED VIEW OF THE FIRM
THIS IS ALL FINE BUT WHAT ABOUT TIME?
16DYNAMICS IN STRATEGY
S-CURVES
Resources Invested, Time
Dominant DesignAdopted
Technological Limit
Period of active competition, oftenin which theincumbent loses
New Technology
Period of incumbentoversight
Era of ferment
Adapted from research by Clay Christensen and Jim Utterback
Performance
SO WHAT IS STRATEGY?
18
https://www.youtube.com/watch?v=R4q6uixp2UY
Common Sense
SO WHERE IS INDIAN HOSPITAL INDUSTRY ON 5-FORCES?
19
LOWLOW LOWLOW
LOW
WHAT ARE YOUR RESOURCES?
Firm resources
Tangible resources• Land• Buildings• Materials• Money Relational resources
• Relationships`contracts’
• Reputation`brands’
Intangible resources
Capabilities• Knowledge(CI, mkt insight)
•NPD (R&D, Mkt Res, IBS)
•Mindset
RBV argues that…..the heterogeneous market positions of close competitors arise from each firm’s
unique bundle of resources and capabilities
HOW MANY OF YOU ARE IN THE GREEN ZONE BELOW?
Is a Resource…
Valuable RareDifficult to Imitate
Without Substitutes
Implications for Competitiveness
No No No No COMPETITIVE DISADVANTAGE
Yes No No No COMPETITIVE PARITY
Yes Yes No No TEMPORARY COMPETITIVE
ADVANTAGE
Yes Yes Yes Yes SUSTAINABLE COMPETITIVEADVANTAGE
Overall Cost Leadership Broad Differentiation
Focused Cost LeaderCost Leadership in Specialized Services
Focused DifferentiationMedical Tourism
Highly Specialized Procedures
Stuck in The Middle w/You
22
STRATEGY IS ALSO ABOUT FOCUS 1/2
23
STRATEGY IS ALSO ABOUT FOCUS 2/2
RELATED & UNRELATED DIVERSIFICATION & PERFORMANCE
(Palich et al. 2000)
THE INNOVATOR’S PRESCRIPTION
https://www.youtube.com/watch?v=tmKqt6jf_H0
WHAT IS DISRUPTIVE INNOVATION?
SOME MORE THOUGHTS ON DISRUPTION 1/6
SOME MORE THOUGHTS ON DISRUPTION 2/6
SOME MORE THOUGHTS ON DISRUPTION 3/6
SOME MORE THOUGHTS ON DISRUPTION 4/6
SOME MORE THOUGHTS ON DISRUPTION 5/6
SOME MORE THOUGHTS ON DISRUPTION 6/6
Is Disruption Already Happening in Indian
Healthcare that you should be aware of?
VATSALYA
PORTEA
COMPETITIVE DYNAMICS W/VATSALYA & PORTEA?
34
• Yes/No?
• If Yes – How & on Which Dimensions?
• If No – Why Not?
• Going Forward?
HERE’S SOME EXAMPLE FROM INDIAN PHARMA
35
OF MANKIND IN INDIA’S STATIN MARKETS
36
Incumbent Pmax
Incumbent P90
Incumbent Pmean
Incumbent PminMankind's Price
Months Before Mankind's Entry After Mankind's Entry
0.0
05.0
1.0
15
May 20
02
May 20
03
May 20
04
May 20
05
Prices in the 20 milligram (x10 tablets) Atorvastatin
CRYING NEED FOR RESEARCH IN INDIA’S HOSPITAL SECTOR
37
http://www.nber.org/papers/w14619http://www.nber.org/papers/w9471http://www.nber.org/papers/w13877
Tejaswi Navadhitamastu
38Thank You