Stephen L Walston Strategic Healthcare Management Planning and Execution Second Edition AUPHA/HAP Editorial Board for Graduate Studies Jan Clement, PhD, Chairman Virginia Commonwealth University Joseph F Crosby Jr., PhD Armstrong Atlantic State University Daniel Estrada, PhD University of Florida Edmond A Hooker, MD, DrPH Xavier University Peter D Jacobson, JD University of Michigan Christopher Louis, PhD Boston University Peggy J Maddox, PhD George Mason University Donna Malvey, PhD University of Central Florida Brian J Nickerson, PhD Icahn School of Medicine at Mount Sinai Mark A Norrell, FACHE Indiana University Stephen J O’Connor, PhD, FACHE University of Alabama at Birmingham Maia Platt, PhD University of Detroit Mercy Debra Scammon, PhD University of Utah Tina Smith University of Toronto Carla Stebbins, PhD Rochester Institute of Technology Health Administration Press, Chicago, Illinois Association of University Programs in Health Administration, Washington, DC Your board, staff, or clients may also benefit from this book’s insight For more information on quantity discounts, contact the Health Administration Press Marketing Manager at (312) 424-9450 This publication is intended to provide accurate and authoritative information in regard to the subject matter covered It is sold, or otherwise provided, with the understanding that the publisher is not engaged in rendering professional services If professional advice or other expert assistance is required, the services of a competent professional should be sought The statements and opinions contained in this book are strictly those of the author(s) and not represent the official positions of the American College of Healthcare Executives, the Foundation of the American College of Healthcare Executives, or the Association of University Programs in Health Administration Copyright © 2018 by the Foundation of the American College of Healthcare Executives Printed in the United States of America All rights reserved This book or parts thereof may not be reproduced in any form without written permission of the publisher 22 21 20 19 18 5 4 3 2 1 Library of Congress Cataloging-in-Publication Data The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI Z39.48-1984. ∞ ™ Acquisitions editor: Janet Davis; Project manager: Theresa Rothschadl; Cover designer: James Slate; Layout: Cepheus Edmondson Found an error or a typo? 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Please e-mail it to hapbooks@ache.org, mentioning the book’s title and putting “Book Error” in the subject line For photocopying and copyright information, please contact Copyright Clearance Center at www.copyright.com or at (978) 750-8400 Health Administration Press Association of University Programs A division of the Foundation of the American in Health Administration College of Healthcare Executives 1730 M Street, NW One North Franklin Street, Suite 1700 Suite 407 Chicago, IL 60606-3529 Washington, DC 20036 (312) 424-2800 (202) 763-7283 To my wife, Kathleen, and children, who have supported and endured my careers and intellectual endeavors BRIEF CONTENTS Preface .xv Acknowledgments xxv Part I Introduction Chapter Strategy and Strategic Management Part II Core Concepts of Strategy Chapter Understanding Market Structure and Strategy 25 Chapter Business Models and Common Strategies .45 Chapter Growth and Integration Strategies 77 Chapter Strategic Alliances 103 Part III Organizational Purpose Chapter Stakeholders, Values, Mission, and Vision .125 Part IV Understanding Organizational Position Chapter The External Environment and Strategy .151 Chapter The Internal Environment and Strategy 181 Chapter Strategic Financial Analysis 213 Part V Plans for Achieving Mission and Vision Chapter 10 Development and Execution of a Strategic Plan 243 Chapter 11 Business Plans and Strategic Management .271 vii viii B rief Co n t ents Part VI Implementing Strategies Chapter 12 Organizational Structure and Strategy 281 Chapter 13 Strategic Change Management .305 Chapter 14 Strategic Leadership .323 Part VII Monitoring Strategic Achievement Chapter 15 Implementing, Monitoring, and Evaluating Strategy .339 Case Studies 361 Appendix 401 Glossary 417 References .429 Index 463 About the Author 485 DETAILED CONTENTS Preface .xv Acknowledgments xxv Part I Introduction Chapter Strategy and Strategic Management Learning Objectives History of Strategy Strategy in Healthcare Today Why Study Healthcare Strategy and Strategic Management? Prospective and Emergent Strategies .11 Levels of Strategy 14 Text Overview 17 Chapter Questions 19 Chapter Cases 19 Chapter Assignment .21 Part II Core Concepts of Strategy Chapter Understanding Market Structure and Strategy 25 Learning Objectives .25 The Societal Environment 26 Market Structure 31 Measuring Market Structure 37 Product Life Cycle 39 Chapter Summary 41 Chapter Questions 41 Chapter Cases 42 Chapter Assignments 43 ix 472 I n d ex Immunotherapies, 32, 152 Implementation, of strategy, 340–46; for change strategies, 314–17, 319; employees’ involvement in, 341; as leadership core function, 8; monitoring and evaluation of, 344–46; responsibility for, 342–44; in strategic action cycle, 340, 341 IMS Health, 250 Incentives: in vertically integrated organizations, 83–84 Income, relationship to expenses, 49–50 Indiana: most-favored-nation clause restrictions in, 87 Indiana Orthopaedic Hospital, 370 Indianapolis, Indiana: case studies of, 369–77; market distribution by inpatient beds in, 163; market share by bed, 2013, 164 Indiana University Health, 162 Industrial Revolution, 6, 286, 300 Industry(ies): defined, 31; markets differentiated from, 31 Informal leaders, 309 Information technology: advances in, 9; in flat organizations, 289; in marketing, 259 Innovation: adoption by early entrants into markets, 68–70; business model, 50–52; disruptive, 55–57, 56 Inputs: in changing healthcare business model, 53; definition of, 48; in pharmaceutical business model, 51; resources as, 48, 48–49 Instagram, 70 Institute for the Future, 152 Institute of Healthcare Improvement, 317 Intalere, 161 Intangible resources: defined, 183; strategic value and, 185 Integrated cost leadership/differentiation strategy, 65 Integrated delivery network, 84 Integrated delivery systems, 6, 83 Integration, 78 See also Centralization; of organizational function, 282, 284 INTEGRIS Health System, 165, 183–85 Interdepartmental Committee on Employment-based Health Insurance Surveys, 191 Interdependencies: pooled, 111, 111; reciprocal, 111, 112; resource, 111; sequential, 111, 112; strategic alliances and, 111, 111–13 Interest, payments on, 224 Intermediate organizations, 28 Intermountain Healthcare (IHC), 146, 147, 165, 267 Internal data/statistics, 191; selection of, 185–89 Internal environmental analysis, 181–212; data relevant to, 185–89, 209; definition of, 185; portfolio analysis, 205–8, 209; resources and, 182–85, 183, 184; selection of statistics for, 188–89; SWOT analysis, 194–99, 209; TOWS analysis, 199–200, 209; value chains, 201–5, 209 Internal expansion, 79–80; advantages/ disadvantages of, 79; definition of, 79 Internal rate of return (IRR), 231, 231, 235 Internal stakeholders, 126, 127 International healthcare market, 11 International Monetary Fund, 272 Internet, 70, 267 Inventory turnover, 222, 222 Investments: choice between alternative investments, 228–32; internal rate of return (IRR) ratio, 231, 231, 235; net present value (NPV) of, 228–30, 231, 235; payback period, 231–32, 232, 235 IPA-model HMOs, 367 iPhone (Apple), 32 IRR See Internal rate of return (IRR) Isomorphic, definition of, 46 Johnson & Johnson, 152, 283, 285, 292–93 Joint-venture alliances, 113, 113; definition of, 116; equity–control continuum of, 108; example of, 110; functions of, 115; governance/management structure of, 114, 117 Jones, David, 14 Kadlec Regional Medical Center (Washington), 111 Index Kaiser Permanente, 85, 100; functions of strategic planning analyst at, 253, 253; “My Health Manager,” 267 Kale, Prashant 106 Kaplan, Gary, 305 Key attributes: competition level and, 158 Key performance indicators (KPIs), 345– 46, 357 King Faisal Specialist (KFS) Hospital: mission statement of, 138, 139; strategic priorities for, 257 Kmart, 81 Knox, MacGregor, 282, 326 Kodak, 56 Kohlberg Kravis Roberts & Company (KKR), 98 KPIs See Key performance indicators Kraft Foods, 98 Kroger, 80 Lawrence, Paul R., 287 Leaders: accessibility of, 330; alignment between stakeholders and, 246, 247; core competencies of, 329–30; daily demands on, 324; decision-making skills of, 330; financial skills of, 215; hurdles between organizational strategic priorities and, 324; informal, 309; preparedness surveys, 310; seven core competencies for, 181; strategic management skills of, 306, 308, 309, 329– 32; strategic thinking skills of, 325–29 Leaders’ and participants’ preparedness, 310 Leadership: case study of, 333–34 Learning alliances, 113, 113 Lewin, Kurt: change model of, 307, 307 Lexus, 68 LHP Hospital Group, 97 Licensing alliances, 113 LifePoint Hospitals, 110, 142 Lifestyle preferences, racial/ethnic differences in, 27–28 Lipitor, 108, 109 Liquid biopsies, 32, 152 Liquidity: definition of, 217; evaluation of, 219 Liquidity ratios, 217, 219–21, 235; accounts receivable, 220–21; acid/ quick, 219; current, 219; days cash on hand, 220; days in accounts receivable, 220 Lorsch, Jay W., 287 Los Angeles Times, 56 Low-cost strategies, 71; broad, 58–60, 61; focused, 60, 61; in healthcare, 60–61 Lyft, 105 Machiavelli, Niccolò, 327 Magnetic resonance imaging, Malcolm Baldrige National Quality Award, 351 Managed care, scenario analysis of, 174–75 Managed care organizations: acquisitions and mergers of, 284; contracts with, 28–29; strategic alliances and, 107 Management, team-based, 289 Management strategy, 326 Managers: span of control of, 288, 288–89 Market analysis See Market research and analysis Marketing, 342; definition of, 262; information technology-based, 266–67; in pharmaceutical industry, 262 Marketing and sales management: business plans and, 273, 275 Marketing plans, 261–67; budget for, 266; creation of, 266–67; critical importance of, 267; definition of, 261; goals component of, 266, 268; mission and vision component of, 266, 268; positioning component of, 262, 265–66; research and analysis component of, 266; review and update of, 267, 268; segmentation component of, 262, 263–64; strategy component of, 266; targeting component of, 262, 264, 267 Market power, 33 Market research and analysis: as business plan component, 273, 274; definition of, 274; as market plan component, 266 Market rivalry, among competing healthcare organizations, 161–68; case studies of, 380–83, 397–400; degree of product differentiation, 162, 166; demand and, 162, 167–68; different 473 474 I n d ex ownership types, 162, 166–67; equality of organizations’ strengths, 162, 162, 165; height of exit barriers, 162, 166; intensity of, 161, 162; strategic groups and, 168–69 Market(s): assessment of competitiveness of, 158–59; concentration of, 38; definition of, 31; industries differentiated from, 31; new entrants into, 34, 50, 154, 154–57; product life cycle of, 39, 39–41; segmentation of, 28–29, 293; targeting of, 58, 58–60 Market share: competition and distribution of, 162 Market structure, 31–39; case study, 42–43; definition of, 33; by degree of control and number of competitors, 33; measurement of, 37–39; monopolies, 33, 33, 35, 36–37, 41, 42; monopolistic competition, 33, 33, 34, 35, 36, 41, 42; oligopolies, 33, 33, 35, 36, 41, 42; perfect competition, 33, 33, 34, 35, 41; types of, 33 Marshfield Clinic, 85 Maryland: healthcare insurance market in, 34; Total Patient Revenue System demonstration in, 55 Matrix organizational structure: advantages and disadvantages of, 197, 294– 95; decision-making process in, 295 Matrix organizations, 294, 294–96, 300 Maven, 105 Maxfield, David, 345 Mayo Clinic, 85, 349 McDowell, Tiffany, 281 McKesson Pharmaceutical, 161 McKinsey & Company, 246 Medicaid, 31, 263 Medical device companies: for-profit status of, 129, 130 Medical errors, causes of, 54 Medical Group Management Association, 250 Medical home models, 267 Medical staff: involvement in strategic planning, 343–44 Medical technology: advances in, 9–10, 152; definition of, 31; effect on healthcare services, 31, 32; substitutes and, 158 Medical tourism, 11 Medicare, 31, 167, 263; prospective payment system and, 167; Shared Savings Program, 47 Medicare reimbursement, for specialty care, 382 Medicine: disruptive innovation and, 57 Meeting coordinators, 332 Meetings: role in strategic management, 330, 332, 333 Men: healthcare utilization patterns of, 28 Merck & Company, Inc., 15–16, 109, 169; Animal Health Division, 16, 17, 17; corporate structure, 2012, 15–16, 16 Mercy healthcare system: “MyMercy” patient portal, 267 Mercy Hot Springs, 94 Mergers: as barrier to competition, 92; of Blue Cross plans, 87; differences in missions and, 146–47; economies of scale and, 155; failed, 81; as horizontal expansion, 93; of managed care organizations, 284; post-ACA, frenzy of, 25; price increases associated with, 92; strategic alliances and, 106, 106; in western Pennsylvania healthcare market, 91 Merrill Lynch, 56 Methodist Hospital, Gary, Indiana, 369, 376 Meyer, Harris, 151 Michigan: most-favored-nation clause restrictions in, 87 Micromessaging market, 69 Microsoft, 34, 81, 284 Middle strategy, 65–66 Military strategy, Miller, Don, 281 Mintzberg, Henry, 172, 291 Mission: of academic centers, 67; definition of, 128, 135; gap analysis of, 250– 52; internal statistics related to, 191; as marketing plan component, 266, 268; relationship with organizational culture, 106; relationship with prospective strategy, 12; relationship with strategic alliances and mergers, 116; relationship with SWOT analysis, 194, 198; resources and, 182; stakeholders’ Index involvement in, 136; strategic alliances and mergers and alignment/misalignment of, 106; as strategic intent component, 135–41; strategic leadership and, 306, 308, 319; as value chain outcome, 201–2; vision vs., 141 Mission advantage: competitive advantage vs., Mission-based matrix, 207, 208, 209 Mission statements, 144–45; case study, 145–46; components of, 137; content of, 137; good and bad attributes of, 136; Merck & Co., Inc., 16; prevalence of use, 135; purpose of, 136, 137; review of, 140; of strategic alliances, 116 Mobility barriers, 169 Modern Healthcare magazine, Molecular imaging: advances in, Monitoring, of strategic efforts, 340, 341, 344–46, 357; importance of, reasons for, 345; tools for, 346, 347, 348–49, 350–51, 351–53 Monopolies, 41, 42; comparison to other market structures, 35; definition of, 36; Herfindahl-Hirschman Index of, 37–38 Monopolistic competition, 33, 33, 41, 42; comparison to other market structures, 35; definition, 34, 36 Monopoly, 33, 33 Monopoly markets: hospitals in, 25 Monopoly rights: prescription drugs and, 37 Most-favored nation clause, 87 Motorola, 81 Multidivisional organizations, 291–93, 292, 296, 297, 300 Murray, Williamson, 282, 326 Must-have hospitals, 62–63 Mutual benefit corporations, 283 Mutual insurance companies, 284 Mylan, 169 NAHDO See National Association of Health Data Organizations Name recognition: value of, 184 National Ambulatory Medical Care Survey, 249–50 National Association of Health Data Organizations, 250 National Cancer Institute, 250 National Football League, 37 National Hospital Ambulatory Medical Care Survey, 250 National Institutes of Health, 249 National Medical International, National Research Corporation, 184 Naturopathy, 157 Net assets to total assets ratio, 224, 224 Netflix, 56 Net income, 225 Net (or excess) margin, 226, 226 Net present value (NPV), 228–30, 230, 235; definition of, 229; example calculation, 229 Net profit (loss), 215 Network outsource alliance: defined, 116; functions of, 115 Networks (and alliances): advantages/ disadvantages of, 79; defined, 81; as growth strategy, 81–82; open-panel, 90 Net worth, 217 New entrants, into markets: barriers to, 154–57; as competitive threat, 154, 154 New Hampshire: healthcare insurance market in, 34 New Jersey Bell, Nike, Inc., 69, 137 Nine-block matrix, 207, 207 Nokia, 32, 81, 294 Nominal group technique, 196 North Carolina: healthcare insurance market in, 34 North Dakota: healthcare insurance market in, 34 North Shore-LIJ Health Systems See Northwell Health Northwell Health, 109 Not-for-profit healthcare organizations, 7; business plans of, 272; change in net assets of, 215; as corporations, 283–84; horizontal expansion of, 93, 96; strategic alliances of, 107; vision statements of, 141 Novant Health, 263 Novartis: mission statement of, 140 Novartis-Sandoz, 169 Novation, 114 475 476 I n d ex NPV See Net present value (NPV) Nurse practitioners: scope of practice issues, 157 Nursing homes: for-profit status of, 129 Nursing services: relationship to respiratory therapy services, 287–88 Obama, Barack, 8, 11 Objectives: actionable, 259; characteristics of, 258; creating, 258–59; definition of, 258; example of, 259; guideline questions for, 258–59 Okamoto, Tsutomu, 281 Oklahoma City: market distribution by inpatient beds in, 163; market share by bed, 2013, 165; organizational strength and market rivalry in, 165 Oligopolies, 33, 33, 41, 42; antitrust legislation regarding, 37; characteristics of, 35; collusion among, 36; comparison to other market structures, 35; definition of, 36; examples of, 36; intensity of rivalry in, 162 OPEC See Organization of Petroleum Exporting Countries (OPEC) Open-panel networks, 90 Operating margins, 225–26, 226 Operating statements, 215, 234; definition of, 215; Stanford Health Care, 216, 216–17 Opportunistic behavior, 84 Organizational culture: as barrier to competition, 176; of merged organizations, 81; relationship to organization’s mission, 106; values of, 128, 144 Organizational development, 342 Organizational performance: stakeholders’ perception of, 193 Organizational position: understanding, 149 Organizational preparedness: definition of, 311; surveys, 311–12 Organizational purpose: stakeholders and, 126–28, 127 Organizational structure, 281–303; business units, 285, 286, 300; case study of, 301–3; centralization of, 285, 298; comparison of, 296–98, 297; corporate, 283–85, 300; decentralization of, 297; definition of, 286; differentiation and, 287; functional, 285, 286, 290, 290–91, 297, 300; future of, 298–300; historical perspective on, 286–87; hybrid, 295–96; integration and, 287; matrix, 294, 294–96, 297, 300; multidivisional, 291–93, 292, 297, 300; resurgence in interest in, 281; span of control in, 288, 288–89, 300; University of Utah Health, 283, 283 Organization and management: business plans and, 273, 275 Organization of Petroleum Exporting Countries (OPEC), 36 OrthoIndy, 369, 370, 374 OU Medical Center, 184 Outcomes: evaluating, 346; measures of, 345 Ownership See also For-profit healthcare organizations; Not-for-profit healthcare organizations: integration and benefits of, 88–89; market rivalry and types of, 166–67; strategic alliances vs., 108; strategy and changes in, 6; of vertically integrated healthcare organizations, 83–84 Oxford Health Plans, 107 PacifiCare, 107 Page, Trevor, 281 Patents: on prescription drugs, Patient origin studies, 28, 29 Patient panels, 65 Patient portals, 267 Patient Protection and Affordable Care Act, 23, 30, 381; accountable care organizations and, 92; community needs assessment provision of, 249; effect on operational work flow, 11; effect on organizational structure, 298–99, 301; potential repeal of, 20, 31; tax-exempt hospitals and, 249 Patient service areas: determining, medical geography and patient origin in, 29 Pauly, Mark V., 84 Payback period, 231–32, 232, 235 Pennsylvania: vertical integration attempts in, 91 Pepsi, 58 Index Perfect competition, 33, 33, 41; comparison to other market structures, 35; definition of, 34; intensity of rivalry in, 162 Performance, relationship to values, 131, 134–35 PEST analysis, 170–71, 176, 251 Peterson, Julie, 111 Pfizer, 108, 109, 156, 169 Pharmaceutical companies See also specific pharmaceutical companies: diversified expansion of, 97; for-profit status of, 129, 130; mission statements of, 140; mobility barriers of, 169; network outsource alliances of, 114; research and development strategies of, 9, 13; sequential interdependencies of, 106–7; strategic alliances of, 108, 108; strategic groups, 169, 170 Pharmaceutical industry: business models of, 50–52, 51; market concentration in, 37; marketing in, 262; strategic alliances in, 114 Pharmaceuticals: advances in, Pharmacogenomics, 10, 57 Philanthropy: new services case study, 388–89 Philip II, Phillip Morris, 98 PHOs See Physician–hospital organizations Physician groups: horizontal expansion of, 82 Physician–hospital organizations (PHOs), 107 Physician practices See also Group practices: for-profit status of, 129, 130 Physicians: primary care, 54 Physician(s): affiliated with hospitals or integrated delivery systems, 6; practicing concierge medicine, 65; specialist, 382 Pioneer ACO model, 47 Planning structures: definition of, 252; organizational use of, 252–55 PMH Medical Center (Washington), 111 Political forces: affecting healthcare, 10–11; as driving force, 170 Pooled interdependence, 111, 111 Pooled-service alliances, 114, 116, 119; definition of, 114; functions of, 115 Population demographics: in healthcare, 26–27 Population health referral contract approach, case study, 387–88 Porter, Michael, 13, 58; Five Forces model of, 153–62, 165–68, 176; generic categories of strategy concept of, 58; value chain concept of, 201, 203, 205 Portfolio analysis, 205–8, 209; function of, 205; problems with, 208 Positioning, of products and services, 262, 265–66; “four Ps” of, 265 Positron emission tomography, PPS See Prospective payment system (PPS) Premier Inc., 161 Preparedness matrix, 312, 313 Prescription drugs See also Pharmaceutical companies; Pharmaceutical industry: advertising of, 262; brand-name vs generic, 166; patents on, 9; prevalence of use, 9; prices of, 159; US per capita spending on, 37 Prescriptive strategy, 12 Present value, 228–29 Prices/pricing: cost-based, 86; discounted, 86; full market, 86; market power over, 33; monopolistic, 34; of prescription drugs, 159; of substitute products, 158; transfer, 86–87, 293, 366 Price variance, as budget variance cause, 355, 356, i356 Price wars: detrimental effects of, 162 PriceWaterhouseCoopers, 104 Primary care physicians, 54 Priorities, strategic: definition of, 256; examples of, 256–57; identifying, 256; setting of, 256; SWOT analysis of, 194, 196–97, 199 Problem children, 206, 206 Processes: as business model component, 48, 49; in changing healthcare business model, 53; definition of, 49; in pharmaceutical business model, 51; reengineering, 377–80 Procter & Gamble, 41, 294 Product differentiation: market rivalry and degree of, 166 477 478 I n d ex Product lines: description of, in business plans, 273, 275 Product markets, early entrants into, 68–70 Product positioning See Positioning, of products and services Products: customers’ loyalty to, 155; life cycle of, 39, 39–41; portfolio analysis of, 205–8, 209; substitute, 157–58 Professional associations See also specific associations: comparison to strategic alliances, 105 Profitability: defined, 50 Profitability ratios, 225–27, 226, 235 Profit and loss (P&L) statements, 215 Profits: in changing healthcare business model, 53; in pharmaceutical business model, 51; short-term, 131; as value chain outcome, 201 Project charters, 259–60, 261; template from Centers for Disease Control and Prevention, 402–16 Project management, 342 Projects: action plans for, 353–54; prioritization of, 353, 358; resource allocation for, 12, 358 Prospective payment system (PPS), 167 Prospective strategy: definition of, 12; factors affecting use of, 12–13; value and purpose of, 12–14, 13 Proton therapy centers, 73–74, 184–85 Psychiatric hospitals: for-profit status of, 129 Psychographic segmentation, of markets, 263 Public benefit corporations, 283 Public relations, 342; integration of business development and, 253 Purchasing alliances, 113, 113 Quality of healthcare, relationship to healthcare expenditures, 53–54 “Quasi firms”: strategic alliances as, 104 See also Strategic alliances Quick ratios See Acid/quick ratios Racial and ethnic minority groups: access to healthcare, 10; healthcare spending by, 26; healthcare utilization patterns of, 27 Rackham, Horace, 172 Radiology: advances in, Ratio analysis, 234, 235; activity (efficiency) ratios, 221–23, 222, 223, 235; comparative use of, 227, 228; debt ratios, 223–25, 224, 225, 235; definition of, 215; financial, 217; liquidity ratios, 217, 219–21, 235; profitability ratios, 225–27, 226, 235; unexpected results in, 227 Ratios, 215 Ravenscraft, David A., 90 Realized strategy See Emergent strategy Recession (2008), 26, 28 Reciprocal interdependence, 111, 112 Redbox, 56 Reengineering: case study, 377–80 Referrals, 87 Regulations: as barrier to market entry, 154–57; impact on US healthcare system, 29 Reinvention, 306 Related diversification: defined, 97 Related diversification expansion, 97–98 Religiously affiliated healthcare organizations See also Catholic healthcare facilities: strategic alliances of, 110 Reputation: of first movers, 69–70; importance of, 183, 184; value of name recognition and, 184 Request for proposals, 384, 385 Resistance: removing, in change management, 314–16, 319 Resource allocation: within multidivisional organizations, 291–92; portfolio analysis–based, 205; as strategic management component, 329, 330, 332; for strategic projects, 13 Resources: first movers’ control of, 69; intangible, 183; interdependence of, 111; internal environment analysis and, 182–85; key internal, 183; tangible, 183; valuable, 208 Respiratory therapy services, relationship to nursing services, 287–88 Retail clinics/markets, 79 Retained earnings, 225 Retrospective analysis, 12 Return on assets (ROA), 226–27, 227 Index Revenue, generation of, 48, 49–50 Revenue statements, 215 See also Operating statements RFPs See Request for proposals Rhode Island: healthcare insurance market in, 34 Rite Aid, 80 Rivalry, among competing organizations See Market rivalry Roche Diagnostics, 113, 156, 169 Rodak, Sabrina, 339 Rolex, 58, 64 Rolls-Royce, 58, 64 Roman army, organizational structure of, 286 Rommel, Erwin, 298 Rosin, Tamara, 181 Royal Dutch/Shell Group, 173 Safety net hospital: case study, 371–77 St Agnes Hospital, Washington State, 377 Saint Alphonsus Health System, Idaho, 380, 381 St Dominic Hospital, Jackson, Mississippi, 109, 110 St Francis Hospital & Health Center, Indianapolis, Indiana, 375 St Francis Medical Center: access- and insurance enrollment–focused goals, 259; strategic priorities for, 256–57 St John’s Hospital, Seattle, Washington: case study, 377–80 St Kilda’s Health System, 383 St Kilda’s Health Partners (SKHP), 383, 384 St Luke’s Health System, Boise, Idaho, 380–83 St Vincent Hospital, Indianapolis, Indiana: case study, 369, 371, 374, 375 Saks Fifth Avenue, 64 Sanford Health, North Dakota and South Dakota, 398 Satisfaction matrix, 191, 192 SBUs See Strategic business units Scenario analysis, 172–76; definition of, 172; future uncertainties and, 173; of managed care, 174–75; steps in, 173; trigger points in, 176 Scenarios: definition of, 172 Schechter, Asher, 25 Schering-Plough, 16 Scott & White, 85 S curve, 39, 40 Sears, 81 Segmentation: behavioral, 264; definition of, 263; demographic, 263; geographic, 263; of markets, 28–29, 262, 263–64, 293; psychographic, 263 Seidman, Dov, 149 Sensitivity analysis, 234, 234, 235 Sensors, 57 Sequential interdependence, 111, 112 Service (or product) lines: description of, in business plans, 273, 275; multidivisional, 293 Services: portfolio analysis of, 205; positioning of, 262 Seventh-Day Adventist Church, 112 Sextus Julius Frontinus, SHC See Stanford Health Care Shepard, Bruce, 110 Sherwin-Williams, 82 Shimberg, Andrew, 345 Shire Pharmaceuticals, 114 Siemens, 70 Silos, 294–95 Singh, Harbir 106 Size, organizational: as strategic choice, 77, 78 Sloan, Alfred, SMART method: for creation of goals and objectives, 258–59 Smartphones, 34, 81 Snapchat, 70 Snohomish County Long Term Care & Aging, Washington State: vision statement of, 142–43 Social media, use in strategic planning, 248 Social networking, 69–70 Social responsibility reports, 133 Societal environment: definition of, 26; effect on healthcare market, 26–31 Southwest Airlines, 65 Sovaldi, 57, 159 Span of control, 282, 288, 288–89, 300; flat organizations with large, organizational characteristics of, 289 479 480 I n d ex Spatial (geographic) analysis, 28 Specialist physicians: group practices of, 82 Specialized healthcare facilities: low-cost strategies of, 61 Specialty hospitals: case study, 369–71 SSM Health Care (St Anthony), 165 Staff: involvement in strategic planning, 341–42, 343–44; involvement with change programs, 313; old and young, false assumptions about, 327 Stakeholder analysis, 190–94; steps in, 192–94 Stakeholders: alignment between leaders and, 246, 247; case study of, 392; defined, 126; determining level and type of involvement for, 194; external, 126, 127; integration and understanding of, 127–28; internal, 126, 127; key groups of, 193; number of, 126–27; organizational purpose and, 126–28, 127; prechange preparation and, 307– 8; reinvention and, 306; resistance to change, 314–15; role in strategic intent formulation, 128–44; role in strategic planning, 246–48, 342–44, 357; satisfaction of, 191, 192; segmentation and, 263; surveys, 314–15; types of, 126 Stanford Health Care: balance sheet, 218; financial ratios, comparison of, 228; statements of operations for, 216, 216–17 Stars, 206, 206 Statements of financial performance, 215 See also Operating statements Statements of operations, 215 See Operating statements Static budgets, 356 Statistical budgets, 354–55 Statistics See also Data: external, 249–50; internal, 191, 248; for internal environmental analysis, 188–89; for stakeholder satisfaction analysis, 190–91 Stock markets, 33 Stratagems (Sextus Julius Frontinus), Strategic action cycle, 340, 341 Strategic alliances, 23, 103–19; acquisitions vs., 104; advantages and disadvantages of, 105–9; benefits of, 105–6; coalitions vs., 105; definition of, 104; environmental uncertainty and, 106–7; examples of, 109–11; failure of, 106, 116, 118; for-profit insurer and notfor-profit provider, 109–10; for-profit provider and not-for-profit provider, 110; goals of, 117; governance/ management structure of, 114, 117; interdependencies and, 111, 111–13; joint-venture alliance, 115, 116; management of, 116–19; mergers and, 106, 106; mission statement of, 116; network outsource alliance, 115, 116; new and traditional drivers for, 105; by organization type, 108, 108–9; ownership vs., 108; partner selectivity and, 105; personnel’s commitment to, 118; in pharmaceutical industry, 114; pooled-service alliance, 114, 115, 116, 119; positive or negative outcomes for, 107; reassessment of, 119; of religiously affiliated hospitals, 112; religious provider-retailer, 110; types of, 113, 113–16; urban provider-rural provider, 111 Strategic Business Insights, 263 Strategic business units (SBUs), 15–17, 205, 209; examples of, 15–17; function of, 285, 286; portfolio analysis of, 205, 206–8 Strategic change management See Change management, strategic Strategic financial analysis See Financial analysis, strategic Strategic groups, 168–69; definition of, 168; mobility barriers of, 169; pharmaceutical, 169, 170 Strategic intent, 128–44; definition of, 128, 144; healthcare organizations by, 7; mission component of, 129, 135–41; relationship between mission, vision, values, and, 128, 129; as strategic plan component, 255; values component of, 129, 130–35; vision component of, 129, 141–44 Strategic leadership: components of, 325; definition of, 324 Strategic management: definition of, 329; as leadership skill, 329–32; reasons for studying, Index Strategic planning: as accreditation requirement, 342; annual, 244, 254; case studies of, 269–70; data sources for, 249–50; delegation of, 330–31; effective, 182; employees’ involvement in, 341–42; environmental analysis in, 248–52, 255, 267; governing board’s involvement in, 342–43, 344; milestones in, 248; preparing for, 252; as process or event?, 342; relationship to budgets, 354; stakeholders’ involvement in, 246–48, 342–44, 357; in strategic action cycle, 340, 341; structures in, 252–55; task forces and advisory groups in, 254; time frame for, 254, 255; written plans and policies for, 253, 255–56 Strategic planning committees, 254, 343, 357 Strategic planning directors, 253 Strategic plans, 243–70; annual updating of, 254; appendixes to, 256; current status of organization and, 245–46; definition of, 244, 271; development cycle of, 245; differentiated from business plans, 272–73; environmental analysis section of, 248–51, 255, 267; executive summary section of, 255; format of, 255–61; goals and objectives section of, 256, 258–60, 260; key stakeholder involvement and, 246–48; marketing plan section of, 261–67; priorities and programs section of, 256–57; purpose of, 244, 267; stakeholder’s needs incorporated into, 194; strategic intent section of, 255; value to organization provided by, 244 Strategic priorities, 256–57 Strategic thinking See Thinking, strategic Strategos, Strategy See also Corporate-level strategy; Implementation, of strategy: actual, realized, 214; definition of, 3, 4; dominant purpose of, 7; emergent, 12, 13; formulation of, 4, 340, 342; in healthcare today, 6–8; history of, 5–6; integrating budgets and, 353–57, 358; levels of, 14–17, 15; managementdriven, 4–5; meanings attached to, 4; military, 5; need for, 6–7; organizational, levels of, 15; prospective, 12, 13; relationship to theory, 4; teaching of, 6; type, factors affecting use of, 15 Substitute products: threat of, 154, 157–58 Subunits, 68 Sunk costs: as barrier to new entrants into markets, 156 Sunnybrook Health Sciences Centre, Toronto: balanced scorecard of, 349, 349–51 Sun Pharmaceutical, 169 Sun Tzu, Supervisors, span of control of, 288–89 Suppliers: power of, 154, 158–59, 177–78 Supply chains, low-cost strategies for, 58 Surgical Care, 98 Surpluses, 54 Surveys: leadership preparedness, 310; organizational preparedness, 311–12; participant preparedness, 310–11; scoring, 312; stakeholder, 314–15; strategic change and, 309 Sutter Health, 93 Switching costs: as barrier to new entrants into markets, 156 SWOT (strengths, weaknesses, opportunities, and threats) analysis, 209, 248, 251, 256; brainstorming use in, 195; components of, 194, 195; definition of, 194; effective use guidelines for, 196–97; implementation of, 197, 199; misuse of, 195–96; participant groups, 195–96; rankings in, 197, 199, 199; template for, 198 Taco Bell, 378 Tangible resources: definition of, 183; strategic value and, 185 Targeting, of markets, 262, 264, 268; generic strategies for, 58 Task groups, 254 Taylor, Frederick W., 286–87 Teaching hospitals: matrix organizational structure of, 294 Team approach, to management, 289 Technological advantages: of first movers, 70, 71, 72 481 482 I n d ex Technological changes: as driving force, 170 Tenet Healthcare Corporation, 93, 110, 114 Tertiary care, 36 Tesla, 67 Teva Pharmaceutical, 169 Texas Health Resources, 3, 4, 96; Blue Cross Blue Shield of Texas and, 85, 85; leadership development process at, 329; matrix structure of, 295; mission-, vision-, and value-based objectives of, 189, 189–90 Text, structure of, 17–19, 18 Theory: relationship to strategy, Thinking, strategic, 5, 341; benefits of, 8; definition of, 325; importance of, 325; innovative culture and, 328; as leadership skill, 325–29; promoting, 328–29 Thompson, Arthur A., 202, 340 Threats: minimization of, 8; new market entrants as, 154, 154; substitute products as, 154, 157–58 3-D printing, 32, 152 360-degree feedback processes, 329 Tide detergent, 41 Tiffany & Co., 64 Time management, 329, 332, 333 Times interest earned ratio, 224–25, 225 Time value of money, 229, 235 Toshiba, 70, 156 Total debt to total assets ratio, 223, 224 Total quality management, 378 Tourism, medical, 11 TOWS analysis, 199–200, 209; definition of, 199; quadrants in, 200, 200 Toyota, 68 Toyota Production System, 305 TQM See Total quality management Trade associations: comparison to strategic alliances, 105 Trader Joe’s, 66 Traditional vertical integration: healthcare vertical integration vs., 83, 83 Transaction cost economics, 84 Transfer pricing, 366; definition of, 86; multidivisional organizations and, 293; problems with, 86 Transparency, in leadership, 308 Trend data: Alta Bates Medical Center report, 188; definition of, 188 Trigger points, 176 TriHealth, 263 Trinity Health, 93, 381 Triopoly markets: hospitals in, 25 TriStar Health System, 96–97 Trump, Donald, 20, 31 Trust: within flat organizations, 289; lack of, 84; within strategic alliances, 117–18 Twitter, 69–70, 248 “Two-boss” problem: in matrix organizations, 295 Ultrasound, Underpricing, 54 Unemployment rate, 26 Uninsured populations: among racial/ethnic minorities, 27 United Airlines, 50 UnitedHealthcare, 91, 93, 109–10 UnitedHealth Group, Inc., 82, 98 United States: demographic trends in, 10 University of California Health System, 93 University of Chicago Medicine, 230 University of Pittsburgh Medical Center, 59 University of Utah Health Care, 165; organizational structure, 283, 283 Unrelated (conglomerate/lateral) diversification, 98 US Department of Health & Human Services, 20, 383 US Department of Justice, 38, 87, 93, 94, 284 US Department of Labor, 264 US Healthcare, 107 US Navy Medicine: goals and objectives of, 259, 260 US News and World Report, 390, 394 US Small Business Administration, 273 Utah Wasatch Front Acute Care Hospital Market: market distribution by inpatient beds in, 163; market share by bed, 2013, 164; organizational strength and market rivalry in, 165 Valuable resources, 208 Value, provided to customers, 47–48 Value-based healthcare provision, 152 Value chains, 201–5, 209; analysis of, 202; care delivery, 204; definition of, 201; in Index diversification expansion, 97; industry, 203; multiple, 202–3; primary activities component of, 201; support activities component of, 201, 201–2; in vertical expansion, 83 Values, 144; definition of, 128, 130; establishment of, 131–32; influence on staff, 132–33; interpreting results on basis of, 131; as organizational culture component, 131; relationship to performance, 134; review process for, 133; as strategic intent component, 129, 130–35 Values statements: example of, 132–33 Variable costs, 232, 233, 235 Vermont: healthcare insurance market in, 34 Vertical expansion and integration, 23, 99, 100; case study, 365–69; definition of, 82; differences in service areas and, 88; as emotional integration, 89; as intellectual integration, 89; as operational integration, 89; problems with, 84–86; rationale for, 83; as social integration, 89; traditional and healthcare, 83, 83; transaction cost economics and, 84; transfer pricing and, 86–87; unmatched services and incentives issue of, 87–88; virtual, 90–92 Virgin Group, 99 Virginia Mason Medical Center, 305 Virginia Mason Production System (VMPS), 305 Virtual integration, 90–92 Virtual organizations, 104 Vision: definition of, 128; gap analysis of, 250–51; as marketing plan component, 266, 268; of Merck & Company, Inc., 16; mission vs., 141; relationship with prospective strategy, 12; relationship with strategic plans, 248; relationship with SWOT analysis, 198; relationship with target markets, 262; as strategic intent component, 141–44; strategic leadership and, 306, 308, 319 Vision statements, 145; case study, 145–46; components and structure of, 142–44; evaluating, 142; examples of, 142, 143; of not-for-profit organizations, 141 Visuals, in business plans, 277 Vizient, Inc., 114, 161 Volume variance, as budget variance cause, 355, 356, i356 von Clausewitz, Carl, von Runstedt, Gerd, 298 Walgreens, 80 Walmart, 47, 58, 61, 66, 80, 109, 110 Walt Disney Company, 98, 136 Wang, Dora, 305 Warner-Lambert, 108, 109 Watson, Thomas J., 130, 131 “We Care” campaigns, 265 WeChat, 70 WellPoint Health Networks, 93, 284 Western Maryland Health System, 54–55 Western Union, 326 West Penn Allegheny, 91 WhatsApp, 70 White papers, 196 Wishard Health Services, Indianapolis, Indiana, 371–77 Women: healthcare utilization patterns of, 28 Workforce availability: as driving force, 170 World Bank, 272 Xerox, 69 Yale New Haven Health System, 110, 114 Yankovic, “Weird Al,” 135 Zemke, Ron, 287 Zip codes: percentage of hospital admissions by, 30; use in patient origin studies, 28 Ziskind, Andrew, 181 483 ABOUT THE AUTHOR Stephen L Walston, PhD, is a professor at the David Eccles School of Business at the University of Utah in Salt Lake City Previously, he served as the vice president for academic affairs of the University of Utah Asia Campus at its Incheon Global Campus in Songdo, Korea, and was a professor in the Division of Public Health of the Department of Family and Preventive Medicine at the University of Utah School of Medicine Before joining the University of Utah, Dr Walston was a professor and associate dean for academic affairs in the Department of Health Administration and Policy at the University of Oklahoma School of Public Health He also is a former master’s of health administration program director at Indiana University and faculty member at Cornell University in Ithaca, New York He earned his PhD from the University of Pennsylvania’s Wharton School and specializes in healthcare strategy, organizational development, and leadership In addition, he earned bachelor’s and master’s degrees from Brigham Young University Prior to his academic career, he spent 14 years as an executive in hospitals in the western United States, including 10 years as a CEO He became a fellow in the American College of Healthcare Executives in 1993 Dr Walston has worked in many Middle Eastern and Central American countries, helping organizations craft their strategic direction and leadership capabilities He has published in many prestigious journals in the United States and Europe In his free time, he enjoys woodworking, beekeeping, reading, bicycling, gardening, and helping his six children and seven grandchildren 485 ... Chapter Strategy and Strategic Management Learning Objectives History of Strategy Strategy in Healthcare Today Why Study Healthcare Strategy and Strategic Management? ... skills and knowledge –– Organizational dynamics and governance §§ Building trust and cooperation among stakeholders –– Strategic planning and marketing §§ Pursuing and establishing partnerships and. .. –– Healthcare systems and organization §§ Managed care models, structures, and environment –– Healthcare personnel §§ Healthcare sectors –– Community and Environment §§ Healthcare trends §§ Healthcare