chapter one basic strategy concepts. what is strategy? strategy is the overall plan for deploying...
TRANSCRIPT
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
The Concept of “Strategy”
Major resource commitments Seeks advantage over competitors Pursue few strategies at one time Rarely changed
The Concept of “Strategy”
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)
Tactical Plan(Weeks or months)
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
The Firm and Its Stakeholders
ShareholdersMajor suppliers of capital
•Banks•Private lenders•Venture capitalists
Stakeholders
Capital Market Stakeholders
Product Market Stakeholders
The Firm and Its Stakeholders
Primary customersSuppliersHost communitiesUnions
Stakeholders
Capital Market Stakeholders
Product Market Stakeholders
Organizational Stakeholders
The Firm and Its 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
Competition in Health Care
Should it take place?– Public good vs market good– Positive effects of competition– Alternatives to competition
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
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
I/O Model of Above-Average Returns
Study the external environment, especially the industry environmenteconomies of scalebarriers to market entrydiversificationproduct differentiationdegree of concentration of
firms in the industry
The External Environment
I/O Model of Above-Average Returns
Locate an attractive industry with a high potential for above-average returns
Attractive industry: one whose structural characteristics suggest above-average returns
Industrial Organization Model
The External Environment
An Attractive Industry
I/O Model of Above-Average Returns
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
Industrial Organization Model
The External Environment
An Attractive Industry
Strategy Formulation
I/O Model of Above-Average Returns
Develop or acquire assets and skills needed to implement the strategy
Assets and skills: those assets and skills required to implement a chosen strategy
Industrial Organization Model
The External Environment
An Attractive IndustryAn Attractive Industry
Strategy Formulation
Assets and Skills
I/O Model of Above-Average Returns
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
Industrial Organization Model
The External Environment
An Attractive Industry
Strategy Formulation
Assets and Skills
Strategy Implementation
I/O Model of Above-Average Returns
Industrial Organization Model
The External Environment
An Attractive Industry
Strategy Formulation
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 of Above Average Returns
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
Resource-based Model of Above Average Returns
Resource-based Model
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
Resource-based Model of Above Average Returns
Resource-based Model
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
Resource-based Model of Above Average Returns
Resource-based Model
Resources
Capability
Competitive Advantage
An Attractive Industry
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
Resource-based Model of Above Average Returns
Resource-based Model
Resources
Capability
Competitive Advantage
An Attractive Industry
Strategy Form/Impl
Resource-based Model of Above Average Returns
Resource-based Model
Resources
Capability
Competitive Advantage
An Attractive Industry
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