book chap 3-5 iihmr delhi

8/13/2019 Book Chap 3-5 IIHMR Delhi

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CHAPTER IV

INTERNAL ENVIRONEMNTALANALYSIS ANd COMPETITIVE

ADVANTAGE

Minakshi Gautam

Assistant Professor

IIHMR, Delhi



• Initiatives by the institute for Healthcare Improvement’s Idealized

Design of clinical office practice and Dartmouth-Hitchcock Medical

Centre’s efforts to understand clinical ‘microsystems’ have

encouraged physicians around US to redesign their practices and

come closer to the ideal.

• Methods adopted from automobile industry – Lean Design and Lean

thinking

• It involves seeing organization as a value chain – each activity/

process should add value for patients



• Methods adopted from automobile industry – Lean Design and Lean

thinking

• It involves seeing organization as a value chain – each activity/ process should add value for patients



MUDA – 7 wastes



8th Waste:



Learning Objectives

• Understand the role of internal environmental analysis in identifying

the basis for sustained competitive advantage.

• Describe the organizational value chain, including the components of

the service delivery and support activities.

• Understand the ways in which value can be created at various places

in the organization with the aid of the value chain.

• Use the value chain to identify organizational strengths and

weaknesses



Learning Objectives

• Determine the competitive relevance of each strength and weakness

with the aid of a series of carefully formulated questions.

• Describe how competitively relevant strength and weaknesses can be

used to suggest appropriate strategic actions.



Identifying Competitive Advantage

• So far, focus of situational analysis – external environment

• Attempted to answer the first of three strategic questions

concerning situational analysis – “What should the

organization do?”

• Next step –Situational analysis emphasis shifts to

ORGANIZATION and establishing COMPETITIVE

ADVANTAGE.

• .




• Experts writing on Competitive Advantage have concluded

that successful organizations “focus relentlessly on competitive

advantage ……. (they) strive to widen the performance gap

between themselves and competitors. They are not satisfied

with today’s competitive advantage – they want tomorrow’s.”

• Health care strategists often must think about business as well

as medical issues in pursuing competitive advantage.




• Developing a better product, charging a lower price, or

delivering better service does not guarantee success.

• Competitive advantage requires an organization to develop a

distinctiveness that competitors do not have and cannot easilyimitate.

• Therefore, an answer to second strategically relevant question

of situational analysis – “What can the organization do?”

•



INTERNAL ENVIRONMENTAL

ASSESSMENT: AN INTEGRATED

APPROACH

• Understanding competitive advantage is an ongoing

challenge for strategic decision makers especially in

dynamic industries.

• Historically, competitive advantage was primarily amatter of “position”.

• It had a great deal to do with where the hospital, physician

practice was located .



• A stable environment allowed static strategies to be

successful.

• In today’s environment, the ability to develop a

sustained competitive advantage is increasingly rare.

• Sustained competitive advantage is the direct result of

an enduring value.

• This reality makes internal environmental factors

important.



• They must anticipate what the rapidly changing

environment will be like.

• Traditionally, the focus has been on organizational

strengths and weakness.

• Internal environmental analysis is much like external

environmental analysis except the focus in on the

organization rather than environmental forces.



Analyzing the Internal Environment

• Create value for present and prospective customers and

other stakeholders.

• The organizational value chain is a useful tool for

creating value

• By evaluating functional areas such as

– Clinical Operations

– Information Systems

– Marketing

– Clinical Support

– Human resources

– Financial administration and so on



Value Creation in Healthcare Organizations

• Value is defined as the amount of satisfaction received

relative to the price paid for a health care service.

• For e.g. patient going to cosmetic surgeon and paying

high price vs. patient going to a free family practice

clinic.

• Therefore, value is the perceived relationship between

satisfaction and price, it is not based solely on price.



The Value Chain

PRE – SERVICE

Market/Marketing

Research

Target Market

Services offered/

Branding

Pricing

POINT- OF –

SERVICE

Clinical Operations

•Quality

•Process Innovation

Marketing

•Patient Satisfaction

AFTER –SERVICE

Follow-up

•Clinical

•Marketing

Billing

Follow-on

•Clinical•Marketing

A

D

D

V

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L

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E

A

D

D

V

A

L

U

E

ORGANIZATIONAL CULTURE

Shared Assumptions, Shared Values, Behavioral Norms

ORGANIZATIONAL STRUCTURE

Function, Division, Matrix

STRATEGIC RESOURCES

Financial, Human, Information, Technology

SE

R

V

I

C

E

D

E

L

I

V

ER

Y

S

U

P

P

O

R

T

AC

T

I

V

I

T

IY



Organizational Value Chain

• The organizational value chain is an effective means of

illustrating how and where value may be created .

• Value may be created in the service delivery sub system

and by effective use of support subsystem.

• Service delivery activities – fundamental value creation

activities

• They are supported by activities that facilitate and

improve service delivery




• Service delivery has three elements – pre service, point of

service and after service.

• It includes primarily operational processes and marketing

activities.

• Organizational culture, organizational structure and strategic

resources are the subsystems that support service delivery.

• It happens by ensuring an inviting and supporting atmosphere,an effective organization, and sufficient resources such as

finances, highly qualified staff, information systems and

appropriate facilities and equipment.




• Service Delivery Activities:

– Can create value and significant advantages over competitors.

• Support Activities

– If the organizational culture is service oriented patients can feel it when they walk

in the door.

– The organizational structure can increase the patient satisfaction by effectively

and efficiently facilitating the service delivery.

– Structure should have enough standardization and enough flexibility.

– Strategic resources are important to overall perception of value- employees with proper skills, up to date information system, accessible parking lot etc has

positive impact on patient satisfaction.

– Goals, values and behaviors of all employees must be integrated towards the

common objective of patient satisfaction



Description of Value Chain Components

Value Chain

Component

Description

Service Delivery The activities in the value chain that are

directly involved in ensuring access to,

provision of, follow up for health

services.

Pre Service

•Market/Marketing

research

Determine the services that create value

prior to the actual delivery of health

services, determine appropriate target

market.

•Target Market The process of identifying recognizable

groups (segments) that make up the

market and selecting appropriate groups

upon which to focus.




Value Chain

Component

Description

•Services offered/

Branding

Information dissemination to present to

prospective patients and other

stakeholders regarding the range of

available services.

•Pricing Charge schedule for available services

•Distribution/ Logistics Activities and systems that facilitate

patient entry into the service delivery

system including appointments and

registrations

•Promotion Activities that ensure all the elements

needed to deliver health services are

available at the appropriate place at

a ro riate time




Value Chain Component Description

Point-of-Service

•Clinical operations

Quality

Process Innovation

Those service delivery activities that

create value at the point where services

are actually delivered.

The activities that convert the human

and non human resources into health

services

Actual provision of health services to

the individual patient

Activities and groups of activities that

are designed specifically to improve the

quality and quantity of health services.



Description of Value Chain ComponentsValue Chain

Component

Description

•Marketing

Patient

Satisfaction

Activities to offer new products, seek new

customers, provide better services delivery

and cause services to be perceived as higher

value.

After-Service

•Follow – up

Clinical

Marketing

Activities that create value after the patient

has received the health services.

Activities designed to determine the

effectiveness of or the patient satisfaction with

health services received.

Activities that assist in determining what other

service need to be delivered.




Value Chain

Component

Description

•Billing Value creating activities that ensure more

understandable and efficient billing

procedures

•Follow-on

Clinical

Marketing

Activities that facilitate entry into another

value chain (from hospital to home care, etc.)




Value Chain

Component

Description

Support Services The activities in the value chain that are

designed to aid in the efficient and

effective delivery of health services.

Organizational Culture The overarching environment withinwhich the health services organization

operates.

•Shared Assumptions The assumptions employees and others

share in the organization regarding all

aspects of service delivery. (e.g. needs of patients, goals of organization)



Value Chain

Component

Description

•Shared values The guiding principles of the

organization and its employees.The understanding people in the

organization have regarding excellence,

risk taking, etc.

•Behavioral norms Understandings about behavior in the

organization that can create value for patients.

Organizational

Structure

Those aspects of organization structure

that are capable of creating value for

customers/ patients

•Function Structure based on process or activitiesused by employees (e.g. surgery, finance,

human resource)



Value Chain

Component

Description

•Division Major units operate relatively

autonomously (e.g. hospital division,outpatient division, northwest division)

•Matrix Two dimensional structure where more

than the single authority structure

operates simultaneously. (e.g.

interdisciplinary team withrepresentatives from medicine, nursing,

administration)

Strategic Resources Value creating financial, human,

information resources and technology

necessary for the delivery of healthservices.

•Financial Financial resources required to provide

the facilities, equipment, specialized



Value Chain

Component

Description

•Human Individuals with the specialized skills

and commitment to deliver healthservices.

•Information Hardware, software and information

processing system needed to support the

delivery of health services.

•Technology The facilities and equipment required to provide health services



Identifying current and potential competitive

advantage

• Assessing current and potential competitively relevant strengths and

weaknesses is the goal of internal environmental analysis.

• Competitively relevant strengths are the pathways to sustained competitive

advantage

• Strengths and weakness may be objective or subjective as well as absolute or relative.

• Some strengths possessed by a health care organization are clear by objectivestandards. These are clear and easily recognizable. E.g. a particular location.

• Some weaknesses can also be easily recognizable and clear e.g. excessivefinancial debt.

• At times, a strength or weakness may be subjective.




advantage

• At times, a strength or weakness may be subjective. E.g. opinion of the people.

• The management team may think that the “philosophy” of the board of directors is more conservative than that of other organizationseven though there are no concrete data to support the assertion.

• Sometimes organizational strengths and weakness are absolute or relative.

• These are not so obvious and can only be determined in relationshipto strengths and weaknesses of primary competitors.

• E.g. renowned health centre loses famous surgeon to a local hospital(relative weakness)




advantage

• Sometimes organizational strengths and weakness are absolute.

• The Johns Hopkins University School of Medicine is recognized

worldwide as a leader in medical education.

• Strengths and weaknesses are easier to identify if one thinks in terms

of organizational resources, competencies and capabilities.



A. RESOURCES• The resource based view of strategy argues that valuable,

expensive or difficult to copy resources provide a key tosustainable competitive advantage.

• Resources are the stocks of human and nonhuman factors that areavailable for use in producing goods and services.

• Resources may be tangible, as in case of land etc. and may beintangible e.g. intellectual property, reputation, and goodwill.

• Robert Kaplan and David Norton point out that unlike financial and physical resources intangible resources are hard for

competitors to imitate. Thus making them powerful source of sustainable competitive advantage.

Strengths and weaknesses are easier to identify if one thinks in terms of

organizational resources, competencies and capabilities.



A. RESOURCES

• Furthermore, according to a Harris Interactive Health Care Poll, agood reputation and trusted physician’s recommendation are twoof most important indicators of quality of medical care.

• These factors ranked above more tangible indicators of resources,

including location, appearances, etc,



B. COMPETENCIES

• Competency is defined as knowledge and skills that may be a

powerful source of sustained competitive advantage.

• It is about ideas and intellectual know-how.

• The organization must possess threshold competencies- the

minimally required knowledge and skills necessary to compete in

a particular area.

• E.g. all organizations offering cardiac services may possess

threshold competencies, but only one or two will develop the

knowledge and skills to the point that it becomes distinctive

competency.



C. CAPABILITIES

• Capabilities are a health organization’s ability to deploy resources and

competencies, usually in combination.

• Coordination of resources and competencies is another potential

source of sustained competitive advantage.

• Some assets never create value by themselves, they need to be

combined with other assets.

• E.g. investment in IT (a resource) have little value unless

complemented with effective HR training (competencies)



C. CAPABILITIES

• It is likely that two or more organizations competing in the same

health care market could have same resources and competencies.

• In such case, competitive advantage is likely to be the result of

different capabilities – a unique culture, strategic leadership, set of

processes.



Strategic Thinking Map for Discovering Competitive Advantages and

Disadvantages

PRE –

SERVICE

POINT- OF –

SERVICE

AFTER –

SERVICE

ORGANIZATIONAL CULTURE

ORGANIZATIONAL STRUCTURE

STRATEGIC RESOURCES

Step 1

Identify Strengths and Weaknesses

Service Delivery

Strength and

Weaknesses

Support Activities

Strength and

Weaknesses

Value

Rare

Imitable

Sustainable

Competitively

relevant

strengths

Competitively

relevant

Weaknesses

Step 2

Evaluate competitive relevance of

strengths and weaknesses

Competi

tive

advantage and

Competi

tive

Disadva

ntages

Step 3

Focus on

Competitive

Strengths and

CompetitiveWeaknesses



• Strengths must have value, be rare, be difficult to imitate and be

sustainable in order to create competitive advantage.

• Competitive relevance is determined by critically considering four

important questions;

– Question of Value: Is the resource, competency, or capability of value to

customers?

– Question of Rareness: Is this organization the only one that possess the resource,

competency and capabilities or do many or all of its competitors possess it?

– Question of Imitability: Is it easy or difficult to duplicate the resource,

competency or capability?

– Question of Sustainability: Can the resource, competency or capability be

maintained over time?

Organizational Strengths



Strategic Thinking Map for the possible combinations of 4

questions regarding strengths and implications

Is theValue of

Strength

High or

Low

(H/L)

Is thestrength

rare (Y/N)

Is thestrength

easy or

difficult to

imitate (E/D)

Can thestrengt

h be

sustaine

d (Y/N)

Implications

H N E Y No competitive advantages.Most competitors have the

strength and those that do

not can develop it easily and

sustain it. Because the

strength is widely possessed

and can be sustained it islikely that it already has

become a minimum

condition for long term

success.





Is theValue of

Strength

High or

Low

(H/L)

Is thestrength

rare (Y/N)

Is thestrength

easy or

difficult to

imitate (E/D)

Can thestrengt

h be

sustaine

d (Y/N)

Implications

H N E N No competitive advantages.Most competitors have the

strength and it is easy to

develop. However, the

strength generally is not

sustainable. If the

organization is the onlyorganization in the service

area that cannot sustain the

strength, it will become a

short term competitive





Is theValue of

Strength

High or

Low

(H/L)

Is thestrength

rare (Y/N)

Is thestrength

easy or

difficult to

imitate (E/D)

Can thestrengt

h be

sustaine

d (Y/N)

Implications

H N D Y No competitive advantages.Many competitors possess

the strength but it is difficult

to develop, so care should

be taken to maintain this

strength. Because the

strength is widely possessed and can be sustained, it is

likely that it already has

become the minimum

condition for long term





Is theValue of

Strength

High or

Low

(H/L)

Is thestrength

rare (Y/N)

Is thestrength

easy or

difficult to

imitate (E/D)

Can thestrengt

h be

sustaine

d (Y/N)

Implications

H N D N No competitive advantage.Many competitors possess

the strength but it is difficult

to develop and those who do

possess it will not be able to

sustain the strength. If the

organization is the onlyorganization that cannot

sustain the strength it will

become the long term

competitive disadvantage.




questions regarding strengths and implicationsIs the

Value of

StrengthHigh or

Low

(H/L)

Is the

strength

rare(Y/N)

Is the

strength

easy ordifficult to

imitate

(E/D)

Can the

strength

besustaine

d (Y/N)

Implications

H Y E Y Short term competitive

advantage. Because the

strength is valuable and rare,competitors will do what is

necessary to develop this easy

– to – imitate strength. The

organization should exploit

this short term advantage but

should not base the long termstrategies on this type of

strength. Overtime, this

strength may become a

minimum condition for long

term success.





Value of

StrengthHigh or

Low

(H/L)

Is the

strength

rare(Y/N)

Is the

strength

easy ordifficult to

imitate

(E/D)

Can the

strength

besustaine

d (Y/N)

Implications

H Y E N Short term competitive

advantage but not a source of

long term competitiveadvantage. The strength is

easy to imitate but cannot be

sustained. The organization

should not base long term

strategies on this type of

strength but may obtain benefits of short term

advantage.





Value of

StrengthHigh or

Low

(H/L)

Is the

strength

rare(Y/N)

Is the

strength

easy ordifficult to

imitate

(E/D)

Can the

strength

besustaine

d (Y/N)

Implications

H Y D Y Long term competitive

advantage. This strength is

rare in the service area,difficult to imitate by

competitors, and can be

sustained by the organization.

If the value is vary high, it

may be worth ‘betting the

organization’ on this strength.H Y D N Short term competitive

advantage but not a strength

that can be sustained over the

long run.





Is theValue of

Strength

High or

Low

(H/L)

Is thestrength

rare

(Y/N)

Is thestrength

easy or

difficult to

imitate

(E/D)

Can thestrength

be

sustaine

d (Y/N)

Implications

Although rare and difficult toimitate, the strength cannot be

sustained. This strength

should be exploited for as

long as possible.



How to chart value creating strengths and value

reducing weaknesses (e.g. of one component from

Medtronics)

Value Chain Component Value creating Strength Value Reducing Weakness

Service Delivery

•Pre-service •Reputation as leading biomedical

engineering company

•Established presence in the market

•Founded in 1949

•Market leader in selected segments

(e.g. implantable cardiac rhythm

devices)

•Operations in more than 120

countries world wide

•Vulnerability to diverse

cultural mores and regulatory

constraints.

•Subject to high risk of

litigation over patents,

trademarks and product

liability claims.




questions regarding weaknesses and implications

Is the

Weakness of High

or Low

(H/L)

Is the

weaknessCommon

(Not Rare)

among

competitor

s (Y/N)

Is the

weaknessEasy or

Difficult

to

correct?

(E/D)

Can

competitors sustain

their

advantage

?

(Y/N)

Implications

H Y E Y No competitive disadvantage.Although a weakness of the

organization, most other

competitors are also weak in this

area. However the weakness is easy

to correct and competitors will

likely work to correct the weakness.

If organization fails to correctweakness, competitors could

achieve a short term competitive

advantage. Can become minimum

condition for long term success



Is the

Weaknes

s of High

or Low

(H/L)

Is the

weakness

Common

(Not Rare)

among

competitors (Y/N)

Is the

weakness

Easy or

Difficult

to

correct?(E/D)

Can

competito

rs sustain

their

advantage

?(Y/N)

Implications

H Y E N No competitive disadvantage .

Other competitors are also weak.

Easy to correct. Most competitors

are likely to work to correct the

weakness. Therefore no

organization can sustain their

advantage.

H Y D Y No competitive disadvantage. Most

other competitors are also weak.

Difficult to correct. However,

situation is dangerous. Important to

ensure that competitors don’tovercome this first. If competitors

correct the weakness and continue

to sustain their advantage the

weakness could become long term

com etitive disadvanta e.



Is the

Weaknes

s of High

or Low

(H/L)

Is the

weakness

Common

(Not Rare)

among

competitors (Y/N)

Is the

weakness

Easy or

Difficult

to

correct?(E/D)

Can

competito

rs sustain

their

advantage

?(Y/N)

Implications

H Y D N No competitive disadvantage . Most

other competitors are also weak in

this area. Difficult to correct.

Chronic, almost all competitors

have it. Corrections in the weakness

tend to erode over time.

H N E Y Short-term competitive

disadvantage. Most competitors not

weak in this area. Easy to correct.

Organization should correct it

quickly. Correcting is likely to

become a minimum condition for long term success.



Is the

Weaknes

s of High

or Low

(H/L)

Is the

weakness

Common

(Not Rare)

among

competitors (Y/N)

Is the

weakness

Easy or

Difficult

to

correct?(E/D)

Can

competito

rs sustain

their

advantage

?(Y/N)

Implications

H N E N Short term competitive

disadvantage. Competitors not

weak in this area. Weakness easy to

correct. Organization should move

quickly to correct it. Likely that all

competitors correct it and therefore

cannot sustain any advantage.

H N D Y Serious competitive disadvantage.

Weakness is valuable, most

competitors do not have it. Difficult

for organization to correct it.

Competitors can sustain their advantage. May threaten the

survival of the organization.



Is the

Weaknes

s of High

or Low(H/L)

Is the

weakness

Common

(Not Rare)among

competitor

s (Y/N)

Is the

weakness

Easy or

Difficultto

correct?

(E/D)

Can

competito

rs sustain

theiradvantage

?

(Y/N)

Implications

H N D N Short term competitive

disadvantage. Weakness is valuable,

most competitors do not have it.Difficult for organization to correct

it. However, competitors cannot

sustain the advantage. Until it

becomes the weakness for most

competitors in service area or

weakness corrected by the

organization., it will continue to bea Serious disadvantage.



Strategic Implications of Competitively Strengths and

Weaknesses (Medtronic’s)

Competitively Relevant Strength or

Weakness

Strategic Implications

Strengths

Market leader in selected business

segments

Economies of scale could be leveraged over competitors

with smaller market shares.

Integrated product line focused on

manufacture and sales of device based

medical therapies

Although competitors are strong and have comprehensive

product lines, Medtronic appears more focused on

manufacture and sale of integrated line of device based

medical strategies

Entrepreneurial culture History and performance has established firm reputation

for innovation

Numerous patents, trademarks, and trade

names

Legal protection of products and product names can

constitute important aspect of differentiation

Strong intellectual capital underlying key

products

Same as for patents and trademarks

Weaknesses

Ongoing legal claims that could prove a

threat to financial viability

Settlements agains the company could result in serious

financial consequences



• Careful analysis of the internal environment provides a

better understanding of where strategic leaders should

focus their efforts.

• Where they should be careful to avoid vulnerabilityrelative to competitors

• It is not possible to be everything to everyone.

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