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Strategic Planning

    Dr Varsha Shahane
Objectives
• To define strategy and contrast strategic
  planning with the management of operations
• To describe the competitive structure of the
  laboratory industry
• To articulate the elements of competitor
  analysis
• To characterise strategic positions commonly
  used by clinical laboratories
• To explain how strategies are sustained and how
  they commonly fail
Marketing




Finance
             Operations
Introduction

• Operations management –

efficient use of resources,
supply chain management,
financial planning,
quality control.
• It includes optimizing all processes namely –
 marketing
client services
specimen processing
billing
safety
information technology
testing operations
Business strategy
• It is all about equipping an organization to withstand
  competitive market forces
• To maximise the effectiveness of each part of the lab
  system (operations management)- delete parts
  which do not fit into the strategy (business strategy)
• To understand the structure of her industry, her
  firm’s competitors, define a unique market place for
  her lab, enable her lab to withstand fierce
  competition
• Be creative but disciplined.....focus on GROWTH !
Elements of business strategy
• Understanding industry structure
• Assessing a firm’s and competitors’ strengths
  and weaknesses
• Identifying a distinctive market position
• Adopting business activities that reinforce a
  market position
• Avoiding common strategy traps
  Operations management ↔ Business
  strategy
Economic theory
• When one firm earns profits that are larger
  than average, other organizations will emulate
  the firm’s practices and subsequently be on
  the same level of profits as that of the firm.
• So, profitability of firms in an industry should
  tend to equalize over time.
• If a firm consistently outperforms its
  adversaries, then there are factors other than
  operational effectiveness at work in the
  marketplace
Strategic planning- to formalise
or not to formalise, that is the
question !
• Henderson – most dangerous competitors are
  the ones who are like you !
o Differences between you and others are the
  basis of your advantage
o Also, not all stakeholders be involved in
  developing a business strategy
o No need of a written document

 Work upon the differences between your firm
 and its competitors ONLY and build your
 strength on this factor alone
• Kim and Maugorgne opine that when all
  stakeholders are included in the strategic
  planning, the competitive agendas of each one of
  them clash and a clear sense of purpose is lost
• Some think that a written document can in fact
  mislead an organization. Because business
  strategy is all about ‘insights’ rather than ‘plans’
• Current needs and demands, the current trends,
  selling skills etc –The present TIME- has to be
  considered rather than a standardized document.
• According to some – inputs/ feed back is very
  crucial to develop strategies. This is not so in
  case of ‘non profit companies’ or ‘ mission
  based/ charitable’ firms
Formal strategic planning process
• Formation of strategic planning committee
• Development of a mission statement – values and
  targets
• Situation analysis – strengths and weaknesses of
  the organization are analysed. Threats and
  opportunities are identified
• Development of tactics (specific objectives) that
  will further the organization’s mission
• Formalize and document all policies of the
  strategic plan and distribute it to all board
  members and senior staff
Structure of the Clinical
         Laboratory Industry
• Competition pressure is not only from the
  existing rivals but also from
 potential future candidates
 substitute products
 customers
 suppliers

     So, first know the structure of your firm !
                  KNOW THYSELF !!
So, first know the structure of your firm
            KNOW THYSELF !!
(i) Size of the testing market
     As a rule : Revenue = Quantity x price
                 Demand α 1/ price
• Inpatient v/s Outpatient
• Routine v/s esoteric

    (ii) Concentration of competitors
• Mergers and acquisitions of hospitals
• Consolidation of commercial labs
(iii) Barriers to entry
• State and federal regulations – labs must meet
  experience and education demands
  (accreditation) – limit entry to lab industry
• Customer and physician loyalty
• Inaccessibility to doctors
• Cost to customers of switching – patients and
  physicians switch from lab to lab- patient data
  update problem
(iv) Barriers to exit
• Unprofitable hospitals not permitted to be
  closed by local community
• Specialised staff in unprofitable hospitals/labs
  not willing to leave employers produces
  surplus of competitors- lab/ hospital keeps
  ‘working’ without any work !
(v) Seperation of payor, purchaser
           and beneficiary
• Insurance companies and government is the
  payor. Rarely it is the patient, nowadays.
• It is neither the payor nor the patient who
  orders the lab services. It is the doctor.
  So the health care industry is fragmented as the
  roles are separate- it can affect competition and
  incentives. Exact inferences cannot be made -
  affects policy making.
(vi) Economies of scale
• Volume of tests done per full time staff and
  cost/test- most important to determine cost
  effectivity. Other factors which have a heavy
  impact on economy of the lab namely,
  marketing, courier, transportation services,
  professional oversight, informatics are
  overlooked.
(vii) Markups and Kickbacks
• Doctors consultation fees added to the lab
  services in insurance programs – markups
• Doctors benefit from the lab economically by
  way of referral services to that lab – kickback
• Unnecessary tests avoided, but with strict
  laws, lab offers services at higher price than
  the prices offered with the markup policy !
(viii) Powerful buyers and sellers
• Sellers build a strong and close relation with
  buyers. They produce a unique position for
  themselves and thereby blunt all the
  competition.
• Insurance companies are powerful buyers who
  greatly influence the working of the lab in
  many respects, namely, reporting structure,
  turn around time, costs, billing policies etc
(ix) Substitute products
• Certain factors like (i) non laboratory workers
  using lab equipments (ii) pharma companies
  running medical programs and (iii) demanding
  lab services - over the counter requests –
  affect the overall working of the lab industry.
  It alters the total scenario of the present day
  trends in the lab industry. USA has strict laws
  to curb these factors, not so in many
  developing countries.
(x) Economics of inpatient care
• This refers to inpatient/ hospital based labs.
  Depends totally on the responsible physician
  or the hospital policy which solely influences
  its economics.
Strategic positions in the
          lab industry
• It refers to an organization’s commitment to
  serve the needs of a ‘specific group’ of
  customers or ‘specific needs’ of customers
Types of strategic positions
• Variety based : perform narrow scope of
  services exceptionally well, faster and
  sometimes at cheaper rates than rivals
• Need based : to serve the needs of a defined
  demographic group
• Access based : due to geography or
  differences in size of the customer pool
• Cost based : some competitors profit by
  lowering the production costs
• Product differentiation-based positioning :
  convincing the customer through marketing or
  different attributes that their product is
  superior
Strategic positions of clinical
             laboratories
• To differentiate themselves from rivals
• To defend their operations from competition
 outpatient – centered testing : exclusive contracts
 with multiple insurers, large volume to contain costs,
 extensive courier system
 Reference centered testing : specialized and
 esoteric testing, specimen logistics, professional
 support
 Hospital-centered testing : support for inpatients
 and intensive care, participate in hospital planning
 committees
• Discipline centered testing : specific tests with
  specific format of reporting ( urology,
  dermatology etc) eg- PSA + prostate biopsy
  reports
• Community centered testing : outreach by
  hospital labs to physicians on medical staff
• Multi-hospital core laboratory : centralization
  of routine testing by labs of a multi hospital
  system
• Co tenancy : shared ownership of esoteric lab
  by a group of hospitals
Implementing strategy

• Tradeoffs
• Hospital based labs ↔ community physicians
• Lab ↔ group/ association → insurance
  companies , community physicians
Failure of strategy - 3 types
     of preventable errors
• Straddling : an attempt to hold several stategic
  positions at once, focus is lost. Trade offs !
• Growth trap : do the additional services fit
  with the firm’s existing strategy ? And to the
  existing competencies ?
• Hubris : loss of contact with reality and an
  overestimation of one's own competence or
  capabilities, especially when the person
  exhibiting it is in a position of power.
SWOT Analysis
• Weakness →strength →opportunities →
  threats

• Competitor Analysis :

competitor’s goals
competitor’s assumptions
competitor’s capabilities
SWOT Analysis - exercise
              Favourable        Unfavourable

               Strengths      Weaknesses
• Internal




• External
              Opportunities   Threats
Win over your competitors !
     ALL THE BEST !!

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Strategic planning in laboratory industry

  • 1. Strategic Planning Dr Varsha Shahane
  • 2. Objectives • To define strategy and contrast strategic planning with the management of operations • To describe the competitive structure of the laboratory industry • To articulate the elements of competitor analysis • To characterise strategic positions commonly used by clinical laboratories • To explain how strategies are sustained and how they commonly fail
  • 3. Marketing Finance Operations
  • 4. Introduction • Operations management – efficient use of resources, supply chain management, financial planning, quality control.
  • 5. • It includes optimizing all processes namely –  marketing client services specimen processing billing safety information technology testing operations
  • 6. Business strategy • It is all about equipping an organization to withstand competitive market forces • To maximise the effectiveness of each part of the lab system (operations management)- delete parts which do not fit into the strategy (business strategy) • To understand the structure of her industry, her firm’s competitors, define a unique market place for her lab, enable her lab to withstand fierce competition • Be creative but disciplined.....focus on GROWTH !
  • 7. Elements of business strategy • Understanding industry structure • Assessing a firm’s and competitors’ strengths and weaknesses • Identifying a distinctive market position • Adopting business activities that reinforce a market position • Avoiding common strategy traps Operations management ↔ Business strategy
  • 8. Economic theory • When one firm earns profits that are larger than average, other organizations will emulate the firm’s practices and subsequently be on the same level of profits as that of the firm. • So, profitability of firms in an industry should tend to equalize over time. • If a firm consistently outperforms its adversaries, then there are factors other than operational effectiveness at work in the marketplace
  • 9. Strategic planning- to formalise or not to formalise, that is the question !
  • 10. • Henderson – most dangerous competitors are the ones who are like you ! o Differences between you and others are the basis of your advantage o Also, not all stakeholders be involved in developing a business strategy o No need of a written document Work upon the differences between your firm and its competitors ONLY and build your strength on this factor alone
  • 11. • Kim and Maugorgne opine that when all stakeholders are included in the strategic planning, the competitive agendas of each one of them clash and a clear sense of purpose is lost • Some think that a written document can in fact mislead an organization. Because business strategy is all about ‘insights’ rather than ‘plans’ • Current needs and demands, the current trends, selling skills etc –The present TIME- has to be considered rather than a standardized document.
  • 12. • According to some – inputs/ feed back is very crucial to develop strategies. This is not so in case of ‘non profit companies’ or ‘ mission based/ charitable’ firms
  • 13. Formal strategic planning process • Formation of strategic planning committee • Development of a mission statement – values and targets • Situation analysis – strengths and weaknesses of the organization are analysed. Threats and opportunities are identified • Development of tactics (specific objectives) that will further the organization’s mission • Formalize and document all policies of the strategic plan and distribute it to all board members and senior staff
  • 14. Structure of the Clinical Laboratory Industry • Competition pressure is not only from the existing rivals but also from  potential future candidates  substitute products  customers  suppliers So, first know the structure of your firm ! KNOW THYSELF !!
  • 15. So, first know the structure of your firm KNOW THYSELF !!
  • 16. (i) Size of the testing market As a rule : Revenue = Quantity x price Demand α 1/ price • Inpatient v/s Outpatient • Routine v/s esoteric (ii) Concentration of competitors • Mergers and acquisitions of hospitals • Consolidation of commercial labs
  • 17. (iii) Barriers to entry • State and federal regulations – labs must meet experience and education demands (accreditation) – limit entry to lab industry • Customer and physician loyalty • Inaccessibility to doctors • Cost to customers of switching – patients and physicians switch from lab to lab- patient data update problem
  • 18. (iv) Barriers to exit • Unprofitable hospitals not permitted to be closed by local community • Specialised staff in unprofitable hospitals/labs not willing to leave employers produces surplus of competitors- lab/ hospital keeps ‘working’ without any work !
  • 19. (v) Seperation of payor, purchaser and beneficiary • Insurance companies and government is the payor. Rarely it is the patient, nowadays. • It is neither the payor nor the patient who orders the lab services. It is the doctor. So the health care industry is fragmented as the roles are separate- it can affect competition and incentives. Exact inferences cannot be made - affects policy making.
  • 20. (vi) Economies of scale • Volume of tests done per full time staff and cost/test- most important to determine cost effectivity. Other factors which have a heavy impact on economy of the lab namely, marketing, courier, transportation services, professional oversight, informatics are overlooked.
  • 21. (vii) Markups and Kickbacks • Doctors consultation fees added to the lab services in insurance programs – markups • Doctors benefit from the lab economically by way of referral services to that lab – kickback • Unnecessary tests avoided, but with strict laws, lab offers services at higher price than the prices offered with the markup policy !
  • 22. (viii) Powerful buyers and sellers • Sellers build a strong and close relation with buyers. They produce a unique position for themselves and thereby blunt all the competition. • Insurance companies are powerful buyers who greatly influence the working of the lab in many respects, namely, reporting structure, turn around time, costs, billing policies etc
  • 23. (ix) Substitute products • Certain factors like (i) non laboratory workers using lab equipments (ii) pharma companies running medical programs and (iii) demanding lab services - over the counter requests – affect the overall working of the lab industry. It alters the total scenario of the present day trends in the lab industry. USA has strict laws to curb these factors, not so in many developing countries.
  • 24. (x) Economics of inpatient care • This refers to inpatient/ hospital based labs. Depends totally on the responsible physician or the hospital policy which solely influences its economics.
  • 25. Strategic positions in the lab industry • It refers to an organization’s commitment to serve the needs of a ‘specific group’ of customers or ‘specific needs’ of customers
  • 26. Types of strategic positions • Variety based : perform narrow scope of services exceptionally well, faster and sometimes at cheaper rates than rivals • Need based : to serve the needs of a defined demographic group • Access based : due to geography or differences in size of the customer pool
  • 27. • Cost based : some competitors profit by lowering the production costs • Product differentiation-based positioning : convincing the customer through marketing or different attributes that their product is superior
  • 28. Strategic positions of clinical laboratories • To differentiate themselves from rivals • To defend their operations from competition  outpatient – centered testing : exclusive contracts with multiple insurers, large volume to contain costs, extensive courier system  Reference centered testing : specialized and esoteric testing, specimen logistics, professional support  Hospital-centered testing : support for inpatients and intensive care, participate in hospital planning committees
  • 29. • Discipline centered testing : specific tests with specific format of reporting ( urology, dermatology etc) eg- PSA + prostate biopsy reports • Community centered testing : outreach by hospital labs to physicians on medical staff • Multi-hospital core laboratory : centralization of routine testing by labs of a multi hospital system • Co tenancy : shared ownership of esoteric lab by a group of hospitals
  • 30. Implementing strategy • Tradeoffs • Hospital based labs ↔ community physicians • Lab ↔ group/ association → insurance companies , community physicians
  • 31. Failure of strategy - 3 types of preventable errors • Straddling : an attempt to hold several stategic positions at once, focus is lost. Trade offs ! • Growth trap : do the additional services fit with the firm’s existing strategy ? And to the existing competencies ? • Hubris : loss of contact with reality and an overestimation of one's own competence or capabilities, especially when the person exhibiting it is in a position of power.
  • 32. SWOT Analysis • Weakness →strength →opportunities → threats • Competitor Analysis : competitor’s goals competitor’s assumptions competitor’s capabilities
  • 33. SWOT Analysis - exercise Favourable Unfavourable Strengths Weaknesses • Internal • External Opportunities Threats
  • 34. Win over your competitors ! ALL THE BEST !!

Editor's Notes

  1. Auguste Rodin a sculptor in Paris created this world famous statue- sober meditation - introspection