Case Study Analysis RubricNeeds DevelopmentFairGoodExcel.docx

Case Study Analysis Rubric
Needs Development
Fair
Good
Excellent
Introduction
Short introduction that does not cover the case scenario for the
reader clearly, or missing introduction
0-2 points
Fair synopsis to introduce case – may need more details or be
too lengthy.
3 points
Adequate synopsis to introduce case.
4 points
Brief, clear and succinct synopsis to introduce case.
5 points
Key Issues
Minimal to no detail covered for key issues.
0-2 points
Brief coverage on just one or a few key issues that need more
thought and details.
3-6 points
Good succinct coverage of several key issues identified and
explained.
7-9 points
Several strong points demonstrating critical thinking on several
key issues covered succinctly.
10 points
Situation Analysis
Further details needed on the case situation.
0-4 points
Brief description of situation covered. Further analysis details
needed.

5-9 points
Adequate case situation explained that also incorporates several
areas of significance.
10-14 points
Detailed description summarizes the situation and covers
probable causes and/or significant areas. Critical thinking is
evident.
15 points
Organizational Strategy
Brief suggestion or two with impact of ideas on organizational
strategy attempted.
0-4 points
Two short suggestions addressed to consider and some elements
of organizational strategy impact covered. More details needed.
5-9 points
Elements of applicable organizational strategy covered for two
suggestions that include pros/cons to consider and possible
impact.
10-14 points
Elements of applicable organizational strategy to consider for
three alternatives along with pros/cons and any possible
ramifications of suggestions.
15 points
Implementation Plan
Further specifics and details needed on how to put suggestion(s)
into place. Information may be brief or missing.
0-5 points
At least one feasible and realistic suggestion explained.
6-13 points
Several implementation suggestions covered in depth that
incorporate some time elements to put ideas into place.
14-19 points
Detailed suggestions on how to implement recommendations
that include time frames and possible contingency plan. Critical
thinking demonstrated.
20 points

Benchmarks to Measure Success
Further details needed. Benchmark suggestions may be brief or
missing.
0-4 points
Brief monitoring points are addressed to measure progress and
success.
5-9 points
Some realistic monitoring plan suggestions are covered.
10-14 points
Monitoring and measure action plan suggestions show insight
and are realistic to demonstrate critical thinking.
15 points
Scholarly Research of Literature
Required scholarly research of literature was not met. Some
research attempt evident,and/or only text is referred to.
0-5 points
Credible outside research evident. Two scholarly research
sources may not have been met.
6-13 points
Scholarly research for two recent peer-reviewed journal articles
was met. Other credible outside research may be evident.
14-19 points
Scholarly research for three recent peer-reviewed journal
articles was met and applied in various elements of analysis.
There may be additional credible outside research support
applied.
20 points
Writing Mechanics
More than 11 writing errors including grammar, punctuation,
and spelling. Writing may be unfocused and contain serious
errors, lacks detail and information, and may be poorly
organized.
0-4 points
5-10 writing errors including grammar, punctuation, and
spelling. Writing may not be clear or concise, contains
numerous errors, lacks information and/or organization.

5-9 points
1-4 writing errors including grammar, punctuation, and spelling.
Writing is accomplished and contains only a few errors.
Includes sufficient details and well organized.
10-14 points
Free of writing errors including grammar, punctuation, and
spelling. Writing is organized, clear and concise with thorough
details.
15 points
APA
Have over 12 APA issues.
0-4 points
6-11 APA issues
5-9 points
2-5 APA issues
10-14 points
Zero to 1 APA issues – Proper APA format used, and APA
reference sources and in-text cites requirements met. Headings
applied for rubric areas.
15 points
5 8 9
C A S E
Dr. Louis Mickael:
The Physician as
Strategic Manager
Industry Background

In the early 1900s, hospitals were perceived by the majority of
the
population in the United States as places where very sick people
went to die. However, in the past five decades, rapid progress
in medical technology, knowledge base, and expertise enhanced
professional capability, and the public then demanded high
levels of health care services.
In 50 years, many demographic changes occurred. The popu-
lation, longevity, and standard of living continued to increase.
To address the needs of this changing population, government
health care insurance programs for the older and needy
segments
of society were instituted. Private insurance companies prolifer-
ated, and although workers had begun to expect employers to
share with them the financial responsibility for their health
serv-
ice needs, employers were searching for less expensive ways to
provide such care. The government was also attempting to
reduce
costs associated with the insurance programs it sponsored.
This case was written by C. Louise Sellaro, Youngstown State
University. It is
intended as a basis for classroom discussion rather than to
illustrate either effec-
tive or ineffective handling of an administrative situation. The
names of firms,
individuals, locations, and financial information have been
disguised to preserve
the organization’s desire for anonymity. Presented and accepted
for the Refereed
Society for Case Research. All rights reserved to the author and
SCR. Copyright
© 1992 by C. Louise Sellaro. Used with permission of Louise

Sellaro.
8
both08.indd 589both08.indd 589 11/11/08 11:46:24
AM11/11/08 11:46:24 AM
C A S E 8 : D R . L O U I S M I C K A E L5 9 0
By the early 1980s, costs to provide these health care services
reached epic
proportions; and the financial ability of employers to cover
these costs was being
stretched to breaking point. In addition, new government health
care regula-
tions had been enacted that have had far-reaching effects on this
US industry.
The most dramatic change came with the inauguration of a
prospective pay-
ment system. By 1984, reimbursement shifted to a prospective
system under which
health care providers were paid preset fees for services rendered
to patients.
The procedural terminology codes that were initiated at that
time designated the
maximum number of billed minutes allowable for the type of
procedure (ser-
vice) rendered for each diagnosis. A diagnosis was identified by
the International
Classification of Diseases, Ninth Revision, Clinical
Modification, otherwise known
as ICD-9-CM. The two types of codes, procedural and
diagnosis, had to logically

correlate or reimbursement was rejected.
Put simply, regardless of which third-party payor insured a
patient for health care,
the bill for an office visit was determined by the number of
minutes that the regulation
allowed for the visit. This was dictated by the diagnosis of the
primary problem that
brought the patient into the office and the justifiable procedures
used to treat it.
These cost-cutting measures initiated through the government-
mandated pro-
spective payment regulation added to physicians’ overhead
costs because more
paperwork was needed to submit claims and collect fees. In
addition, the length
of time increased between billing and actual reimbursement,
causing cash flow
problems for medical practices unable to make the procedural
changes needed to
adjust. This new system had the effect of reducing income for
most physicians,
because the fees set by the regulation were usually lower than
those physicians
had previously charged.
Almost all other operating costs of office practice increased.
These included utilities,
maintenance, and insurance premiums for office liability
coverage, workers’ compen-
sation, and malpractice coverage (for which costs tripled in the
late 1980s and early
1990s). This changed the method by which government
insurance reimbursement
was provided for health care disbursed to individuals covered

under the Medicare
and Medicaid programs. Private insurors quickly adopted the
system, and health
care as an industry moved into a more competitive mode of
doing business.
The industry profile differed markedly from that of only a
decade earlier. Hos-
pitals became complex blends of for-profit and not-for-profit
divisions, joint ven-
tures, and partnerships. In addition, health care provided by
individual physician
practitioners had undergone change. These professionals were
forced to take a new
look at just who their patients were and what was the most
feasible, competitively
justifiable, and ethical mode of providing and dispensing care to
them.
For the first time in his life, Dr. Mickael read about physicians
who were bank-
rupt. In actuality, Dr. Charles, who shared office space with
him, was having a
financial struggle and was close to declaring bankruptcy.
January 6, 1994
The last patient had just left, and Dr. Lou Mickael (“Dr. Lou”)
sat in his office
thinking about the day’s events. He had been delayed getting
into work because
AM11/11/08 11:46:25 AM

5 9 1
a patient telephoned him at home to talk about a problem with
his son. When he
arrived at the office and before there was time to see any of the
patients waiting
for him, the hospital called to tell him that an elderly patient,
Mr. Spence, admitted
through the emergency room last night had taken a turn for the
worse.
“My days in the office usually start with some sort of crisis,” he
thought. “In
addition to that, the national regulations for physician and
hospital care reim-
bursement are forcing me to spend more and more time dealing
with regulatory
issues. The result of all this is that I’m not spending enough
time with my patients.
Although I could retire tomorrow and not have to worry
financially, that’s not
an alternative for me right now. Is it possible to change the way
this practice is
organized, or should I change the type of practice I’m in?”
Practice Background
When Dr. Lou began medical practice the northeastern city’s
population was approx-
imately 130,000 people, most of whom were blue-collar workers
with diverse
ethnic backgrounds. By 1994, suburban development surrounded
the city, more
than doubling the population base. A large representation of
service industries

were added, along with an extensive number of upper and
middle managers and
administrators typically employed by such industries.
Location
Dr. Lou kept the same office over the years. It was less than
one-half mile from
the main thoroughfare and located in a neighborhood of single-
family dwell-
ings. The building, constructed specifically for the purpose of
providing space for
physicians’ offices, was situated across the street from City
General, the hospital where
Dr. Lou continued to maintain staff privileges. Three physicians
(including Dr. Lou)
formed a corporation to purchase the building, and each doctor
paid that corporation
a monthly rental fee, which was based primarily on square
footage occupied, with
an adjustment for shared facilities such as a waiting room and
rest rooms.
Office Layout
One of the physicians, Dr. Salis, was an orthopedic surgeon who
occupied the
entire top floor of the building. Dr. Lou and the other physician,
Dr. Charles,
were housed on the first floor. Total office space for each (a
small reception area, two
examining rooms, and private office) encompassed a 15' × 75'
area (see Exhibit 8/1).
The basement was reserved for storage and maintenance
equipment.

The reception area and each of the other rooms that made up the
office
space opened on to a hallway that Dr. Lou shared with Dr.
Charles. The two
physicians and their respective staff members had a good
rapport; and because
the reception desks opened across from each other, each staff
was able to
provide support for the other by answering the phone or giving
general informa-
tion to patients when the need arose.
P R A C T I C E B A C K G R O U N D
AM11/11/08 11:46:25 AM
The large, common waiting room was used by both physicians.
After report-
ing to their own doctor’s reception area, patients were seated in
this room, then
paged for their appointment via loudspeaker.
Dr. Charles was in his mid-forties and in general practice as
well. His patients
ranged in age from 18 to their mid-eighties, and his office was
open from 10:00
A.M. until 7:30 P.M. on Mondays and Thursdays, and from 9:30
A.M. until 4:30 P.M.
on Tuesdays and Fridays; no office hours were scheduled on
Wednesday. He
and Dr. Lou were familiar with each other’s patient base, and

each covered the
other’s practice when necessary.
Staff and Organizational Structure
Dr. Lou’s staff included one part-time bookkeeper (who doubled
as office manager)
and two part-time assistants. The assistants’ and bookkeeper’s
time during office
hours was organized in such a way that one individual was
always at the recep-
tion desk and another was “floating,” taking care of records,
helping as needed in
the examining rooms, and providing office support functions.
There were never
more than two staff people on duty at one time, and the
assistants’ job descrip-
tions overlapped considerably (see Exhibit 8/2 for job
descriptions). Each staff
member could handle phone calls, schedule appointments, and
usher patients to
the examining rooms for their appointments.
Although Dr. Lou was “only a phone call away” from patients
on a 24-hour
basis, patient visits were scheduled only four days a week. On
two of these days
(Monday and Thursday) hours were from 9:00 A.M. to 5:00
P.M. The other two were
“long days” (Tuesday and Friday), when office hours officially
were extended to
7:00 P.M. in the evening, but often ran much later.
Front
Desk Treatment

Room 1
Treatment
Room 2
Private
Office
Dr. Charles’ Office Space
Front
Door
Common
Waiting
Room
75'
15'
Exhibit 8/1: Shared Office Space of Dr. Mickael and Dr.
Charles
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5 9 3
The fifth weekday (Wednesday) was reserved for meetings,
which were an
important part of Dr. Lou’s professional responsibilities
because he was a mem-
ber of several hospital committees. He was one of two

physicians residing on
the ten-member board of the hospital, and this, along with other
committee
responsibilities, often demanded attendance at a variety of
scheduled sessions
from 7:00 A.M. until late afternoon on “meetings” day.
Wednesday was used by
the staff to process patient insurance forms, enter patient data
into their charts
and accounts receivables, and prepare bills for processing.
When paperwork began to build after the PPS regulations came
into effect in
the 1980s, patients had many problems dealing with the forms
that were required
for reimbursement of services received in a physician’s office.
It was the option
of physicians whether to “accept assignment” (the standard fee
designated by
an insurance payor for a particular health care service provided
in a medical
office). A physician who chose to not accept assignment must
bill patients for
health care services according to a fee schedule (“a usual
charge” industry
profile) that was preset by Medicare for Medicare patients.
Most other insur-
ances followed the same profile. Dr. Lou agreed to accept the
standard fee, but
the patient had to pay 20 percent of that fee, so the billing
process became quite
complicated.
In 1988, Dr. Lou decided that he needed to computerize his
patient informa-
tion base to provide support for the billing function. He

investigated the possib-
ility of using an off-site billing service, but it lacked the
flexibility needed to deal
with regulatory changes in patient insurance reporting that
occurred with greater
Exhibit 8/2: Job Descriptions for Dr. Mickael’s Office Staff
Job Description: Bookkeeper/Office Manager
In addition to responsibility for bookkeeping functions,
ordering supplies, and reconciling the orders
with supplies received, this person knows how to run the
reception area, pull the file charts, and
usher patients to treatment rooms. In addition, she can handle
phone calls, schedule appointments,
and enter office charges into patient accounts using the
computer.
Job Description: Assistant 1
The main responsibility of this position is insurance billing.
Additional duties include running
the reception area, pulling and filing charts, ushering patients to
treatment rooms, answering the
phone, scheduling appointments, entering office charges into
patient accounts, and placing supplies
received into appropriate storage areas.
Job Description: Assistant 2
This is primarily a receptionist position. The duties include
running the reception area, pulling and
filing charts, ushering patients to treatment rooms, answering
the phone, scheduling appointments,
entering office charges into patient accounts, and placing

supplies received into appropriate storage
areas.
S T A F F A N D O R G A N I Z AT I O N A L S T R U C T
U R E
AM11/11/08 11:46:29 AM
and greater frequency. Dr. Charles was asked if he wished to
share expenses and
develop a networked computer system. But the offer was
declined; he preferred
to take care of his own billing manually.
An information systems consultant was hired to investigate the
computer
hardware and software systems available at that time, make
recommendations
for programs specifically developed for a practice of this type,
and oversee
installation of the final choice. After initial setup and staff
training, the con-
sultant came to the office only on an “as needed” basis, mostly
to update the
diagnostic and procedure codes for insurance billing.
Computerization was an important addition to the record-
keeping process, and
the system helped increase the account collection rate.
However, at times prob-

lems would arise when the regulations changed and third-party
payors (insurance
companies) consequently adjusted procedure or diagnosis codes.
For example,
there was often some lag time between such decisions and
receipt of the informa-
tion needed to update the computer program. Fortunately, the
software chosen
remained technologically sound, codes were easily adjusted, and
vendor support
was very good.
Although the new system helped to adjust the account collection
rate, fitting
this equipment into the cramped quarters of current office space
was a problem.
To keep the computer paper and other supplies out of the way,
Dr. Lou and his
staff had to constantly move the heavy boxes containing this
stock to and from
the basement storage area.
January 8, 1994 (Morning)
On Dr. Lou’s way in that day, the bookkeeper told him that
something needed
to be done about accounts receivable. Lag time between billing
and reimburse-
ment was again getting out of hand, and cash flow was
becoming a problem (see
Exhibits 8/3 through 8/6 for financial information concerning
the practice).
Cash flow had not been a problem prior to PPS, when billing for
the health
care provided by Dr. Lou was simpler, and payment was usually

retrospectively
reimbursed through third-party payors. However, as the
regulatory agencies
continued to refine the codes for reporting procedures, more and
more pressure
was being placed on physicians to use additional or extended
codes in reporting
the condition of a patient. Speed of reimbursement was a
function of the accur-
acy with which codes were recorded and subsequently reported
to Medicare and
other insurance companies. In part, that was determined by a
physician’s ability
to keep current with code changes required to report illness
diagnoses and office
procedures.
Cathy, the receptionist, had a list of patients who wanted Dr.
Lou to call as
soon as he came in. She also wanted to know if he could
squeeze in time around
lunch hour to look at her husband’s arm; she believed he had a
serious infec-
tion resulting from a work-related accident. The wound looked
pretty nasty this
morning, and Cathy thought maybe it should not wait until the
first available
appointment at 7:00 P.M.
AM11/11/08 11:46:29 AM
5 9 5

Exhibit 8/3: Trial Balance at December 31
1991 1992 1993
Debits
Cash $15,994 $9,564 $8,666
Petty cash 50 100 100
Accounts receivable 19,081 25,054 28,509
Medical equipment 11,722 11,722 11,722
Furniture and fixtures 3,925 3,925 3,361
Salaries 117,455 124,608 132,325
Professional dues and licenses 1,925 1,873 1,816
Miscellaneous professional expenses 1,228 2,246 3,232
Drugs and medical supplies 2,550 1,631 2,176
Laboratory fees 2,629 524 1,801
Meetings and seminars 2,543 838 3,880
Legal and professional fees 5,525 2,057 5,400
Rent 16,026 16,151 18,932
Office supplies 4,475 3,262 4,989
Publications 1,390 406 401
Telephone 1,531 1,451 2,400
Insurance 8,876 9,629 11,760
Repairs and maintenance 3,547 4,240 5,352
Auto expense 1,009 1,487 3,932
Payroll taxes 3,107 2,998 3,780
Computer expenses 846 938 1,905
Bank charges 438 455 479
$225,872 $225,159 $256,918
Credits
Professional fees $172,281 $172,472 $204,700
Interest income 992 456 210
Capital 46,122 43,137 40,117
Accumulated depreciation (furniture and fixtures) 1,692 2,151
2,796

Accumulated depreciation (medical equipment) 4,785 6,943
9,095
$225,872 $225,159 $256,918
Exhibit 8/4: Gross Revenue and Accounts Receivable
December 31
1979 1986
Gross revenue $116,951 $137,126
Accounts receivable 15,684 32,137
J A N U A R Y 8 , 1 9 9 4 ( M O R N I N G )
AM11/11/08 11:46:29 AM
“I’m just starting to see my patients, and I’ve already done a
half-day’s work,”
Dr. Lou thought when he buzzed his assistant to bring in the
first patient. He
was 45 minutes late.
Patient Profile
When Dr. Lou walked into Treatment Room 1 to see the first
patient of the day,
Doris Cantell, he was thinking about how his practice had
grown over the years.
His practice maintained between 800 and 900 patients in active
files. In com-

parison to other solo practitioners in the area, this would be
considered a fairly
large patient base.
“Well, how are you feeling today?” he asked the matronly
woman. Doris and
her husband, like many of his patients, were personal friends.
In the beginning years of practice, Dr. Lou’s patients had been
primarily
younger people with an average age in the mid-thirties; their
average income
was approximately $15,000. Their families and careers were just
beginning, and
it was not unusual to spend all night with a new mother waiting
to deliver a
Exhibit 8/5: Statements of Income for the Years Ended
December 31
1991 1992 1993
Operating Revenues
Professional fees $172,281 $172,472 $204,700
Interest income 992 456 210
Total revenues 173,273 172,928 204,910
Operating Expenses
Salaries (Dr. Mickael, Staff) 117,455 124,608 132,325
Professional dues and licenses 1,925 1,873 1,816
Miscellaneous professional expenses 1,228 2,246 3,232
Drugs and medical supplies 2,550 1,631 2,176
Laboratory fees 2,629 524 1,801

Meetings and seminars 2,543 838 3,880
Legal and professional fees 5,525 2,057 5,400
Rent 16,026 16,151 18,932
Office supplies 4,475 3,262 4,989
Publications 1,390 406 401
Telephone 1,531 1,451 2,400
Insurance 8,876 9,629 11,760
Repairs and maintenance 3,547 4,240 5,352
Auto expense 1,009 1,487 3,932
Payroll taxes 3,107 2,998 3,780
Computer expenses 846 938 1,905
Bank charges 438 455 479
Total operating expenses 175,100 174,794 204,560
Net Income (Loss) ($1,827) ($1,866) $350
AM11/11/08 11:46:30 AM
5 9 7
baby. Although often dead tired, he enjoyed the closeness of the
professional rela-
tionships he had with his patients. He believed that much of his
success as a
physician came from “going that extra mile” with them.
Many things had changed. Today all pregnancies were referred
to specialists
in the obstetrics field. His patients ranged in age from 3 to 97,
with an average
of 58 years; their median income was $25,000. Most were blue-
collar workers or

recently retired, and their health care needs were quite diverse.
Approximately 60 percent of Dr. Lou’s patients were subsidized
by Medicare
insurance, and most of the retired patients carried supplemental
insurance with
other third-party payors. Three types of third-party payors were
involved in
Dr. Lou’s practice: (1) private insurance companies, such as
Blue Cross and Blue
Shield; (2) government insurance (Medicare and Medicaid); and
(3) preferred
provider organizations.
Preferred provider organizations and health maintenance
organizations were
forms of group insurance that emerged in response to the need
to cut the costs
of providing health care to patients, which resulted in the
prospective payment
system. Both types of organizations developed a list of
physicians who would
Exhibit 8/6: Balance Sheets at December 31
1991 1992 1993
Assets
Capital equipment
Medical equipment $11,722 $11,722 $11,722
Furniture and fixtures 3,925 3,925 3,361
Less-accumulated depreciation (6,477) (9,094) (11,891)
Total capital equipment 9,170 6,553 3,192
Current assets

Cash 15,994 9,564 8,666
Petty cash 50 100 100
Accounts receivable 19,081 25,054 28,509
Total current assets 35,125 34,718 37,277
Total assets $44,295 $41,271 $40,467
Liabilities
Current liabilities
Income taxes payable ($639) ($653) $122
Dividends payable 1,158 1,154 1,154
Total current liabilities 519 501 1,276
New income (1,188) (1,213) 228
Less dividends 1,158 1,154 1,154
Retained earnings (2,346) (2,367) (926)
Capital 46,122 43,137 40,117
Total owner’s equity 43,776 40,770 39,191
Total liabilities and owner’s equity $44,295 $41,271 $40,467
PAT I E N T P R O F I L E
AM11/11/08 11:46:30 AM
accept their policies and fee schedules; using the list,
subscribers chose the
doctor from whom they preferred to obtain health care services.

Contrary to reimbursement policies of most other major medical
third-party
payors, PPOs and HMOs covered the cost of office visits, and
the patient might
not be responsible for any percentage of that cost. Although the
physician had
to accept a fee schedule determined by the outside organization,
there was an
advantage to working with these agencies. A physician might be
on the list of
more than one organization, and a practice could maintain or
expand its patient
base through the exposure gained from being listed as a health
service provider
for such organizations.
Those patients who were working usually had coverage through
work bene-
fits. Some were now members of a PPO. Dr. Lou was on the
provider list of
the Northeast Health Care PPO; only a few of his patients were
enrolled in the
government welfare program.
“How’s your daughter doing in college?” Dr. Lou asked. He had
a strong rap-
port with the majority of his patients, many of whom continued
to travel to his
office for medical needs even after they moved out of the
immediate area. “Are
you heading south again this winter, and are you maintaining
your ‘snowbird’
relationship with Dr. Jackson?”
It was not unusual for patients to call from as far away as

Florida and Arizona
during the winter months to request his opinion about a medical
problem, and
Doris had called last year to ask him to recommend a physician
near their winter
home in the South. Because of this personal attention, once
patients initiated
health care with him, they tended to continue. Dr. Lou had lost
very few patients
to other physicians in the area since he began to practice
medicine. The satisfac-
tion experienced by his patients provided the only marketing
function carried
out for the practice. Any new patients (other than professional
referrals) were
drawn to the office through word-of-mouth advertising.
Dr. Lou: Profile of the Physician
Dr. Lou had grown older with many of his patients. His practice
spanned more
than three generations; a lot of families had been with him since
he opened his
doors in 1961. Caring for these people, many of whom had
become personal
friends, was very important to him. However, as the character of
the health care
industry was changing, Dr. Lou was beginning to feel that he
now spent entirely
too much time dealing with the “system” rather than taking care
of patients.
Eighty-year-old Mr. Spence was a good example. Three weeks
before, he was
discharged from the hospital after having a pacemaker
implanted. He had been

living at home with his wife, and although she was wheelchair
bound, they
managed to maintain some semblance of independence with the
assistance of
part-time care. Lately, however, the man had become more and
more confused.
The other night he wandered into the yard, fell, and broke his
hip. His reentry
to the hospital so soon meant that a great deal of paperwork
would be needed to
justify this second hospital admission. In addition, Dr. Lou
expected to receive
AM11/11/08 11:46:30 AM
5 9 9
calls from their children asking for information to help them
determine the best
alternatives for the care of both parents from now on. He had
never charged a
fee for such consultation, considering this to be an extension of
the care he norm-
ally provided.
“Things are really different now,” he thought. “Under this new
system I don’t
have the flexibility I need to determine how much time I should
spend with a
patient. The regulations are forcing me to deal with business
issues for which I
have no background, and these concerns for costs and time
efficiency are very

frustrating. Medical school trained me in the art and science of
treating patients,
and in that respect I really feel I do a good job, but no training
was provided to
prepare me to deal with the business part of a health care
practice. I wonder if
it’s possible to maintain my standards for quality care and still
keep on practic-
ing medicine.”
Local Environment
The actual number of city residents had not changed appreciably
since the early
1960s, although suburban areas had grown considerably. In the
mid-1970s, a
four-lane expressway, originally targeted for construction only
one mile from the
center of the downtown area, was put in place about eight miles
farther away.
Within five years, most of the stores followed the direction of
that main highway
artery and moved to a large mall situated about five miles from
the original
center of the city. Many of the former downtown shops then
became empty.
Government offices, banking and investment firms, insurance
and real estate
offices, and a university occupied some of this vacated space; it
was used for
quite different (primarily service-oriented) business activities.
Numerous residential apartments devoted to housing for the
elderly and low-
income families were built near the original, downtown
shopping area. Several

large office buildings (where much space was available for rent)
and offices for
a number of human services agencies relocated nearby.
As he headed across the street to lunch in the hospital dining
room, Dr. Lou
was again thinking about how things had changed. At first, he
had been one
of a few physicians in this area. Within the past ten years,
however, many new
physicians had moved in.
Competition
Two large (500-bed) hospitals within easy access of the
downtown area had been
in operation for over 40 years. One was located immediately
within the city lim-
its on the north side of the city; the other was also just inside
city limits on the
opposite (south) side. They were approximately three miles
apart and competed
for a market share with City General, a 100-bed facility. This
smaller hospital was
only two blocks from the old business district; it was the only
area hospital where
Dr. Lou maintained staff privileges. Exhibit 8/7 contains a map
showing the loca-
tion of the hospitals and Dr. Lou’s office.
C O M P E T I T I O N
AM11/11/08 11:46:31 AM

The two large hospitals had begun to actively compete for staff
physicians
(physicians in private practice who paid fees to a hospital for
the privilege of
bringing their patients there for treatment). In addition, these
two health care
institutions offered start-up help for newly certified physicians
by providing
low-cost office space and ensuring financial support for a
certain period of time
while they worked through the first months of practice.
City General recently began subsidizing physicians coming into
the area by
providing them with offices inside the hospital. Most of these
physicians worked
in specialty fields that had a strong market demand, and the
hospital gave them
a salary and special considerations, such as low rent for the first
months of
practice, to entice them to stay in the area.
These doctors served as consultants to hospital patients
admitted by other staff
physicians and could influence the length of time a patient
remained in the hos-
pital. This was an extremely important issue for the hospital,
because under the
new regulations a long length of stay could be costly to the
facility. All third-party
insurors reimbursed only a fixed amount to the hospital for
patient care; the pay-
ment received was based on the diagnosis under which a patient

was admitted.
Should a patient develop complications, a specialist could
validate the extension
of reimbursable time to be added to the length of stay for that
patient.
In the past few years, many services to patients provided by all
these hospitals
changed to care provided on an outpatient basis. Advancements
in technology
made it possible to complete in one day a number of services,
including tests and
some surgical procedures, which formerly required admission
into the hospital
and an overnight stay. Many such procedures could also be done
by physicians
in their offices, but insurance reimbursement was faster and
easier if a patient
had them done in a hospital. As an example of the degree of
change involved,
W. P
ost R
d.
Airport
W. Ridge Rd. W 31
St
ar
r R
d.

Be
ac
h
PE
N
N
R
R
Hospital
NYC RR
E. P
ost
Rd.
E. Ridge Rd.
W
ar
re
n
R
d
.
HospitalTownhall Rd.

Dr. Mickael
Pe
nt
ar
R
d.
City
General
E 31
Exhibit 8/ 7: Map of the Hospitals and Dr. Mickael’s Medical
Office
AM11/11/08 11:46:31 AM
6 0 1
in the mid-1980s, outpatient gross revenue was only 18 percent
of total gross
revenue for City General. In 1992 this figure was projected to
be approximately
30 percent.
January 8, 1994 (Lunchtime)
“May I join you?”
Dr. Lou looked up from his lunch to see Jane Duncan, City

General’s hos-
pital administrator, standing across the table. “I’d like to talk
with you about
something.”
Dr. Lou thought he knew what this was about. The hospital had
been recruit-
ing additional staff physicians (doctors who owned private
practices in and
around the city). A number of these individuals held family
practice certification,
a prerequisite for staff privileges in many hospitals. The
recruitment program
offered financial assistance to physicians who were family
practice specialists wish-
ing to move into the area, and also subsidized placement of
younger physicians
who had recently completed their residencies. In contrast to
physicians designated
as general practitioners, who had not received training beyond
that received
through medical school and a residency, “family practitioners”
received additional
training and passed state board exams written to specifically
certify a physician
in that field.
Last week after a hospital staff meeting, Duncan had caught him
in the hall and
wanted to know if Dr. Lou had thought about his retirement
plans. “It’s really not
too soon,” she had said. Dr. Lou knew that one of the methods
used to bring in
“new blood” was to provide financial backing to a physician
wishing to ease out

of practice, helping pay the salary of a partner (usually one with
family practice
certification) until the older physician retired.
“She wants to talk to me again about retirement and taking on a
partner,” he
thought. “But I’m only in my late fifties. And I’m not ready to
go to pasture yet!
Besides, there’s really no room to install a partner in my
office.”
January 8, 1994 (Afternoon)
After lunch Dr. Lou ran back to the office to take a look at
Cathy’s husband’s arm
before regular office hours started. This was a work-related
case. As he treated the
patient, he began thinking about industrial medicine as an
alternative to full-time
office practice. Right then the prospect seemed quite appealing.
He had invest-
igated the idea enough to know that there were only a few
schools that provided
this kind of training but one was within driving distance
(Exhibit 8/8 contains
information on industrial medicine).
As health costs rose over the past decade, manufacturing
organizations began to
feel the cost pinch of providing health care insurance to
employees. Some larger
companies in the area began to recognize the cost benefit of
maintaining a pri-
vate physician on staff who was trained in the treatment of
health care needs for

J A N U A R Y 8 , 1 9 9 4 ( A F T E R N O O N )
AM11/11/08 11:46:32 AM
industrial workers. Dr. Lou had been considering going back for
postgraduate
training in industrial medicine, and while wrapping the man’s
arm, he began to
think about working for a large corporation.
“Work like that could have a lot of benefits; it would give me a
chance to do
something a little different, at least part time for now,” he
thought. “The income
was almost comparable to what I net for the same time in the
office, and some
days I might even get home before 9:00 P.M.!”
End of the Day
As he was putting on his coat and getting ready to leave, Dr.
Charles, the physi-
cian from across the hall, phoned to ask if Dr. Lou might be
interested in buying
him out. “I think you could use the space,” he said, “and my
practice is going
down the tubes. I can’t seem to get an upper hand with the
finances. I’ve had to
borrow every month to maintain the cash flow needed to pay my
bills because
patients can’t keep up with theirs. City General has offered me

a staff position,
and I’m seriously considering it. I thought I’d give you first
chance.” After some
minutes of other “office talk,” Dr. Charles said good night.
“If I wanted to take on a new partner, that could work out well,”
thought
Dr. Lou. “It might be interesting to check into this. I wonder
what his asking price
would be? It could not be too much more than the value of my
practice; although
his patients are a bit younger and some of his equipment is a
little newer. The
Exhibit 8/8: Industrial Medicine as a New Career for Dr.
Mickael
“Industrial Medicine” is an emerging physician specialty.
Training in this new field entails postgraduate
work and board certification.
As yet, only a few schools provide such training. One is located
in Cincinnati, Ohio, which is
geographically close enough to be feasible for Dr. Mickael. The
time spent in actual attendance
amounts to one two-week training period beginning in June of
the year in which a physician is
accepted for the training. Two additional training periods are
each one week in duration: these take
place in the months of October and March. After this, the
physician was expected to individually
study for and take the board certification exams, which were
given only once per year; the exams
were comprehensive and extended over a two-day period.
Training Program Costs: Industrial Medicine

University Residency:
Three, on-site class sessions $4,000.00
Per night cost for room 47.87
Books and supplies (total) 580.53
Transportation, Air:
Three, round-trip fares $1,650.00
Transportation, Ground:
Car rental, per week with unlimited mileage $125.45
AM11/11/08 11:46:32 AM
6 0 3
initial hospital proposal to buy me out indicated that my
practice was worth
about $175,000. So that means I should be able to negotiate
with Dr. Charles for
a little less than $200,000.”
It was 9:30 P.M. when Dr. Lou finally left the office, and he
still had hospital
rounds to make. “This is another situation caused by these
insurance regula-
tions,” he thought. “I feel as though I’m continuously updating
patients’ hospital
records throughout the day, and more of my patients require
hospitalization
more often than they did when they were younger. All things
being equal, I’m

earning considerably less for doing the same things I did a
decade ago, and in
addition the paperwork has increased exponentially. There has
to be a better way
for me to deal with this business of practicing medicine.”
E N D O F T H E D AY
AM11/11/08 11:46:33 AM
STRATEGIC MANAGEMENT OF
HEALTH CARE ORGANIZATIONS 7TH EDITION
1
Chapter 4
Internal Environmental Analysis
and Competitive Advantage

2
Chapter 4 Learning Objectives
Understand the role of internal environmental analysis in
identifying the basis for sustained competitive advantage.
3
Describe the organizational value chain, including the
components of the service delivery and support activities.
4

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.
5
Use the value chain to identify organizational strengths and
weaknesses.
6
weaknesses.
Determine the competitive relevance of each strength and
weakness with the aid of a series of carefully formulated
questions.
7

weaknesses.
Determine the competitive relevance of each strength and
weakness with the aid of a series of carefully formulated
questions.
Describe how competitively relevant strengths and weaknesses
can be used to suggest strategic actions.
8
Develop a Strategy
Strategy
of the Organization
External
Environment
Internal
Environment
Directional
Strategies,
Leadership
Should
Do

Can
Do
Wants
To Do
9
The Strategic Planning Process
Strategic Planning
Situation Analysis
Strategy Formulation
Planning the Implementation
External Analysis
Internal Analysis
Directional Strategies
Service Delivery Strategies
Support Strategies
Action Plans
Adaptive Strategies

Market Entry Strategies
Competitive Strategies
10
Internal Analysis
Whereas external analysis asked “what should we do?”, internal
analysis addresses “what can we do?”
11
Internal Analysis
Whereas external analysis asked “what should we do?”, internal
analysis addresses “what can we do?”
Identify strengths (competitive advantages) and weaknesses
(competitive disadvantages)
12

The Health Care Value Chain
Pre-Service
Market Research
Target Market
Services Offered/
Banding
Pricing
Distribution/Logistics
Promotion
Point-of-Service
Clinical Operations
Quality
Process Innovation
Marketing
Patient Satisfaction
After-Service
Follow-up
Clinical
Marketing
Billing
Follow-on
Clinical
Marketing
Service Delivery
Add Value
13
Organizational Culture

Shared Assumptions Shared Values Behavioral Norms
Organizational Structure
Function Division Matrix
Strategic Resources
Financial Human Information Technology
Support Activities
Add Value
14
Pre-Service
Market Research
Target Market
Services Offered/
Banding
Pricing
Distribution/Logistics
Promotion
Point-of-Service
Clinical Operations
Quality
Process Innovation
Marketing
Patient Satisfaction
After-Service
Follow-up
Clinical
Marketing
Billing
Follow-on

Clinical
Marketing
Organizational Culture
Shared Assumptions Shared Values Behavioral Norms
Organizational Structure
Function Division Matrix
Strategic Resources
Financial Human Information Technology
Support Activities
Service Delivery
Add Value
Add Value
15
Description of Value Chain Components
Service DeliveryValue Chain ComponentDescriptionService
DeliveryThe activities in the value chain that are directly
involved in ensuring access to, provision of, and follow-up for
health servicesPre-Service Market/Marketing
ResearchDetermine the services that create value prior to the
actual delivery of health services, determine appropriate target
market Target MarketThe process of identifying recognizable
groups (segments) that make up the market and selecting
appropriate groups upon which to focus Services
Offered/BrandingInformation dissemination to present to
prospective patients and other stakeholders regarding the range
and location of available services PricingCharge schedule for
available services Distribution/LogisticsActivities and systems
that facilitate patient/customer entry into the service delivery
system, including appointments and registration

PromotionActivities that ensure all the elements needed to
deliver health services are available at the appropriate place at
the appropriate time
16
Service DeliveryValue Chain ComponentDescriptionPoint-of-
Service Clinical Operations Quality
Process InnovationThose 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
Marketing
Patient SatisfactionActivities and groups of activities that are
designed specifically to improve the quality and quantity of
health services
Activities to offer new products, seek new customers, provide
better services delivery, and cause services to be perceived as
higher value
17
Service DeliveryValue Chain ComponentDescriptionAfter-

Service Follow-up Clinical MarketingActivities that create
value after the patient has received the health services
Activities designed to determine the effectiveness of or the
patient’s satisfaction with health services received
BillingActivities that assist in determining what other services
need to be delivered
Value creating activities that ensure more understandable and
efficient billing procedures Follow-on Clinical
MarketingActivities that facilitate entry into another value
chain (from hospital to home care, etc.)
18
Support ActivitiesValue Chain ComponentDescriptionSupport
ActivitiesThe activities in the value chain that are designed to
aid in the efficient and effective delivery of health
servicesOrganizational Culture
Shared Assumptions
Shared Values
Behavioral NormsThe overarching environment within which
the health services organization operates
The assumptions employees and others share in the organization
regarding all aspects of service delivery (e.g., needs of patients,
goals of the organization)
The guiding principles of the organization and its employees
The understandings people in the organization have regarding
excellence, risk taking, etc.
Understandings about behavior in the organization that can
create value for patients

19
Exhibit 4-2: Description of Value Chain Components
Support ActivitiesValue Chain
ComponentDescriptionOrganizational Structure
Function
Division
MatrixThose aspects of organization structure that are capable
of creating value for customers/patients
Structure based on process or activities used by employee (e.g.,
surgery, finance, human resources)
Major units operate relatively autonomously subject to
overarching policy guidelines (e.g., hospital division; outpatient
division; northwest division)
Two-dimensional structure where more than a single authority
structure operates simultaneously (e.g., interdisciplinary team
with representatives from medicine, nursing, administration)
20
Exhibit 4-2: Description of Value Chain Components
Support ActivitiesValue Chain ComponentDescriptionStrategic
Resources
Financial
Human
Information

TechnologyValue-creating financial, human, information
resources, and technology necessary for the delivery of health
services
Financial resources required to provide the facilities,
equipment, and specialized competencies demanded by the
delivery of health services
Individuals with the specialized skills and commitment to
deliver health services
Hardware, software, and information processing systems needed
to support the delivery of health services
The facilities and equipment required to provide health services
21
Identifying Current and Potential
Competitive Advantage
Resources
Resource-based View: Valuable, expensive or difficult-to-copy
resources Non-human Factors
Competencies
Knowledge and skill based Human Factors
Socially complex and require large numbers of people engaged
in coordinated activities
Capabilities
Organization’s ability to deploy resources and competencies to
produce its capability

22
Strategic Thinking Map – Step 1
Identify Strengths and Weaknesses
Pre-Service
Point-of-Service
After-Service
Culture
Structure
Strategic Resources
Service Delivery
Strengths & Weaknesses
Support Activities
Strengths & Weaknesses
23
Evaluate Competitive Relevance of Strengths and Weaknesses
Value
Rare

Imitable
Sustainable
Competitively Relevant Strengths
Competitively Relevant Weaknesses
24
Focus on Competitive Strengths and Competitive Weaknesses
Competitive Advantages
Competitive Disadvantages
25
Some Sources of Competitive Advantage
Strong financial holdings or backing
Desirable location
State-of-the-art facilities or equipment
Difficult to obtain information
Intellectual property
Especially when protected by patents
Reputation
Positive image

Name recognition
Goodwill
Strong leadership/competent management
Effective communication
A positive organizational culture
Tangible
Intangible
26
Strategic Thinking
What strengths can be considered competitive advantages?
Is the Value of the Strength High or Low?Is the Strength
Rare?Is the Strength Easy or Difficult to Imitate?Can the
Strength be Sustained?High/LowYes/NoEasy/DifficultYes/No
27
Is the Value of the Strength High or Low?
(High/Low?)Is the Strength Rare?
(Yes/No)Is the Strength Easy or Difficult to Imitate?
(Easy/Difficult)Can the Strength Be Sustained?
(Yes/No)ImplicationsHNEYNo competitive advantage. 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 is likely that it already has become a
minimum condition for long-term success.HNENNo competitive

advantage. Most competitors have the strength and it is easy to
develop. However, the strength generally is not sustainable. If
the organization is the only organization in the service area that
cannot sustain the strength, it will become a short-term
competitive disadvantage.HNDYNo competitive advantage.
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 a minimum condition for
long-term success.
Strategic Thinking Map of Competitive Advantages Relative to
Strengths in General
28
Is the Value of the Strength High or Low?
(Yes/No)ImplicationsHNDNNo 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 only organization that can
not sustain the strength, it will become a long-term competitive
disadvantage.HYEYShort-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 long-term strategies on this type of strength. Over
time, this strength may become a minimum condition for long-
term success.HYENShort-term advantage but not a source of
long-term competitive advantage. 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.
Strengths in General
29
Strengths in GeneralIs the Value of the Strength High or Low?
(Yes/No)ImplicationsHYDYLong-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 very high, it may be worth “betting the organization”
on this strength.HYDNShort-term competitive advantage but not
a strength that can be sustained over the long run. Although
rare and difficult to imitate, the strength cannot be sustained.
This strength should be exploited for as long as possible.
30
Strategic Thinking
What weaknesses can be considered competitive disadvantages?

Is the weakness of High or Low Value?Is the Weakness
Common (Not Rare) Among Competitors?Is the Weakness Easy
or Difficult to Fix?Can Competitors Sustain Their
Advantage?High/LowYes/NoEasy/DifficultYes/No
31
Is the Weakness of High or Low Value?
(High/Low?)Is the Weakness Common (Not Rare) Among
Competitors?
(Yes/No)Is the Weakness Easy or Difficult to Correct?
(Easy/Difficult)Can
Competitors Sustain Their Advantage?
(Yes/No)ImplicationsHYEYNo 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 the organization fails to correct the weakness,
competitors could achieve a short-term competitive advantage.
Over time, correcting this weakness is likely become a
minimum condition for long-term success.HYENNo competitive
disadvantage. Although a weakness of the organization, most
other competitors are also weak in this area. However, the
weakness is easy to correct. It is likely most competitors will
work to correct the weakness and therefore no organization will
be able to sustain their advantage.
Strategic Thinking Map of Competitive Disadvantages Relative
to Weakness

32
Competitors?
(Easy/Difficult)Can
(Yes/No)ImplicationsHYDYNo competitive disadvantage.
Although a weakness of the organization, most other
competitors are also weak in this area and it is difficult to
correct. However, this situation is dangerous and should be
addressed to ensure competitors do not overcome this difficulty
and correct it first. If competitors correct the weakness and
continue to sustain their advantage the weakness could become
a long-term competitive disadvantage.HYDNNo competitive
disadvantage. Although a weakness of the organization, most
other competitors are also a weak in this area and it is difficult
to correct. It is likely this weakness is chronic among
competitors in the service area as corrections in the weakness
tend to erode over time.
to Weakness
33
Competitors?
(Easy/Difficult)Can

(Yes/No)ImplicationsHNEYShort-term competitive
disadvantage. Most competitors are not weak in this area,
however, the weakness is easy to correct. The organization
should move quickly to correct this type of weakness because
most other competitors are not weak in this area. Correcting this
weakness is likely to become a minimum condition for long-
term success.HNENShort-term competitive disadvantage.
Competitors are not weak in this area, however, the weakness is
easy to correct. The organization should move quickly to
correct the weakness. It is likely all competitors will correct the
weakness and therefore cannot sustain any advantage.
to Weakness
34
Competitors?
(Easy/Difficult)Can
(Yes/No)ImplicationsHNDYSerious competitive disadvantage.
The weakness is valuable, most competitors do not have it, it is
difficult for the organization to correct, and competitors can
sustain their advantage. If the weakness is of very high value, it
may threaten the survival of the organization.HNDNShort-term
competitive disadvantage. The weakness is valuable, most
competitors do not have it, it is difficult for the organization to
correct, however, competitors cannot sustain their advantage.
Until this area becomes a weakness for most competitors in the

service area or the weakness corrected by the organization, it
will continue to be a serious disadvantage.
Strategic Thinking Map of Competitive Disadvantages
Relative to Weakness
35
Questions for Evaluating the Internal Strategic Assumptions
Have the strengths and weaknesses been correctly identified?
Is there a clear basis on which to compete?
Does the strategy exploit the strengths and avoid the major
weaknesses of the organization?
Are the competitive advantages related to the critical success
factors in the service area?
Have we protected our short- and long-term competitive
advantages?
Has the competition made strategic moves that have weakened
our competitive advantages?
Are we creating new competitive advantages?
36
Chapter 4 Conclusions
After reading Chapter 4, you should be able to define the
following terms:

Key TermsKey TermsAfter-ServiceService
DeliveryCapabilityStrategic
CapabilityCompetencyStrengthCompetitive
AdvantageStretchCompetitive Relevant StrengthSupport
ActivitiesCompetitive Relevant WeaknessSustained Competitive
AdvantagePoint-of-ServiceValuePre-ServiceValue
ChainResource-Based-ViewWeaknessResources
37
Assignment
For ABC Long-Term Care Facility presented in the following
slides, determine their competitive advantages and competitive
disadvantages by completing the “Determining Competitive
Advantage” and “Determining Competitive Disadvantage”
Tables.
In a separate table of your design, provide your conclusions and
rationale for your competitive advantages and competitive
disadvantages.
38
External Issues, Competitor Analysis and Critical Success
FactorsExternal IssuesCompetitor Strengths and
WeaknessesCritical Success FactorsMedicaid and Medicare
reimbursement declining

Increasing penetration of managed care
Capitation on the horizon
CON laws disappearing
Systems of care forming (Integrated systems)
Changing medical technology
Group practices growing
Aging population
Mergers and alliances increasing
Some horizontal integration
Changing social structure and family roles
Established HMOs and PPOs
Increasing CompetitionCompetitor 1
S – part of a viable system of care
S – good information system
S – patient base mostly HMO
S – good image
S – new facility
W – new in the market
W – poor location
W – no internal continuum of care
(nursing only)
W – shortage of technical staff
W – not currently efficient
Competitor 2
S – low cost provider (efficient)
S – strong management
S – developing many alliances with
other providers
W – independent free standing
facility
W – patient base mostly Medicaid
and Medicare
W – shortage of technical staff High quality service/image
Low Cost Provider
Part of an Integrated System
ABC Long-Term Care Facility

39
Strengths and WeaknessesStrengthsWeaknessS – highly skilled
and caring clinical staff
S – recent financial turnaround
S – facilities/campus remodeled
S – good patient base (many referrals
through informal alliances)
S – good reputation/image
S – excellent dietary department
S – good location
S – strong internal continuum of care
(three levels of care)
S – religious affiliationW – shortage of technical staff
W – many problems with patient records
W – lack of management depth
W – many billing problems
W – information system is out-of-date
W – no strategic planning
W – some supply/inventory problems
W – aging facility
W – narrowing financial margins
W – independent facility
W – some turnover of staff

40
Identifying Competitive Advantage
Questions for Strengths: Can we build a competitive advantage
based on this strength? If we have a strength that is valuable,
rare in the service area, difficult to imitate and one that we can
sustain, then this factor provides competitive advantage. Lack
of real value, rareness in the industry or those strengths that are
easy to imitate or that can not be sustained create less of an
advantage.
Questions for Weaknesses: Can our competitors build a
competitive advantage against us because we are weak in this
area? Weaknesses must be evaluated in terms of importance in
the service area. Even though we are weak in an area, we must
ask if these factors are important in creating competitive
advantage for others. Thus, is the weakness valuable in the
service area, is it rare among competitors, etc. If valuable but
not rare, difficult to imitate and easy to sustain, we will have a
significant competitive disadvantage.
41
Determining Competitive Advantage Possible Results for a
Long-term Care OrganizationValue?
High/LowRare?
Yes/NoImitate?
Hard/EasySustain?
Yes/NoS – highly skilled and caring

clinical staffS – recent financial turnaroundS –
facilities/campus remodeledS – good patient base (many
referrals through informal
alliances)S – good reputation/imageS – excellent dietary
departmentS – good locationS – strong internal continuum of
care (three levels of care)S – religious affiliation
42
Determining Competitive DisadvantagePossible Results for a
Long-term Care OrganizationValue?
High/LowCommon?
Yes/NoAble to Correct?
Hard/EasyCompetitors can Sustain?
Yes/NoW – shortage of technical staffW – problems with
patient recordsW – lack of management depthW – many billing
problemsW – information system out-of-dateW – no strategic
planningW – supply/inventory problemsW – aging facilityW –
narrowing financial marginsW – independent facility (not part
of a continuum)W – some turnover of staff
43

STRATEGIC MANAGEMENT OF
HEALTH CARE ORGANIZATIONS 7TH EDITION
1
Service Area Competitor Analysis
Chapter 3
2
Understand the importance of service area competitor analysis
as well as its purpose.

3
Understand the relationship between general and health care
environmental issue identification and analysis and service area
competitor analysis.
4
Define and analyze the service area for a health care
organization or specific health service.

5
Define and analyze the service area for a health care
organization or specific health service.
Conduct a service area structure analysis for a health care
organization.
6
Understand strategic groups and be able to map competitors’
strategies along important service and market dimensions.

7
Understand the elements of service area competitor analysis and
assess likely competitor strategies.
8
Aggregate general environmental and health care industry issues
with service area and competitor issues and synthesize specific
strategy implications.
9

Aggregate general environmental and health care industry issues
with service area and competitor issues and synthesize specific
strategy implications.
Suggest several questions to initiate strategic thinking.
10
The Strategic Planning Process
Strategic Planning
Situation Analysis
Strategy Formulation
Planning the Implementation
External Analysis
Internal Analysis
Adaptive Strategies

Market Entry Strategies
Competitive Strategies
Service Delivery Strategies
Support Strategies
Action Plans
11
Focus of Service Area Competitor Analysis
Avoid surprises in the marketplace.
12
Provide a forum for leaders to discuss and evaluate their
assumptions about the organization’s capabilities, market
position, and competition.

13
Make everyone aware of significant and formidable competitors
to whom the organization must respond.
14
Make everyone aware of significant and formidable competitors
to whom the organization must respond.
Help the organization learn from rivals through benchmarking
(specific measures comparing the organization with its
competitors on a set of key variables).

15
Build consensus among executives on the organization’s goals
and capabilities, thus increasing their commitment to the chosen
strategy.
16
strategy.
Foster strategic thinking throughout the organization.
17
strategy.
Identify market niches and discontinuities.

18
strategy.
Select a viable strategy.
19
strategy.
Contribute to the successful implementation of the strategy.

20
strategy.
Anticipate competitors’ moves.
21
strategy.
Anticipate competitors’ moves.
Shorten the time required to respond (countermoves) to a
competitor’s moves.

22
Obstacles to Effective Service Area Competitor Analysis
Misjudging industry and service area boundaries
Poor identification of the competition
Overemphasis on competitors’ visible competence
Overemphasis on where, rather than how, to compete
Faulty assumptions about the competition
Paralysis by analysis
23
Define the Service Categories
24
Define the Service Area

25
Create a Service Area Profile
26
Conduct Service Area Structure Analysis
27
Conduct Competitor Analysis

28
Map Strategic Groups
29
Synthesize Analyses
30

Beginning a Service Area Competitor Analysis
Defining the Service Category
31
Determining Service Area Boundaries
32
Service Area Profile
33

Service Area Structure Analysis
34
Bargaining
Power of
Suppliers
Suppliers
Bargaining
Power of
Buyers
Buyers
Substitutes
Threat of
Substitute
Products or
Services
Rivalry
Potential
Entrants

Rivalry
Among
Existing
Competitors
Threat
of New
Entrants
Services Analysis – Five Forces that Indicate the Viability of a
Product or Service
35
Service Area Structural Analysis
Porter’s Five Forces
Threat of new entrants to the market
36
Barriers to Entry
Existing organizations have economies of scale
High volume, lower costs.
Existing product or service differentiation
It costs a great deal (capital) to get into this type of business
Switching from one service provider to another is expensive
Exclusive access to distribution channels
Current service providers have developed cost advantages

independent of scale
There are government or legal constraints
37
Level of rivalry among existing organizations
38
Intensity of Rivalry
Numerous or equally balanced competitors?
Slow market growth for these types of services?
High fixed costs (buildings, equipment)?
Competitors’ products or services are pretty much the same?
Switching from one service provider to another is easy?
Difficult to leave the business once in it?
Competitors place great importance on achieving success?

39
Threat of substitute products and services
40
Threats of Substitute Services
Many services available that perform about the same function
There are lower cost substitute services
Buyers of the service tend to experiment or substitute often
Buyers of the service have difficulty in telling the difference in
the effectiveness of the alternatives
41

Bargaining power of buyers (customers)
42
Bargaining Power of Buyers
Buyers of the service purchase in large volume or concentrates
purchases
Purchases products that are standard
Buyers view all providers as having about the same service and
quality?
Buyers have low switching costs in changing to another
provider
Buyers have low profitability or narrow margins
Pose a threat of backward integration
Buyers could begin providing the service themselves?
Buyers has low quality requirements
Has enough information to gain bargaining leverage
43

Bargaining power of buyers (customers)
Bargaining power of suppliers
44
Bargaining Power of Suppliers
Few suppliers (personnel, equipment, materials)
Few substitutes for the supplies
The supplier’s products or services are unique
The product or service supplied is important to the buyer’s
business
Switching costs from one supplier to another are high
The buyer’s industry is not considered an important customer
The suppliers pose a threat of forward integration
45
Favorable Forces
If all five forces are favorable:
Little or friendly competition

46
Favorable Forces
Difficult for new competitors to enter the business
47
Favorable Forces
Few or no good substitutes for the product or service

48
Favorable Forces
Buyers will not control the price, quality, design, or volume
49
Favorable Forces
Buyers will not control the price, quality, design, or volume
Suppliers will not control the inputs to production

50
Unfavorable Forces
If all five forces are unfavorable:
A great deal or very unfriendly competition
51
Unfavorable Forces
Easy for new competitors to enter the business
52
Unfavorable Forces

Many good substitutes for the product or service
53
Unfavorable Forces
Buyers will control the price, quality, design, or volume
54
Unfavorable Forces
Buyers will control the price, quality, design, or volume
Suppliers will control the inputs to production

55
Services Analysis
A “Three Star” Product or Service
Bargaining
Power of
Suppliers
Suppliers
Bargaining
Power of
Buyers
Buyers
Substitutes
Threat of
Substitute
Products or
Services
Rivalry

Potential
Entrants
Rivalry
Among
Existing
Competitors
Threat
of New
Entrants
56
Services Analysis
Evolving Products/Services Viability
Bargaining
Power of
Suppliers

Suppliers
Bargaining
Power of
Buyers
Buyers
Substitutes
Threat of
Substitute
Products or
Services
Rivalry
Potential
Entrants
Rivalry
Among
Existing
Competitors
Threat
of New
Entrants
57

Services Analysis
Bargaining
Power of
Suppliers
Suppliers
Bargaining
Power of
Buyers
Buyers
Substitutes
Threat of
Substitute
Products or
Services
Rivalry
Potential
Entrants
Rivalry
Among
Existing
Competitors
Threat
of New
Entrants

58
Services Analysis
New Regulations or Political Changes
New Technologies or Services Improvement
Social or Demographic Changes
Economic Changes
Competitive Changes
59

Competitor Analysis
60
Competitor Analysis & Strategic Groups
What are the strengths and weaknesses of your competitors?
Can your competitors be “mapped” with respect to two or more
dimensions?
61
Competitor Analysis and Mapping Strategic Groups
Competitor Strengths and Weaknesses
62
Competitor Analysis and Mapping Strategic Groups

Competitor Strengths and Weaknesses
Service Category Critical Success Factor Analysis
63
Competitor Analysis
64
Competitor Analysis

65
Service Area Plastic Surgery Competitors
For the Charlotte service area, a majority of the plastic surgery
practices are pursuing one of four basic strategies and, for the
most part, do not engage in between-group competition.
Strategic groups one and two have some overlap; however,
physicians in group two engage in Third World country medical
missions. There is considerable within-group competition
particularly in group three where there is a focus on luxurious
surroundings and personal attention. Non board-certified
plastic surgeons are not shown on this map.
Service Area Assisted-Living Competitors

For this service area, assisted living organizations are pursuing
four basic strategies: high price with highly specialized services
(Strategic Group 1), low price with few ancillary services
(Strategic Group 2), medium price with some (selected) services
(Strategic Group 3), and high price with many services
(Strategic Group 4). The primary (direct) competitors for these
organizations are other organizations within their own strategic
group. Customers who seek the attributes of one strategic group,
such as highly specialized rehabilitation services, are unlikely
to be attracted to another strategic group. These assisted-living
organizations should change strategic cautiously as a decision
to add services may move an organization to a new strategic
group and therefore a new set of competitors. Note that in this
example there may be an opportunity to enter or move toward a
medium-cost, many services niche and become a strategic group
of one.
*Range of services included skilled nursing, organized social
activities, outings, physical therapy, education, rehabilitation,
speech therapy, Alzheimer’s care, nutritional services, infusion,
pharmacy, homemaker services, live-ins, companions, and so
on.

67
Competitor Analysis
Synthesize the Analyses
68
Strategic Thinking Questions Validating the Strategic
Assumptions
Is the strategy consonant with the competitive environment?
Do we have an honest and accurate appraisal of the
competition?
Have we underestimated the competition?
Has the rivalry in the service category/service area changed?
Have the barriers to entering the service category/service area
changed?
Does the strategy leave us vulnerable to the power of a few
major customers?

69
Strategic Thinking Questions Validating the Strategic
Assumptions
Has there been any change in the number or attractiveness of
substitute products or services?
Is the strategy vulnerable to a successful strategic counterattack
by competitors?
Does the strategy follow that of a strong competitor?
Does the strategy pit us against a powerful competitor?
Is our market share sufficient to be competitive and generate an
acceptable profit?
70
Chapter 3 Conclusions
After reading Chapter 3, you should be able to define the
following terms:
Key TermsKey TermsCompetitive AdvantageService Area
ProfileCompetitor AnalysisService Area Structural
AnalysisCritical Success Factor AnalysisService
CategoryMapping CompetitorsStrategic GroupsService
AreaStrategic ResponseService Area Competitor Analysis

71
Assignment
For the organization and community you selected in the
assignment from Chapter 2, complete the task in the next slide.
Specifically:
Identify the service category and service area;
Conduct a Service Area Structural Analysis;
Identify the key competitors and try to list their strengths and
weaknesses; and
Group or Map the competitors into strategic groups.
72

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