-–Running head TENET HEALTHCARE STRATEG

-
–
Running head: TENET HEALTHCARE: STRATEGIC
ANALYSIS
Ashley Burns
University of Houston Victoria
MGMT6359 Dr. Wang

1 TENET HEALTHCARE: STRATEGIC ANALYSIS
Tenet Healthcare: Strategic Analysis
Name Hidden
University of Houston – Victoria
MGMT6359 – Spring 2018
(Warning: This work is copyright protected)

Table of Contents
1.0 Executive Summary
...............................................................................................
...................... 6
2.0 Company
History....................................................................................
........................................... 7
2.1 Background

...............................................................................................
........................7
2.2 Purpose of this
Study......................................................................................
...................8
3.0 External
Analysis..................................................................................
............................................. 9
3.1 General Environmental Analysis
.......................................................................................9
3.1.1 Demographic Segment
...............................................................................................
............. 9
Figure 1: Projected U.S.
Population...............................................................................
............. 10
Figure 2: Projected Number of Children and Adults 65+
............................................................ 11
3.1.2 Economic Segment
...............................................................................................
................ 12
Figure 3: Economic Projections for 2017-
2027........................................................................... 12
Figure 4: Unemployment Rate Projections through 2027
............................................................ 13
Figure 5: Inflation and Interest Rate Projections Through 2027

.................................................. 14
3.1.3 Political/Legal Segment
...............................................................................................
......... 14
3.1.4 Sociocultural
Segment..................................................................................
......................... 17
Figure 6: Percent of Each Generation Identifying with Liberals
and Conservatives ..................... 18
3.1.5 Technological Segment
...............................................................................................
.......... 20
3.1.6 Global
Segment..................................................................................
................................... 22
Figure 7: 2018 GDP
Projections..............................................................................
................... 24
3.1.7 Summary of General Environment Analysis
.......................................................................... 24
3.1.8 Driving Forces
...............................................................................................
....................... 27
3.2 Industry
Analysis..................................................................................
...........................29

3.2.1 Description of the Industry
...............................................................................................
..... 29
3.2.2 Industry Dominant Economic Features
.................................................................................. 31
Figure 8: Healthcare Spending 2015-
2020.................................................................................. 32
Figure 9: Healthcare Expenditures as a Percentage of GDP in
2016............................................ 33
Figure 10: Employment Data in the General Medical and
Surgical Hospitals Industry ................ 34
Figure 11: Quarterly Rates of Change in Industry
....................................................................... 34
Figure 12: Average Employee Compensation Breakdown for 3
rd
Quarter 2017........................... 35
3.2.3 Market
Size............................................................................... .........
................................... 35
Figure 13: Global Revenue in USD in 2016 including
Percentage of Total Industry Revenue ..... 35
Figure 14: Percent of 2016 Market Share by Geographical
Location........................................... 37

3.2.4 Market Growth
Rate........................................................................................
...................... 37
Figure 15: Global Industry Growth Rates 2012-
2016.................................................................. 38
Figure 16: Global Industry Growth Rates including Projections
2016-2021 ................................ 39
3.2.5 Industry Trends
...............................................................................................
...................... 39
3.2.6 Five Forces Analysis
...............................................................................................
.............. 41
3.2.6.1 Threat of New
Entrants..................................................................................
................. 42
Table 1: Threat of New
Entrants..................................................................................
............... 43
3.2.6.2 Power of Suppliers
...............................................................................................
.......... 45
Table 2: Power of Suppliers
...............................................................................................
........ 45
3.2.6.3 Power of Buyers
...............................................................................................

.............. 47
Table 3: Power of Buyers
....................................................................................... ........
............ 47
3.2.6.4 Power of Substitutes
...............................................................................................
........ 49
Table 4: Power of Substitutes
...............................................................................................
...... 50
3.2.6.5 Intensity of
Rivalry....................................................................................
..................... 51
Table 5: Intensity of
Rivalry....................................................................................
................... 52
3.2.6.5.1 Industry Competitors
...............................................................................................
56
Figure 17: Revenues Growth vs. Earnings Growth 2017, Q3
...................................................... 57
Figure 18: Gross Margin vs. Working Capital Days 2017, Q3
.................................................... 58
Figure 19: Gross Margins vs. EBITDA Margins 2017,
Q3.......................................................... 59
3.2.6.5.2 Rivals Anticipated Strategic

Moves.......................................................................... 59
3.2.6.6 Summary of Five Forces Analysis
.................................................................................. 61
Table 6: Five Forces Strength Summary and Overall Industry
Attractiveness per Segment ......... 62
3.2.7 Industry Key Success Factors
.......................................................................................... .....
. 64
Table 7: KSFs for General Medical and Surgical Hospitals
Industry........................................... 66
4.0 Internal
Analysis..................................................................................
............................................ 67
4.1 Organizational
Analysis..................................................................................
.................67
4.1.1 Corporate
Mission............................................................................... ....
.............................. 67
4.1.2 Products and
Services..................................................................................
.......................... 67
4.1.3 Leadership
...............................................................................................
............................. 68
4.1.4 Organizational Culture

...............................................................................................
........... 69
4.1.5 Structure
...............................................................................................
................................ 71
Figure 20: Tenet Board of Directors Organizational Chart 2018
................................................. 72
4.1.6
Strategy..................................................................................
............................................... 73

4.1.6.1 Current Strategy
...............................................................................................
.............. 73
4.1.6.2 Components of Strategy
...............................................................................................
.. 74
4.1.6.3 Competitive
Strength..................................................................................
.................... 75
Table 8: Competitive Strength Analysis
..................................................................................... 76
4.1.7 Summary of Organizational Analysis
.................................................................................... 77
4.2 Analysis of Firm Resources
.............................................................................................7

8
4.2.1 Tangible Resources
...............................................................................................
................ 78
Table 9: Tenet’s Tangible Resources
.......................................................................................... 79
4.2.2 Intangible Resources
...............................................................................................
.............. 81
Table 10: Tenet’s Intangible Resources
...................................................................................... 82
4.2.3 Summary of Firm’s
Resources................................................................................
............... 84
4.3 Capabilities
...............................................................................................
......................84
4.3.1 Value Chain
Analysis..................................................................................
.......................... 85
Figure 21: Generic Value Chain
...............................................................................................
.. 85
Table 11: Primary Activities Value Chain Analysis: Tenet and
HCA.......................................... 88
Table 12: Support Activities Value Chain Analysis: Tenet and

HCA .......................................... 90
4.3.2 Core Competencies and Sustainable Advantages
................................................................... 91
Table 13: VRIN Test of Resources and Capabilities
................................................................... 93
4.3.3 Summary of Firm’s Capabilities
............................................................................................
95
4.4 Financial Analysis
...............................................................................................
............95
4.4.1 Valuation Analysis
...............................................................................................
................. 96
Table 14: Internal and Free Cash Flow for Tenet and
HCA............................................. ............ 96
4.4.2 Growth Analysis
...............................................................................................
.................... 96
Table 15: 3-Year Growth Rates for Tenet, HCA and the Industry
............................................... 97
4.4.3 Profitability
Analysis..................................................................................
........................... 97
Table 16: Profitability Ratios for Tenet, HCA and the
Industry................................................... 97

4.4.4 Financial Strength Analysis
...............................................................................................
.... 99
Table 17: Financial Ratios for Tenet, HCA and the Industry
....................................................... 99
4.4.5 Management Efficiency Analysis
........................................................................................ 100
Table 18: Management Efficiency Ratios for Tenet and
HCA................................................... 100
4.4.6 Summary of Financial
Analysis..................................................................................
......... 100
5.0 Strategic Issues
Analysis........................................................................... .......
.............................. 101
Table 19: Driving Forces and Key Success
Factors................................................................... 101

5.1 Critical Challenges
...............................................................................................
.........102
Table 20: Critical Challenges Based on Driving Forces and
KSFs ............................................ 103
5.2 Resources and Capabilities
............................................................................................1
04
Table 21: Strategic Fit Analysis for Tenet
................................................................................ 104

5.3 Strengths or Weaknesses Analysis
.................................................................................107
Table 22: Tenet’s Strengths and Weakness
............................................................................... 107
5.4 Opportunities or Threats
Analysis..................................................................................
108
Table 23: Tenet’s Opportunity and Threat
................................................................................ 108
5.5 Summary of Strategic Issues Analysis
...........................................................................109
Table 24: Two Most Critical Challenges Tenet is Facing
.......................................................... 109
Table 25: Most Critical Issue Tenet is Facing
........................................................................... 109
Table 26: SWOT Diagram for Tenet
........................................................................................ 109
Table 27: TOWS Matrix for Tenet
...........................................................................................
110
6.0 References
...............................................................................................
...................................... 112

1.0 Executive Summary
Tenet Healthcare, Corp. is one of the main competitors in the
general medical and surgical
hospitals industry with hundreds of facilities throughout the
United States as well as several
locations in the United Kingdom. Despite its extensive reach
and multiple partners, it has

experienced a recent decrease in profits of nearly $2 million.
Market conditions are changing
and the company must remain abreast of the external and
internal factors that may present as
challenges. This study analyzes the general environment and the
industry in order to identify the
external driving forces and industry key success factors that
present as challenges later. Tenet’s
key resources and capabilities are then identified and assessed
to determine if they provide
competitive and sustainable advantages. This data is then
combined and compared in a strategic
fit analysis in which the most critical challenge for Tenet is
determined as well as its strengths,
weaknesses, opportunities and threats. The identification of the
firm’s most critical challenge
and its strengths, weaknesses, opportunities and threats will
allow Tenet to alter its strategy as
needed in order to achieve superior profitability, growth and
long-term sustainability.

2.0 Company History
Tenet Healthcare Corporation (Tenet) is a healthcare service
provider in the United
States. Though the corporate office is located in Dallas, Texas,
Tenet provides care at its acute-
care hospitals, ambulatory surgery centers, diagnostic imaging
centers and urgent care centers in
forty-seven states across the U.S and within the U.K. With a
total of ninety hospitals including
USPI hospitals and 460 outpatient centers, Tenet has had over

eleven million patient encounters
and delivered upwards of ninety thousand babies. Its
commitment to its patients and to quality
care combined with a 2017 revenue of $19.2 billion has earned
Tenet the 134th spot on the
Fortune 500 list (Tenet Healthcare, 2018d). The organization
has three business segments to
include hospital operations, ambulatory care and Conifer.
Conifer provides support to both
Tenet and non-Tenet hospitals and self-insured employers
seeking financial risk management,
clinical integration and population health management. The
potential sale of this particular
segment, however, is being considered while simultaneously
attempting to drive its growth
(Tenet Healthcare, 2018d).
2.1 Background
Tenet was originally founded in 1967 by Richard Eamer,
Leonard Cohen and John
Bedrosian under the name of National Medical Enterprises
(NME). Within just twenty-three
years, it was recognized as the second largest hospital company
in the United States, but it soon

fell victim to numerous scandals which forced it to divest some
of its specialty facilities. In
1994, nevertheless, NME acquired American Medical Holdings
for $3.35 billion which resulted
in a stronger presence in California and Florida in addition to
its subsequent rebranding and
name change to Tenet Healthcare Corporation (Wikipedia,
2018).

Tenet is investor-owned and has managed to grow considerably
by way of joint ventures,
subsidiaries, partnerships and additional brand launchings. In
1998, for example, it purchased a
total of eight hospitals in Philadelphia for $345 million that
were owned by the Allegheny
Health, Education and Research Foundation which had gone
bankrupt (Companieshistory.com,
2018). Despite millions of dollars paid in the forms of fines and
penalties due to allegations of
fraud, tax evasion, kickback schemes and unnecessary surgeries,
Tenet still managed to grow. In
2008, the company founded Conifer Health
Solution
s and by the end of 2009 it managed to
secure the number two spot on the S&P 500 index (Wikipedia,
2018). Additional acquisitions

including Vanguard Health Systems, Inc. in 2013 and United
Surgical Partners International
(USPI) in 2015 led to Tenet becoming the third-largest for-
profit hospital chain and largest
operator of outpatient surgery centers in the United States
(Companieshistory.com, 2018).
Despite the trials and tribulations Tenet has faced, it is still
recognized as a leading
healthcare service company that is absolutely committed to
quality. It aims to drive healthcare
innovation through its many partnerships with for-profit and
not-for-profit health system partners
(Tenet Healthcare, 2018). Through diversification, Tenet is able
to assist patients, hospitals and
self-insured employers on a variety of platforms. Given the
uncertainty in the healthcare
industry resulting from vague and pending healthcare

legislation, this diversification may be just
the thing to ensure sustainability.
2.2 Purpose of this Study
The purpose of this study is to determine the most critical issue
among the critical issues
identified that present as challenges to Tenet Healthcare
Corporation through a detailed analysis
of the strategies employed. The challenges analyzed will be
aligned with the internal resources
and capabilities of the firm in regards to the internal
circumstances for core competencies in the
http:Companieshistory.com
http:Companieshistory.com

dynamic SWOT analysis. This is a priority and must be

completed prior to addressing the most
critical issue facing Tenet Healthcare so that an immediate
recommendation may be made.
3.0 External Analysis
The external analysis pertains solely to the macro environment.
In other words, it is
representative of the “broad environmental context” in which
the firm operates (Thompson et al.,
2016, p. 48). Factors in the macro environment are strategically
relevant in that they may have
some impact on an industry and even a company meaning that
they should be analyzed and
considered.
3.1 General Environmental Analysis
The general environment includes the demographic, economic,
political/legal,

sociocultural, technological and global segments as outlined in
the following subsections. When
analyzing these segments, the acronym PESTEL is often used.
The six components of the
PESTEL analysis are listed as political, economic,
sociocultural, technological, environmental
and legal/regulatory. They are representative of the competitive
conditions in which the firm
operates (Thompson et al., 2016, p. 47). Each industry is
impacted differently, but this section
will focus on all industries including the healthcare industry.
3.1.1 Demographic Segment
Demographic factors include a variety of things that pertain to
the world’s or a particular
nation’s population such as population size, growth rate, age
and diversity. These factors are

ever-changing and projections are based on best-guess
estimates.
The world’s population continues to grow. Currently, there are
approximately 7.3 billion
people in the world and projections put this number at 8.5
billion people by 2030 (EBSCO
Publishing, 2017). The U.S. specifically will grow by an
additional 78 million people by 2060

with the nation’s population exceeding the 400 million mark in
2058 (United States Census
Bureau, 2018). The figure below demonstrates an average
growth rate in the U.S. of
approximately 2.3 million people per year until the year 2030 at
which time the rate slows to an
average growth rate of only 1.8 million people per year between
2030 and 2040. This average
then falls again between 2040 and 2060 to roughly 1.5 million
people year (United States Census
Bureau, 2018). Despite the ever increasing population, the

anticipated growth rate steadily
declines around year 2040.
Figure 1: Projected U.S. Population
This is due largely in part to the aging demographic. While the
world’s population is expected to
increase by an astounding one billion people by the year 2025,
the real surprise is that 300
million of them will be age 65 or older (PWC, 2017). Life
expectancy is increasing and the baby
boomers are entering the retirement age. In the U.S. alone, one
in every five residents and every
baby boomer still living will be of retirement age in 2030
(United States Census Bureau, 2018).
In fact, this age group will actually outnumber children ages
eighteen and younger by the year
2035 as evidenced below (United States Census Bureau, 2018).

As the population increases and
ages, industries may have to reevaluate their product and

service offerings as well as adjust to the
demand for them. The market economy will undoubtedly change
as will the expectations placed
on each industry.
Figure 2: Projected Number of Children and Adults 65+
The world is undoubtedly becoming more racially and ethnically
diverse due to the
reduction in physical boundaries as it relates to travel and
employment following numerous
technological innovations combined with interracial
relationships. In the Unites States alone, the
number of children to be of mixed race (i.e. two or more races)
is projected to more than double
from 5.3 percent to 11.3 percent of the population by 2060
while the white non-mixed population
is projected to shrink from 199 million to 179 million despite a

growing population (United
States Census Bureau, 2018). This increase in diversity will be
predicated by interracial couples
having children as well as migration from other countries.
Hispanics and mixed race people, for
instance, will experience relatively high growth rates as a result
of natural increase, but migration
will be the driving force behind the elevated growth rate of
Asians (United States Census
Bureau, 2018). Each culture is unique with its own style and
preferences. Furthermore, mixed

race people will experience a blending of cultures thus resulting
in even more change in
preferences. As the world becomes more racially and ethnically
diverse, industries must adapt to
meet the population’s changing cultures, preferences and needs.

3.1.2 Economic Segment
The economic segment looks at the general economic climate of
the U.S. as it relates to
the unemployment rate, economic growth, interest rates and
inflation rates. It also identifies the
manner in which these factors may impact industries. It must be
noted, however, that some
industries may benefit when economic conditions are less than
favorable while others suffer
(Thompson et al., 2016, p. 50).
In June of 2017, the Congressional Budget Office (CBO)
published an update to the
budget and economic outlook from 2017 to 2027 based on the
assumption that current laws
pertaining to federal spending and revenues remain the same
over the next ten years

(Congressional Budget Office, 2017). Figure 3 below provides
some economic projections
through 2027.
Figure 3: Economic Projections for 2017-2027
The economy through 2018 is expected to continue to grow, but
this growth will result in
a tightening of the labor market. According to the CBO,
“greater demand for workers will put
downward pressure on the unemployment rate and upward
pressure on the rate of labor force

participation (Congressional Budget Office, 2017). There will
be an increased demand for
workers which will ultimately reduce the slack in the labor
market even though many baby
boomers will be retiring due to the aging population as
aforementioned. This reduced
unemployment rate, however, will not remain as it is forecasted
to increase again in 2019 as
shown in figure 4. This increase in unemployment could
potentially impact industries as it

relates to revenue. If consumers have less disposable income
then spending will likely decrease.
A reduction in demand could lead to reduced revenue for
industries.
Figure 4: Unemployment Rate Projections through 2027
Inflation and interest rates are both predicted to rise though
inflation will experience only
a modest increase and will then remain relatively stable while
interest rates will continue to rise
for a few years before stabilizing around the year 2021 as
indicated in figure 5. Inflation is
expected to rise to 2% by the end of 2018 and then remain at or
around the same percentage
through 2027. This is indicative of a modest increase in the
price of goods and services in the

United States. Interest rates, on the other hand, will continue to
increase through 2027. The end
of 2020 will likely reflect an interest rate of 2.7% on three-

month treasury bills and a 3.5%
interest rate on ten-year treasury notes. Seven years later, the
interest rate on three-month
treasury bills will likely rise by 0.1% and the interest rate on
ten-year treasury notes will rise by
0.2% (Congressional Budget Office, 2017). The federal
government tends to increase interest
rates when the economy is growing too fast. An increase in
interest rates and inflation will more
often than not motivate people to save more money as opposed
to spending it. Though doing so
can assist in alleviating some pressure imposed by inflation, it
can result in industries suffering
from reduced revenues. Furthermore, it would result in an
increase in borrowing costs for the
industries and could interfere with expansion, R&D and overall
sustainability.

Figure 5: Inflation and Interest Rate Projections Through 2027
3.1.3 Political/Legal Segment
Political and legal factors include the overall political climate
of the world as well as
financial regulations, healthcare legislation and immigration
laws. Political policies and actions
may result in differing implications for different industries
(Thompson et al., 2016, p. 50).

The political environment in the world is relatively stable with
a few exceptions. Most
notably is the conflict between the U.S. and North Korea. North
Korea is attempting to
obtain/design a nuclear bomb that can actually hit the
continental U.S. This is clearly a potential

crisis that threatens all involved. President Trump has proven
that he will increase the number of
troops and use force as needed. He has also proven that he has
no problem pulling out of a deal
if need be. For instance, Trump pulled the nation out of the
Trans-Pacific Partnership which was
a trade deal between eleven countries (Edward Carr, 2018). The
interactions, deals and
disagreements that the U.S. and President Trump have with
other nations can impact the
economy of the U.S. and the rest of the world. The strength of
the economy and the U.S. dollar
impacts inflation, interest rates, taxes and more. All of these
things impact industries.
The world economy is still recovering from the great recession
that began in 2008
following a financial crisis largely due to the subprime

mortgage crisis and housing bubble burst
in the United States. Though most countries have come out of
the recession successfully, some
are still struggling. In the U.S., the economy is poised for
growth. Financial regulations are at
the heart of the nation’s recovery. Community banks are eagerly
awaiting financial reform such
as the potential rollback to Dodd-Frank and other similar
reforms thereby eliminating the one-
size-fits-all approach to banking regulations. Recent and
upcoming tax reforms are also
beneficial financial legislation due to a reduced burden on the
banking industry (Sorrentino,
2017). Since banks tend to pay some of the highest tax rates,
these rates effectively carry over
into all industries as businesses within the different industries
seek to obtain loans for start-ups,

expansion and more. Reduced tax rates may result in more loans
and increased capital in the
various industries which will then be put back into the
economy.

The future of U.S. healthcare is a hot button issue that impacts
individuals and employers
alike. The Affordable Care Act (a.k.a. Obamacare) was designed
to reduce the medically
uninsured population in the U.S. through the expansion of
Medicaid eligibility in addition to
modifications to individual health insurance markets. If some
people failed to purchase coverage
then they would be assessed a penalty. Under Trump’s new tax
law, this penalty for not

purchasing medical coverage will be eliminated in 2019
(Business Radio, 2018). Some
entitlement programs such as Medicare and Medicaid may be
reformed as well in the near future.
Trump’s actions may have a negative impact on industries
because health insurance premiums
will likely increase across the board. If no penalty is imposed
for not having health coverage,
those who are typically healthier may opt to drop their existing
coverage. This will result in
fewer people covered in the U.S. so health insurance providers
would be inclined to increase
their premiums to make up the difference in revenue. These
increases would impact all
industries.
There is a lot of uncertainty regarding immigration in the
United States right now. The

Trump administration is currently contemplating new legislation
which could result in reduced
immigration to the U.S. and could also significantly reduce or
eliminate the public benefits that
some immigrants are eligible for. Furthermore, according to
CNN, there is consideration
regarding the grounds upon which immigrants may be denied
green cards or visa extensions.
The Department of Homeland Security may impose stricter
requirements when it comes to
immigrants proving their income (Kopan, 2018). The goal is to
curtail illegal immigration and
protect the American taxpayer from paying into benefit
programs that might be taken advantage
of. Though the government should use taxpayer funds in a legal
and nationwide, beneficial

manner, these potential restrictions could result in less
immigration to the U.S. which could
reduce the number of qualified workers needed by industries.
3.1.4 Sociocultural Segment
Sociocultural forces tend to impact demand for goods and
services and include factors or
trends such as societal values, attitudes, lifestyles and cultural
influences. They can vary by
location and tend to change with time (Thompson et al., 2016,
p. 50).
The various generations and their changing ideals are an
excellent example of how
sociocultural forces vary with time. Baby Boomers, discussed
earlier, is the current aging
population. Born between 1946 and 1964, they represented

nearly 80 million people in the U.S.
alone in 2016. Generation X, as they’re often known, were born
between 1965 and 1980 and
accounted for roughly 65 million people in the U.S. in 2016.
The Millennials are those
individuals born between the years 1981 and 1997. This
generation is more diverse than
previous generations with 44.2% belonging to a minority race or
ethnic group. Additionally,
they represent one quarter of the nation’s population and are
more likely to have a college degree
than Generation X members though there are more Millennials
living in poverty than their
Generation X counterparts (CNN, 2017). As evidenced by figure
6 below, Millennials and
members of Generation X are showing a trend of identifying
more as liberal Democrats while

Baby Boomers are identifying more as conservative Republicans
(CNN, 2017). Liberals tend to
be more diverse, accepting of alternate lifestyles and open to
change whereas conservatives tend
to be less diverse, more set in their ways in which they’re
accustomed and less open to change.
Industries must take into account their target markets and
promote their brands accordingly.

Figure 6: Percent of Each Generation Identifying with Liberals
and Conservatives
The youngest generation is known as Generation Z and includes
all of those born after
1997. This generation has never known a time without high
speed Internet and mobile devices.
They are accustomed to a fast-paced society where they
metaphorically have the world at their
fingertips. By the year 2020, this generation will account for an
incredible 40% of all consumers
(Patel, 2017). This generation seeks value and engaging, user -
friendly content across a variety
of platforms. Typical advertisements are a thing of the past and
will easily be skipped over or

ignored by Generation Z members. What this means for
industries is that they will need to adapt
to the needs, wants, desires and even expectations of this
generation in order to keep demand for

their goods and services high. Furthermore, industries must
recognize that members of this
generation may be more than just consumers. They may, in fact,
become their competitors.
One might think that due to the familiarity of Generation X and
Z members with
technology across multiple platforms that they would be the
biggest users of social media. This
is not the case though. Adults ages 35 to 49 who belong to the
Millennials generation tend to

spend more time on social media than any other age group – an
astounding 6 hours and 58
minutes per week with the most popular social network being
Facebook with over 178 million
users followed by Instagram with nearly 92 million users
(Bromwich, 2017). Given the amount
of time that the average consumer spends on social networks,
industries would be wise to have
their own sites on social media networks in order to increase
their presence and drive up demand
for their offerings.
Industries must also consider that online shopping has become
more popular in recent
years. Our society is extremely fast-paced and the market
borders that once separated the U.S.
from other nations is all but completely gone. The market has
become increasingly global and

competitors are no longer just down the street. They may be
housed in nearly any location
around the world. E-commerce is huge. Take Amazon for
instance. Over 75% of online
consumers in the U.S. primarily shop on Amazon where
products from all around the world are
sold (Reagan, 2017). Regardless of what online “store” is
utilized, however, consumers are
looking for convenience and value. They want a plethora of
choices at a great price. CNBC’s
All-America Economic Survey conducted in September 2017
revealed that 43% of Americans
rank free shipping as the most important aspect of online
shopping and the ability to compare
prices is ranked second at 26% (Reagan, 2017). This is
important as brick-and-mortar stores

must also have a strong online presence if they hope to remain
competitive. Additionally, those

offering their goods and services online must ensure that they
provide the convenience and value
consumers are looking for.
Overall, industries must ensure that their offerings are tailored
to the diverse market that
they are hoping to reach and that their methods of delivery
provide convenience, value and
availability over a wide variety of platforms in order to attract
and engage the market.
3.1.5 Technological Segment
Technological factors include not only technical and innovative
developments, but also

R&D efforts and facilities in addition to the pace of
technological change (Thompson et al.,
2016, p. 50).
Artificial intelligence (AI) and machine learning (ML) have
been the most important and
ground-breaking technologies of this era. Not only are machines
able to continuously improve
their performance without direct guidance and “explanations”
from humans, but their
applications appear to have no bounds. ML systems are capable
of accomplishing a wide variety
of tasks at a level of superhuman performance otherwise
unheard of. This technology is
changing how we approach various tasks and is capable of
outperforming humans in voice and
emotion recognition and is even being used in vision systems

that work as security guards or
even scan medical images. “The effects of AI will be magnified
in the coming decade [as]
virtually every industry transforms their core processes and
business models to take advantage of
machine learning” (Brynjolfsson & McAfee, 2017).
Nanotechnology is another groundbreaking technology that is
changing the way people
live and work. Stemming from nanoscience, it is essentially the
study and application of
extremely tiny things about 1 to 100 nanometers in size (United
States National Nanotechnology
Initiative, 2018). This technology is applicable in virtually
every field including chemistry,

biology, engineering, medicine and so much more. As with AI,
the potentials applications are
endless. Next-generation electronics, drug delivery systems and
water purifications systems are
all successfully incorporating nanotechnology. Despite being
around for over thirty years, it is
still considered a rather new technology. Nanotechnology is in
its infancy, but has already
proven useful and made significant strides (Panjwani, 2018).
Where applicable, industries
should experiment with and embrace nanotechnology in an
effort to explore new opportunities
and improve upon current offerings.
Groundbreaking technology is not the only technological thing
important to the world,
however. Security ranks high if not higher. As aforementioned,

the younger generations are
more tech savvy than the older generations. Social media,
smartphones, personal computers and
mobile devices like laptops and tablets are fully incorporated
into their lives. More importantly,
their lives are fully embedded into many of these devices and on
multiple accounts. As such,
they both desire and require that their information is secure.
Cloud storage is currently the best
way to achieve this and many companies are already onboard.
“Files stored in reliable cloud
services are some of the most secure files you can have,
provided you have good passwords.
Google, Microsoft and Amazon all provide reliable cloud
services for consumer file storage”
(Quora, 2017). This means that the files are actually kept on
various hard drives located in

secure data centers, but are capable of being accessed remotely
at any time. Furthermore, cloud
storage is redundant. Typically, at least three copies of each file
are stored in different places.
This prevents one from accidentally deleting a file and then
being unable to recover it. It also
acts a safety net should a hard drive fail. Lastly, cloud storage
enables the user to safely and
securely share a file with another if desired. This may be done
with read access only or with
read/write access. Regardless, it prevents the file from needing
to be copied onto a thumb drive

or emailed to someone. If industries are lacking in
cybersecurity, consumers may not feel

comfortable doing business with them. Additionally, employees
may not feel as though their
information is secure which could result in understaffing.
Technological innovations have been the fundamental drivers of
economic growth for
more than 250 years (Brynjolfsson & McAfee, 2017). These
innovations can spawn new
industries and disrupt or destroy others. Technological progress
and innovation usher in a new
world of opportunities. Those industries that are nimble,
adaptable and able to think outside the
box will be the ones that come out on top. In order to keep up
with the changing times as well as
the demand of the newer generations, industries must not only
embrace new technologies, but be
security conscious and innovative themselves.

3.1.6 Global Segment
There are arguments that the world is essentially flat in regards
to the global competitive
market and due to technological advancements. It has been
argued that technology has leveled
the playing field, but Richard Florida suggests otherwise.
Florida argues that the world is, in
fact, spiky because “the reality of the global economy is that
certain places offer far more
opportunity than others” (Florida, 2008, p. 18). Population
growth, innovation and economic
activity can vary significantly by location. Globalization does
exist and modern-day
advancements have broken down many of the barriers that at
one time inhibited trade and
growth, yet all things are not equal between all nations. Imports

and exports exist and
multinational companies are plentiful, but the fact is that there
are limitations based on location
and key industry clusters.
According to the World Trade Statistical Review of 2017 by the
World Trade
Organization, trade between nations has continued to bolster
economic growth and development

thereby aiding in the reduction of poverty around the world.
Exports of merchandise worldwide
has risen 32% since 2006 ultimately reaching USD $16 trillion
while the exports of services
increased by an astounding 64% reaching USD $4.77 trillion
(World Trade Organization, 2017).

Developing economies are participating in trade more now than
in previous years, but the least
developed countries are struggling on this front. To backup
Florida’s claim pertaining to a spiky
world instead of a flat world where the playing field is
supposedly leveled, one could simply
examine the exports by the least developed countries in the
world. These countries make up less
than 1% of all world merchandise and commercial services
exported. Instead, it is the top ten
traders (imports and exports) that account for more than 50% of
the world trade each year
(World Trade Organization, 2017). This is grossly imbalanced,
but is representative of a spiky
world as Florida stated. Industries should be knowledgeable
when it comes to global trade as it
could help reduce costs and control quality.

The world is still recovering from the economic upheaval that
began in 2008 despite
stronger than anticipated economic growth in 2017 and a
worldwide economic growth forecast
by the World Bank of 3.1% in 2018 (The World Bank, 2018). As
mentioned in previous
sections, economic slack is beginning to disappear and policy
makers and industry leaders must
capitalize on this opportunity in order to boost long-term
potential and sustainability.
The Economist Intelligence Unit (EIU) expects the world’s GDP
to increase by 2.7%
which is only slightly less than the increase of 2.9%
experienced in 2017. China represents
about one-third of total global expansion and is the single
biggest contributor of growth at a

projected rate of 5.8% which is surprisingly 1% less than the
country’s rate in 2017. India is
actually the fastest growing, large economy in the world with a
healthy projected GDP increase
of 7.8%. Overall, most countries will see an increase in their
respective GDPs with only a few
exceptions due to hyperinflation, international sanctions and

natural disasters (The Economist,
2018). Industries should consider the projected GDPs of the
countries in which they intend to
conduct business and understand why their GDPs may be higher
or lower comparatively to other
countries. Figure 7 below highlights the 2018 GDP projections
for countries around the world.
Figure 7: 2018 GDP Projections
3.1.7 Summary of General Environment Analysis
The general environment analysis assists with the determina tion
and evaluation of factors
that may be deemed strategically relevant outside of industry
boundaries. The factors may be
important enough to have influence over decisions pertaining to
long-term direction, strategies,

objectives and even business models (Thompson et al., 2016, p.
48). The results of the general
environmental analysis conducted on the demographic,
economic, political/legal, sociocultural,
technological and global segments are summarized below.
The world population is steadily increasing and projected to hit
8.5 billion people by the
year 2030. The U.S. population is also growing with an
additional 78 million people expected
by the year 2060. This indicates a growth rate of 2.3 million
people per year, but this will not
last in the U.S. and forecasts show that this rate will slow
beginning in 2030. Due to an increase
in life expectancy and an aging population courtesy of the baby
boomers, adults age 65 and up

will outnumber children 18 and under by the year 2035. This
will impact the population that is
of working age barring additional migration. Migration,
however, will occur as the nation
becomes more diverse. Supplementing the diversity stemming
from migration will be diversity
due to mixed races as interracial relationships gain more
ground.
Slack in the labor market will diminish thus increasing the
demand for more workers as
the economy continues to grow. The unemployment rate in the
U.S. is expected to continue to
decrease until the year 2019 when it will then begin increasing.
Inflation and interest rates will
also increase which may lead to tighter lending policies and an
increase in the overall price of

goods and services. This will ultimately impact disposable
income and could impact industry
growth due to lack of capital received from lenders.
The United States and North Korea are currently at odds due to
the design and testing of
nuclear weapons and their ability to potentially hit the U.S.
Tensions are rising and the future
regarding this situation is currently unknown. Financial
regulations are beginning to loosen thus
allowing smaller banks to be more competitive and potentially
opening the door for increased
lending to businesses. Healthcare regulations are currently
being discussed and revamped. Tax

penalties for those who are uninsured are supposed to be

removed by 2019, but Medicare and
Medicaid programs may have tighter restrictions placed on them
which could impact the aging
population. Additionally, health insurance premiums could go
up thereby impacting employers
in every industry as well as all residents. Immigration is also a
hot topic in the U.S. right now as
stricter requirements for green cards and visas are being
discussed in addition to proof of income.
This could very well impact the number of workers available in
the U.S. when the demand is
anticipated to be quite high and the labor market slack
diminished.
There is considerable differences between the current
generations in the U.S. as it relates
to politics, diversity and technology. The younger generations
tend to be more diverse, liberal

and outspoken than their older counterparts who are often more
traditional and democratic.
Additionally, the younger generations are more tech savvy and
mobile in terms of their
expectations, needs and wants. They utilize social media on a
number of platforms and are
accustomed to information being readily available for their
instant gratification. As such,
product, service and platform demand varies considerably as
should the marketing directed at
them.
Technology plays a tremendous role in society across the globe.
The demand for
innovative technologies is at an all-time high. Artificial
intelligence (AI) and machine learning
(ML) are incredibly useful technologies with endless

applications. They are capable of
surpassing human capabilities as well as exceeding our
expectations. Used for a variety of
business purposes, AI and ML are redefining operations.
Nanotechnology is similar in that it is
capable of being used for a multitude of purposes in nearly
every industry imaginable. It has the
ability to simplify processes, increase performance and even
save lives. Another incredibly
important technology, though in a different way, is cloud
storage. Cloud storage provides

businesses and consumers with the ultimate digital security,
redundancy and peace of mind. Due
to the increasingly technologically advanced world in which we

live, security is an absolute
must-have as our lives have become gradually more digital.
The technology used today has resulted in a more globally
competitive market. We are
more linked to each other than we have ever been before, but we
are not all equal in regards to
competitive advantages. The world is spiky as opposed to flat
because different locations have
different strengths and weaknesses. Over 50% of world trade,
for example, stems from the top
ten traders in the world whereas the least developed countries
only account for less than 1% of
the trade. Inequality is also evident in the world’s GDP w hich is
projected to hit 2.7% in 2018.
While most countries are predicted to experience an increase in
their respective GDPs, some will

experience a decrease in 2018 as a result of poor government
decisions and even natural
disasters.
Ultimately, the world as we know it is changing and these
changes will impact businesses
across all industries. The changes in demographics and
sociocultural factors will no doubt have
an impact on demand as preferences, expectations and
marketing tactics change. Advances in
technology may simplify some processes and result in reduced
costs, but innovation must
continue. Economic growth is only sustainable if industries
have the tools and ability to grow.
They must not sit idly by. Instead, they must focus on the
identification of any potential
opportunities or challenges that may impact their business
models and strategies.

3.1.8 Driving Forces
Driving forces are capable of being either disruptive
(revolutionary) or ongoing
(evolutionary) and are the most dominant change agents due to
their ability to alter competitive
conditions and reshape the industry landscape (Thompson et al.,
2016, p. 67). Based on the

general environmental analysis above, two ongoing driving
forces have been identified as major
determinants of how and why the industry landscape is
changing.
The first driving force is ongoing and pertains to regulatory
influences and government
policy changes. This is applicable to not only the U.S., but the

world as a whole. Government
mandates are capable of bringing about significant change in
industry policies, practices and
business models all across the globe. Financial regulations,
healthcare legislation and
immigration laws impact each and every industry in one way or
another. Add to that the fact that
technology has removed some global barriers, foreign markets
could actually offer domestic
consumers goods or services at a lower price or with fewer
restrictions due to their respective
locations. Financial regulations, for instance, could make it
easier or more difficult for
businesses in different industries to obtain funding. Taxes and
interest rates could increase or
decrease which would impact all involved. The same could be
said of healthcare legislation

pertaining to health insurance programs and fees. All involved
would be impacted in one way
another. Premiums could go up due to competitors dropping out
of the industry and residents
could find themselves without insurance. This could even
prompt more travel outside of the U.S.
in order to obtain cheaper medical care. Immigration laws also
impact every industry. Many
skilled workers come from other countries to the U.S. to work.
Depending upon the laws
implemented or changed, it is possible that some industries will
suffer significantly from a
shortage of skilled workers. This ongoing driving force could
have a significant impact on
demand, competition and overall industry profitability
depending upon the regulations and policy

changes made.
The second driving force is also ongoing and pertains to
technological changes.
Technological changes have the ability to spawn completely
new industries. Conversely, they

may also destroy them. The level of innovation varies
significantly as does the impact that each
change has. Artificial intelligence, machine learning and
nanotechnology, for example, have
changed the way the world approaches different tasks. They are
changing industries at their
cores. Cloud storage has also become increasingly vital as the
world has become largely digital.
Consumers and industries alike require secure locations to
house their data and cloud storage is

the answer. Given that the younger generations are far more
tech savvy and comfortable,
industries must offer technological options to meet their
demands. Likewise, they must attract
and engage them with technology as well. We live in a fast-
paced society where the next big
thing is just around the corner. Though technological changes
can be very beneficial to
industries, they may also create challenges for them that impact
demand.
3.2 Industry Analysis
The competitive analysis of the healthcare industry will
concentrate primarily on the
economic features specific to the industry in addition to its key
success factors and competitors.
When analyzing an industry, the focus remains on a group of

companies that provide similar
products or services and compete for similar customers. Porter’s
five forces analysis included in
this section will aid in the determination of the attractiveness
and potential profitability of the
healthcare industry.
3.2.1 Description of the Industry
Tenet Healthcare Corporation falls under the very broad health
care and social assistance
industry with over 1.4 million business establishments in the
United States (NAICS, 2018).

Narrowing this down, however, results in a more precise
industry that falls under the category of
general medical and surgical hospitals with a North American

Industry Classification System
(NAICS) code of 622110 which includes 19,200 business
establishments in the U.S. (NAICS,
2018).
The general medical and surgical hospitals industry includes
recognized and licensed
hospitals that provide surgical and nonsurgical diagnostic and
medical treatments. This industry
provides services to inpatients with varying ailments and
maintains inpatient beds in order to do
so. Additionally, inpatients are also provided with meals
designed to meet their dietary needs.
Outpatient services may be provided as well. These include
diagnostic imaging services such as
CT scans and x-rays, laboratory services, pharmacy services and
more. The hospitals are staffed

with physicians, nurses and additional medical and maintenance
personnel as needed (NAICS,
2018).
The general medical and surgical hospitals industry may be
further divided into two
business segments: hospital operations and ambulatory care.
Hospital operations typically
involve the inpatient services described above while ambulatory
care is usually provided as an
outpatient service unless the patient requires additional
diagnostic and medical treatment which
would warrant him/her being admitted to the hospital as an
inpatient. S/he would then be cared
for by the hospital operations business segment.
Companies in this industry must be able to accommodate a
diverse group of people with

a number of different medical conditions at all times of the day
and night. Staff must be properly

licensed and trained as required by law and adhere to a strict
code of ethics. Furthermore, patient
privacy must be maintained by all participating companies
within the industry and all pertinent
legislation must be adhered to. All of this must be achieved
while simultaneously striving to
save lives, improve the quality of life for patients and earn a
profit.
3.2.2 Industry Dominant Economic Features
The general medical and surgical hospitals industry is impacted
by numerous economic
factors all across the globe. The money spent on healthcare as a
whole is dependent upon
inflation, interest rates, legislation, demographics,
unemployment rates and more.

Considering the demographic data presented in the demographic
segment of the general
environmental analysis, it comes as no surprise that global
healthcare spending is increasing. As
consumers across the globe increase in population and age due
to a longer life expectancy and
relatively stable growth rate, costs are going up. The projected
rate of increase in healthcare
spending is 4.1% annually between 2017 and 2021 with the per
person healthcare cost averaging
$11,356 in the U.S. in 2021 (Cooper & Allen, 2018).
Financial performance and poor operating margins are hitting
many companies in the
industry worldwide. Financial resources are already quite
strained due to funding limitations,
rising costs and increasing demand for services. Costs have

increased so much that healthcare
spending in the major regions of the world are expected to reach
a jaw dropping USD $8.7
trillion by 2020 which is USD $1.7 trillion more than in 2015
(Cooper & Allen, 2018).
Figure 8: Healthcare Spending 2015-2020
It is important to note that higher spending on healthcare does
not necessarily guarantee

healthier residents or longer life expectancies. See figure 9
below showing healthcare
expenditures as a percentage of GDP in 2016. Evident here is
the fact that the U.S. spends
significantly more on healthcare each year than most
comparable countries, yet it falls in the
lower half of life expectancy rankings when compared to many
of the same countries (Cooper &
Allen, 2018).

Figure 9: Healthcare Expenditures as a Percentage of GDP in
2016
Total costs are becoming too much of a burden on many
companies in the industry.
Profit margins are dwindling and the world’s healthcare
providers are doing all they can to stay
afloat. For several years now as well as in the foreseeable
future, industry spending is driven by
not only aging and growing populations, but also market
expansion, clinical and technological
advances and increasing labor costs (Cooper & Allen, 2018).
See figures 10-12 below for
industry employment and wage information for U.S. employees
(United States Department of

Labor, 2018).
Figure 10: Employment Data in the General Medical and
Surgical Hospitals Industry
Figure 11: Quarterly Rates of Change in Industry

Figure 12: Average Employee Compensation Breakdown for 3rd
Quarter 2017
3.2.3 Market Size
From a global perspective, the healthcare industry had total
revenues of USD $7,442.4
billion in the year 2016. Outpatient care consisting of
ambulatory care and diagnostic imaging
was the most profitable segment with total revenues of USD
$3,030 billion while inpatient care
(i.e. hospitals) totaled $1,791.3 billion in 2016. Projections for
2018 revenues are slightly over

USD $8 billion and anticipated to approach USD $10 billion in
the year 2021 (EBSCO Publishing,
2017).
Figure 13: Global Revenue in USD in 2016 including
Percentage of Total Industry Revenue
40.70%
24.10%

35.20%
Global Industry Revenue 2016
Outpatient Care Inpatient Care Other
The U.S. is leading the way in terms of industry revenue
compared to its global
competitors. Segmented by geographical location, the United
States held the majority of the
percent share of the market in 2016 with 45.1%. It was trailed
by Europe which held 24.1% of
the market share and then Asia-Pacific with 22.7% of the
market share in 2016. The Middle East
and the rest of the world lagged significantly behind with barely
over 8% of the market share
combined (EBSCO Publishing, 2017).

Figure 14: Percent of 2016 Market Share by Geographical
Location
The historical data and projected future revenues indicate that
the industry as a whole will

continue to generate increasing revenue in the foreseeable
future. Additionally, the U.S. will
likely still be the leading global force considering its percent of
the market share when compared
to other locations.
3.2.4 Market Growth Rate
From 2015 to 2016, the global healthcare industry including
hospitals and ambulatory care experienced a lower growth rate
than in previous years. The
compound annual growth rate (CAGR) between 2012 and 2016
was 4.9% globally. Asia-Pacific
and the U.S., nevertheless, experienced relatively high growth
rates of 7.4% and 4.7%
respectively over the same time period. The growth during this
period in Asia-Pacific was

primarily due to local governments striving for universal health
coverage combined with
growing populations and increasing incomes in the region
ultimately increasing public
expenditures (EBSCO Publishing, 2017).
Figure 15: Global Industry Growth Rates 2012-2016

Since 2016 the industry has experienced slightly higher growth
and projections indicate
that this growth is likely to continue. The global CAGR for
2016-2021 is forecasted to be 5.2%
which is 0.3% higher than the previous period from 2012-2016.
Asia-Pacific’s anticipated
CAGR for 2016-2021 is actually 0.3% lower than the previous
time period indicating that
growth will be slowing down in this region. Conversely, the
CAGR for the U.S. is forecasted to
be 5.8% from 2016-2021 which is an increase of 1.1% over the
previous period. This is
indicative of more growth in the industry for the U.S. (EBSCO
Publishing, 2017).

Figure 16: Global Industry Growth Rates including Projections
2016-2021
3.2.5 Industry Trends
Despite medical breakthroughs, the healthcare industry is seeing
an increase in
preventable diseases around the world. Technology has resulted

in tremendous strides in all
industries, but has brought about rapid urbanization and rather
sedentary lifestyles. The younger
generations, as aforementioned, are quite tech savvy and always
on the go. The problem is that
they are not on the go in a manner that could be considered
exercise. Personal vehicles and
public transportation now usher people all over the world to
their intended destinations. Quick,
convenient and rather unhealthy food offerings litter the way.
As such, the prevalence of chronic
diseases is now soaring. Cancer, heart disease and diabetes top
the charts. China and India, for
instance, have the highest number of diabetes sufferers in the
world with 114 million and 69
million respectively. Worldwide, this number is expected to
grow from 415 million in 2018 to

642 million sufferers by the year 2040 (Cooper & Allen, 2018).
This puts a heavy burden on the
healthcare industry as it will cause costs to climb even more.

At the same time, technology can also assist in reducing
industry costs while
simultaneously tackling the need for easier data sharing, better
diagnostics, increased efficiency
and much more. The healthcare industry, like most others, is
experiencing tremendous change as
the world becomes more technologically advanced. As more
advancements are made, quality
care will become more efficient, more accessible and less
expensive for providers and consumers

alike. Hospitals and ambulatory care centers around the globe
have really begun to dive into the
seemingly endless possibilities that technology provides. Japan
is trying out “care robots” while
clinicians in China are using AI to aid in the diagnosis of lung,
ophthalmic and skin diseases as
seen on imaging films. Moreover, one U.S. startup company has
successfully incorporated AI
into one hospital’s system in order to free up staff to provide
care to more patients while
improving their outcomes. As a result, that hospital treated
3,000 additional patients in a year
with the same resources (Cooper & Allen, 2018). Cloud storage
is being used to store and share
medical information securely and wearable devices are able to
transmit medical information to
secure sites for access at a later date. Telehealth, a method by

which healthcare is provided
remotely using telecommunications technology, is also widely
in use throughout the industry.
This is especially helpful for rural areas that have the technical
ability to communicate with
providers, but lack the physical ability to do so because of
disability or geography.
The healthcare industry as a whole in the U.S. is facing
considerable uncertainty due to
potentially substantial healthcare reform. The Affordable Care
Act (a.k.a. Obamacare),
Medicare and Medicaid are all being considered for
modification, repeal or reform in one way or
another. This could significantly impact the number of U.S.
residents that are eligible for and/or
sign up for these programs. This, in turn, could result in an
increase or decrease in revenue for

companies in the general medical and surgical hospitals
industry. Given the increasing costs that

the industry is facing each year, a decrease in revenue could be
detrimental and result in
companies being forced out of the industry as premiums rise and
funding decreases.
Globally, government interventions have also negatively
impacted the industry. In the
past, China’s hospitals were authorized to add a 15% surcharge
to the cost of all medication
which resulted in up to 40% of their annual revenues. Since
China implemented a zero markup
policy in 2009, profit margins have eroded considerably.
Similarly in Brazil, the high court

reduced profit margins by forcing industry providers to
reimburse the Brazilian public healthcare
system (Cooper & Allen, 2018).
To remain competitive in the industry, many hospitals
worldwide are engaging in
mergers and acquisitions in addition to various other partnering
schemes. The hope is to increase
each company’s geographical reach and diversify their offerings
to achieve economies of scale
and acquire more capital for continued growth and staffing
purposes. Hospitals are partnering
with outpatient centers, joint ventures are taking place among
various business segments within
the industry and public-private partnerships are being formed
across sectors. As recently as
April 2017, Japan’s government authorized medical
corporations to create nonprofit holding

companies sans corporate acquisitions. This was done to
promote organizational change and
increase operational efficiencies (Cooper & Allen, 2018).
Operating more efficiently could
result in significant savings for companies industry wide.
3.2.6 Five Forces Analysis
The five forces analysis takes a close look at the competitive
character and strength of the
following framework components: threat of new entrants, power
of suppliers, power of buyers,
power of substitutes and intensity of rivalry. This incredibly
useful and widely employed tool

aids in the determination of the competition that drives the
industry and determines industry
attractiveness and potential profitability.
The following analysis will identify the competitive pressures
in the general and medical

surgical hospitals industry broken down by segment as well as
select industry competitors,
industry attractiveness and the industry’s key success factors.
3.2.6.1 Threat of New Entrants
When new entrants enter into an industry, the position of
existing firms within the market
is threatened. Competition increases in an attempt to gain and
maintain market share. In fact,
competition will increase even if just the threat of a new entrant
is deemed credible.
Participating industry members often lower their prices and act
defensively in the hopes of
deterring potential new entrants. The actual seriousness of the
threat of entry is dependent upon
barriers of entry as well as the anticipated reaction of firms
within the industry (Thompson et al.,

2016, p. 54-55).
For the general and medical surgical hospitals industry, the
overall threat of new entrants
is rather weak. Table 1 below highlights some barriers to entry
for both the hospital operations
segment as well as the ambulatory care segment in addition to
the anticipated reactions from
existing industry firms.

Table 1: Threat of New Entrants
The hospital operations segment would require a significant
amount of capital to enter.
The cost of real estate, medical equipment and supplies,
licensing, properly trained and licensed
staff and additional fixed costs would involve a significant
investment. Incumbent hospitals
already have a tremendous cost advantage over new entrants due
to economies of scale,
previously negotiated contracts and strong networks or other
partnerships. New entrants would

likely struggle to come up with the necessary required capital to
open and then find that they
would almost certainly be paying more than their competitors
due to a lack of economies of scale
and buying power. Add to that the diminishing profit margins
discussed in earlier sections and
that alone may deter them. If it doesn’t, however, the highly
restrictive and uncertain regulations
pending and already in place may be unappealing as many of the
customers that they would be
trying to attract would already be utilizing other hospitals for
reasons such as insurance
requirements and/or quality and continuity of care. For these
reasons, existing firms within the
hospital operations segment of the industry would determine
that the threat of new entrants is

low. As such, the anticipated reactions of the incumbent
companies would be minimal with few
exceptions. These exceptions could include a well-known and
liked company with a familiar
brand trying to gain market share or a potential competitor in a
rural location where customers
are few. These exceptions may prompt additional action.
The ambulatory care and diagnostic imaging segment, on the
other hand, is slightly
different. Though it may require quite a bit of capital to enter
this segment, it is considerably
less than what is required to enter the hospital operations
segment. The fixed costs would be
much lower with fewer staff and medical equipment required
and, of course, the size of the

building would not need to be as large as a hospital resulting in
almost certainly lower real estate
costs. Revenue in this segment has proven to be more lucrative
than in the hospital operations
segment as previously mentioned. Furthermore, new entrants
would not have to compete as
much for customers as there is very little brand preference or
switching costs from their
perspective. In emergency situations, the closest ambulatory
care center is often what is
selected. Incumbent firms in this segment may attempt to lower
their prices, advertise quality
and boast about experience in the industry, but this may or may
not impact where a customer
chooses to go. It would depend largely on whether the needed
service pertains to ambulatory
care or simply to diagnostic imaging. For these reasons, the

threat of new entrants in this
segment is moderate.
When the number of competitors entering the market increases
and they become
relatively equal in regards to size and capabilities, industry
rivalry intensifies. When both
industry segments are collectively considered, the threat of new
entrants is weak and would not
result in any significantly increased rivalry.

3.2.6.2 Power of Suppliers
The power of suppliers stems from having ample bargaining
power meaning that they
would be able to negotiate contracts in order to favor their
respective companies as opposed to
the company that they are selling to. When suppliers have
significant bargaining power, they are
able to raise industry member prices in order to cover additional
costs and improve their profit
margins. Furthermore, the suppliers may even be able to limit
the ability of industry members to

seek out better deals from other suppliers (Thompson et al.,
2016, p. 60-61).
When it comes to the power of suppliers in the general medical
and surgical hospitals
industry, the two primary segments both experience similar
situations. The hospital operations
segment and the ambulatory care and diagnostic imaging
segment both require essentially the
same supplies – medication, medical equipment/supplies and
specialized laboratories and
diagnostic services.
Table 2: Power of Suppliers

For medication, firms in the industry rely on pharmaceutical
companies. These

companies have quite a bit of power because there are few to
choose from. They do not have to
compete with too many competitors and they are often quite
large in size due to diversification
into multiple industries. They usually hold patents for many of
their drugs and demand is high
while few substitutes are available until a patent expires. Each
drug is heavily regulated and the
time and money put into the R&D of them is astronomical. It
isn’t until many substitutes for a
particular drug are available that their power begins
diminishing.
When it comes to medical equipment companies, the market is
dominated by a few,
rather large international companies like Johnson & Johnson
and Siemens. They benefit from

economies of scale and worldwide brand name recognition. As
such, they have tremendous
bargaining power and are able to negotiate prices and contr acts
that benefit them greatly.
Just as both industry segments rely on pharmaceutical and
medical equipment companies,
they also rely on specialized laboratories and diagnostic
services. There is much that each
segment is capable of performing on their own, but there are
times in the industry when
specialized services are required. It would not be cost effective
for each segment to be able to
perform all services in-house which means that there are times
when outside assistance is
required. Due to the specialization of the services and minimal
competition in this niche
industry, these specialized companies have quite a bit of power

as suppliers. They understand
that their services are needed and charge accordingly.
Minimal competition within each niche often increases the
power of the suppliers. They
have more negotiating power which results in more favorable
prices and contract terms for them.
As such, the associated threat level is high. The overall power
of suppliers is assessed as strong.

3.2.6.3 Power of Buyers
Buyer power is determined by buyer price sensitivity and degree
of bargaining power.
These two factors will impact the strength of the competitive
pressures that buyers will be able to
place on industry members. Strong bargaining power may result
in better payment terms, price
concessions and additional requirements which could ultimately
increase industry members’
costs thereby limiting their profitability. Buyer price sensitivity
also has the potential to limit the
profitability of industry members due to price restrictions. If the
buyer is rather price sensitive

and industry members raise prices then the buyer may go
elsewhere thus resulting in decreased
revenues for the industry members (Thompson et al., 2016, p.
62).
In the general medical and surgical hospitals industry, the
primary buyers are individuals
and insurance providers for both segments.
Table 3: Power of Buyers

When it comes to bargaining power in the hospital operations
segment, individuals have
very little and insurance providers have only moderate
bargaining power. The bargaining power
of individuals is often restricted by insurance providers that
they may be using whether through

an employer or self-purchased. They are also limited by
location and any specialty care that may
be needed. Though they may occasionally be able to negotiate
lower prices on some services,
this is not common. Insurance providers, on the other hand,
have some bargaining power, but
they still have to remain competitive in the industry and ensure
that they abide by all regulations
applicable to the country or state that they operate in. It may be
quite difficult to remain
competitive depending upon healthcare legislation and not-for-
profit or government-based
insurance programs. Their bargaining power is considered
moderate. If large enough, they may
be able to obtain slightly better pricing and contract terms from
hospitals because hospitals

understand that part of their revenue stems from patients that
utilize these insurance providers
For these reasons, the bargaining power of insurance providers
is considered to be moderate.
In order to fully assess the threat level for the hospital
operations segment, price
sensitivity must also be considered. Individuals have limited to
no price sensitivity if care is
actually needed. It is primarily based on affordability r ather
than sensitivity for individuals.
Insurance providers, however, are somewhat price sensitive.
They want to be profitable and yet
still have the ability to offer attractive insurance packages to
potential clients. Combining the
price sensitivity information for individuals and insurance
providers with their bargaining power
results in a threat level of low to moderate in the hospital

operations segment.
The ambulatory care and diagnostic imaging segment is very
similar in threat level.
Once again, the bargaining power and price sensitivity of
individuals is rather weak. It is based
on need and affordability depending upon the service, but need
reigns supreme in emergency

situations. The goal is just to survive. Insurance providers
understand this so their bargaining
power is rather weak in this segment as well. The nearest
location often dictates where care is
received as opposed to what is considered in-network. This does
not mean that insurance
providers are not price sensitive. They absolutely are in terms
of profitability, but once again
they must offer affordable and attractive packages to their
clients with the needs of the
individuals in mind. This segment, all things considered, has a
very low threat level.

Considering all variables in both segments, the power of buyers
is assessed as weak.
3.2.6.4 Power of Substitutes
Substitutes are provided by companies outside of the particular
industry being analyzed,
but these outside companies are members of closely related
industries. In other words, potential
consumers consider one good or service offered by industry A
as a possible substitute for a good
or service offered by industry B. There are three consi derations
when determining whether
substitutes apply strong competitive pressures or not: 1)
availability and price, 2) quality,
performance and other relative attributes are comparable or
better, and 3) switching costs
(Thompson et al., 2016, p. 58-60).

In the general medical and surgical hospitals industry, there are
very few alternatives to
the actual imaging, care and treatment provided by the two
primary segments.

Table 4: Power of Substitutes
Alternative medicine does exist and is practiced worldwide in
developed nations as well
as developing nations. The success rates for alternative
medicine has minimal scientific
evidence supporting it depending upon the treatment in
question. The safety and effectiveness of
it has been questioned while others sing its praise. Though not
considered conventional
medicine, alternative medicine is an option and includes
acupuncture, faith healing, homeopathy,
special diets, massages and more.
The threat level for substitutes is low in the hospital operations
segment. When looking

at the availability and price of alternative medicine, the
consumer would really have to factor in
his/her location. Not all alternative medicine offerings are
available worldwide. It largely
depends on the condition of the patient as well as other factors
including religion. Some
treatments may be illegal in certain countries and others may be
offered in multiple locations in
the city. Just as availability varies, so does price. Some
uncommon or trendy treatments (i.e.
acupuncture and cupping) may be more expensive than common
treatments (i.e. massage). Add
to that the fact that alternative medicine is not usually covered
by insurance and the costs could

add up quickly. Just because it may be more expensive does not
necessarily guarantee that it is
better. As aforementioned, there is very little scientific
evidence supporting the claims of many
forms of alternative medicine. Whether it is comparable or
better would ultimately be a personal
decision likely influenced by religion, culture and loved ones.
Some people actually utilize both
the hospital and alternative medicine because the switching
costs are minimal depending upon
the method of treatment (i.e. over-the-counter supplements vs.
acupuncture). Generally, the
threat level faced by the hospital operations segment by
alternative medicine is low.
The same holds true for the ambulatory care and diagnostic
imaging segment. The threat

level is incredibly low. There is no substitute for ambulatory
care. There is no substitute for
imaging such as CT scans, x-rays, MRIs, etc. Ultimately, the
only alternative to treatment or
imaging in this segment is no treatment or imaging. No
treatment or imaging means no price,
availability or quality comparisons here. There are essentially
no switching costs either. It
would just be considered money saved by not getting any
treatment, but the potential loss of life
should be considered a cost as well.
Though support of alternative medicine varies by location, it is
available in many areas of
the world and must be considered as a plausible substitute for
conventional medicine. With this
being said, the power of substitutes in the industry is weak.

3.2.6.5 Intensity of Rivalry
As the strongest of the five competitive forces, intensity of
rivalry has the ability to
impact the profit margins of industry members the most. Weak
rivalry results in minimal if any
offensive actions taken to lure customers away from competitors
and is indicative of no negative
impact on profitability. Conversely, strong rivalry results in
intense competition for market
share and often results in the majority of industry members
barely squeaking by in terms of profit

margins. Between these levels of competition is moderate
rivalry. At this level, the bulk of
industry members have a healthy percentage of the market share
and earn acceptable profits
(Thompson et al., 2016, p. 53-54).
The general medical and surgical hospitals industry is a highly
competitive industry
across both segments: hospital operations and ambulatory car e
and diagnostic imaging.
Table 5: Intensity of Rivalry

The number, size and capabilities of existing companies in both

segments results in
intense rivalry. For hospital operations, rivalry is more intense
when hospitals are located in
large, urban areas as opposed to smaller hospitals in more rural
areas. The more specialized the
services (i.e. oncology, dialysis, open heart surgery), the more
intense the rivalry is regardless of
location. With ambulatory care and diagnostic imaging, fierce
competition exists not only
between other outpatient clinics like this, but also with
hospitals who are able to provide many of
the same services. What helps here is the fact that outpati ent
care is becoming more lucrative
due to patient preference and technological advancements. This
results in more price
competition and an overall high threat level for this competitive
pressure.

Buyer demand clearly impacts the intensity of rivalry. As
previously mentioned,
outpatient care in the ambulatory care and diagnostic imaging
segment is becoming more
profitable. This segment has experienced steady growth in
recent years and medical innovations
have reduced the need for inpatient treatment at hospitals.
Moderate rivalry in the ambulatory
care segment is the result, rivalry has intensified in the hospital
operations segment for the same
reason. Demand is slowing in this segment due to these medical
innovations combined with
changing and uncertain government regulations and healthcare
legislation. Buyer demand is
therefore assessed as a high level threat in the industry.
When it comes to differentiation within hospitals, most offer the

same basic services with
the exception of certain specialty providers. The same holds
true with ambulatory care and
diagnostic imaging. When the majority of all providers offer the
same services in their
respective segments, intensity of rivalry increases because
buyers have less reason to be loyal to
a particular company. In these cases, location and price often
become the buyers’ determining
factors. For both segments, the threat level associated with
differentiation is high.

Switching brands does occur in both segments especially when
it comes to individuals
because the cost of switching brands is often minimal.

Additionally, in the ambulatory care
segment, individuals are not price sensitive as described in
previous sections. The low switching
costs for individuals intensifies rivalry between existing
industry companies. Conversely,
insurance providers tend to have higher switching costs as
aforementioned. This occurs in both
segments and does little to impact rivalry intensity. When
considering the significant impact that
individuals have on rivalry combined with the smaller impact
that insurance providers have on
rivalry, the final threat level is assessed as moderate regarding
switching costs.
Costs are not only important to individuals and insurance
providers, but also to the
companies within the industries. Inventory costs or idle
production capacity can have a

substantial impact on existing industry companies especially if
the products or services offered
already impose high fixed costs. In the hospital operations
segment, fixed costs are quite high
due to real estate, medical equipment, staffing needs and
medication. When the space,
equipment, supplies and staff are remaining idle or not being
fully utilized, the intensity of
rivalry increases because this significantly impacts the firms’
profit potential and they may
attempt to reduce prices whenever possible provided they
remain within regulations. The same
is true for ambulatory care and diagnostic imaging centers.
They must ensure that they have the
necessary supplies, machines and staff on hand to save lives as
needed. There are occasions

when the number of patients is fewer than anticipated. This
leads to increased rivalry between
competing companies. Ultimately, the threat level for the
industry in regards to inventory and/or
production capacity is determined to be high.
To achieve economies of scale and aid in cost reduction, many
companies diversify.
They involve themselves in multiple business segments and
various locations around the world.

For the hospital operations segment, rivalry is intense when it
comes to diversity. Some
companies benefit from brand recognition on a variety of fronts
and are multinational in both
developed and developing countries which allows them to focus
on key aspects of healthcare

important to those regions. Intensity is higher is largely
developed regions including Europe and
North America when compared to other regions that are
considerably less developed. When it
comes to ambulatory care and diagnostic imaging, the intensity
of rivalry is only moderate due to
the strategies employed and technologies used by companies.
Companies in this segment do not
offer much in the way of specialty care or providers and tend to
include smaller companies that
can benefit financially from participation in this segment only
versus hospital operations.
Cumulatively, the threat level is high though this is primarily
the result of the sheer size and
number of large companies participating in the hospital
operations segment in various regions of
the world.

If a company is not doing well in a particular industry, the usual
response would be to
pull out of the industry and minimize losses. This is not always
possible though. Exit barriers
exist in many industries, but some more than others. In the
hospitals industry, exit barriers may be difficult to overcome. In
the hospital operations segment,
companies may find it rather difficult to sell off or transfer their
assets including equipment, real
estate and unused supplies. This only serves to make rivalry
stronger between the companies
because the diminishing profit margins may seem more
appealing than going bankrupt. This
logic is present in the ambulatory care and diagnostic imaging
segment as well. Though

companies in this segment tend to have less real estate and
fewer assets including staff than
hospitals, it may still be quite difficult to sell off or transfer the
assets. Moderate to intense

rivalry is likely to result in this segment. This may cause drastic
price drops across the industry
thus resulting in a high threat level in regards to exit barriers.
When all factors of intensity of rivalry are assessed, the
resulting strength of the
competitive pressure is determined to be strong.
3.2.6.5.1 Industry Competitors
The general medical and surgical hospitals industry falls under
the very broad health care
and social assistance industry. Though there are numerous

companies within the industry, it is
highly competitive and only a handful of companies actually
dominate in this arena with multiple
hospitals, surgery centers and freestanding clinics throughout
the nation. The key players
include Community Health Systems, Inc. (CYH), HCA
Holdings, Inc. (HCA), and Universal
Health Services, Inc. (UHS). All three companies were named
on Fortune’s top 500 companies
list for 2017. HCA ranked 63rd, CYH was 130th and UHS came
in at the 276th spot (Rege, 2017).
In regards to revenues for the year, HCA, CYH and UHS
brought in $44,747 million, $21,374
million and $10,508 million respectively (Fortune 500, 2018).
The strategic group map below shows the revenues growth
versus the earnings growth for

several industry competitors in the third quarter of 2017. The
majority of companies rest on or
around the peer median in regards to earnings growth as a
percentage whereas revenues growth
as a percentage is where the bulk of the differences are. While
many competitors surround the
peer median, there are a few identifiable laggards and leaders.
CYH is the biggest laggard
having suffered a sizable negative percentage change in
revenues. Other laggards include
LifePoint Hospitals and SunLink Health Systems. Leaders in
this regard include Fresenius
Medical Care and HCA (CapitalCube, 2017).

Figure 17: Revenues Growth vs. Earnings Growth 2017, Q3
Figure 18 below is a strategic group map showing gross margin
versus working capital in
days for the third quarter in 2017. When it comes to being cash
rich or cash starved, most
companies in the industry vary only slightly one way or the
other from peer median. Once again,
however, SunLink Health Systems and CYH are quite different
from the group in that they are
both considerably cash starved. Of important note is that
regardless of which side of the peer

median for cash a company is on, their sources of financing
fluctuate greatly. CYH and UHS are
both more supplier financed while HCA is more customer
financed (CapitalCube, 2017).
Figure 18: Gross Margin vs. Working Capital Days 2017, Q3

Though the comparison of industry companies’ financial
placement is important, it is also
important to determine what companies are doing that is
impacting their financials in such a way.
Figure 19 below shows gross margins versus EBITDA margins
for competing companies, but,
and perhaps more importantly, it shows the differences in the
focus of the companies. Of
significance is the noticeably increasing slope that occurs from
high-cost commodity to low-cost
differentiation. Note that there are no companies offering low -
cost commodity with low-cost
differentiation. The opposite is true as well in that no company
is offering high-cost commodity
with high-cost differentiation. There is definitely a trend here.
The industry is focusing more on
value and quality of care as opposed to quantity.

Figure 19: Gross Margins vs. EBITDA Margins 2017, Q3
3.2.6.5.2 Rivals Anticipated Strategic Moves
A company’s strategy pertains to the actions it takes in order to

outperform its
competitors and achieve higher profit margins in an effort to
promote long-term sustainability
and growth (Thompson et al., 2016, p. 3). These actions may be
broad or focused and pertain to
cost or differentiation. Note that the fees for service that
healthcare companies receive is often
predetermined based on contractual agreements with insurance
providers or otherwise limited in
some way based on government regulations and healthcare
legislation. Given the highly
competitive nature of the general medical and surgical hospitals
industry, it is anticipated that
competing firms within the industry implement the strategic
approaches below.
As discussed in previous sections, technological advancements
and medical innovations

are changing the way that patients are monitored and services
are rendered. These advancements

-–Running head TENET HEALTHCARE STRATEG

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