Healthcare Strategy (cid:1) (cid:2) (cid:3) (cid:4) n ursuit of ompetitive dvantage aupha/hap Editorial Board Kenneth R. White, ph.d., fache, Chair Virginia Commonwealth University Sharon B. Buchbinder, r.n., ph.d. Towson University Jeptha W. Dalston, ph.d., fache AUPHA Joanne Dochterman, ph.d. University of Iowa Kerry E. Kilpatrick, ph.d. University of North Carolina Beaufort B. Longest, ph.d., fache University of Pittsburgh William C. McCaughrin, ph.d. Trinity University Thomas McIlwain, ph.d. Medical University of South Carolina Louis Rubino, ph.d., fache California State University–Northridge Dennis G. Shea, ph.d. Pennsylvania State University Mary E. Stefl, ph.d. Trinity University Linda E. Swayne, ph.d. University of North Carolina–Charlotte Douglas S. Wakefield, ph.d. University of Iowa Frederick J. Wenzel University of St. Thomas Healthcare Strategy (cid:1) (cid:2) (cid:3) (cid:4) n ursuit of ompetitive dvantage Roice D. Luke Stephen L. Walston Patrick Michael Plummer aupha hap Your board, staff, or clients may also benefit from this book’s insight. For more information on quantity discounts, contact the Health Administration Press Marketing Manager at (312) 424-9470. This publication is intended to provide accurate and authoritative information in regard to the subject matter covered. It is sold, or otherwise provided, with the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought. The statements and opinions contained in this book are strictly those of the authors and do not represent the official positions of the American College of Healthcare Executives, of the Foundation of the American College of Healthcare Executives, or of the Association of University Programs in Health Administration. Copyright © 2004 by the Foundation of the American College of Healthcare Executives. Printed in the United States of America. All rights reserved. This book or parts thereof may not be reproduced in any form without written permission of the publisher. 08 07 06 05 04 5 4 3 2 1 Library of Congress Cataloging-in-Publication Data Luke, Roice D. Healthcare strategy: in pursuit of competitive advantage / Roice D. Luke, Stephen L. Walston, Patrick Michael Plummer. p. cm. Includes bibliographical references and index. isbn1-56793-215-0 (alk. paper) 1. Medical policy—United States. 2. Health planning—United States. 3. Health care reform—United States. I. Walston, Stephen Lee. II. Plummer, Patrick Michael. III. Title. RA395.A3L84 2003 362.1’0973—dc22 2003056608 The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ∞ ansiZ39.48-1984. ™ Project manager: Jane Williams; Acquisitions manager: Janet Davis; Layout editor: Amanda J. Karvelaitis; Cover designer: Trisha Lartz Health Administration Press Association of University Programs A division of the Foundation of the in Health Administration American College of Healthcare Executives 730 11th Street, nw One North Franklin Street 4th Floor Suite 1700 Washington, dc20001 Chicago, il60606 (202) 638-1448 (312) 424-2800 Brief Contents Preface xi Part I: Concepts and Context 1 1. The Concept of Strategy 3 2. Strategy Analysis Framework 29 3. Strategic Intent 59 Part II: The Markets 85 4. Market Structure 87 Part III: Sources of Competitive Advantage 123 5. Pace Strategies 125 6. Position, Potential, and Performance Strategies 147 7. Power Strategies 173 8. Horizontal Expansion 203 9. Vertical Integration 233 10. Organizational Structure 253 Index 277 About the Authors 285 v This page intentionally left blank Detailed Contents Preface xi Part I: Concepts and Context 1 1. The Concept of Strategy 3 The Evolution of Strategy 4 Concept in Search of a Definition 9 Strategy Note 1.1. Mintzberg’s Concepts of Pattern and 12 Organizational Learning Strategy Note 1.2. The Case of Food Lion:Using Strategies 17 or Tactics? Competitive Advantage 18 The Sources of Competitive Advantage 21 29 2. Strategy Analysis Framework 29 Framing Strategy Analysis 30 Strategy Note 2.1. The Porter Perspective Mislabeled 33 Strategy Note 2.2. Definitions 38 Strategy Note 2.3. Monopoly Power or Superior Resources? 43 A Summary Framework for Strategy Analysis 49 Strategy Tool A. SWOT Analysis 54 Strategy Tool B. Scenario Analysis 59 3. Strategic Intent 60 The Development of Strategic Intent 64 Strategy Note 3.1. Utah Challenges Intermountain Health Care on Tax Status Strategy Note 3.2.For-Profit Companies and Community 65 Obligations Strategy Note 3.3. Institutional Theory Applied to 68 Healthcare Values 69 Mission and Vision 75 vii viii healthcare strategy Part II: The Markets 85 4. Market Structure 87 Basic Concepts of Market Structure 88 Key Dimensions of Market Structure 92 Porter’s Five Forces Framework 104 Stages of Market Growth 115 Part III: Sources of Competitive Advantage 123 5. Pace Strategies 125 Pace 126 Strategic Orientation 133 Organizational Culture and Capabilities 142 6. Position, Potential, and Performance Strategies 147 Position 148 Potential 156 Performance 162 7. Power Strategies 173 Absolute Power Versus Relative Power 174 Strategy Note 7.1. Relative Power and the U.S. Military: 176 Two Examples Types of Power Strategies 178 Corporate Strategy Versus Business Unit Strategy 182 Sequence of Strategic Growth 191 Strategy Tool C. Portfolio Analysis Tools 198 8. Horizontal Expansion 203 Ownership Types 204 Levels and Dimensions of Horizontal Expansion 208 Geographic Configuration at the Company Level 213 Strategy Note 8.1. MedCath: A Specialty System’s 216 Horizontal Expansion detailed contents ix Strategy Note 8.2. Kaiser: A Vertically Integrated 217 Organization’s Horizontal Expansion Geographic Configuration at the Local Level (Urban) 221 Strategy Note 8.3. Is Hierarchical Configuration 225 Horizontal or Vertical? Strategy Note 8.4. The Texas Medical Center 226 HCA’s Horizontal Expansion Strategies 226 9. Vertical Integration 233 Vertical Integration Basics 234 Limitations 238 Strategy Note 9.1. Humana: Complications with Vertical 241 10. Organizational Structure 253 Organizational Structure Basics 254 Structural Forms 255 Strategy Note 10.1. The Case of Centura Health System: 256 A Failure to Align Structure and Strategy Strategy as a Determinant of Structure 269 Index 277 About the Authors 285