Chapter 8: Strategizing

February 7, 2012

CHALLENGE: Establish and Maintain sustainable relationships between organizations and systems and their external environment. SOLUTION: Strategizing. o Achieving a fit or equilibrium between an organization and its external environment. o Activities are future-oriented and play a large role in how these entities establish and maintain sustainable relationships with their external environment. o The grand design and justification for the overall focus, direction, and operational management of HSOs/ HSs. STRATEGIZING AND SYSTEM THEORY Organization as Organism organizations, like organisms, are open to interact with their environment and must achieve an appropriate relation with that environment if the organization is to survive. CORE CONCEPTS OF SYSTEM THEORY i. INPUT/CONVERSION/OUTPUT the system dynamic in which resources are imported into the organization from its environment as sources of energy to sustain its core technologies, which convert inputs into desired outputs. ii. FEEDBACK LOOPS channels of information that allow the system to monitor its outputs, measure against standards, and adjust inputs and throughput as required. iii. HOMEOSTASIS self-regulation using negative feedback iv. ENTROPY the tendency of systems to lose energy and become disorganized v. NEGATIVE ENTROPY the attempt to sustain the system (organism) and counteract entropy vi. DIFFERENTIATION/ INTEGRATION the system dynamic that reflects the structural relationship of parts to the whole, in which units must be coordinated into subsystems and the latter into a unified whole for the system to be viable vii. REQUISITE VARIETY the outcome of the organizations mapping of its environment to be able to respond to external forces and changes. 1. [HSOs/HSs] internal structures must map or correspond to the complexity of their relevant environments to achieve a good fit with the environment. ENVIRONMENTAL FORCES IN AN OPEN SYSTEM o Organizations are influences and constrained by these external forces, and organizations also may influence the forces. o HSOs/ HSs engage in a continuous process of scanning their environments to address questions such as the following: How can we anticipate future demands and adapt to changes in our external environment? How is our mission established and reconsidered over time? How are objectives established, and what influences their formulation?

 How do we develop and choose specific plans to accomplish objectives? o In addition to the sensing and responding mechanisms at work in its relationship to its external environment, an organization must also maintain effective feedback loops to ensure that it receives accurate, timely, and useful intelligence from its environment. STRATEGIZING AND PLANNING PLANNING anticipating the future, assessing present conditions, and making decisions concerning organizational direction, programs, and resource deployment. STRATEGIC PLANNING (aka Strategizing) is performed at the governing body (GB) and senior management levels with input from other organization members. o The GB exercises oversight to ensure that the strategic planning process is in place and accomplished appropriately. o Strategizing leads to the establishment of the intended outputs for an HSO/HS. OPERATIONAL PLANNING managers determine the means to accomplish the intended outputs. o Derived from and must be in harmony with strategic planning. o Involves establishing objectives along with operational programs, policies, and procedures in units of the organization that may encompass groups of departments, individual departments, and even smaller units and activities. All planning have 3 distinctive attributes: 1. Planning can be considered futuristic because it anticipates what will be required of the HSO/HS and its component parts in the future and how this will be accomplished. 2. Planning involves decision-making because determining what is to be done and when, where, how, and for what purposes requires that alternatives be evaluated, decisions made, and resources allocated. 3. Planning is dynamic and continuousplanned organizational activities are affected by future events and internal and external forces. PLANNING AND THE MANAGEMENT ROLE o Planning enables managers to deal with the external environmentthe immediate healthcare environment and the larger general environment. Planning reduces uncertainty, ambiguity, and risk. o Planning requires managers to focus on outputs. All organizational activity is directed toward accomplishing objectives, which are the ends, desired results, or outputs to be attained. o Planning enables managers to develop priorities and make better decisions about conversion design as well as allocation and use of resources. o Planning is the foundation for resource allocation and control. It enables the HSO/HS to measure progress and determine whether expected results are being achieved. HSO/HS PLANNING CONTEXT o Managers are affected by the external environment, and they must anticipate, predict, or make assumptions about its future configuration and the effect on them.

o GENERAL ENVIRONMENT ethical/legal, political, cultural/sociological, economic, and ecological forces. o As environmental turbulence gained momentum in the late 1980s, accelerated into the 1990s, and continues unabated in the 21st century, several proactive strategic responses included: 1. Embracing the philosophy of continuous improvement 2. Increasing recognition and prominence of marketing 3. Undertaking formalized, systematic strategic planning, including strategic issues management, to enhance competitive positions MISSION, VISION, VALUES o All planning efforts begin with and are grounded in mission statements. o Mission statements address these questions: 1. What business(es) are we in and why? 2. Who are our primary constituencies? 3. How do we distinguish ourselves from our competitors (other organizations)? o Vision Statement provides an articulation of how the organizations leadership wishes the organization to be perceived by its publics, along with a strategic view of its future direction and a guiding concept of what the organization is trying to do and to become. o Values Statement reflect the core operating values that form the infrastructure of the organizational culture and provide criteria for the decision making of managers, professionals, and employees at all levels. OBJECTIVES AND SUB-OBJECTIVES o Objectives are statements of the results to be accomplished; HSO/HS outputs; Those to be accomplished by the organization or system as a whole. Usually established by the GB o Sub-objectives are objectives for particular differentiated units. o Objectives that state realistic, attainable, and measurable results are critical to HSOs/HSs for the following reasons: 1. They enable managers at various levels to focus attention on and initiate work toward specific ends. 2. They provide prioritizing criteria for decision making about services and programs 3. They facilitate efficiency, particularly in allocating and using resources 4. They give employees a uniform sense of direction that results in greater organization stability 5. Knowledge of intended results is critical to formulating strategies to accomplish organization objectives and operational programs to achieve sub-objectives 6. They become criteria to be used in the control process when actual results (outputs) are compared with desired results (objectives). ORGANIZATIONAL STRATEGIES & OPERATIONAL PLANS

o Organization-level strategies sets of activities that are selected and designed by GBs and senior-level managers to accomplish organization or system objectives. o Operational Plans specific sets of activities of individual units, departments, or programs. o Strategizing is overt, anticipatory, and long-term. In the case of a single HSO, its perspective embraces the whole organization rather than single departments or units; in the case of HSs, it embraces both the subsidiary (component) entities and the system as a whole. Influencing factors: o Organizational Culture: the ingrained pattern of shared beliefs, values, and assumptions that is acquired by organization members of time. Culture is the legacywhat the organization is and what it stands for. o Stakeholders: individuals, groups, or organizations affected by the HSO/HS who may seek to influence it and its objectives and strategies. It is the GBs responsibility to balance stakeholder demands and ensure that they are compatible with mission. Balancing requires maintaining ethical values and social responsibility and preventing inappropriate stakeholder demands from predominating. o Values and Ethics. Just as culture and stakeholders influence objectives, so too do the values and ethics of those who make the choice. GENERAL AND OPERATIONAL POLICIES AND PROCEDURES/ RULES o POLICIES help organizations and systems attain objectives and thus must be consistent with those objectives and with the mission. GENERAL: applies to the entire organization or system and are formulated by seniorlevel management OPERATIONAL: applies to a specific unit or department and are formulated by department managers to be consistent with general policy o PROCEDURES AND RULES guide actions for specific situations Procedures guide actions. Rules prescribe specific actions. o Characteristics of Good Policies and Procedures:

1. Their impacts must be well thought out before they are formalized and must be in harmony with objectives. 2. Policies and Procedures must be flexible so they can be applied to typical as well as unique situations 3. Policies and Procedures must be ethical and legal and reflect the values of the HSO/HS. 4. Policies and Procedures must be clear, communicated, understood, and accepted by those to whom it applies. 5. Policies and Procedures should be consistent with each other. THE STRATEGIZING PROCESS

Situational analysis is an ongoing review of strategic position as well as strategic alternatives. The senior-level managers are responsible for the assessment and for presenting its results to the GB for consideration, adjustment, and final approval. EXTERNAL ENVIRONMENTAL ANALYSIS THREATS events that may adversely affect the HSO/HS. OPPORTUNITIES favorable or advantageous circumstances in the external environment that may be beneficial. The conduct of an external environmental analysis includes five interrelated steps: 1. SCANNING Involves acquiring information that can affect an entitys future. Determination of what is important to scan should be made by more than one person. Although the determination of what is important to scan is specific to an HSO/HS, there are models designed to guide the conduct of situational analyses. Example:

Figure 8.3 shows a focal HSO/HS at the center of a conceptualization of its external environment. The focal entity is shown along with other similar organizations with which it directly competes.

Sector Analysis: Threats and opportunities are identified and competitive position is assessed. 2. MONITORING Effectively scanning the external environment identifies specific information about trends, developments, and events that represent either opportunities or threats for continued attention through monitoring. Involves tracking or following important information over time. The purpose in monitoring is to build a base of data and information around the set of important or potentially important aspects of the external environment that were identified through scanning or verified through earlier monitoring. 3. FORECASTING o Involves extending information beyond its current state o Can be made by extending past trends or by applying a formula of some kind Trend Extrapolation: tracking information and then using the tracking results to predict future states. Scenario Development: plausible prediction about the future Can be used as the basis for developing contingency strategies from which a choice is made; alternatively, the set of scenarios can be used to select what managers consider the most likely future, the one upon which strategizing will be based. 4. ASSESSING o Managers must also be concerned about the specific and relative strategic information they are analyzing they must assess the strategic importance and implications of the acquired information and forecasts for their HSOs/HSs. 5. USING AND DIFFUSING INFORMATION FROM ANALYSIS o 3 basic ways managers can spread the strategically important information obtained through an environmental analysis: i. Dictate use of the information. Use coercion or sanctions where necessary, to see that the information is used in all the appropriate places. ii. Persuade others to used the information by reasoning with them iii. Educate others as to the importance and usefulness of the information in their strategizing activities. INTERNAL ENVIRONMENTAL ANALYSIS Involves cataloging both the strengths and weaknesses inherent in an HSO/HS Provides managers with an inventory of capability and a resource base for use in strategizing Permits managers to draw inferences about their entities comparative advantages or distinctive competencies o Awareness of strengths in all functional areas and culture permits conclusions to be drawn about comparative advantage and the ability to implement strategies chosen STRATEGY FORMULATION

o Includes identifying strategic options and selecting from among the options strategies for implementation. o COMMON STRATEGIES 1. DIRECTIONAL STRATEGIES developed and articulated in an HSOs/HSs mission, vision, values, and objectives; help guide the strategic choice in the adaptive, market entry, competitive, and implementation categories of strategy 2. ADAPTIVE STRATEGIES delineate how the HSO/HS will expand, contract, or stabilize operations, whether through diversification, vertical integration, market development, or product development. 3. MARKET ENTRY STRATEGIES formulated to provide the means by which strategies to expand or maintain the scope of an organization are carried out in the marketplace. 4. COMPETITIVE STRATEGIES (POSITIONING STRATEGIES) relate to how consumers view an HSOs/HSs services and products in the context of products and services available from competitors. 5. IMPLEMENTATION STRATEGIES developed to implement directional, adaptive, market entry, and competitive strategies. o SPECIALIZATION/NICHE STRATEGIES A specialization strategy is a strategy in which HSOs/HSs emphasize selected services or products, often based on disease or acuity of illness. A niche strategy is a strategy that involves focusing on a service area. (ex. Inner city, outpatient, target market) o VERTICAL INTEGRATION AS A STRATEGY Occurs when an HS operates at more than one point on a chain of production, distribution, or both. Results in a broad range of patient care and support services operated in a functionally unified manner. o HORIZONTAL INTEGRATION AS A STRATEGY Occurs when an HSO expands its core services or products at the same point in the production process and in the same part of the industry. Achieved through internal development, acquisition, or merger. o DIVERSIFICATION AS A STRATEGY Permit HSOs/HSs to add new services/products, enter new markets, or both where neither is directly related to their core services/products. Relative to (1) the traditional main line of business, core services, or both and (2) whether the activity is related or unrelated. CONCENTRIC DIVERSIFICATION occurs when different, but related services/products are added to the existing core of services; constitute forward and backward integration

CONGLOMERATE DIVERSIFICATION produces non-health related products/services that are unrelated to its principal business or core services. o RETRENCHMENT/DIVESTITURE AS A STRATEGY RETRENCHMENT (DOWNSIZING) involves reducing the scope or intensity of products/services, partial withdrawal from a market area, or decreasing capacity in terms of facilities, equipment, or staff DIVESTITURE eliminating a group of services or products, complete withdrawal from a market area, or closing facilities. o STRATEGIC ALLIANCES AS A STRATEGY Prevalent strategic arrangements in health services delivery. Rise from the mutual need and a willingness among the participating HSOs/HSs to share knowledge, capabilities, risks, and costs; to leverage innovation; and to take advantage of complementary strengths and capabilities. o SELECTING STRATEGIES: TYPE OF ORGANIZATION STRATEGIC DECISION STYLE MANAGERIAL PHILOSOPHY ORGANIZATIONAL CULTURE AND CHOICE-MAKER VALUES PORTFOLIO ANALYSIS ORGANIZATIONAL LIFE CYCLE COMPETITIVE POSITION

Longest, Beaufort B., Jonathon S. Rakich, and Kurt Darr. 2008. Managing health services organizations and systems. Baltimore: Health Professions Press.

Outlined & Prepared by: Alyssa Genevieve N. Lorzano MPH Candidate Portland State University February 7, 2012