Healthcare Strategic Management
Vertical Integration
Write a 2 page paper addressing the following elements in your paper:
- Examine the pros and cons of vertical integration in terms of overall strategy.
Include a title page and 3-5 references. Only one reference may be from the internet (not Wikipedia). The other references must be from the Grantham University online library. Please adhere to the Publication Manual of the American Psychological Association (APA), (6th ed. 2nd printing) when writing and submitting assignments and papers.
Different Levels of Strategy
This week, we will explore the different levels of strategy and also the various roles that both managers and employees play in strategic management. Last week we discussed the overarching models of strategic management and came to the conclusion that a blend of both models is necessary to be successful. For now, let’s turn our attention to the levels of strategy and how they impact the associated employees.
For the purpose of this lecture, we will review a mid-size for profit hospital chain. As a side note, the number of for-profit hospitals is decreasing whereas the number of not-for-profit is increasing significantly. According to the American Hospital Association, in 2013 58% of existing hospitals were not-for-profit as compared to 21% being for-profit. The others are government or university sponsored. While not wanting to take us too far off topic, however, it was worth mentioning given the current economic climate.
In our current example, let’s assume that our for-profit hospital chain has a total of 27 hospitals in 3 neighboring states. The first level of strategy would come from the home office and is referred to as the corporate level strategy. Some of the responsibilities of this level would include large scale product analysis, presence, interrelationships, and overall management practices. We will briefly review each area of focus to gain a better understanding.
Large scale product analysis: in this area of responsibility, the home office will be analyzing the effectiveness of the various units under its umbrella. In the field of healthcare, niche markets are gaining popularity; both from a need standpoint and from a marketing view as well. Some hospitals are geared more towards heart concerns, some are focused more on women and labor and delivery. The home office will be monitoring such niches to see if it wants to further their niche specialties or if they want to scale back in some areas.
Presence: this is multi-layered in the respect of both growth and development and public relationships. Is the company looking at expanding? Or through their product analysis will they be shuttering a few of the units? Presence relies heavily on an accurate assessment of both demographics and competition. It would make little sense to build a new facility in an area that already has a hospital and is showing a declining population. Also tied to presence is the idea of marketing versus branding. Do we want our strategy to be focused on the entire corporation (branding) or do we want to market our facilities to the home town communities (marketing). As another random side note, more and more hospitals are turning to advertising to assist with financial stability. The old adage of “if you build it, they will come” no longer holds true.
Interrelationships: How much resources should be given to hospital A as opposed to hospital B. What formula should we use to determine the wage scale for the various units? If we are short-staffed in one hospital, should we borrow from another to fill that void or should we have a cadre of support individuals who can fill in on a temporary basis?
Overall management practices: in essence, this is perhaps one of the toughest areas for strategy development. For instance what might be legal in the state of Oregon might not be legal in Washington. With this in mind, do we make a set of management policies that incorporate all federal, state, and county regulations or do we individualize our policies based on the state itself. Making a broad policy for all might be the most straight forward method, however it is also the most restrictive. Imagine trying to outperform a competitor who is able to do more for the patients than you can? Conversely, creating a set of policies for each and every regulatory entity would be a colossal time consumer. As states and other regulatory bodies change their statutes frequently, it would be imperative that the organization stay abreast of all things at all times. A tall order for anyone. In our second lecture of Week 3, we will continue our assessment of the various levels of strategy formation.
Levels of Strategy Continued
In our first lecture for this week, we discussed the corporate level strategy and what it entails. In this lecture we will continue our assessment of the various levels and examine the business unit level as well as the functional level in terms of strategy development.
Referring back to our example of the hospital chain with operations in three states, the business unit level would be the individual hospital campus itself. Where the home office was focused on the entire organization and big picture, the business unit level is more focused on the day to day operations and quite truthfully, in some situations, simple survival. The business unit level is concerned with competition, demographics, and vertical integration.
Competition: where the home office is looking at competition from an overall perspective, the individual business unit is reviewing each competitor within its footprint and determining if adjustments to the strategy are warranted. As a side note (hope you aren’t getting bored with them), the author of this lecture was working as a vice-president of operations for a large national healthcare organization and when he went to a visit a property in another state he noted where a competitor was breaking ground about 5 miles away from our campus. They had the initial steel framework in for three stories and it was posed to be a huge threat. When he spoke to the executive director of our facility, he had absolutely no idea that it was even being built! As business managers, it is our responsibility to be aware of competition and what they are planning. In week 5, we will take a closer look at competition and how heavily it influences strategic management.
Demographics: no community is truly stagnant. Some areas of the country are experiencing rapid growth where others are flat or even losing population. If our business unit happens to reside in an area that is not experiencing growth, we would be turning our attention to providing care and services to an aging population. The average individual over the age of 65 consumes 4 times as much healthcare as someone in their 20s. If our business unit was in a community experiencing rapid growth, a pediatric focus would certainly be appropriate.
Vertical integration: It is highly likely that by this time in your studies you have learned the differences between vertical and horizontal integration. Nevertheless, a small review will be in order. Vertical integration is the strategy of trying to provide as many services as possible under one roof or on the same campus at least. As a quick example, imagine a community based hospital that has little or no room to expand. Let’s also assume that it was built in the late 70s. This hospital more than likely would not have an ambulatory surgical center, nor would it have an in house transitional care unit, etc. Today’s hospital campuses are monstrous in size and normally span a great berth of available services. Keeping someone in the same system increases revenue flow and improves patient outcomes.
The final level of strategy to discuss is that of the functional level. Within our running example, the functional level would include all of the various operating divisions and departments. At this basic unit level, the strategies would include human resources, research and development, policy implementation, basic marketing, and overall financing. While this is the lowest level of strategy formation, these units are responsible to provide insight into both the business unit level as well as the corporate level. The information provided by these lower units simply cannot be ignored. It is no surprise that those organizations who place little value on the input of the lower levels do not succeed in such a competitive arena as healthcare.
