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CHAPTER 2

UNDERSTANDING AND ANALYZING THE EXTERNAL ENVIRONMENT


Minakshi Gautam Assistant Professor IIHMR, Delhi

Understanding and Analyzing the External Environment


Indian health care is in a state of hyper turbulence characterized by accumulated waves of change in payment systems, delivery system, technology, professional relations, and societal expectation. It can be likened to an earthquake in its relative unpredictability, lack of a sense of control, and resulting anxiety.

THE IMPORTANCE OF ENVIRONMENTAL INFLUENCES The external environment increasingly has become a factor in the success of health care organization. Health care organizations must have an understanding of the external environment in which they operate. The ability to anticipate dramatically enhances your chances of success
Futurist Joel Barker.

A change will occur in health care institutions as a result of external, technological and competitive forces. Organizations that fail to anticipate change, ignore the external forces, or resist change will find themselves out of touch with the needs of the market. The introduction of an early recognition system to identify external opportunities.

Impact of technology- clearly growing E.g. 64 slice CT allows patients to be scanned with high resolution Can be used to scan cardiac patients with heart failures and other breathing disorders very fast. Robots can now perform surgery with accuracy Telemedicine in healthcare Small micro chips like Verichip an implanted medical device can link patients to their medical records.

Drug packaging is another low tech innovation. Many patients in US die due to unintentional overdoses of prescription drugs Researchers at the University of Kentuckys Centre for manufacturing are testing a device which can reduce accidental overdoses. Coming up with device - Pill dispenser called Pill Safe square box. Technological innovations will continue to be a major influence on the nature of health care. It must be considered in the development of strategies for most organizations.

EFFICIENCY VERSUS EFFECTIVENESS


Success or failure of a health care organization do the right thing (effectiveness) and not just do things right (efficiency). Efficiency on the other hand has an internal orientation. Health care organizations should strive to be both effective and efficient. Increased pressure on health care organizations to reduce costs make critical to success.

Efficiency and effectiveness must be balanced. Effectiveness in a dynamic environment, on the other hand, requires learning and changes.

Health care managers must be careful not to let routines and efforts directed toward efficiency.

THE EXTERNAL ROLE OF STRATEGIC MANAGEMENT


It should be directed toward positioning the organization most effectively within its changing external environment . Environmental analysis is an integral part of the situational analysis. A process of understanding the issues in the external environment, including the general environment, the health care industry.

Evolving External Issues


Legislative/Political Changes
More regulations of health plan activity Legislations for clinical protocols, privacy of medical records Expected legislative efforts to reduce escalating health care costs Employer based health insurance, government schemes, private health insurance etc.

Evolving External Issues


Economic Changes
Health Care Spending Uncontrolled procedure costs Large population without health insurance in India Copayment Schemes Nearly three quarters of the population still lives in rural areas

Evolving External Issues


Economic Changes

Some 300 million people in India live on less than a dollar a day, and more than 50% of all children are malnourished. Healthcare is one of Indias largest sectors, in terms of revenue and employment, and the sector is expanding rapidly. During the 1990s, Indian healthcare grew at a compound annual rate of 16%. Today the total value of the sector is more than $34 billion. This translates to $34 per capita, or roughly 6% of GDP. By 2012, Indias healthcare sector is projected to grow to nearly $40 billion.

Evolving External Issues


Social/Demographics Changes
One driver of growth in the healthcare sector is Indias booming population, currently 1.1 billion and increasing at a 2% annual rate. By 2030, India is expected to surpass China as the worlds most populous nation. By 2050, the population is projected to reach 1.6 billion. By 2025, an estimated 189 million Indians will be at least 60 years of agetriple the number in 2004, thanks to greater affluence and better hygiene. The growing elderly population will place an enormous burden on Indias healthcare infrastructure.

Evolving External Issues


Social/Demographics Changes Shortfall of 84,000 nurses Annual training capacity 40,000 Acute shortage of human resources with an average of 0.4 doctors per 1000 and 0.32 nurses per 1000 population as against the global norm of 2.25 per 1000 population. Nearly two-thirds of these nurses are concentrated in urban areas

Evolving External Issues


Social/Demographics Changes
India has a doctor-population ratio of 59.7 physicians for 100,000 population, It is worse than most developing countries which have 200 and more for every 100,000 population. There are extensive distributional inequities in the availability of doctors.

Evolving External Issues


Technological Changes
High costs of purchasing new, sophisticated technologies Significant advances in Medical Information technology are anticipated New technologies in areas of drug design, imaging, Minimally invasive surgery, genetic mapping and testing, vaccines, artificial blood, transplantation of organs and tissues. Development of new treatments for previously untreatable terminal conditions Major advances in clinical ability to treat previously untreatable acute conditions, such as coronary artery bypass graft;

Evolving External Issues


Competitive Changes Budget for health The competition is expected to intensify with the entry of more global firms into the medical equipment marketplace. Health care corporations will continue to expand into segments that have less regulation and into businesses outside of the traditional healthcare industry. Outpatient care and the development of innovative alternative healthcare delivery systems will continue to grow.

Determining The Need for Environmental Analysis


Based on extensive research in business sector, A.H. Mesch developed a series of questions to determine if an organization needs environmental analysis? Does the external environment influence capital allocation and decision-making processes? Have previous strategic plans been scrapped because of unexpected changes in the environment? Has there been an unpleasant surprise in the external environment?

Determining The Need for Environmental Analysis


Is competition growing in industry? Is the organization or industry becoming more marketing oriented? Do more and different kinds of external forces seem to be influencing decisions and does there seem to be more interplay between them? Is management unhappy with past forecasting and planning efforts?

External environment analysis attempts to identify, aggregate and interpret environmental issues as well as provide information for the analysis of internal environment and development of directional strategies.

THE GOALS OF ENVIRONMENTAL ANALYSIS


1. 2. 3. 4. 5. 6. To classify the changes generated by outside organizations. To identify and analyze current important issues. To detect and analyze the weak signals of emerging issues. To speculate on the likely future issues. To foster further strategic thinking throughout the organization To provide organized information for internal analysis, mission, etc.

THE GOALS OF ENVIRONMENTAL ANALYSIS


Often, in attempting to identify important external issues, general labels leads strategic thinkers to think in terms of potential strategies to address the issue rather than the impact of the issue. Therefore, at this stage in strategic planning, it is beneficial to avoid using the terms opportunities/threats and instead consider the consequences of issue itself.

THE LIMITATIONS OF ENVIRONMENTAL ANALYSIS


Managers cannot see everything. Pertinent and timely information is difficult. Delays between the occurrence of external events and managements ability to interpret them. Cannot foretell the future.

General inability on the part of the organization to respond quickly. Managers strongly held beliefs. Greatest limiting factor in external environmental analysis preconceived beliefs of management. Organizations do not change despite long and loud signals for change.

Edward De Bono explains, We are unable to make full use of the information and experience that is already available to us and is locked up in old structures, old patterns, old concepts and old perceptions

COMPONENTS OF THE GENERAL ENVIRONMENT


Government institutions Business organizations Educational institutions Religious institutions Research organizations and foundations and Individuals and consumers

Components of health care environment


Organizations that regulate the primary and secondary provider
Organizations that provide health services (primary providers) Organizations that provide resources for the healthcare system (secondary providers)

Consumers of healthcare services (individuals involved in healthcare and patients)

THE PROCESS OF ENVIRONMENT ANALYSIS


SCANNING
View external environment information Organize information into desired categories Identify issues within each category

MONITORING
Specify the source of data Add to the environmental database Confirm or disprove issues (trends, developments, dilemmas and possibility of events) Determine the rate of change within issues

FORECASTING
Extend the trends, developments, dilemmas or occurrence of the event Identify the interrelationships between issues and between environmental categories Develop alternative projections

ASSESSING
Evaluate the significance of the forecasted issues to the organization Identify the forces that must be considered in the formulation of the vision, mission, internal analysis and strategic plan

The scanning function serves as the organizations window or lens on the external world. Monitoring function is the tracking of issues identified in scanning process It investigates the sources of information obtained in scanning process. The monitoring function has much narrower focus than scanning The object is to accumulate database around the identified issue

The primary goal of forecasting is to identify the full range of possibilities. Forecasting function attempts to answer the question, if these trends continue, or if issues accelerate beyond their present rate?

ENVIRONMENTAL ANALYSIS TOOLS AND TECHNIQUES

Simple trend identification and extrapolation.


Trend/Issue Evidence Impact on our Probability organization of trend (1-10) continuing (1-10) 9 7 9 6

Aging population Wealthier Elderly

1 in 5 will be at least 65 by 2030 Income of hose 60+ has increased 10% faster than any other group Over past 5 years number of nursing homes in service areas have increased from 5 to 7

Local competition

Environmental trends/ issues plot


Critical issues to the right of the line should be addressed in the strategic plan High 10 High Impact Low Probability High Impact High Probability Aging Population Local Competition 5 Low Impact Low Probability Wealthier Elderly Critical issues to the right of the line should be addressed in the strategic plan 10 High

Low Impact High Probability

0 Low

5 Probability of trend continuing

ENVIRONMENTAL ANALYSIS TOOLS AND TECHNIQUES


Solicitation of expert opinion.
Often used to identify, monitor, forecast and assess environmental trends. Many expert based environmental analysis techniques Helps synthesize the opinions and best judgments of experts within various fields.

ENVIRONMENTAL ANALYSIS TOOLS AND TECHNIQUES


Delphi Method e.g. British association of Sports and exercise Medicine, UK The nominal group technique (NGT). A brainstorming group. Focus groups. Dialectic inquiry. Stakeholder analysis. Scenario writing and future studies.

Scenario Writing
Multiple scenarios allow the future to be presented by different cause-effect relationships, different key events and their consequences, different variables and different assumptions. The key question is if the environmental event happens (or does not happen), what will be the effect on the organization? E.g. impact of increasing medical value travel in India on Indian healthcare system

SELECTING THE TECHNIQUE


The intent of environmental analysis is to identify and understand the issues in the external environment. The technique selected for environmental analysis will depend on size of the organizations, diversity of the products. Technique selected for environmental analysis may depend on the style and preferences of management.