Revision notes for Strategic Management in Healthcare course

1. What is strategy?

Strategy is the sum total of activities undertaken by a firm for the purpose of achieving its objectives.
A firm’s strategy for achieving its objectives can be defined using five dimensions- arenas (where it
wants to compete/the markets and products), vehicles (how it wants to get into the arenas),
differentiator (what is the differentiating factor about the firm), staging (speed and sequence of
moves), and economic gains (how profits can be realized).

Thus, a firm’s decisions oriented toward achieving these objectives, part of its strategy, can be
classified under 4 types- strategic, neo-strategic, tactical, and operational.

Strategic- When scope and commitment are on the higher side (ex. decision to venture into a new
product/market by internal expansion).

Neo-strategic- When scope is on the higher side but commitment on the lower side (ex. decision to
venture into a new product/market by forming short-term contracts).

Tactical- When scope is on the higher side but commitment on the lower side (ex. decision to setup a
new manufacturing unit for existing product).

Operational- When scope and commitment are on the lower side (ex. decision to hire people in a
specific function).

2. Strategic management process

The general process of strategic management entails five steps:

a. Defining the vision and mission

Vision is defined as what the firm wants to be in the future, its reason for existence that continually
motivates it to conquer frontiers and objectives. It ought to be perpetual in nature, inspiring, and
stimulating across the organization. Mission is defined as the markets and customers a firm wants
to serve. Both serve as guiding forces to a company’s entire gamut of actions.

b. Conducting internal and external analysis

External analysis for macro-environment can be conducted using PESTLE (political, economic,
social, technological, legal, and ecological), while micro-environment/industrial analysis can be
conducted using Porter’s five/six forces:

(i) Bargaining power of buyers- Extent to which buyers have an edge in the industry.
Typically happens when they have multiple undifferentiated options to choose from,
with little to no switching cost (ex. Telecom).

(ii) Bargaining power of suppliers- Extent to which suppliers have an edge in the industry.
Typically happens when they’re selling a specialized service, which is hard to duplicate
through background integration (ex. PCs).

(iii) Existing rivalry of competitors- Extent to which rivalry is intense in the industry.
Typically happens when undifferentiated products/services are sold, with market
itself in a mature or decline phase (ex. Telecom).
 (iv) Threat of new entrants- Extent to which new entrants can come in easily. Typically
happens when entry costs are low and rivals may not retaliate strongly (ex. PCs).

(v) Threat of substitutes- Extent to which substitute products pose a threat. (ex.
Entertainment sector with emergence of OTT platform).

Internal analysis can be approached from two perspectives- which are interlinked. Basis of
both is the presence of resources, which are atomic assets in the possession of firms (i and ii
are considered tangible, rest are intangible).
(i) Physical resources- Infrastructure, assets, inventory.
(ii) Financial resources- Cash, equity.
(iii) Human resources- Technical and commercial skills
(iv) Organizational- Brand equity, patents, trademarks, copyrights, culture, reporting
structures.

Resources give rise to ability to perform actions, referred to as capability. First approach for
internal analysis involves appraising capabilities to determine how well a firm can perform
them, with proficiency referred to as competence. If the competence is central to what the
firm does, its core-competence. Also, if the competence/core-competence is different from
what others do, it is referred to as distinctive competence.

Similarly, every resource/capability can be checked to determine if its valuable (able to exploit
opportunities or negate threats), rare (not in possession of many firms), inimitable (difficult
to replicate), and non-substitutable (if substitutes cannot do a similar job in value provision).
It is also important that the firm is able to leverage on its resource/capability (organizational
exploitation), to practically extract value from them.

Resource/Capability Valuable Rare Inimitable Non-substitutable Outcome

A ✔ ✔ ✔ ✔ Sustainable
Competitive
Advantage
B ✔ ✔ ✔ X Temporary
Competitive
Advantage
C ✔ ✔ X X Temporary
Competitive
Advantage
D ✔ X X X Competitive
Parity
E X X X X Competitive
Disadvantage

c. Strategy formulation

Based on internal analysis, a firm’s strengths (competence/at least valuable) and weaknesses (just a
capability/not even valuable) can be determined. Similarly, opportunities and threats (through
favorable/unfavorable macro-environment and industry factors) can be assessed. Based on the TOWS
matrix can be constructed to provide generic solutions (Strengths + Opportunities (SO), Strengths +
Threats (ST), Weaknesses + Opportunities (WO), Weaknesses + Threats (WT)).
Corporate-level strategies: Growth and retrenchment strategies:

i. Growth strategy:

It can be in terms of market and product. Market growth strategies can be analyzed in terms of
geographical (distance between home and host market), or cultural (analyzed using Hofstede’s
index which has four primary dimensions- power distance, individualism, masculinity, uncertainty
avoidance).

Product growth strategies can be based on supply-chain (vertical vs horizontal) or value-chain

(related vs unrelated).

ii. Retrenchment strategy:

Can be of four main types:

• Turnaround: Company finds itself in a difficult financial and competitive position. This
strategy is all about how company can relaunch itself to recover financially as well as
competitively (ex. Apple when Steve Jobs returned).
• Sell-off: A unit of the company/entire firm is sold off (ex. GSK selling its Indian consumer
healthcare unit).
• Spin-off: A unit of the company is spun off into an independent firm (ex. Pepsico spin-off
of Yum! Brands). Existing shareholders get corresponding shares in new firm.
• Split-off: Company splits into two firms, with shareholders having the mandatory option
to choose between the two for every share.

Vehicles for growth:

• Internal expansion: Company expands into a new market or product by itself, either through
extended activities or through forming a wholly owned subsidiary.

Pros: No sharing of costs, complete control over operations.

Cons: Higher risk and cost, need wide range of resources to pull off.

• Contracting: Includes options such as unilateral contracts (distribution and marketing

contracts, franchising, licensing) and bilateral contracts (joint marketing, joint R&D).

Pros: Sharing of costs and risks, pooling of complementary resources.

Cons: Lack of control, difficulty in enforcing contracts to make partner perform.

• Joint venture: Two or more companies come together to form a separate company while
retaining their own individual existence.

Pros: Greater integration, pooling of complementary resources.

Cons: Cultural problems, exit difficulties.

• Mergers and acquisitions: In mergers, individual existence of companies is foregone as they

merge together, while in acquisition, a company acquires another firm.
Pros: Maximum integration, can create synergies through combined resources/capabilities
 Cons: Extremely high on commitment, greater risk.

Business-level strategy:

For each individual business, firms can compete in terms of lowering costs or differentiate themselves
as compared to competitors, either in a broad market or a focused niche one. Some may even
compete by getting best of both- low cost and differentiation, referred to as integrated strategy.

d. Strategy implementation:

Implementation of strategy has three key steps:

i. Matching strategy to structure: Organizational structure must match specific strategy

chosen. For example: for a low-cost strategy, who is going to perform which role, clearly
entrusting people while for differentiation strategy, need for reducing boundaries such
that ideas would flow.
ii. Strategic leadership: Managers at all levels, especially the top, drive strategic
implementation. For example: low-cost strategy driven by Sam Walton at Walmart
through example, emphasis on differentiation by Steve Jobs at Apple.
iii. Culture: Developing a culture which facilitates implementation of chosen strategy
throughout (ex. low-cost focus throughout at Walmart/innovation and differentiation
emphasis throughout Google).

e. Strategy control:

Value-chain analysis can be utilized to determine how each key activity needed to deliver
products/services are being performed as well as possible (at least have parity in cost and
effectiveness, but intent is to either lower costs or differentiate in activities depending upon
strategy). There are two types of activities: primary (those that add value directly to end
product) and secondary (those that assist in adding value through primary activities)

For example, in innovative pharma sector, following primary activities will exist:

R&D: Product is conceptualized through R&D at this point.

Inbound logistics: Raw material to manufacture product.

Manufacturing: Manufacturing the product.

Distribution: Product is provided to distributors.

Marketing and Sales: How value can be enhanced for the product.

R&D is one activity where firms differentiate themselves in this industry, aiming to benchmark
cost and effectiveness in other activities.

Secondary activities will be:

HRM: Managing human resources to undertake primary activities well.

Infrastructure: To perform primary activities, there exists a need to have suitable

infrastructure such as plant, equipment, and finance.
Balanced scorecard (BSC):

It has four dimensions on which the progress of a company’s strategy can be checked:

Financial: Objectives, measures and targets on financial side, what the firm wants to achieve
on this aspect.

Customer orientation: How customers intend to see, how firm wants customers to view it,
objectives, measures, and targets set to this effect.

Learning and growth: What firm wants to learn and growth options it has, objectives,
measures, and targets it sets in this regard.

Internal processes: What objectives, measures, and targets can be set for how processes are
to be evaluated within the firm.