DEVELOPING STRATEGIC

ALTERNATIVES

CHAPTER 6
COURSE INSTRUCTOR:
Dr. ASIMA FAISAL
 LEARNING OBJECTIVES

1. Understand the decision logic of strategy development and be able to discuss its steps.
2. Synthesize and integrate strategic thinking accomplished in situational analysis into a
strategic plan for an organization.
3. Identify the hierarchy of strategies and strategic decisions required in strategic planning.
4. Understand the nature of directional strategies, adaptive strategies, market entry strategies,
and competitive strategies.
5. Identify strategic alternatives available to health care organizations.
6. Provide the rationale as well as advantages and disadvantages for each of the strategic
alternatives.
7. Understand that strategies may have to be used in combination to accomplish the
organization’s goals.
8. Map strategic decisions showing how they are linked as an ends–means chain.
 Terminologies
Strategy
A plan of action intended to accomplish a specific goal.
OR
Strategy of an organization is the result of a series of increasingly more specific decisions.

Strategic thinking
It involves an awareness of the environment; intellectual curiosity that is always gathering,
organizing, and analyzing information; and a willingness to be open to creative ideas and
solutions.

Strategic planning
It concerns reaching conclusions about the information, setting a course of action, and
documenting the plan. Therefore, strategic planning is essentially decision making –
formative which from among the many available alternatives the organization will pursue.
 Strategic
Planning
Strategy
Thinking

Strategic
Alternatives

Strategy Formulation
Strategy Formulation
• It incorporates the broadest decisions that set direction and provide the fundamental strategy for the
organization
• It also includes development of strategic alternatives, evaluation of alternatives, and strategic choice.

Strategic Strategic
Evaluation
Alternatives Choice
 Linking Strategy with Situational Analysis
• Situational analysis provides information concerning the external and internal
environments that is used in strategy formulation to develop strategic
alternatives and select the strategies for the organization.

External Environment Internal Environment

• Threat • Strength
• Opportunities • Weaknesses
 Check-list procedure is an important part of the
Strategic Thinking

Each selected strategy should be tested against these questions. Strategies that do not have a “yes” in each
column should be subject to additional scrutiny and justification.
 The Decision Logic of Strategy Development
Decisions concerning the five categories of strategies.

Directional Adaptive Market Entry

strategies Strategies Strategies

Competitive Implementation
Strategies Strategies
THE DECISION LOGIC OF STRATEGY FORMULATION
 SCOPE AND ROLE OF STRATEGY TYPES IN STRATEGY
FORMULATION

1. DIRECTIONAL STRATEGIES
• The broadest strategies set the fundamental direction of the organization by establishing a
mission for the organization (Who are we?) and providing a vision for the future (What should
we be?). In addition, directional strategies specify the organization’s values and the broad goals
it wants to accomplish.

2. ADAPTIVE STRATEGIES
• These strategies are more specific than directional strategies and provide the primary methods
for achieving the vision of the organization – adapting to the environment. These strategies
determine the scope of the organization and specify how the organization will expand scope,
contract scope, or maintain scope.
3. MARKET ENTRY STRATEGIES
• These strategies carry out the expansion of scope and the maintenance of scope
strategies through purchase, cooperation, or internal development. These strategies
provide methods for access or entry to the market. Market entry strategies are not
used for contraction of scope strategies.
4. COMPETITIVE STRATEGIES
• Two types of strategies, one that determines an organization’s strategic posture and
one that positions the organization vis-à-vis other organizations within the market.
These strategies are market oriented and best articulate the competitive advantage
within the market.
5. IMPLEMENTATION STRATEGIES
• These strategies are the most specific strategies and are directed toward value added
service delivery and the value added support areas such as the culture, structure, and
strategic resources. In addition, individual organizational units develop action plans
that carry out the value added service delivery and value added support strategies.
 Adaptive Strategies

Expansion Of Scope Contraction Of Scope Maintenance Of Scope

• Diversification • Divestiture • Enhancement
• Vertical Integration • Liquidation • Status Quo
• Market Development • Harvesting
• Product Development • Retrenchment
• Penetration

These strategies are more specific than directional strategies and provide the primary methods for achieving
the vision of the organization – adapting to the environment. These strategies determine the scope of the
organization and specify how the organization will expand scope, contract scope, or maintain scope.
 Expansion Of Scope
Diversification
• It is a corporate strategy to enter into a new market or industry which the business is not currently in,
whilst also creating a new product for that new market.
• There are two types of diversification:
1.Related : An organization chooses to enter a market that is similar or related to its present operations.
2.Unrelated : An organization chooses to enter a market that is unlike its present operations .
Vertical Integration
• A vertical integration strategy is a decision to grow along the channel of distribution of the core
operations. Thus, a health care organization may grow toward suppliers or toward patients.
1. Backward Vertical Integration. When an organization distributed toward suppliers (upstream).
2. Forward Vertical Integration When an organization grows toward the consumer or patient
(downstream)
• Market Development
• Market development is used to enter new markets with present products or services. Specifically, market
development is a strategy designed to achieve greater volume, through geographic (service area) expansion or
by targeting new market segments within the present geographic area.
• Example : strategy would be a chain of outpatient clinics opening a new clinic in a new geographic area
(present products and services in a new market).

• Product Development
• Product development is the introduction of new products/services to present markets (geographic and
segments).
• Example : The area of women’s health. Many hospitals have opened clinics designed to serve the special needs
of women in the present market area.
• Penetration Strategy.
• An attempt to better serve current markets with current products or services is referred to as
a market penetration strategy.
• Example : A market penetration strategy is typically implemented by marketing strategies
such as promotional, distribution, and pricing strategies, and often includes increasing
advertising, offering sales promotions, increasing publicity efforts, or increasing the number
of salespersons.
 Contraction of Scope Strategies
It decrease the size and scope of operations either at the corporate level or
divisional level.

Contraction strategies include:

1. divestiture (corporate level)
2. liquidation (corporate level)
3. harvesting (divisional level)
4. retrenchment (divisional level)
1. DIVESTITURE:
A contraction strategy in which an operating strategic service unit is sold off as a result of a
decision to permanently and completely leave the market despite its current viability.
Generally, the business to be divested has value and will continue to be operated by the
purchasing organization.

2. LIQUIDATION:
Involves selling the assets of an organization. Common reasons for pursuing a liquidation
strategy include bankruptcy, the desire to dispose of nonproductive assets, and the emergence
of a new technology that results in a rapid decline in the use of the old technology.
3. HARVESTING:
It is selected when the market has entered long-term decline. The reason underlying such a
strategy is that the organization has a relatively strong market position but industry-wide
revenues are expected to decline over the next several years. Therefore the organization will
“ride the decline,” allowing the business to generate as much cash as possible. However, little
in terms of new resources will be invested. In a harvesting strategy, the organization attempts
to reap maximum short-term benefits before the product or service is eliminated.

4. RETRENCHMENT:
A response to declining profitability, usually brought about by increasing costs.
Maintenance of Scope Strategies

Maintenance of scope does not necessarily mean that the organization will do nothing; it
means that management believes the organization is progressing appropriately.

There are two types:

1. Enhancement
2. and status quo.
1. ENHANCEMENT:
When management believes that the organization is progressing toward its vision and goals
but needs to “do things better,” an enhancement strategy may be used; neither expansion nor
contraction of operations is appropriate but “something needs to be done.”

2. STATUS QUO:
It is based on the assumption that the market has mature and periods of high growth are over.
Often, the organization has secured an acceptable market share and managers believe the
position can be defended against competitors. In a status quo strategy, the goal is to maintain
market share.
 MARKET ENTRY STRATEGIES
How the organization will enter or develop the market?
Includes:
1. Purchase Strategies:
a) Acquisitions : entry strategies to expand through the purchase of an existing organization, a unit
of an organization, or a product/service
b) Licensing: Acquiring a technology or product through licensing may be viewed as an alternative
to acquiring a complete company.
c) Venture capital investments : offer an opportunity to enter or “try out” a market while keeping
risks low. Typically, venture capital investments are used to become involved in the growth and
development of a small organization that has the potential to develop a new or innovative
technology.
2. Co-operation Strategies:
Mergers:
Mergers are similar to acquisitions. In mergers, however, the two organizations combine through
mutual agreement to form a single new organization, often with a new name. in health care has
been to create integrated delivery systems (vertical integration). There are four motives underlying
such mergers:
1. Improve efficiency and effectiveness
2. Enhance access
3. Enhance financial position
4. Overcome concerns about survival

Alliances: Strategic alliances are loosely coupled arrangements among existing organizations that are designed to achieve
some long-term strategic purpose not possible by any single organization. Alliances include configurations such as
federations, consortiums, networks, and systems.
Joint venture: is the combination of the resources of two or more separate organizations to accomplish a designated task.
A joint venture may involve a pooling of assets or a combination of the specialized talents or skills of each organization.
3. Development Strategies:

Organizations may enter new markets by using internal resources in what are called development strategies.
a) Internal development: uses the existing organizational structure, personnel, and capital to generate new
products/services or distribution strategies, may be most appropriate for products or services that are closely
related to existing products or services. It is common for growing organizations, particularly when they can
exploit existing resources, competencies, and capabilities.

b) Internal ventures: typically set up separate, relatively independent entities within the organization. Internal
ventures may be most appropriate for products or services that are unrelated to the current products or services.
 COMPETITIVE STRATEGIES

1. Strategic Posture: Organizations may be classified by how they behave within their market
segments or industry. There are at least four typical strategic postures for organizations – defenders,
prospectors, analyzers, and reactors.

a) DEFENDER STRATEGIC POSTURE: focuses on a narrow market with a limited number of

products or services and aggressively attempts to defend this market segment through pricing or
differentiation strategies.
b) PROSPECTOR STRATEGIC POSTURE: Organizations that frequently search for new market
opportunities and regularly engage in experimentation and innovation. A prospector’s major capability
is that of finding and exploiting new products and market opportunities.
c) ANALYZER STRATEGIC POSTURE: A combination of the prospector and defender strategic
postures. The analyzer tries to balance stability and change. Analyzers are organizations that
maintain stable operations in some areas, usually their core products or businesses, but also search
for new opportunities and engage in market
innovations.

d) REACTOR STRATEGIC POSTURE: Reactors are organizations that perceive opportunities and
turbulence but are not able to adapt effectively. They lack consistent approaches to strategy and
structure and make changes primarily in response to environmental pressures.
 POSITIONING STRATEGIES
• Market wide strategies:
position the products/services of the organization to appeal to a broad audience (the entire market).
For example, a community hospital may be positioned to serve all area residents – serve a broad
market with a broad range of services. These products and services, therefore, are not tailored
exclusively to the needs of any special segment of the population such as children or the aged.
• Market segment strategies:
Directed toward the particular needs of a well-defined market segment, such as pediatric oncology or
women’s health.
 COMBINATION STRATEGIES

• Combination strategies
Are often used, especially in larger complex organizations, because no single strategy alone may be
sufficient.
• For example, an organization may concurrently divest itself of one of its divisions and engage in
market development in another. Perhaps the most frequent combination strategy for hospital based
systems has been vertical integration through acquisition and alliances combined with market
development through acquisition (horizontal integration).
 STRATEGIC THINKING MAP
HIERARCHY OF STRATEGIC DECISIONS AND
ALTERNATIVES
 DIRECTIONAL STRATEGIES
MISSION, VISION, VALUES, AND GOALS

• Mission, vision, values, and strategic goals and indicated that these elements are part of
both situational analysis and strategy formulation. They are a part of situational analysis
because they describe the current state of the organization and codify its basic beliefs and
philosophy. In addition, mission, vision, values, and strategic goals are also a part of
strategy formulation because they set the boundaries and indicate the broadest direction
for the organization.
ADAPTIVE STRATEGIES
DIVERSIFICATION
VERTICAL INTEGRATION:
• A vertical integration strategy is a decision to grow along the channel of distribution of the core
operations. Thus, a health care organization may grow toward suppliers or toward patients. When
an organization grows along the channel of distribution toward its suppliers (upstream) it is called
backward vertical integration. When an organization grows toward the consumer or patient
(downstream) it is called forward vertical integration.
MARKET DEVELOPMENT:
• Market development is a divisional strategy used to enter new markets with present products or
services. Specifically, market development is a strategy designed to achieve greater volume,
through geographic (service area) expansion or by targeting new market segments within the
present geographic area.
PRODUCT DEVELOPMENT:
• Product development is the introduction of new products/services to present markets (geographic
and segments). Typically, product development takes the form of product enhancements and
product line extension.
PENETRATION:
• An attempt to better serve current markets with current products or services is referred to as a
market penetration strategy. Similar to market and product development, penetration strategies are
used to increase volume and market share.
 Market Entry Strategies
Purchase Strategies
ACQUISITION:
• Acquisitions are entry strategies to expand through the purchase of an existing
organization, a unit of an organization, or a product/service.
LICENSING:
• Acquiring a technology or product through licensing may be viewed as an alternative
to acquiring a complete company. License agreements obviate the need for costly and
time-consuming product development and provide rapid access to proven
technologies, generally with reduced financial and marketing risk to the organization.
VENTURE CAPITAL INVESTMENT:
• Venture capital investments offer an opportunity to enter or “try out” a market while
keeping risks low. Typically, venture capital investments are used to become involved
in the growth and development of a small organization that has the potential to
develop a new or innovative technology.
 COOPERATION STRATEGIES
MERGERS:
JOINT VENTURES:
• When projects get too large, technology too expensive, internal resources, competencies or
capabilities too scarce, or the costs of failure too high for a single organization, joint ventures are
often used. The four most common organizational forms used in health care joint ventures are:
• Contractual Agreements. Two or more organizations sign a contract agreeing to work together
toward a specific objective.
• Subsidiary Corporations. A new corporation is formed (called an equity JV), usually to operate
nonhospital activities.
• Partnerships. A formal or informal arrangement in which two or more parties engage in
activities of mutual benefit.
• Not-for-Profit Title-Holding Corporations. Tax legislation enacted in 19
 DEVELOPMENT STRATEGIES

Organizations may enter new markets by using internal resources in what are called
development strategies.

INTERNAL DEVELOPMENT:
• Internal development uses the existing organizational structure, personnel, and
capital to generate new products/services or distribution strategies.

INTERNAL VENTURES:
• Internal ventures typically set up separate, relatively independent entities within
the organization. Internal ventures may be most appropriate for products or
services that are unrelated to the current products or services.
 POSITIONING STRATEGIES – MARKET-WIDE OR
FOCUS
• Michael Porter, a well-known strategic management writer, proposes that an organization
may serve the entire market using market-wide strategies or serve a particular segment of
the market using focus strategies.
 COMBINATION STRATEGIES
Combination strategies are often used, especially in larger complex organizations, because
no single strategy alone may be sufficient. For example, an organization may concurrently
divest itself of one of its divisions and engage in market development in another.
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