CHAPTER IV

INTERNAL ENVIRONEMNTAL ANALYSIS and COMPETITIVE ADVANTAGE

Minakshi Gautam Assistant Professor IIHMR, Delhi

 Methods adopted from automobile industry Lean Design and Lean thinking
It involves seeing organization as a value chain each activity/ process should add value for patients

MUDA 7 wastes

8th Waste:

Learning Objectives
Understand the role of internal environmental analysis in identifying the basis for sustained competitive advantage. Describe the organizational value chain, including the components of the service delivery and support activities. Understand the ways in which value can be created at various places in the organization with the aid of the value chain. Use the value chain to identify organizational strengths and weaknesses

Learning Objectives
Determine the competitive relevance of each strength and weakness with the aid of a series of carefully formulated questions. Describe how competitively relevant strength and weaknesses can be used to suggest appropriate strategic actions.

Identifying Competitive Advantage

So far, focus of situational analysis external environment Attempted to answer the first of three strategic questions concerning situational analysis What should the organization do? Next step Situational ORGANIZATION and ADVANTAGE. . analysis emphasis shifts to establishing COMPETITIVE

Identifying Competitive Advantage

Experts writing on Competitive Advantage have concluded that successful organizations focus relentlessly on competitive advantage . (they) strive to widen the performance gap between themselves and competitors. They are not satisfied with todays competitive advantage they want tomorrows. Health care strategists often must think about business as well as medical issues in pursuing competitive advantage.

Identifying Competitive Advantage

Developing a better product, charging a lower price, or delivering better service does not guarantee success. Competitive advantage requires an organization to develop a distinctiveness that competitors do not have and cannot easily imitate. Therefore, an answer to second strategically relevant question of situational analysis What can the organization do?

 A stable environment allowed static strategies to be successful.

In todays environment, the ability to develop a sustained competitive advantage is increasingly rare.
Sustained competitive advantage is the direct result of an enduring value. This reality makes internal environmental factors important.

 They must anticipate what the rapidly changing environment will be like. Traditionally, the focus has been on strengths and weakness. organizational

Internal environmental analysis is much like external environmental analysis except the focus in on the organization rather than environmental forces.

Analyzing the Internal Environment

Create value for present and prospective customers and other stakeholders. The organizational value chain is a useful tool for creating value By evaluating functional areas such as
Clinical Operations Information Systems Marketing Clinical Support Human resources Financial administration and so on

Value Creation in Healthcare Organizations

Value is defined as the amount of satisfaction received relative to the price paid for a health care service. For e.g. patient going to cosmetic surgeon and paying high price vs. patient going to a free family practice clinic. Therefore, value is the perceived relationship between satisfaction and price, it is not based solely on price.

The Value Chain

S E R V I C E D E L I V E R Y S U P P O R T A C T I V I T IY

PRE SERVICE Market/Marketing Research Target Market Services offered/ Branding Pricing

POINT- OF SERVICE Clinical Operations Quality Process Innovation Marketing Patient Satisfaction

AFTER SERVICE Follow-up Clinical Marketing Billing Follow-on Clinical Marketing

A D D V A L U E

ORGANIZATIONAL CULTURE Shared Assumptions, Shared Values, Behavioral Norms

D

A D

ORGANIZATIONAL STRUCTURE Function, Division, Matrix

L

V A U E

STRATEGIC RESOURCES Financial, Human, Information, Technology

Organizational Value Chain

The organizational value chain is an effective means of illustrating how and where value may be created. Value may be created in the service delivery sub system and by effective use of support subsystem. Service delivery activities fundamental value creation activities They are supported by activities that facilitate and improve service delivery

Organizational Value Chain

Service delivery has three elements pre service, point of service and after service. It includes primarily operational processes and marketing activities. Organizational culture, organizational structure and strategic resources are the subsystems that support service delivery. It happens by ensuring an inviting and supporting atmosphere, an effective organization, and sufficient resources such as finances, highly qualified staff, information systems and appropriate facilities and equipment.

Organizational Value Chain

Service Delivery Activities:
Can create value and significant advantages over competitors.

Support Activities
If the organizational culture is service oriented patients can feel it when they walk in the door. The organizational structure can increase the patient satisfaction by effectively and efficiently facilitating the service delivery. Structure should have enough standardization and enough flexibility. Strategic resources are important to overall perception of value- employees with proper skills, up to date information system, accessible parking lot etc has positive impact on patient satisfaction. Goals, values and behaviors of all employees must be integrated towards the common objective of patient satisfaction

Description of Value Chain Components

Value Chain Description Component Service Delivery The activities in the value chain that are directly involved in ensuring access to, provision of, follow up for health services.

Pre Service Market/Marketing research

Target Market

Determine the services that create value prior to the actual delivery of health services, determine appropriate target market. The process of identifying recognizable groups (segments) that make up the market and selecting appropriate groups upon which to focus.

Description of Value Chain Components

Value Component Services Branding Chain Description offered/ Information dissemination to present to prospective patients and other stakeholders regarding the range of available services.

Pricing Distribution/ Logistics

Promotion

Charge schedule for available services Activities and systems that facilitate patient entry into the service delivery system including appointments and registrations Activities that ensure all the elements needed to deliver health services are available at the appropriate place at appropriate time

Description of Value Chain Components

Value Chain Component Description Point-of-Service

Clinical operations Quality Process Innovation

Those service delivery activities that create value at the point where services are actually delivered. The activities that convert the human and non human resources into health services Actual provision of health services to the individual patient Activities and groups of activities that are designed specifically to improve the quality and quantity of health services.

Description of Value Chain Components

Value Chain Component
Marketing Patient Satisfaction

Description

Activities to offer new products, seek new customers, provide better services delivery and cause services to be perceived as higher value.

After-Service
Follow up Clinical Marketing Activities that create value after the patient has received the health services. Activities designed to determine the effectiveness of or the patient satisfaction with health services received. Activities that assist in determining what other service need to be delivered.

Description of Value Chain Components

Value Chain Component Billing Description Value creating activities that ensure more understandable and efficient billing procedures Activities that facilitate entry into another value chain (from hospital to home care, etc.)

Follow-on Clinical Marketing

Description of Value Chain Components

Value Component Chain Description

Support Services

Organizational Culture

Shared Assumptions

The activities in the value chain that are designed to aid in the efficient and effective delivery of health services. The overarching environment within which the health services organization operates. The assumptions employees and others share in the organization regarding all aspects of service delivery. (e.g. needs of patients, goals of organization)

Value Component Shared values

Chain Description The guiding principles of the organization and its employees. The understanding people in the organization have regarding excellence, risk taking, etc. Understandings about behavior in the organization that can create value for patients. Those aspects of organization structure that are capable of creating value for customers/ patients Structure based on process or activities used by employees (e.g. surgery, finance, human resource)

Behavioral norms

Organizational Structure Function

Value Component Division

Chain Description Major units operate relatively autonomously (e.g. hospital division, outpatient division, northwest division) Two dimensional structure where more than the single authority structure operates simultaneously. (e.g. interdisciplinary team with representatives from medicine, nursing, administration) Value creating financial, human, information resources and technology necessary for the delivery of health services. Financial resources required to provide the facilities, equipment, specialized

Matrix

Strategic Resources

Financial

Value Component Human

Chain Description Individuals with the specialized skills and commitment to deliver health services.

Information

Technology

Hardware, software and information processing system needed to support the delivery of health services. The facilities and equipment required to provide health services

Identifying current and potential competitive advantage

Assessing current and potential competitively relevant strengths and weaknesses is the goal of internal environmental analysis. Competitively relevant strengths are the pathways to sustained competitive advantage Strengths and weakness may be objective or subjective as well as absolute or relative. Some strengths possessed by a health care organization are clear by objective standards. These are clear and easily recognizable. E.g. a particular location. Some weaknesses can also be easily recognizable and clear e.g. excessive financial debt. At times, a strength or weakness may be subjective.

Identifying current and potential competitive advantage

At times, a strength or weakness may be subjective. E.g. opinion of the people. The management team may think that the philosophy of the board of directors is more conservative than that of other organizations even though there are no concrete data to support the assertion. Sometimes organizational strengths and weakness are absolute or relative. These are not so obvious and can only be determined in relationship to strengths and weaknesses of primary competitors. E.g. renowned health centre loses famous surgeon to a local hospital (relative weakness)

Identifying current and potential competitive advantage

Sometimes organizational strengths and weakness are absolute. The Johns Hopkins University School of Medicine is recognized worldwide as a leader in medical education.

Strengths and weaknesses are easier to identify if one thinks in terms of organizational resources, competencies and capabilities.

Strengths and weaknesses are easier to identify if one thinks in terms of organizational resources, competencies and capabilities.

A. RESOURCES
The resource based view of strategy argues that valuable, expensive or difficult to copy resources provide a key to sustainable competitive advantage. Resources are the stocks of human and nonhuman factors that are available for use in producing goods and services. Resources may be tangible, as in case of land etc. and may be intangible e.g. intellectual property, reputation, and goodwill. Robert Kaplan and David Norton point out that unlike financial and physical resources intangible resources are hard for competitors to imitate. Thus making them powerful source of sustainable competitive advantage.

A. RESOURCES
Furthermore, according to a Harris Interactive Health Care Poll, a good reputation and trusted physicians recommendation are two of most important indicators of quality of medical care. These factors ranked above more tangible indicators of resources, including location, appearances, etc,

B. COMPETENCIES
Competency is defined as knowledge and skills that may be a powerful source of sustained competitive advantage. It is about ideas and intellectual know-how.

The organization must possess threshold competencies- the minimally required knowledge and skills necessary to compete in a particular area. E.g. all organizations offering cardiac services may possess threshold competencies, but only one or two will develop the knowledge and skills to the point that it becomes distinctive competency.

C. CAPABILITIES
Capabilities are a health organizations ability to deploy resources and competencies, usually in combination. Coordination of resources and competencies is another potential source of sustained competitive advantage. Some assets never create value by themselves, they need to be combined with other assets. E.g. investment in IT (a resource) have little value unless complemented with effective HR training (competencies)

C. CAPABILITIES
It is likely that two or more organizations competing in the same health care market could have same resources and competencies. In such case, competitive advantage is likely to be the result of different capabilities a unique culture, strategic leadership, set of processes.

Strategic Thinking Map for Discovering Competitive Advantages and Disadvantages

Step 1 Identify Strengths and Weaknesses Step 2 Evaluate competitive relevance of strengths and weaknesses Step 3 Focus on Competitive Strengths and Competitive Weaknesses

PRE SERVICE

POINT- OF SERVICE

AFTER SERVICE

Service Delivery Strength and Weaknesses

Value Competitively relevant strengths Rare

ORGANIZATIONAL CULTURE

ORGANIZATIONAL STRUCTURE

Imitable

Competitively relevant Weaknesses

Competi tive advantag e and Competi tive Disadva ntages

STRATEGIC RESOURCES Support Activities Strength and Weaknesses Sustainable

Organizational Strengths
Strengths must have value, be rare, be difficult to imitate and be sustainable in order to create competitive advantage. Competitive relevance is determined by critically considering four important questions;
Question of Value: Is the resource, competency, or capability of value to customers? Question of Rareness: Is this organization the only one that possess the resource, competency and capabilities or do many or all of its competitors possess it? Question of Imitability: Is it easy or difficult to duplicate the resource, competency or capability? Question of Sustainability: Can the resource, competency or capability be maintained over time?

Strategic Thinking Map for the possible combinations of 4 questions regarding strengths and implications
Is the Is the Value of strength Strength rare (Y/N) High or Low (H/L) H N Is the strength easy or difficult to imitate (E/D) E Can the Implications strengt h be sustaine d (Y/N) Y No competitive advantages. Most competitors have the strength and those that do not can develop it easily and sustain it. Because the strength is widely possessed and can be sustained it is likely that it already has become a minimum condition for long term success.

Strategic Thinking Map for the possible combinations of 4 questions regarding strengths and implications
Is the Is the Value of strength Strength rare (Y/N) High or Low (H/L) H N Is the strength easy or difficult to imitate (E/D) E Can the Implications strengt h be sustaine d (Y/N) N No competitive advantages. Most competitors have the strength and it is easy to develop. However, the strength generally is not sustainable. If the organization is the only organization in the service area that cannot sustain the strength, it will become a short term competitive

Strategic Thinking Map for the possible combinations of 4 questions regarding strengths and implications
Is the Is the Value of strength Strength rare (Y/N) High or Low (H/L) H N Is the strength easy or difficult to imitate (E/D) D Can the Implications strengt h be sustaine d (Y/N) Y No competitive advantages. Many competitors possess the strength but it is difficult to develop, so care should be taken to maintain this strength. Because the strength is widely possessed and can be sustained, it is likely that it already has become the minimum condition for long term

Strategic Thinking Map for the possible combinations of 4 questions regarding strengths and implications
Is the Is the Value of strength Strength rare (Y/N) High or Low (H/L) H N Is the strength easy or difficult to imitate (E/D) D Can the Implications strengt h be sustaine d (Y/N) N No competitive advantage. Many competitors possess the strength but it is difficult to develop and those who do possess it will not be able to sustain the strength. If the organization is the only organization that cannot sustain the strength it will become the long term competitive disadvantage.

Strategic Thinking Map for the possible combinations of 4 questions regarding strengths and implications
Is the Value of Strength High or Low (H/L) H Is the strength rare (Y/N) Is the Can the Implications strength strength easy or be difficult to sustaine imitate d (Y/N) (E/D) E Y Short term competitive advantage. Because the strength is valuable and rare, competitors will do what is necessary to develop this easy to imitate strength. The organization should exploit this short term advantage but should not base the long term strategies on this type of strength. Overtime, this strength may become a minimum condition for long

Strategic Thinking Map for the possible combinations of 4 questions regarding strengths and implications
Is the Value of Strength High or Low (H/L) H Is the strength rare (Y/N) Is the Can the Implications strength strength easy or be difficult to sustaine imitate d (Y/N) (E/D) E N Short term competitive advantage but not a source of long term competitive advantage. The strength is easy to imitate but cannot be sustained. The organization should not base long term strategies on this type of strength but may obtain benefits of short term advantage.

Strategic Thinking Map for the possible combinations of 4 questions regarding strengths and implications
Is the Value of Strength High or Low (H/L) H Is the strength rare (Y/N) Is the Can the Implications strength strength easy or be difficult to sustaine imitate d (Y/N) (E/D) D Y Long term competitive advantage. This strength is rare in the service area, difficult to imitate by competitors, and can be sustained by the organization. If the value is vary high, it may be worth betting the organization on this strength. Short term competitive advantage but not a strength that can be sustained over the long run.

Strategic Thinking Map for the possible combinations of 4 questions regarding strengths and implications
Is the Value of Strength High or Low (H/L) Is the strength rare (Y/N) Is the Can the Implications strength strength easy or be difficult to sustaine imitate d (Y/N) (E/D) Although rare and difficult to imitate, the strength cannot be sustained. This strength should be exploited for as long as possible.

How to chart value creating strengths and value reducing weaknesses (e.g. of one component from Medtronics)
Value Chain Component Service Delivery Pre-service Reputation as leading biomedical engineering company Established presence in the market Founded in 1949 Market leader in selected segments (e.g. implantable cardiac rhythm devices) Operations in more than 120 countries world wide Vulnerability to diverse cultural mores and regulatory constraints. Subject to high risk of litigation over patents, trademarks and product liability claims. Value creating Strength Value Reducing Weakness

Strategic Thinking Map for the possible combinations of 4 questions regarding weaknesses and implications
Is the Weaknes s of High or Low (H/L) Is the weakness Common (Not Rare) among competitor s (Y/N) Y Is the weakness Easy or Difficult to correct? (E/D) E Can Implications competito rs sustain their advantage ? (Y/N) Y No competitive disadvantage. Although a weakness of the organization, most other competitors are also weak in this area. However the weakness is easy to correct and competitors will likely work to correct the weakness. If organization fails to correct weakness, competitors could achieve a short term competitive advantage. Can become minimum condition for long term success

Is the Weaknes s of High or Low (H/L)

Is the weakness Common (Not Rare) among competitor s (Y/N)

Is the weakness Easy or Difficult to correct? (E/D)

Can Implications competito rs sustain their advantage ? (Y/N)

No competitive disadvantage . Other competitors are also weak. Easy to correct. Most competitors are likely to work to correct the weakness. Therefore no organization can sustain their advantage.
No competitive disadvantage. Most other competitors are also weak. Difficult to correct. However, situation is dangerous. Important to ensure that competitors dont overcome this first. If competitors correct the weakness and continue to sustain their advantage the weakness could become long term competitive disadvantage.

Is the Weaknes s of High or Low (H/L)

Is the weakness Common (Not Rare) among competitor s (Y/N) Y

Is the weakness Easy or Difficult to correct? (E/D) D

Can Implications competito rs sustain their advantage ? (Y/N) N No competitive disadvantage . Most other competitors are also weak in this area. Difficult to correct. Chronic, almost all competitors have it. Corrections in the weakness tend to erode over time.

Short-term competitive disadvantage. Most competitors not weak in this area. Easy to correct. Organization should correct it quickly. Correcting is likely to become a minimum condition for long term success.

Is the Weaknes s of High or Low (H/L)

Is the weakness Common (Not Rare) among competitor s (Y/N) N

Is the weakness Easy or Difficult to correct? (E/D) E

Can Implications competito rs sustain their advantage ? (Y/N) N Short term competitive disadvantage. Competitors not weak in this area. Weakness easy to correct. Organization should move quickly to correct it. Likely that all competitors correct it and therefore cannot sustain any advantage. Serious competitive disadvantage. Weakness is valuable, most competitors do not have it. Difficult for organization to correct it. Competitors can sustain their advantage. May threaten the survival of the organization.

Is the Weaknes s of High or Low (H/L)

Is the weakness Common (Not Rare) among competitor s (Y/N)

N

Is the weakness Easy or Difficult to correct? (E/D)

D

Can Implications competito rs sustain their advantage ? (Y/N)

N Short term competitive disadvantage. Weakness is valuable, most competitors do not have it. Difficult for organization to correct it. However, competitors cannot sustain the advantage. Until it becomes the weakness for most competitors in service area or weakness corrected by the organization., it will continue to be a Serious disadvantage.

Strategic Implications of Competitively Strengths and Weaknesses (Medtronics)

Competitively Relevant Strength or Weakness Strengths Market leader in selected business segments Integrated product line focused on manufacture and sales of device based medical therapies Entrepreneurial culture Numerous patents, trademarks, and trade names Strong intellectual capital underlying key products Economies of scale could be leveraged over competitors with smaller market shares. Although competitors are strong and have comprehensive product lines, Medtronic appears more focused on manufacture and sale of integrated line of device based medical strategies History and performance has established firm reputation for innovation Legal protection of products and product names can constitute important aspect of differentiation Same as for patents and trademarks Strategic Implications

Weaknesses

Ongoing legal claims that could prove a threat to financial viability

Settlements agains the company could result in serious financial consequences

 Careful analysis of the internal environment provides a better understanding of where strategic leaders should focus their efforts.

Where they should be careful to avoid vulnerability relative to competitors

It is not possible to be everything to everyone.