Many hospitals and health systems struggle with how to best leverage their assets to effectively compete in a changing environment. Traditionally, organizations have maximized individual assets to advance individual market strategies. Moving forward, financial pressures, provider shortages, technological changes and health care reform implications all mandate that health care organizations create a distinct position in their markets. To understand how organizations are positioned relative to their competitors and how competitors might respond to changes, we propose separating and analyzing the specific components of organizational strategy.
Six Lenses of Hospital Strategy
Whether the underlying vision is one of growth, quality, integration, low cost or other aims, the specific strategies undertaken to achieve that vision vary by organization. We believe these strategies can be broken into six distinct categories: demographic, competitive, physicians, payors, financial and structural. Moreover, what creates distinction among a competitive field is the unique combination of these strategies rather than the vision. As such, we believe, if positioned correctly, two organizations in the same market can be distinctly positioned in their quest to achieve similar visions. For example, two organizations with a vision of “best quality” might take very different approaches: one focusing on integration with physicians, the other focusing on standardizing processes.
Viewing the organization and the market through six specific lenses enables hospital leaders to identify the differences that are often lost in the overlap of each lens. The analogy is to consider looking through six different colored lenses stacked on top of each other. Together the view will be brown; however, looking through each lens separately allows one to see each unique color.
- Demographic: Demographic analysis shows how organizations are serving markets and reaching communities and specific patient populations. With all other factors being equal, patients will segment themselves based on geographic and demographic factors. When they do so, we believe they are fundamentally selecting health care based on access to health care as opposed to expertise. Thus, for hospitals, the access elements can become a point of differentiation (e.g., better location, no waiting, simple to use, good service and food).
- Competitive: Evaluating each hospital’s competitive strategy distinguishes how each has organized its assets to compete. Successful health care organizations tend to approach the market with strong access or strong expertise. Moreover, splitting the focus to try to emphasize both access and expertise allows room for focused competition at both ends of the spectrum. As such, we believe that a multi-hospital system will be most successful at capturing the market if it can advance toward the extremes of both ends of the continuum with different assets.
- Physicians: Understanding the physician landscape provides additional insight into the relationships within the market. The theory is that to be successful, hospitals need tight, trusting relationships with physicians to help change and improve care delivery. This partnership can come in multiple forms but must be built on aligning the physicians and hospitals along multiple factors including, at least, economic, vision, market presence, operations and quality initiatives.
- Payors: Evaluating each hospital from a payor perspective allows better understanding of how organizations are positioned for health care reform and other factors that might fundamentally reshape the hospital-payor landscape. Organizations that create distinctive value for payors will have a better ability to drive change in the new paradigm, including managing systems of care and whole-population efforts. Additionally, with the rapid shift toward expanded government payors, this lens evaluates how dependent an organization is on various selected payors.
- Financial: Evaluating an organization’s financial structure includes the internal financial profitability of each major service (e.g., service lines, cost centers, other businesses, etc.), the dependence on various sources of revenue, profitability and expense and the financing structure of the organization. The theory is that how an organization manages the returns on its energies definitely impacts its future viability.
- Structural: Understanding the organizing parameters for an organization requires evaluating management, governance models, characteristics of systems (academics, community, hybrid) and asset type (acute, after care, home care). The theory is that specific organizational structures support some performance strategies better than others; moving the system in the direction of “positive” strategies will help leverage the strength of the system. Balancing the levers of collaborative control, incentives and individuals’ accountabilities toward a single vision is one hallmark of good system structure.
These six lenses of strategy provide a fuller understanding of an organization’s present-day positioning in the market. From there, a system may choose which areas to pursue to move toward a more differentiated position and better manage changes in the health care environment.
23 August 2010