Health Administration Press Strategic Analysis for Healthcare Chapter 7 Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press PEST Analysis of the Environment • PEST is an acronym that stands for – – – – Political Economic Social Technical • Some authors have added the words environmental and legal to form the acronym PESTEL. For our purposes, however, environmental and legal matters fall under the political, because both areas tend to be politically charged and regulated within healthcare. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press PEST Analysis • The timing and success of particular strategies can be influenced positively or negatively by political, economic, social, and technological factors. • The strategic analyst studies the macroenvironment both as an input to strategy and as a limiting factor on strategy. • Strategic inputs may involve issues identified in a PEST analysis that lead to opportunities for an organization. • Other findings may limit opportunities for an organization’s strategy. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press PEST Analysis • To perform a PEST analysis, the analyst considers each PEST factor one at a time. • The analyst identifies what issues influence each particular factor, how each issue impacts the organization, and what strategic implications can be drawn from the issues. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press PEST Analysis An Example PEST Factor Issue Impact on organization Implication for strategy Opportunities to market to the older generation as Increased consumer demand Extended families moving into extended families move in; for healthcare services due to SOCIAL homes of younger family opportunities to penetrate growing number of older members the geriatric market and patients expand existing services for older population Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press PEST Analysis • Note again that “Implication for Strategy” is different from “Strategy.” – An implication for strategy identifies a broad possibility and allows for future brainstorming of many strategies that could respond to that possibility. – By contrast, identifying a particular strategy here ends the discussion and shuts out other possible strategies. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Potential Questions to Consider in a PEST Analysis Political • How stable is the political environment you are analyzing? • How will government policy influence your ability to do business? • How favorable are the existing tax laws regarding your industry and potentially your business? • What is the government’s position on financial reporting and corporate transparency? • What is the government’s economic policy? Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Potential Questions to Consider in a PEST Analysis Economic • What are the short-, middle-, and long-term prospects for the economy? • What is the average disposable income, and how is income distributed? • What are the interest rates? • What is the rate of inflation? • What employment trends have appeared in recent years? Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Potential Questions to Consider in a PEST Analysis Social • What are the cultural aspects of the area you are analyzing? • What are the roles of men and women in the society? • What are the demographic distributions of the population? • What are the population growth trends? • What is the influence of tradition, and who are the keepers of tradition? Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Potential Questions to Consider in a PEST Analysis Technological • Does the location have available technology infrastructure? • Does the location have available technological resources? • What is the area’s overall research and development investment rate? • Is technology available to produce high-quality products and services? • Do consumers and businesses take advantage of, and demand, technology? Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Exercise • Break into groups and brainstorm political, economic, social, and technical issues that impact the industry you are studying. – Determine what impact each issue has on your organization. – Determine what implication each issue has on strategy for your organization. – Use the space provided at the end of Chapter 7. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Strategic Analysis for Healthcare Chapter 8 Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis • Understanding the position of competitors in the market is essential for the development of effective business strategy. • One way analysts achieve this understanding is through competitive market benchmark analysis. • This approach helps analysts identify key factors that differentiate a company from its competition. • Benchmarking—that is, establishing goals through comparisons with other organizations’ performance—is widely used in healthcare as a quality improvement tool, and it can be extremely helpful in ensuring a competitive advantage over the competition. • Analysts are able to use comparisons and differentiation to drive strategy development. • For example, consider an organization that currently ranks first in market share but sees a competitor quickly rising in the rankings for price, quality, service, and reputation. Benchmark analysis helps the organization identify this new competition and decide what to do about it. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis • To begin a benchmark analysis, analysts need to identify what factors are important in the industry being studied. • Each industry has a unique set of critical success factors, key competencies, requirements, and indicators. • In most industries, analysts evaluate productivity. – In retail sales, for instance, productivity has been measured in sales per square foot, and this measure serves as a key indicator of the efficiency of operations, trends (when measured over time), and competitive position (when compared to other retailers). • In healthcare organizations, we evaluate conditions across a number of categories (operations, finance, and so on), and we compare our own organizations with organizations considered to be the best in those specific categories, in or out of healthcare. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis • Conducting a competitive market benchmark analysis involves a series of steps. First, through research, select the appropriate broad categories for your organization. These categories may include, but are not limited to, the following: – – – – – Product/service categories Finance Productivity Human resources Facility Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis Second, identify the particular factors within those broad categories that are important to your industry. • For example, within the finance category, “return on assets” might be important in an industry such as manufacturing, which is highly dependent on equipment. • At the same time, “number of accounts 30 to 59 days past due” would likely be much more important in the retail credit industry. • Examples of broad categories and key factors common in healthcare are provided in Exhibit 8.1 in your book. In conducting your analysis, you can select as many factors as you feel are important. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis • In identifying factors, analysts sometimes fall into conceptual traps such as failure to think in the big picture or failure to move from the present to the future tense. • Consider the US automotive industry in the 1960s. The industry failed to foresee the oil crisis of the 1970s, the growth of the Japanese automotive industry, and the trend of increasing consumer sensitivity to price and quality. • Looking back, one might wonder how analysts would miss those issues. • This example provides a clear picture of the need to think broadly and consider future possibilities. • American auto industry analysts could have, and in retrospect should have, identified those issues and enabled the US industry to stop the Japanese industry in its tracks. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis • Healthcare is different from the auto industry, but the key points still apply. • Consider the rapidly evolving healthcare system in the United Sates. • Most agree that some type of reform is necessary, but few can agree on how to approach it. • Can you consider the big picture to address the healthcare issues in the industry segment you are studying? Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis • As the third step, identify the competition in your area, and obtain their information for each key factor you have identified. • Laying the results out in a table allows for easier presentation and quick grasp of the issues. • Consider adding an “industry average” column to compare your organization to the averages. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis • You can choose from a number of methods for finding how the competitors compare. • Common methods include – numeric data reporting, – forced ranking (in which competitors are assigned ranks from best to worst), – scoring (on a point scale from 1 to 5 for each factor, for instance), and – selecting “yes” or “no” for key items. • Examples of these approaches are presented in exhibits 8.2 through 8.5 in your book. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis Analysis Example Using a Yes/No Method Our Hospital Alpha Hospital Beta Hospital Omega Hospital Industry Product/Service: YES NO NO YES NO NO Cancer center YES YES Emergency department YES NO Practice network Trauma center YES Yes YES NO NO NO NO YES YES YES Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis Analysis Example Using a Scoring Scale Method Our Hospital Alpha Hospital Beta Hospital Omega Hospital Industry 5 3 5 2 Human Resources 1 2 2 2 1 2 Flexibility 1 4 2 5 3 Onboarding and training 1 4 3 5 3 Overall quality rating Retention 1 = superior; 5 = poor Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis Analysis Example Using a Numeric Data Reporting Method Our Hospital Alpha Hospital Beta Hospital Omega Hospital Industry Financial Liquidity ratio Long-term debt to assets Age-of-plant ratio Average days in accounts receivable 2.18 1.95 .98 .25 48 9.49 48 67 2.02 33 2.11 .21 7.80 8.21 5.72 10.31 59 62 54 49 Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis Analysis Example Using Forced Ranking Method Our Hospital Alpha Hospital Beta Hospital Omega Hospital Median Productivity 1 2 3 Market share 2 4 4 2.5 1 2.5 3 Adjusted operating revenue Revenue per provider 2 4 1 3 2.5 Patient loyalty 1 3 2 4 2.5 Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis • Fourth, extract meaning from the data. • Ask questions like, – – – – “Why is it so?” “Who is the best of the best and why?” “What trends are visible?” “Given this same data, what are the competitors likely to do?” • In subsequent chapters, we will look at strengths, weaknesses, opportunities, and threats (SWOT). • Findings from the competitive market benchmark analysis will provide you with some of the information necessary to complete the SWOT analysis. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis • Again, remember to think broadly. • Your competition includes anything that could compete with your organization, not just your peer group. • For example, movie theaters compete with other theaters directly, but they also compete indirectly with cable TV, video rentals, electronic games, websites, restaurants, live music venues, Broadway-style theater, and circuses, to name a few. • In healthcare, alternative providers are but one category of potential competitors. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Competitive Market Benchmark Analysis • When a benchmark analysis contains both financial and nonfinancial information, it is often called a balanced scorecard. • The word balanced reflects the fact that many companies in the past only measured themselves and their competitors based on financial data. • The inclusion of a broad range of categories, from corporate culture to technical innovation, gives the strategic analyst a deeper insight to the company under study, the competitors, and the industry. • This insight will likely lead to a more effective strategy. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Exercise • Break into groups. • Conduct a competitive market benchmark analysis for your industry. • Use the space beginning on page 53 in your book. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale.
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