Health Administration Press Strategic Analysis for Healthcare Chapter 22 Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Generic Strategies • Michael Porter (1980), the originator of the five forces analysis, also identified three general, or generic, strategies that organizations can use to compete: – cost leadership, – differentiation, and – focus. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Cost Leadership • Cost leadership is a strategy whereby an organization chooses to compete in a broad market based on low prices. • To compete on price, a company can simply cut its prices, or it can change some other factor in the product, business, or industry. • If a company simply cuts price, competitors can do the same thing, and a price war will ensue. • In changing some other factor, a company seeks to create a sustainable advantage that does not currently exist. • The change may involve the manufacturing process, technology, distribution, process reengineering, cost cutting, or any other area that affects the cost side of the equation for the company. • A reduction on that side of the equation can be passed on to buyers of the product or service in the form of lower prices. • A lower price for a comparable product or service is expected to undercut the competition and drive up sales and market share. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Differentiation • Differentiation involves creating a product or service that is perceived as superior or unique by the buyer in the broad market. • To the extent that the buyer believes that a product is unique and that the uniqueness is valuable, the buyer will be willing to pay a higher price. • Thus, companies may compete on the uniqueness of products or services rather than on price. • Often, buyers will develop brand loyalty and continue to purchase the same product over time, even if they have to pay a slight premium (e.g., BMW cars). • The difficulty is that the perceived exclusivity of a product can make it harder to mass market, and the higher cost associated with differentiating the service or product’s features can drive up price. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Focus • A focus strategy centers on a particular niche, customer type, product line segment, or geography. • By segmenting the market and choosing to focus on one or two specific segments, an organization can tailor its offering to the specific needs and desires of the target. • By better serving the target, the organization can maintain higher profit margins. • Sometimes start-up companies use a focus strategy to gain a foothold and then later shift to other strategies to broaden their market. • The trade-off with the focus strategy is often high profit margin versus low sales volume, and vice versa. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Generic Strategies • Generally, organizations compete using only one strategy for a product or service rather than combining strategies. Maintaining a “lowcost/high-volume” strategy at the same time as a “differentiation/premium-price” strategy, for instance, is difficult. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Strategic Analysis for Healthcare Chapter 23 Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Ansoff Matrix • The Ansoff matrix can be used to – categorize an existing strategy, – determine the risk associated with a new or proposed strategy, or – develop new strategies. • For our purposes, we will focus on the matrix as a strategy development tool. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Ansoff Matrix • The matrix considers products or services in comparison to the markets the company proposes to serve. • The matrix compares these factors on the basis of whether each is new or existing. • Markets are placed on the vertical axis, and products and services are placed on the horizontal axis. • The intersection of these axes creates four possible blocks. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press New Ansoff Matrix Market Development Diversification (Risk = moderate) (Risk = high) Market Penetration Product Development (Risk = low) (Risk = moderate) Existing Markets Existing New Products and Services Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Market Penetration • The bottom left box represents strategies aiming to provide existing products to existing markets. • Such strategies are considered “market penetration” because they involve driving existing products deeper into existing markets. • A company’s efforts in this area may seek to attract new customers, but they are still within the same overall market. • Market penetration is the least risky box on the grid: The company already knows its products, services, and customers. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Market Development • The top left box represents strategies aiming to provide existing products to new markets. • Strategies of this type are considered “market development” because they involve driving existing products into markets that are currently unserved by the organization. • These are moderate-risk strategies because the organization knows its products but the market is new. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Product Development • The bottom right box—labeled “product development”—involves developing new products for existing markets. • An organization typically knows its market and patients/customers well, and it may have insights as to what the market’s unmet needs are. The organization may then create new products or services to meet these needs. • Developing a new product for an existing market is a moderate-risk proposition: The company knows its customers well but is developing a new product. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Diversification • The top right box—“diversification”—is the box with the highest risk, because the organization is creating new products for new markets. It is essentially approaching a double unknown. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Ansoff Matrix • To use the Ansoff matrix, lay out the four-box grid format and brainstorm specific strategies that correspond to each box. • For example, begin with new products for existing customers. What are the needs of your existing market and customers? • Try to identify at least five possible strategies to address bringing new products to existing customers. • Repeat this process for the remaining three boxes. • If you successfully brainstorm a large number of ideas, pick the top five for inclusion in each box. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Exercise • Break into groups and use the space on page 153 of your book to develop strategies for each box of the Ansoff matrix. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Strategic Analysis for Healthcare Chapter 24 Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press TOWS Matrix • The TOWS matrix is one of the most widely used strategy development tools. It adapts the SWOT matrix to develop specific strategic options for your organization. • Using TOWS, the SWOT components are matched in pairs, and strategies are developed to address them. • When matched, the SWOT factors yield four groups of strategic options. • To construct the TOWS matrix, boxes for the SWOT components are placed on the outside of a four-cell matrix, with strengths and weaknesses on the horizontal axis and opportunities and threats on the vertical axis. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press TOWS Matrix Strengths Weaknesses Opportunities Threats Strengths Weaknesses Opportunities Threats Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press TOWS Matrix • The intersections of the SWOT components form the basis of the TOWS strategy pairs, which occupy the four matrix boxes. • The TOWS pairs are named according to the initials of the intersecting components—SO, WO, ST, and WT. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press TOWS Matrix Strengths Weaknesses SO Strategies WO Strategies ST Strategies WT Strategies Opportunities Threats Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press TOWS Matrix: Strategic Approaches • SO strategies: Match internal strengths with external opportunities. These strategies leverage the strengths to exploit the opportunities. • WO strategies: Match internal weaknesses with external opportunities. These strategies compensate for internal weaknesses by exploiting external opportunities. • ST strategies: Match internal strengths with external threats. These strategies attempt to use strengths to avoid or reduce the impact of external threats. • WT strategies: Match internal weaknesses with external threats. These strategies are defensive in nature and attempt to reduce internal weaknesses and avoid external threats. Generally, these strategies do not create strengths but rather protect from loss. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press TOWS Matrix • The ideas identified in your prior SWOT analysis are paired, and strategies to address them are brainstormed. • Each brainstormed strategy is followed with the number of the pair in parentheses so one can see where the brainstormed idea came from. For example, “(S4, O2)” indicates Strength 4 matched with Opportunity 2. • See page 157 in the book for an example of strategy creation. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press TOWS Matrix Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press TOWS Matrix • The strategist should attempt to develop five to ten feasible or potential strategies per block. • Not all strategies will be viable, but they should be reasonable. • You are not necessarily endorsing or keeping the strategies just because you list them here. • Specific strategy selection will come later. • The task here is to come up with as many reasonable alternatives as possible. • TOWS development is best done through team brainstorming in order to capitalize on each team member’s strengths and differing thought processes. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Exercise • Break into groups and brainstorm strategies for the strategic pairs. Use page 159 in your book. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Strategic Analysis for Healthcare Chapter 23 Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Ansoff Matrix • The Ansoff matrix can be used to – categorize an existing strategy, – determine the risk associated with a new or proposed strategy, or – develop new strategies. • For our purposes, we will focus on the matrix as a strategy development tool. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Ansoff Matrix • The matrix considers products or services in comparison to the markets the company proposes to serve. • The matrix compares these factors on the basis of whether each is new or existing. • Markets are placed on the vertical axis, and products and services are placed on the horizontal axis. • The intersection of these axes creates four possible blocks. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press New Ansoff Matrix Market Development Diversification (Risk = moderate) (Risk = high) Market Penetration Product Development (Risk = low) (Risk = moderate) Existing Markets Existing New Products and Services Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Market Penetration • The bottom left box represents strategies aiming to provide existing products to existing markets. • Such strategies are considered “market penetration” because they involve driving existing products deeper into existing markets. • A company’s efforts in this area may seek to attract new customers, but they are still within the same overall market. • Market penetration is the least risky box on the grid: The company already knows its products, services, and customers. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Market Development • The top left box represents strategies aiming to provide existing products to new markets. • Strategies of this type are considered “market development” because they involve driving existing products into markets that are currently unserved by the organization. • These are moderate-risk strategies because the organization knows its products but the market is new. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Product Development • The bottom right box—labeled “product development”—involves developing new products for existing markets. • An organization typically knows its market and patients/customers well, and it may have insights as to what the market’s unmet needs are. The organization may then create new products or services to meet these needs. • Developing a new product for an existing market is a moderate-risk proposition: The company knows its customers well but is developing a new product. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Diversification • The top right box—“diversification”—is the box with the highest risk, because the organization is creating new products for new markets. It is essentially approaching a double unknown. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Ansoff Matrix • To use the Ansoff matrix, lay out the four-box grid format and brainstorm specific strategies that correspond to each box. • For example, begin with new products for existing customers. What are the needs of your existing market and customers? • Try to identify at least five possible strategies to address bringing new products to existing customers. • Repeat this process for the remaining three boxes. • If you successfully brainstorm a large number of ideas, pick the top five for inclusion in each box. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. Health Administration Press Exercise • Break into groups and use the space on page 153 of your book to develop strategies for each box of the Ansoff matrix. Copyright © 2016 Foundation of the American College of Healthcare Executives. Not for sale. 
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