Transcript Introduction to Strategic Management

Service Area Competitor Analysis
HCAD 5390
Market Fundamentals
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Determine the appropriate market and define
it as precisely as possible
Few organizations can serve the entire
market, so …
Think in terms of segments of the market
Watch for new segments emerging and
existing segments disappearing – constantly
Define segments and concentrate on a select
few
Bases for Segmentation:
Patients and Consumers
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Patient demographics
Patient economics
Patient lifestyle
Patient sociocultural factors
Patient geographic location
Patient purchase/usage behavior
Bases for Segmentation:
Organizations as Customers
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Organization physical location
Organization economics
Organization purchase behavior
Organization infrastructure
Organization use of product or service
Segment Characteristics – Bases for
Selection and Strategic Targeting
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Total Competitor Sales from the Segment
Average Competitor Profits Earned in the
Segment
Segment Value Chain Activities and Related
Costs
Segment Distribution Channels
Competitive Intensity
Criteria for Selecting
Suitable Market Segments
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Definable in objective terms
Can distribute products/services to segment
Media channels for marketing to segment
Customers interested in buying firm’s products/services
Customers have money to buy firm’s products/services
Can sell products/services at prices that allow aboveaverage profits
No conflict between new and existing customers
Room in segment for another competitor
Customer Fundamentals
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Market is composed of individual customers
Must identify and describe them in detail
First determine who the real customers are
Learn what they value in the products/services
the firm offers
Plan strategies to satisfy customer needs in one
or more targeted segments
Customer Roles in Purchasing Health
Care Services
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Actual recipient of the services
One who decides that patient will receive the services
Other influencers of decision to seek and receive the
services
One who decides who will provide the services
Actual provider of the services
Covers and pays for the services
Pays premiums for health insurance coverage
Sources of Customer Value
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Performance of the product or service
Appearance of the product or service
Quality of the product or service
Setting in which it is purchased or consumed
Reputation of the seller of the product or service
Reputation of the product/service brand name
Demeanor of people selling the product/service
Service available before/during/after the purchase
Which Product or Service Attributes to
Emphasize
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Within segments, customers will have different value
preferences
Identify and target attributes most widely preferred
Start with “threshold attributes” (bare minimum, taken for
granted, not pay extra for)
“Critical success factors” (prefer one competitor over
another and pay a premium)
Match resources/competencies to these factors – gain a
competitive advantage
Learning Customer Value Preferences
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Current customers prefer values in existing
products or services – listen to what they say
General public opinion surveys
Patient satisfaction surveys
Customer complaints
Organization-sponsored market research
Patient or customer focus groups
Using Market/Customer Data in
Strategic Decision-Making
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1.
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Identify threshold product features
Identify “critical success factor” (CSF) features
How well do competitors deliver those features?
Compare resources and competencies to critical
success factors
Sustainable competitive advantage possible?
Mobilize resources/competencies to deliver CSFs
Develop/acquire new resources/competencies
Target different market segments
Industry vs. Market
Industry:
 Group of organizations (usually for-profit)
 Selling similar products and services to …
 Similar markets and customers
Market:
 Group of customers (people or businesses)
 Demand similar products and services to …
 Satisfy similar needs
Market is composed of customers who buy products
and services from organizations in an industry
Understanding an Industry
I.
Industry Value Chain
Describes the structure of an industry.
II.
Porter’s Five Forces Model
Describes the forces that determine the profit
potential of an industry.
Industry Value Chain
Describes the structure of an industry:
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Chain of sequential activities and organizations
Each adding value until finished good emerges
Most firms operate in part of the value chain
Each firm adds different amounts of value
Each firm captures different amounts of profit
Profit captured depends on bargaining power
Industry Value Chain for
Artery Stent Implantation
Employer
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Managed Care Organization
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Health Plan
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Integrated Delivery System
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Individual Practice Association
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Cardiology Group Practice
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Stent-Insertion Specialist
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Patient/Employee/Health Plan Member
Porter’s Five Forces Model
Describes the forces that determine the profit
potential of an industry:
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Competitive intensity
Threat of entry by competitors from outside the
industry
Availability of equivalent, substitute products
Bargaining power of buyers and customers
Bargaining power of suppliers and employees
Industry Environment
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A set of factors that directly influences a
company and its competitive actions and
responses
Interaction among these factors determine an
industry’s profit potential
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Threat of new entrants
Power of suppliers
Power of buyers
Product substitutes
Intensity of rivalry
Analyzing Industry Environment
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Opportunities and threats are competitive
challenges arising for changes in industry
conditions.
 Analytic tools such as the
five forces model help
managers formulate
appropriate strategic
responses.
Five Forces Model of Competition
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Identify current and potential competitors and
determine which firms serve them
Conduct competitive analysis
Recognize that suppliers and buyers can become
competitors
Recognize that producers of potential substitutes
may become competitors
Industry Force 1:
Competitive Intensity
Factors encouraging intensity of competition:
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Large number of competitors
Slow industry growth
High fixed costs
Lack of differentiation
High strategic stakes
High exit barriers
High competitor diversity
Industry Force 2:
Entry By Outside Competitors
Barriers to entry by new, outside competitors:
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Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Other cost disadvantages
Government policy
Industry Force 3:
Equivalent, Substitute Products
Availability of equivalent, substitute products that:
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Perform the same function, or …
Customers believe perform same function
Offer more performance for same price
Offer same performance at lower price
Compare alternative, Eastern medicine with
conventional, Western medicine.
Industry Force 4:
Bargaining Power of Buyers or Customers
Buyers or customers have greater bargaining power when:
 Customer’s purchases represent large share of seller’s sales.
 Customer’s purchases from firm represent a large share of
customer’s costs.
 Items purchased are homogenous with few differentiating features.
 Costs of switching from one vendor to another are low.
 Buyer’s profit margins are low.
 Buyer has plausible opportunities to integrate backward into the
seller’s business.
 Buyer has good knowledge of seller’s operating costs and deals with
other buyers.
Industry Force 5:
Bargaining Power of Suppliers or Employees
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Concentrated supplier industry
No substitutes for supplier’s products
Buyer is not important customer of supplier
Supplier’s product is important input to buyer’s
business
Supplier’s products are differentiated
Supplier’s products have high switching costs
Supplier can plausibly integrate forward
A Sixth Force?
Government Policy
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May constitute barrier to entry
Especially prominent in health care and biotech
Government entities play many health care
roles:
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Payers/customers (Medicare, Medicaid)
Providers (VA, IHS, city hospitals)
Funders (NIH)
Regulators (HIPAA, ERISA, Stark, fraud and abuse,
antitrust, FDA)
Understanding Competitors
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Which competitors to analyze?
Competitors in systems and networks
Narrowing the scope of competitor analysis
Individual competitor analysis
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Strategic aspirations and commitments
Strategic capabilities
Forecasting competitor strategic behavior
Which Competitors to Analyze?
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Existing, immediate competitors
Potential new competitors
Indirect competitors
Potential New Competitors
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Expanding out of other geographic markets
Expanding similar, related product lines
Customers integrating backward
Suppliers integrating forward
Weak firm acquired by stronger firm
Invaded firms retaliate by invading back
Good fit with industry critical success factors
Competition With and Among
Networks and Systems
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Networks and systems are a major force in the
health care industry
Integrated delivery systems, hospital networks,
health plan networks, nursing home chains
Competing with a single organization or a large
aggregation of organizations?
Different resources and competencies
Different strategic aspirations and intentions
Narrowing the Scope of Competitor
Analysis
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Insufficient resources to tackle all competitors
Focus on subsets of competitors
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Concentrate on the greatest strategic threats
Organize the industry into strategic groups
Strategic Groups in the Pharmaceutical Industry
Prices Charged
High
Low
Low
R&D Spending
High
Strategic Groups in the Pharmaceutical Industry
Prices Charged
High
• Marion Labs
• Carter Wallace
• INC Pharmaceut’l
Generic
Group
Low
Low
R&D Spending
High
Strategic Groups in the Pharmaceutical Industry
High
Prices Charged
Proprietary
Group
• Marion Labs
• Carter Wallace
• INC Pharmaceut’l
• Merck
• Pfizer
• Eli Lilly
Generic
Group
Low
Low
R&D Spending
High
Strategic Group Analysis
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Cluster of businesses with similar characteristics,
resources/competencies, and strategies
React to industry development in similar ways
Industry counterpart to market segments
Strategic groups of physician practices, hospitals,
health plans, drug companies, or …
Defining characteristics of strategic groups of
physician practices
Defining Strategic Groups:
Physician Practices (I)
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Clinical specialties
Delivery channels
Payer contracts and relationships
Market segments served
Quality of services provided
Acceptance of new technologies
Defining Strategic Groups:
Physician Practices (II)
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Reputation and customer loyalty
Nature and vigor of marketing efforts
Cost efficiency of operations
Level of patient service amenities
Level of fees and charges
Adequacy of capitalization
Individual Competitor Analysis:
Strategic Aspirations and Commitments
Explains the strategies a competitor would like to
implement or is committed to implementing.
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Motivations for strategic action
Strategic mindset
Strategic track record
Strategic managers’ background and history
Individual Competitor Analysis:
Strategic Capabilities
Explains a competitor’s strategic assets available
for implementing strategies.
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Internal value chain
Resources and competencies
Forecasting Competitor Strategic Behavior
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Likelihood of any strategic move at all
Form of the strategic initiative
Methods of implementation
Resources and energy committed
Estimated chances of success
Nature and severity of threat posed
Competitor’s reaction to strategic attacks
Nature and intensity of that reaction
Competitive Intelligence
Process and system for acquiring knowledge about
competitors’ strategic intentions and capabilities
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Formal and permanent intelligence-gathering system
Backed with sufficient personnel and other resources
One-time research in a turbulent industry is worthless
Designed to meet the expressed needs of strategy
decision makers
Employing a systematic gathering, analyzing, and
interpreting process
Sources of Competitive Intelligence
Publicly Available Data
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Media articles
Reports filed with public agencies
Speeches by top executives
Corporate PR announcements
Other corporate statements
Health care-specific websites
Sources of Competitive Intelligence
cont’d
Privately Gathered Commercial Data
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Legal databases
Corporate documents and reports
Credit rating firms
Consulting firms
Market research firms
Trade associations
Think tank publications
Commercial industry newsletters
Investment banking research reports
Sources of Competitive Intelligence
cont’d
Original Field Research
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Employees with knowledge of competitors
Suppliers who also serve competitors
Customers who also frequent competitors
Contracted surveys and research
Competitive Intelligence Process
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Determine intelligence wants and needs of strategy
decision makers
Identify best sources for desired competitor
knowledge:
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Publicly available data
Privately gathered commercial data
Original field research
Sort and organize data gathered
Analyze the data and draw conclusions
Translated into reports for strategy decision makers