Expert answer:Discussion Question on Strategic Alternatives
Answer & Explanation:Strategic
Alternatives
Read the
“Staying on Course with Strategic Metrics” article (second attachment). Text book chapter (first attachment) is provided as well. As a future health
care administrator, you will be required to evaluate the strategies,
efficiency, efficacy, and outcomes of your department or strategic business
unit (SBU). After examining the article, analyze the strategic
alternatives that result from monitoring strategic metrics pertaining to your
in the role of a department or SBU manager. List at least two strengths
and weaknesses of basing strategic alternatives solely on strategic metrics.
Support your primary response with at least one scholarly source. Provide
in-text citations and complete references for all sources used. 06CH_Spath_Strategic.pdf
Staying on Course.pdf
none.pdf
staying_on_course.pdf
06ch_spath_strategic.pdf
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staying on course with strategic metrics
Krentz, Susanna E;DeBoer, Aaron M;Preble, Sasha N
Healthcare Financial Management; May 2006; 60, 5; ProQuest Central
pg. 86
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Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
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Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
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Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
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staying on course with strategic metrics
Krentz, Susanna E;DeBoer, Aaron M;Preble, Sasha N
Healthcare Financial Management; May 2006; 60, 5; ProQuest Central
pg. 86
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Chapter 6
CaiaImage/SuperStock
Creating Strategic Alternatives
Learning Objectives
After reading this chapter, you should be able to:
•• Develop strategic issues from having performed a full situational analysis.
•• Communicate the different types of strategic alternatives.
•• Explain why the key strategic issues and strategic intent should match.
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Section 6.1 Identifying Key Strategic Issues
CHAPTER 6
This chapter shows how to develop a set of key strategic issues that summarize the most
critical elements of the entire situation analysis and from such issues create a small number of viable strategic alternatives for the HSO to seriously consider. Refer to Figure 1.1
to review those steps that pave the way for the organization to choose the best strategy.
6.1 Identifying Key Strategic Issues
Identifying key strategic issues is an act of synthesis. The HSO leaders take what they
know about an organization and its changing environment (the situation analysis) and
distill the critical questions and issues the organization must address in its strategic plan.
Strategic issues derive from both external and internal sources. The former includes the
healthcare industry, regulatory requirements, competitors, consumers, suppliers, opportunities and threats, and other environmental forces. The latter includes key organizational resources, culture, technology, or strategic decisions that the HSO must address.
Consider the situation of MedCath Corp. described in a Chapter 5 case study. Starting in
2003, the organization faced several key external strategic issues, including changes in
regulations affecting physician ownership of hospitals and lowering of reimbursement for
cardiac procedures. At the same time, the company began to experience some key internal
strategic issues, which included a lack of financial reserves and a business culture that
was slow to diversify into noncardiac services.
Candid Deliberations
All HSOs face key external and internal issues. Together, these strategic issues form the
basis for generating the strategic alternatives. Too often, alternatives are generated from
only a subset of these categories,
which means leaving out a lot of information that is probably known and
should be considered. For instance,
MedCath changed its business model
from building hospitals to partnering
with existing hospitals in response
to regulatory changes, but it failed to
adequately respond to other key strategic issues.
The strategy development process
is not a time to pull punches or shy
away from the truth. As Dennis
Rheault, Motorola’s former vice presiJuice Images/SuperStock
dent of corporate strategy and development, wrote, “The purpose of an The strategy development process is a time to pose
effective strategy development pro- tough questions, unearthing the real issues that the
cess is not to avoid but to confront organization must confront.
uncertainty: to pose the really tough
questions that you do not have the answers to—the issues and opportunities that can make
or break the business” (Rheault, 2003, p. 33). This is not a time to parrot what the CEO wants
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Section 6.1 Identifying Key Strategic Issues
CHAPTER 6
to hear. Unless strategic issues are real and phrased in plain terms, the resulting strategic
alternatives will likely not be in the HSO’s best interest. Having strategic conversations with
colleagues or outside experts over the course of a year will help to unearth the real issues that
the organization must confront. As has been emphasized earlier, this process is most fruitful
if it is undertaken on an ongoing basis rather than as an annual exercise.
Even after identifying a strategic issue, determining whether it is really critical is still difficult. It is useful to think of a critical issue as something that keeps the CEO up at night.
Andy Grove, former chairman and CEO of Intel, describes himself as quite a worrier in
his book Only the Paranoid Survive. While he served as Intel’s CEO, Grove says, various
uncertainties kept him up at night, ranging from problems with chip manufacturing to
threats from competitors to the company’s inability to attract and retain talented employees. He believed strongly in the value of paranoia (Grove, 1999). Use this imagery as a
way of pruning from the list of alternatives those that do not merit such obsessive attention. Try also looking at a particular strategic issue in relation to others on the list; is it as
important or less important? Ultimately, the final decision is subjective; what one person
might consider critical, another might cross off the list. More to the point, a CEO or top
manager should rely on gut instincts when creating the list of strategic issues: What are
the real issues, problems, or dilemmas facing the firm (Roberto, 2009)?
An organization’s list of strategic issues may be either too limiting or too broad. To inform
the strategy effectively, the issues must be thoughtfully generated and edited. Case Study:
Magnolia Hospital’s Strategic Issues summarizes how a recently hired hospital CEO and
top management team wrestled with strategic issues facing a small district hospital in
the southeastern United States. The identity of both the hospital and the individuals has
been masked.
Case Study: Magnolia Hospital’s Strategic Issues
Magnolia Hospital is a 50-bed publicly funded district hospital located approximately 40 miles from
a metropolitan area with several hospitals. Following the hospital’s bankruptcy in 2001, the citizens in the county voted to purchase the hospital and keep it open with county tax support. At the
time ownership was transferred to the public, the hospital was debt free with 17.5 days of cash in
the bank. The new leadership was focused on survival and having enough money to make payroll
each week. Through the hard work of managers and physicians in the community, the hospital
was eventually able to turn around financially. Its reputation as a quality provider slowly improved
among the county residents, although many people still traveled to the metropolitan hospitals to
receive care.
After the CEO retired in 2009, the new CEO, Jack Sullivan, began to discuss various market share
growth options with managers, local physicians, and representatives from health-related community services. During these discussions, Sullivan assessed the climate and the willingness of hospital
staff and physicians to be more supportive of directing patients to Magnolia Hospital.
(continued)
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CHAPTER 6
Section 6.1 Identifying Key Strategic Issues
Case Study: Magnolia Hospital’s Strategic Issues (continued)
Because the organization had been facing financial difficulties for so many years, there was
an underlying culture of “survival of the fittest” among individuals, departments, and physician groups. The CEO realized that the past focus on blaming others and putting out “fires” had
to change.
He was also struck by the seeming lack of awareness about the potential for Magnolia Hospital to
become the provider of choice for people in the community. For the most part, the previous CEO
and board members had jointly set the hospital’s strategy, with managers and physicians excluded
from these discussions. Among managers and physicians, there was a general sense of inevitability
that Magnolia Hospital would never be able to attract business away from urban hospitals.
Sullivan felt strongly that the hospital and its physicians could jointly build organizational capacity
where excellence is the way of doing things. This would translate into more business for everyone as fewer people in the community would feel the need to travel out of the county for their
healthcare needs. To realize this goal, the CEO would need to change entrenched attitudes among
hospital employees and physicians.
Key strategic issues identified during the situational analysis conducted with management and key
physicians in the community included the following.
Should Magnolia Hospital
••
••
••
••
••
••
••
••
••
seek to be the state’s leading rural hospital?
stay the same size or grow through joint ventures with urban hospitals?
convert some inpatient beds to skilled nursing beds?
sell the facility to a larger health system?
go to the county voters with a bond issue to build a new facility with expanded
outpatient services?
invest more in our human resources
through expansion of education and
growth opportunities?
hire hospitalists to care for inpatients?
add video telemedicine capabilities?
contract with urban specialists to travel
to our community once a week to see
patients?
By involving physicians and hospital management in
discussions of key strategic issues, Sullivan began to
break down the tensions that had existed for years
between these two groups. Although it didn’t happen overnight, managers and physicians learned
that collaboration rather than confrontation was the
best way to advance everyone’s agenda.
© Peter Spiro/iStock/Thinkstock
Creating a hospital environment where
excellence is the way of doing things is
sometimes a matter of changing entrenched
attitudes.
(continued)
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Section 6.1 Identifying Key Strategic Issues
CHAPTER 6
Case Study: Magnolia Hospital’s Strategic Issues (continued)
Questions for Critical Thinking and Engagement
1.
2.
3.
4.
When you consider the history of Magnolia Hospital, do you believe Sullivan’s initial
assessment was appropriate? Why or why not?
Based on your reading and analysis of this brief case, was the list of key strategic issues
thorough enough? Was anything left off the list that should have been there?
The case study ends on a note of success, but what “fallout” might you expect based
on the background you were given? Be as specific as possible.
Comment on Sullivan’s practice of including hospital managers and physicians in the
strategic discussions. Based on your reading of this chapter and your own experience,
did he do the right thing? Why or why not?
Strategic Conversations
A strategic conversation is a free-ranging discussion on a topic of strategic interest to
an organization. Because of its characteristic “no-holds-barred” freedom to say whatever
needs to be said, it invariably produces ideas and thinking that are ultimately useful for
creating strategies that might not be captured in any formal process.
All major strategy formulation, according to Peter Schwartz, cofounder of the Global Business Network, does not, in fact, take place during the planning process (Abraham, 2003).
What goes on in a formal process is almost always a ratification of what has already happened. A strategic conversation often takes place entirely informally. Schwartz’s colleagues
at Bell South used to call it the HERs process—hallways, elevators, and restrooms—because
that is where the most interesting conversations take place. While real decisions were made,
real issues were confronted, and real
knowledge was developed, almost all
of it took place in this conversational
mode. And that is how real learning
also takes place. If an HSO is to have
successful strategies, it involves good
learning—learning about new realities, new facts, new competition, new
opportunities, new directions—and
challenging old knowledge. It is pointless to simply list a set of new objectives for the coming year as if nothing
has changed. The problem is that if
everything has changed, the decision
makers who must come up with a
© Rick Gomez/Solus/Corbis
plan must understand those changes.
Often, many of the most important decisions are made
during informal conversations that take place in hallways,
elevators, and restrooms.
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Section 6.1 Identifying Key Strategic Issues
CHAPTER 6
Schwartz maintains that the only way people learn together is through conversations
(Abraham, 2003). Whether formal or informal, a strategic conversation is the learning
vehicle through which the group adjusts to a new worldview to enable strategic plans
to be developed and implemented. The steps in the process often follow this sequence:
shared conversations, shared learning, change in one’s mental models, then development
of better strategic plans. Tony Manning echoes Schwartz in endorsing the value of informal dialogue:
Strategic conversation is far more than just an occasional practice that can
be adopted or abandoned at will: it is without doubt the central and most
important executive tool. . . . What senior managers talk about—clearly,
passionately, and consistently—tells me what they pay attention to and
how sure they are of what they must do. (Manning, 2002, pp. 35–36)
The viewpoint of most strategic analyses is assumed to be that of the CEO or leader of the
organization and may include the top-management team. When the list of strategic issues
is examined from the viewpoint of a board of directors, other variables could be added,
such as whether to seek partnerships with other HSOs, and even whether it is time to
replace the CEO.
There is one final check on whether the HSO is dealing with the proper set of strategic
issues. Because they constitute the critical questions and issues the HSO should address,
all strategic issues should be taken into account explicitly when forming strategic alternatives. In the event that the alternatives fail to take into account one of the strategic issues,
it could mean that either (a) the strategic alternatives have not been properly formulated
and should be further modified to take it into account, or (b) the issue in question is not as
important as was initially assumed and thus could be deleted.
While it is possible that an HSO could have any number of strategic issues at a given
point, the larger the number of issues proposed, the higher the chances are that some of
them are not as critical as others. Long lists of more than 12 items should be pruned down,
eliminating those that are not so critical or combining some of them. The Delphi method,
described in Chapter 3, is a good tool to use for this purpose. If the list cannot be reduced
at this stage, there will be another chance to do this after the strategic alternatives have
been created and it is found that every issue has not been taken into account.
The recommended form for stating a strategic issue is as a question: for example, “Should
the organization build a second clinic?” By posing a question, the leaders may find that
the answer is known with certainty: “Yes, the organization should build a second clinic.”
When everyone agrees on the answer, then the issue is not a strategic issue—it is a decision the HSO has already made. No decisions have yet been made for strategic issues. It is
not sufficient, however, that one simply pose a question on a matter of strategic concern.
Consider the following:
• Should the organization try to lower its costs?
• How can the organization lower its costs?
The strategic issue is not whether to lower costs; the answer is that of course it should.
Rather, the strategic issue might be “How can the organization lower its costs?” because
that answer may be uncertain, so it could be included as a bona fide strategic issue.
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Section 6.2 Overcoming Obstacles
CHAPTER 6
Thus, one criterion for a strategic issue is that the answer to the issue is uncertain. The way
in which that uncertainty is resolved is through the design of strategic alternatives and
choosing a preferred one. Given a strategic issue, “Should the hospital broaden its service
line?” one alternative could be, “Broaden it” and another, “Leave it out altogether as an
alternative” (not broaden it). When deciding which alternative is preferred, the one that is
chosen automatically “resolves” the uncertainty inherent in the issue.
Discussion Questions
1.
2.
3.
4.
Having done a thorough situation analysis—both external and internal—do you agree that it
makes sense to synthesize the results? Explain your answer.
In your view, would the external analysis previously done be more useful in scenario planning than in forming strategic issues? Why or why not?
Some people suggest that managers are not involved in the process of coming up with strategic issues because it involves phrasing questions to which the answers are unclear. Could
there be any truth to such a view?
Suggest ways of shortening a list of 20 strategic issues to a more manageable number of
about 12.
6.2 Overcoming Obstacles
An ordinary alternative is one of several means by which a goal is attained or a problem
solved. A strategic alternative is one of several ways by which an HSO might compete
in a marketplace, achieve its vision, or, if no vision has been articulated, decide where
it might go and what it might achieve. Notice two things about the definition: (a) The
designation “strategic” is necessary because alternatives are fashioned in a competitive
environment, where the actions of competitors must be taken into account, and (b) the
alternatives are created at the level of the whole organization and not any one of its functions or units. In addition, strategic alternatives provide choices about marketplace strategy or about configuring the organization, address issues of central importance to the
organization, have uncertain outcomes, and require resources to develop before action
can be taken (Lyles, 1994).
Beyond the Obvious: Types of Strategic Alternatives
Strategic alternatives are of three general types. “Obvious” alternatives arise from current strategies or simple extrapolations of what the organization is currently doing. For
example, utilizing social media to connect with consumers represents an obvious stra …
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