2 page papers, simply focus on the takeaways you gained from the readings. What portion of the reading appealed to you the most? What topics might you be able to apply in your daily work practices? Which topics appeared to be of the most value to you?Book upoloaded
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STRATEGIC MANAGEMENT
O F H E A LT H C A R E
ORGANIZATIONS
SEVENTH EDITION
STRATEGIC MANAGEMENT
O F H E A LT H C A R E
ORGANIZATIONS
PETER M. GINTER
University of Alabama at Birmingham
W. J A C K D U N C A N
University of Alabama at Birmingham
L I N D A E . S WAY N E
University of North Carolina at Charlotte
© 2013 Peter M. Ginter, W. Jack Duncan, Linda E. Swayne
Under the Jossey-Bass imprint, Jossey-Bass, 989 Market Street, San Francisco CA 94103-1741, USA
www.josseybass.com
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Library of Congress Cataloging-in-Publication Data
Ginter, Peter M.
Strategic management of health care organizations / Peter M. Ginter, W. Jack Duncan,
Linda E. Swayne. — 7th ed.
p. cm.
Rev. ed. of: Strategic management of health care organizations / Linda E. Swayne,
W. Jack Duncan, Peter M. Ginter. 6th ed. c2008.
Includes bibliographical references and index.
ISBN 978-1-118-46646-9 (hardback) — ISBN 978-1-118-46674-2 (ebk) — ISBN 978-1-118-46672-8
(ebk) — ISBN 978-1-118-46673-5 (ebk)
I. Duncan, W. Jack (Walter Jack) II. Swayne, Linda E. Strategic management of health care
organizations. III. Title.
[DNLM: 1. Health Services Administration. 2. Health Planning—organization & administration.
3. Organizational Innovation. W 84.1]
362.1068—dc23
2012043408
A catalogue record for this book is available from the British Library.
ISBN 978-1-118-44646-9 (hardback)
ISBN 978-1-118-46672-8 (ebk)
ISBN 978-1-118-46674-2 (ebk)
ISBN 978-1-118-46673-5 (ebk)
Cover design: Cylinder
Set in 10/12 pt ITC Garamond Std by MPS Limited, Chennai, India
Printed in the USA by Malloy Lithography, Ann Arbor, MI, USA
CONTENTS
Preface
vii
Chapter 1
The Nature of Strategic Management
Chapter 2
Understanding and Analyzing the General
Environment and the Health Care Environment
33
Chapter 3
Service Area Competitor Analysis
75
Chapter 4
Internal Environmental Analysis and Competitive
Advantage
127
Chapter 5
Directional Strategies
165
Chapter 6
Developing Strategic Alternatives
205
Chapter 7
Evaluation of Alternatives and Strategic Choice
255
Chapter 8
Value-Adding Service Delivery Strategies
307
Chapter 9
Value-Adding Support Strategies
345
Chapter 10
Communicating the Strategy and Developing
Action Plans
383
Appendix A
Analyzing Strategic Health Care Cases
411
Appendix B
Health Care Organization Accounting,
Finance, and Performance Analysis
423
Health Care Acronyms
443
Appendix C
Index
1
451
v
P R E FA C E
More than two decades ago, the three of us agreed that health care was experiencing evolutionary, and in some segments revolutionary, change. At that time,
we wrote in the Preface of the first edition that clearly health care organizations
have “had difficulty in dealing with a dynamic environment, holding down costs,
diversifying wisely, and balancing capacity and demand.” Our conclusion was
that only a structured strategic management approach that recognized the value
of emergent thinking could make sense of such a rapidly changing environment.
Our only surprise has been that the rate of change in the health care environment has been even greater than we imagined.
Today, health care organizations have almost universally embraced strategic
management as first developed in the business sector and now have developed
strategic management processes that are uniquely their own. Health care leaders
have found that strategic thinking, planning, and managing strategic momentum are essential for coping with the dynamics of the health care industry and
strategic management has become the single clearest manifestation of effective
leadership in health care organizations.
In the broadest terms, this text is about leadership; more narrowly, it concerns
the essential strategic tasks of leading and managing health care organizations.
As a result, the seventh edition continues to advocate the importance of strategic thinking and clearly differentiates strategic thinking, strategic planning, and
managing strategic momentum. These concepts represent the central elements
of a complete strategic management process that we believe reflects the realities of
conceptualizing, developing, and managing strategies.
Specifically, our approach depicts strategic management as the processes of
strategic thinking, consensus building and documentation of that thinking into
a strategic plan, and managing strategic momentum. Through the management
of the strategic plan, new insights and perspectives emerge and strategic thinking, planning, and managing are reinitiated. Therefore, strategic managers must
become strategic thinkers with the ability to evaluate the changing environment,
analyze data, question assumptions, and develop new ideas. Additionally, strategic managers must be able to develop and document a plan of action through
strategic planning. Once a strategic plan is developed, managers maintain the
strategic momentum of the organization. As strategic managers attempt to carry
out the strategic plan, they evaluate its success, learn more about what works,
and incorporate new strategic thinking.
It is our view that strategic control is integral to managing strategic momentum and cannot be thought of or taught as a separate process. Therefore, traditional strategic control concepts are integrated into the strategy development
chapters under the heading of “Managing Strategic Momentum.” We believe that
vii
viii
PREFACE
this approach better reflects how strategic control works in organizations – as a
part of managing the strategy, not as an afterthought or add on.
Although we present a structured strategic management process, we believe
that strategic management is highly subjective, often requiring significant intuition and even well-informed guesswork. However, intuition and the development
of well-informed opinions are not easily learned (or taught). Therefore, a major
task of the future strategic thinker is to first develop a thorough understanding
of analytic strategic management processes and then – through experience –
develop the intuition, perspective, and insight to consider previously uncharted
strategic issues. Our map and compass metaphor provides a framework for
blending rational, analytical planning with learning and responsiveness to new
realities. We believe this text provides that foundation for effective strategic
thinking, planning, and managing strategic momentum.
Features of the Text
Feedback from users of previous editions of Strategic Management of Health
Care Organizations has reinforced our belief that these features aid in providing
an informative, interesting, and pedagogically sound foundation for understanding and embracing strategic management of health care organizations.








Each chapter begins with an Introductory Incident to provide a practical
example of the concepts discussed in the chapter.
Learning Objectives direct attention to the important points or skills introduced in the chapter.
Models, examples, and exhibits are included to assist in learning chapter
material.
The Map and Compass provides a useful metaphor for conveying the
view that strategic leaders must both plan as best they can but also learn,
adjust, and establish new direction (develop a new plan) as they progress.
Perspectives in each chapter are drawn from actual health care organizations’ experiences or emphasize recurring themes and abiding truths and
are useful to augment the content of each chapter. These sidebars are
designed to enable the student to relate to particular concepts presented
in the chapter.
Lessons for Health Care Managers serve as chapter summaries and highlight the most important lessons to be taken away from each chapter.
Health Care Manager’s Bookshelf introduces classic and popular books
that have particular relevance to the strategy topic discussed in the text.
Books were selected on the basis of their importance to present and
future health care managers and included because they either represent a
“classic contribution” to the field or provide potentially trend-setting information for strategic health care managers.
Key Terms and Concepts present the essential vocabulary and terminology
relative to the chapter’s material.
PREFACE




Questions for Class Discussion aid the reader in reviewing the important
material and thinking about the implications of the ideas presented.
Notes contain the references used in development of the chapter
materials.
Three Appendices to assist readers – Analyzing Strategic Health Care
Cases, Health Care Organization Accounting, Finance, and Performance
Analysis, and Health Care Acronyms.
A Web-based Instructor’s Support site is available to verified course instructors using the text. The support material includes PowerPoint slides for
each chapter, chapter lecture notes that include suggestions for effective
teaching, and answers to the end-of-chapter questions. The Instructor’s
Support also contains a true/false, multiple choice, and discussion question
test bank and can be found at www.wiley.com/go/ginter7e.
Through our own teaching, research, and consulting in the health care field,
we have applied the process outlined in this text to physician practices, hospitals, local and state public health departments, long-term care facilities, social
service organizations, and physical therapy practices. We have students who
report back to us saying that they lead strategic planning in their organizations
using the process with great success. The process works.
Organization of the Text
The text contains 10 chapters and three appendices addressing the philosophy
and activities of strategic management. Chapter 1 introduces definitions for strategic management and its activities – strategic thinking, strategic planning, and
managing strategic momentum. The chapter discusses the need and rationale for
strategic management in today’s turbulent health care environment and briefly
traces its historical foundations. In addition, Chapter 1 presents a conceptual
model or map that guides strategic thinking, focuses on important areas for strategic planning, and provides the constructs for managing strategic momentum.
Chapter 2 contains strategic thinking and planning maps for investigating the
external environment – both the general environment and the health care industry
environment. Chapter 3 narrows the external environmental focus by providing strategic thinking maps for conducting service area and competitor analysis for a specific
health care organization. Assessment of the internal environment is accomplished
through strategic thinking maps for a health care value chain and analysis of the
organization’s resources, capabilities, and competencies, as examined in Chapter 4.
The directional strategies – mission, vision, values, and strategic goals – are
examined in Chapter 5. Developing a mission asks members of an organization
to strategically think about its distinctiveness; developing a vision allows them to
think about their hopes for the organization’s future; and building awareness
of organizational values makes members aware of the principles that should be
cherished and not compromised as the mission and vision are pursued. Strategic
goals establish clear targets and help focus activities. Chapters 2–5 collectively
constitute situation analysis.
ix
x
PREFACE
Strategy formulation is concerned with making strategic decisions using the
information gathered during situational analysis. Chapter 6 provides the decision
logic for strategy formulation and demonstrates that strategic decisions are connected in an “ends–means” chain. Each decision along the decision chain more
explicitly defines the strategy and must be consistent with upstream and downstream decisions. Chapter 7 discusses how to evaluate the strategic alternatives
within each strategy type in the decision chain. These evaluation methods do
not make the strategy decision. Rather, they are constructs or maps for helping
strategists to think about the organization and its relative situation, thus enabling
them to understand the potential risks and rewards of their strategic choices.
Managing strategic momentum entails putting strategies to work (managerial actions that accomplish the strategy), incorporating strategy evaluation and
control, and building strategic awareness. Implementation requires that strategic
managers shape and coordinate the value chain components and ensure that
the organization’s action plans are directly tied to selected strategies. Chapter
8 addresses the development of implementation plans through either maintaining or changing the pre-service, point-of-service, and after-service strategies.
Strategic managers should determine the essential characteristics of service
delivery to ensure it best contributes to accomplishment of the strategy. Chapter 9
examines the role of organizational culture, organizational structure, and
strategic resources in implementing strategy. These value chain components
determine the organizational context and are vital in effective strategy implementation. Chapter 10 demonstrates how strategy may be translated into organizational unit objectives and action plans. It is the organizational units that must
carry out strategy and strategic managers must review objectives and action
plans to ensure that they are coordinated and make best use of human, physical,
and financial resources. Each of these chapters points out the need to manage
strategic momentum by thinking, planning, and doing, and then rethinking, new
planning, and doing.
Finally there are three appendices as a reference for users of the text.
Appendix A, Analyzing Strategic Health Care Cases, presents a methodology
for case analysis for those using case studies to “practice” strategic thinking
and planning; Appendix B, Health Care Organization Accounting, Finance, and
Performance Analysis, as an accounting and finance refresher and reference;
and finally, Appendix C, Health Care Acronyms, is a quick source for definitions
of the “short-hand” language of health care.
The Author Team
In developing and writing this book, as with all our collaborative projects, we
have created a team in its truest sense. Recognizing that each of us makes a
unique contribution and provides leadership, we have changed the order in
which the authors are listed every two editions. For the first and second editions,
the authors were listed as Duncan, Ginter, and Swayne; for the third and fourth
editions, the authors were listed as Ginter, Swayne, and Duncan. In the fifth and
sixth editions, the order was Swayne, Duncan, and Ginter.
PREFACE
Acknowledgments
A number of people have provided inspiration, ideas, and considerable effort to
produce the seventh edition. We are indebted to many individuals for their assistance and encouragement. A special note of thanks to Sunil Erevelles, Chair of the
Department of Marketing at the Belk College of Business at the University of North
Carolina at Charlotte, and to Dean Max Michael, MD of the School of Public Health
at the University of Alabama at Birmingham, who have continuously been supportive of our efforts. Also, a special thanks to Andrew C. Rucks for his Appendix
B, Health Care Organization Accounting, Finance, and Performance Analysis and
his invaluable contribution to the text’s Web-based Instructor’s Support. Thank you
Rongbing (Bing) Xie, our teaching assistant at UAB, who tirelessly supported our
in-class and on-line teaching.
We must also thank our many students (many of whom became strategic management course instructors), who have provided feedback, made contributions,
used the book in their professional careers, and kept in contact to tell us of the
value of the book that remains on their bookshelves.
Finally, but most importantly, we thank our families who have supported and
encouraged us as we worked on still another writing project. Thank you all for
your understanding.
xi
1
The Nature of Strategic
Management
“It is not the strongest of the species that survive, nor the most intelligent, but the one most
responsive to change.”
— CHARLES DARWIN
Introductory Incident
It Can Be Done: Premier Healthcare Alliance Accountable Care
Collaboratives Are Saving Lives and Saving Costs
Statistics show that health care costs have been growing at an unsustainable rate, reaching an
estimated 17.3 percent of gross domestic product (GDP) in 2009, according to the Centers for
Medicare and Medicaid Services (CMS), representing the largest one-year increase in history
when the nation itself was in the midst of the “great recession.” Predictions are for health care
costs to be 19.3 percent of GDP in 2019 (four times the 5.1 percent of GDP in 1960). Despite the
high cost of health care, gaps and inequities persisted, leading to health care reform. The 2010
Patient Protection and Affordable Care Act (PPACA), or commonly Affordable Care Act (ACA) is
attempting to change the US health care system from a volume-based to a value-based model.
2
STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
Premier Healthcare Alliance believes that accountable care organizations (ACOs) are the
way to better align the incentives and needs of all stakeholders. Premier ’s components to
the ACO model include:





People-centered health homes that deliver primary care and coordinate with other
providers as needed.
New approaches to primary, specialty, and hospital care that reward care coordination,
efficiency, and productivity.
Tightly integrated relationships with specialists, ancillary providers, and hospitals to provide
focus and alignment on achieving high-value outcomes.
Provider/payer partnerships and reimbursement models that reward improved outcomes
(value over volume).
Population health information infrastructure, including health information exchanges to
enable care across a designated population.
The goal is to incentivize health and wellness, rather than paying for treating disease. ACOs
actually began in 2005, when CMS began the Physician Group Practice demonstration. Its success in developing …
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