STRATEGIC MANAGEMENT OF

HEALTH CARE ORGANIZATIONS 7TH

EDITION
Chapter 6

Developing Strategic
Alternatives
 Chapter 6 Learning Objectives

1. Understand and discuss the steps involved in the decision

logic of strategy development.
 Chapter 6 Learning Objectives

1. Understand and discuss the steps involved in the decision

logic of strategy development.
2. Synthesize and integrate strategic thinking accomplished in
situational analysis into a strategic plan for an organization.
 Chapter 6 Learning Objectives

1. Understand and discuss the steps involved in the decision

logic of strategy development.
2. Synthesize and integrate strategic thinking accomplished in
situational analysis into a strategic plan for an organization.
3. Identify the hierarchy of strategies and strategic decisions
required in strategic planning.
 Chapter 6 Learning Objectives

1. Understand and discuss the steps involved in the decision

logic of strategy development.
2. Synthesize and integrate strategic thinking accomplished in
situational analysis into a strategic plan for an organization.
3. Identify the hierarchy of strategies and strategic decisions
required in strategic planning.
4. Understand the nature of directional strategies, adaptive
strategies, market entry strategies, and competitive strategies.
 Chapter 6 Learning Objectives

5. Identify strategic alternatives available to health care

organizations.
 Chapter 6 Learning Objectives

5. Identify strategic alternatives available to health care

organizations.
6. Provide the rationale as well as advantages and disadvantages
for each of the strategic alternatives.
 Chapter 6 Learning Objectives

5. Identify strategic alternatives available to health care

organizations.
6. Provide the rationale as well as advantages and disadvantages
for each of the strategic alternatives.
7. Understand that strategies may have to be used in combination
to accomplish the organization’s goals.
 Chapter 6 Learning Objectives

5. Identify strategic alternatives available to health care

organizations.
6. Provide the rationale as well as advantages and disadvantages
for each of the strategic alternatives.
7. Understand that strategies may have to be used in combination
to accomplish the organization’s goals.
8. Map strategic decisions showing how they are linked as an
ends–means chain.
The Strategic Planning Process

Strategic Planning
Situation Analysis
• External Analysis
• Internal Analysis
• Directional Strategies

Strategy Formulation
• Directional Strategies
• Adaptive Strategies
• Market Entry Strategies
• Competitive Strategies

Planning the Implementation

• Service Delivery Strategies
• Support Strategies
• Action Plans
 Strategy Formulation

Strategy formulation is the deciding

what the organization should
explicitly be doing
 What the organization is NOW doing but should STOP doing?
 What is the organization NOT doing but should START doing?
 What the organization is currently doing that should be DONE
DIFFERENTLY?
 Linking Today and Tomorrow

plans
plans
plans
plans
plans
budgets
budgets
budgets
budgets
budgets
Vision (hope
Profile of for the future)
Today Strategy Profile of
Tomorrow
budgets
budgets
budgets
budgets
budgets plans
plans
plans
plans
plans

year year year year year

1 2 3 4 5
 Linking Strategic Alternatives

Check List Strategy 1 Strategy 2 Strategy 3

Addresses an External Issue?
Draws on a Competitive
Advantage or Fixes a
Competitive Disadvantage?

Fits with Mission, Values?

Moves the Organization
Toward the Vision?

Achieves One or More

Strategic Goals?
 Decision Logic of Strategy
Formulation

Strategy Strategy
Formulation Implementation

Directional Adaptive Market Entry Competitive Implementation

Strategies Strategies Strategies Strategies Strategies
 Decision Logic of Strategy
Formulation

Strategy Strategy
Formulation Implementation

Directional Adaptive Market Entry Competitive Implementation

Strategies Strategies Strategies Strategies Strategies

Ends Means Ends Means

Ends Means Ends Means
 Strategy Formulation

Directional The broadest strategies that set the fundamental direction of

the organization by establishing a mission for the
Strategies
organization (Who are we?) and vision for the future (What
should we be?). In addition, directional strategies specify the
organization’s values and the strategic goals.
 Strategy Formulation

Directional The broadest strategies that set the fundamental direction of

the organization by establishing a mission for the
Strategies
organization (Who are we?) and vision for the future (What
should we be?). In addition, directional strategies specify the
organization’s values and the strategic goals.

Adaptive These strategies are more specific than directional strategies

and provide the primary methods for achieving the vision
Strategies
(adapting to the environment). These strategies determine the
scope of the organization and specify how the organization
will expand scope, reduce scope, or maintain scope.
 Strategy Formulation

Market Entry These strategies provide the method of carrying out the
Strategies adaptive strategies (expansion of scope and the maintenance
of scope strategies) through purchase, cooperation, or internal
development. Market entry strategies are not used for
reduction of scope strategies.
 Strategy Formulation

Market Entry These strategies provide the method of carrying out the
Strategies adaptive strategies (expansion of scope and the maintenance
of scope strategies) through purchase, cooperation, or internal
development. Market entry strategies are not used for
reduction of scope strategies.

Competitive Two types of strategies, one that determines an organization’s

Strategies strategic posture and one that positions the organization vis-à-
vis other organizations within the market. These strategies are
market oriented and best articulate competitive advantage.
 Planning the Implementation
Implementation These strategies are the most specific strategies
Strategies and are directed toward value added service
delivery and the value added support areas. In
addition, individual organizational units
develop objectives and action plans that carry
out the value added service delivery and value
added support strategies.
 Strategic Thinking Map
Hierarchy of Strategic Decisions and Alternatives

Directional Adaptive Market Competitive Implementation

Strategies Strategies Entry Strategies Strategies
Strategies
 Expansion of Scope Purchase Strategic Posture Service Delivery
Mission  Diversification  Acquisition  Defender  Pre-service

 Vertical Integration  Licensing  Prospector  Point-of-service

 Vision  Market  Venture capital  Analyzer  After-service

Development investment  (Reactor)

 Values  Product Support
Development Cooperation Positioning  Culture
 Goals  Penetration  Merger Market-wide  Structure

 Alliance  Cost leadership  Strategic resources

Contraction of Scope  Joint venture  Differentiation

 Divestiture Unit Action Plans
 Liquidation Development Market Segment  Objectives
 Harvesting  Internal  Focus/Cost  Actions
 Retrenchment development leadership  Timelines
 Internal  Focus/  Responsibilities

Maintenance of Scope venture differentiation

 Enhancement
 Normative Model of
Strategy Formulation
Strategy Formulation Example Decisions
Directional Strategies Mission, Vision, Values

Organizational Scope Diversification, Vertical

Strategies Integration
Strategy Marketing Entry Acquisition, Alliance,
Content Strategies Merger

Competitive Strategies Cost Leadership, Defender

Implementation Strategies Marketing, Structure

 Strategic Thinking Map
Hierarchy of Strategic Decisions and Alternatives

Directional Adaptive
Strategies Strategies

 Expansion of Scope
Mission  Diversification

 Vertical Integration

 Vision  Market

Development
 Values  Product

Development
 Goals  Penetration

Contraction of Scope
 Divestiture
 Liquidation
 Harvesting
 Retrenchment

Maintenance of Scope
 Enhancement
 Status Quo
 Adaptive Strategic Alternatives –
Expansion
Expansion of Scope Types
Related
 Diversification
Unrelated
Forward
 Vertical Integration
Backward
Geographic
 Market Development
Segment
Product Line
 Product Development
Product Enhancements
Promotion
 Penetration
Distribution
Pricing
 Adaptive Strategies – Expansion

Strategy Definition Rationale

Related Adding new related product or  Pursuit of high-growth markets
Diversification service categories. Often  Entering less-regulated segments

requires the establishment of a  Cannot achieve current objectives

new division  Synergy is possible from new business
 Offset seasonal or cyclical influences
 Adaptive Strategies – Expansion

Strategy Definition Rationale

Related Adding new related product or  Pursuit of high-growth markets
Diversification service categories. Often  Entering less-regulated segments

requires the establishment of a  Cannot achieve current objectives

new division  Synergy is possible from new business
 Offset seasonal or cyclical influences

Unrelated Adding new unrelated product or  Pursuit of high-growth markets

Diversification service categories. Typically  Entering less-regulated segments

requires the establishment of a  Cannot achieve current objectives

new division  Current markets are saturated or in decline
 Organization has excess cash
 Antitrust regulations prohibit expansion in current

industry
 Tax loss may be acquired
 Adaptive Strategies – Expansion
Strategy Definition
Backward Vertical Adding new members along the
Integration distribution channel (toward a
later stage) for present products
and services or controlling the
flow of patients from one
institution to another
Rationale
 Control the flow of patients through the system
 Scarcity of raw materials or essential
inventory/supplies
 Deliveries are unreliable
 Lack of materials or supplies will shut down
operations
 Price or quality of materials or supplies variable
 Industry/market seen as profitable for long term
 Adaptive Strategies – Expansion
Strategy Definition
Backward Vertical Adding new members along the
Integration distribution channel (toward a
later stage) for present products
and services or controlling the
flow of patients from one
institution to another
Forward Vertical Adding new members along the
Integration distribution channel (toward an
earlier stage) for present
products and services or
controlling the flow of patients
from one institution to another
Rationale
 Control the flow of patients through the system
 Scarcity of raw materials or essential
inventory/supplies
 Deliveries are unreliable
 Lack of materials or supplies will shut down
operations
 Price or quality of materials or supplies variable
 Industry/market seen as profitable for long term
 Control the flow of patients through the system
 Faster delivery required
 High level of coordination required between one
stage and another – secure needed resources
 Industry/market seen as profitable for long term
 Gain bargaining power
 Hospital Vertical Integration
Strategic
Business Unit
Upstream Downstream

Primary Care Rehabilitation

Unit Hospital Unit

Wellness/ Urgent Care Skilled Home Health

Health Promotion Unit Nursing Unit
Unit Unit
 Adaptive Strategies – Expansion

Strategy Definition Rationale

Market Introducing present products or  New markets are available for present products
Development services into new geographic  Provide comprehensive services across the market
markets or to new segments (focus factory)
within a present geographic  New markets may be served efficiently

market  Expected high revenues

 Organization has cost leadership advantage
 Organization has differentiation advantage
 Current market is growing
Fundamental Expansion Strategies

Products
Old New
Markets

Old

Market
New
Development
 Adaptive Strategies – Expansion

Strategy Definition Rationale

Market Introducing present products or  New markets are available for present products
Development services into new geographic  Provide comprehensive services across the market
markets or to new segments (focus factory)
within a present geographic  New markets may be served efficiently

market  Expected high revenues

 Organization has cost leadership advantage
 Organization has differentiation advantage
 Current market is growing

Product Improving present products or  Currently in strong market but product is weak or
Development services or extending the product line incomplete
present product line  Market tastes are changing

 Product technology is changing

 Maintenance or creation of differentiation

advantage
Fundamental Expansion Strategies

Products
Old New
Markets

Product
Old
Development

Market
New
Development
 Key Strategic Thinking Questions

Products/Services Internal
Questions
Strategies Processes
Stop doing?
Start doing?
Continue doing?
Do differently?

Remember to draw upon the results of external analysis,

internal analysis, and development of directional strategies
 Services versus Customers
Reduce Types Keep Types or
or Number of Number of Add New
Customers Customers Same Customers

CONTRACT/
CONTRACT CONTRACT EXPAND
Reduce
Programs or
Getting Out Change Focus Two-Phase Refocus
Services

Keep CONTRACT MAINTAIN EXPAND

Programs or Reduce Costs
Services Change Focus Improve Efficiency New Markets Refocus
the Same Improve Quality

CONTRACT/ EXPAND EXPAND

Add New EXPAND
Programs or New Services
Services Two-Phase Refocus New Services & Markets
 Adaptive Strategies – Expansion

Strategy Definition Rationale

Penetratio Seeking to increase market share for  Present market is growing
n present products or services in  Product/service innovation will extend

present markets through marketing product life cycle (PLC)

efforts (promotion, channels, or  Expected revenues are high

price)  Organization has cost leadership

advantage
 Organization has differentiation advantage
Fundamental Expansion Strategies

Products
Old New
Markets

Penetration Product
Old
Strategies Development

Market
New
Development
Fundamental Expansion Strategies

Products
Old New
Markets

Penetration Product
Old
Strategies Development

Market
New Diversification
Development
Adaptive Strategic Alternatives –
Contraction

Contraction of Scope Types

Total
 Divestiture Partial
Operations
 Liquidation Assets
 Harvesting Fast
Slow
 Retrenchment Markets
Products
 Adaptive Strategies – Contraction

Strategy Definition Rationale

Divestiture Selling an operating unit or division to  Industry in long-term decline

another organization. Typically, the  Cash needed to enter new, higher growth area

unit will continue in operation  Lack of expected synergy with core operation
 Required investment in new technology seen as

too high
 Too much regulation

 Unbundling
 Adaptive Strategies – Contraction

Strategy Definition Rationale

Divestiture Selling an operating unit or division to  Industry in long-term decline

another organization. Typically, the  Cash needed to enter new, higher growth area

unit will continue in operation  Lack of expected synergy with core operation
 Required investment in new technology seen as

too high
 Too much regulation

 Unbundling

Liquidation Selling all or part of the organization’s  Organization can no longer operate
assets (facilities, inventory, equipment,  Bankruptcy
and so on) in order to obtain cash. The  Trim/reduce assets
purchaser may use the assets in a  Superseded by new technology

variety of ways and businesses

 Adaptive Strategies – Contraction

Strategy Definition Rationale

Harvesting Products or services typically in late  Late maturity/decline of the product life
stages of the product life cycle (late cycle
maturity and decline) where  Consider divestiture or downsizing

industry-wide revenues are  Short-term cash needed

expected to decline. These

products or services will ultimately
be discontinued but may generate
revenue for some time. Few new
resources are allocated to these
areas
 Adaptive Strategies – Contraction

Strategy Definition Rationale

Harvesting Products or services typically in late  Late maturity/decline of the product life
stages of the product life cycle (late cycle
maturity and decline) where  Consider divestiture or downsizing

industry-wide revenues are  Short-term cash needed

expected to decline. These

products or services will ultimately
be discontinued but may generate
revenue for some time. Few new
resources are allocated to these
areas
Retrenchment Reducing the scope of operations,  Market has become too diverse

redefining the target market,  Market is too geographically spread out

cutting geographic coverage,  Personnel costs are too high

reducing the segments served, or  Too many products or services

reducing the product line  Marginal or nonproductive facilities
Adaptive Strategic Alternatives –
Maintenance

Maintenance of Scope
Quality
 Enhancement
Efficiency
 Status Quo Innovation
Speed
Flexibility
 Adaptive Strategies – Maintenance

Strategy Definition Rationale

Enhancement Seeking to improve operations  Organization has operational

within present product or service inefficiencies

categories through quality  Need to lower costs

programs, increasing flexibility,  Need to improve quality

increasing efficiency, speed of  Improve internal processes

delivery, and so on
 Adaptive Strategies - Maintenance

Strategy Definition Rationale

Enhancement Seeking to improve operations  Organization has operational

within present product or service inefficiencies

categories through quality  Need to lower costs

programs, increasing flexibility,  Need to improve quality

increasing efficiency, speed of  Improve internal processes

delivery, and so on
Status quo Seeking to maintain relative market  Maintain market share position
share within a market  Maturity/late maturity stage of the

product life cycle

 Product/market generating cash but has

little potential for future growth

 Extremely competitive market
 Strategic Thinking Map
Hierarchy of Strategic Decisions and Alternatives

Directional Adaptive Market Entry

Strategies Strategies Strategies

 Expansion of Scope Purchase

Mission  Diversification  Acquisition

 Vertical Integration  Licensing

 Vision  Market  Venture capital

Development investment
 Values  Product

Development Cooperation
 Goals  Penetration  Merger

 Alliance

Contraction of Scope  Joint venture

 Divestiture
 Liquidation Development
 Harvesting  Internal
 Retrenchment development
 Internal

Maintenance of Scope venture

 Enhancement
 Market Entry Strategies – Purchase
Directional Adaptive Market Entry
Strategies Strategies Strategies

 Expansion of Scope Purchase

Mission  Diversification  Acquisition

 Vertical Integration  Licensing

 Vision  Market  Venture capital

Development investment
 Values  Product

Development Cooperation
 Goals  Penetration  Merger

 Alliance

Contraction of Scope  Joint venture

 Divestiture
 Liquidation Development
 Harvesting  Internal
 Retrenchment development
 Internal

Maintenance of Scope venture

 Enhancement
 Market Entry Strategies – Purchase
Market Entry Definition
Strategy
Acquisition Strategy to grow through the
purchase of an existing
organization, unit of an
organization, or a
product/service
Major Advantages
 Rapid market entry
 Image already established
 Performance known before
purchase
Major Disadvantages
 New business may be
unfamiliar to parent
 Takes a long time to
assimilate organization’s
culture
 New management team may
be required
 High initial cost
 Market Entry Strategies – Purchase
Market Entry Definition
Strategy
Acquisition Strategy to grow through the
purchase of an existing
organization, unit of an
organization, or a
product/service
Licensing Acquiring or providing an asset
(technology, market,
equipment, etc.) through
contract
Major Advantages
 Rapid market entry
 Image already established
 Performance known before
purchase
 Rapid access to proven
technology
 Reduced financial exposure
 Access to brand name
 Exclusive territory
Major Disadvantages
 New business may be
unfamiliar to parent
 Takes a long time to
assimilate organization’s
culture
 New management team may
be required
 High initial cost
 Not a substitute for internal
technical competence
 Not proprietary technology
 Dependent on licensor
 Rules and regulations
 Market Entry Strategies – Purchase
Market Entry Definition
Strategy
Acquisition Strategy to grow through the
purchase of an existing
organization, unit of an
organization, or a
product/service
Licensing Acquiring or providing an asset
(technology, market,
equipment, etc.) through
contract
Venture Capital Financial investment in an
Investment organization in order to
participate in its growth or
receipt of venture capital for
startup or expansion
Major Advantages
 Rapid market entry
 Image already established
 Performance known before
purchase
 Rapid access to proven
technology
 Reduced financial exposure
 Access to brand name
 Exclusive territory
 Can provide window on
new technology or market
 Low risk
Major Disadvantages
 New business may be
unfamiliar to parent
 Takes a long time to
assimilate organization’s
culture
 New management team may
be required
 High initial cost
 Not a substitute for internal
technical competence
 Not proprietary technology
 Dependent on licensor
 Rules and regulations
 Alone, unlikely to be a major
stimulus of growth
 Extended time to profitability
 Market Entry Strategies – Cooperation

Directional Adaptive Market Entry

Strategies Strategies Strategies

 Expansion of Scope Purchase

Mission  Diversification  Acquisition

 Vertical Integration  Licensing

 Vision  Market  Venture capital

Development investment
 Values  Product

Development Cooperation
 Goals  Penetration  Merger

 Alliance

Contraction of Scope  Joint venture

 Divestiture
 Liquidation Development
 Harvesting  Internal
 Retrenchment development
 Internal

Maintenance of Scope venture

 Enhancement
 Market Entry Strategies – Cooperation
Market Entry Definition Major Advantages Major Disadvantages
Strategy
Merger Combining two (or more)  Uses existing resources  Takes a long time to merge
organizations through  Retains existing markets and cultures
mutual agreement to form products  Merger match often difficult
a single new organization  Reduces competition to find
 Market Entry Strategies – Cooperation
Market Entry Definition Major Advantages Major Disadvantages
Strategy
Merger Combining two (or more)  Uses existing resources  Takes a long time to merge
organizations through  Retains existing markets and cultures
mutual agreement to form products  Merger match often difficult
a single new organization  Reduces competition to find

Alliance Formation of a formal  Fills in gaps in product line
partnership  Creates efficiencies (e.g.,
bargaining power)
 Reduces competition in weak
markets
 Stabilizes referral base
 Shared risk
 Potential for conflict between
members
 Limits potential
markets/products
 Difficult to align resources
 Governance issues
 Market Entry Strategies – Cooperation
Market Entry Definition Major Advantages Major Disadvantages
Strategy
Merger Combining two (or more)  Uses existing resources  Takes a long time to merge
organizations through  Retains existing markets and cultures
mutual agreement to form products  Merger match often difficult
a single new organization  Reduces competition to find

Alliance Formation of a formal  Fills in gaps in product line  Potential for conflict between
partnership  Creates efficiencies (e.g., members
bargaining power)  Limits potential
 Reduces competition in weak markets/products
markets  Difficult to align resources
 Stabilizes referral base  Governance issues
 Shared risk

Joint Venture Combination of the  Technological/marketing joint  Potential for conflict between
resources of two or more ventures can exploit small/large partners (shared vs.
organizations to organizational synergies proprietary)
accomplish a designated  Spreads distribution risks  Objectives of partners may
task not be compatible
 Market Entry Strategies – Development

Directional Adaptive Market Entry

Strategies Strategies Strategies

 Expansion of Scope Purchase

Mission  Diversification  Acquisition

 Vertical Integration  Licensing

 Vision  Market  Venture capital

Development investment
 Values  Product

Development Cooperation
 Goals  Penetration  Merger

 Alliance

Contraction of Scope  Joint venture

 Divestiture
 Liquidation Development
 Harvesting  Internal
 Retrenchment development
 Internal

Maintenance of Scope venture

 Enhancement
 Market Entry Strategies – Development
Market Entry Definition Major Advantages Major Disadvantages
Strategy
Internal Development Products or services  Uses (leverages) existing  Time lag to break even
developed internally resources  Unfamiliarity with new markets
using the organization’s  Organization maintains a  Obtaining significant gains in
own resources high level of control market shares against strong
 Presents image of developing competitors may be difficult
(growth) organization
 Market Entry Strategies – Development
Market Entry Definition Major Advantages Major Disadvantages
Strategy
Internal Development Products or services  Uses (leverages) existing  Time lag to break even
developed internally resources  Unfamiliarity with new markets
using the organization’s  Organization maintains a  Obtaining significant gains in
own resources high level of control market shares against strong
 Presents image of developing competitors may be difficult
(growth) organization
Internal Venture Establishment of an  Uses existing resources  Mixed record of success
independent entity  May enable organization to  Organization’s internal climate
within an organization hold a talented entrepreneur (culture) often unsuitable
to develop products or  Isolates development from
services organization’s bureaucracy
 Market Entry Strategies – Development
Market Entry Definition Major Advantages Major Disadvantages
Strategy
Internal Development Products or services  Uses (leverages) existing  Time lag to break even
developed internally resources  Unfamiliarity with new markets
using the organization’s  Organization maintains a  Obtaining significant gains in
own resources high level of control market shares against strong
 Presents image of developing competitors may be difficult
(growth) organization
Internal Venture Establishment of an  Uses existing resources  Mixed record of success
independent entity  May enable organization to  Organization’s internal climate
within an organization hold a talented entrepreneur (culture) often unsuitable
to develop products or  Isolates development from
services organization’s bureaucracy
Reconfigure the value Changing the activities or  New approach may not be  Not always possible
chain sequence of activities in seen as a threat by existing  Initially must focus on a niche
the value chain and competitors rather than entire market
therefore change how  Captures a special niche of  Must be first to recognize the new
value is delivered to the the market business model
customer.  May create low-cost business
model
 Strategic Thinking Map
Hierarchy of Strategic Decisions and Alternatives

Directional Adaptive Market Competitive

Strategies Strategies Entry Strategies
Strategies
 Expansion of Scope Purchase Strategic Posture
Mission  Diversification  Acquisition  Defender

 Vertical Integration  Licensing  Prospector

 Vision  Market  Venture capital  Analyzer

Development investment  (Reactor)

 Values  Product

Development Cooperation Positioning

 Goals  Penetration  Merger Market-wide
 Alliance  Cost leadership

Contraction of Scope  Joint venture  Differentiation

 Divestiture
 Liquidation Development Market Segment
 Harvesting  Internal  Focus/Cost
 Retrenchment development leadership
 Internal  Focus/

Maintenance of Scope venture differentiation

 Enhancement
 Strategic Thinking Map
Hierarchy of Strategic Decisions and Alternatives

Directional Adaptive Market Competitive

Strategies Strategies Entry Strategies
Strategies
 Expansion of Scope Purchase Strategic Posture
Mission  Diversification  Acquisition  Defender

 Vertical Integration  Licensing  Prospector

 Vision  Market  Venture capital  Analyzer

Development investment  (Reactor)

 Values  Product

Development Cooperation Positioning

 Goals  Penetration  Merger Market-wide
 Alliance  Cost leadership

Contraction of Scope  Joint venture  Differentiation

 Divestiture
 Liquidation Development Market Segment
 Harvesting  Internal  Focus/Cost
 Retrenchment development leadership
 Internal  Focus/

Maintenance of Scope venture differentiation

 Enhancement
 Strategic Postures
Strategic Definition Advantages Disadvantages
Posture
Defender Focus on a narrow  Focus on limited set of  Reliance on the success of narrow product
market with limited products and services line
number of products  Focus is on narrow  Must have long/sustaining product life
or services and market segment cycles
aggressively  Stable environment  Market segment must be stable – slow
defend this  Difficult for competitors change
segment through to enter this segment  May be unable to respond to major
pricing or market/industry shifts
differentiation  Difficult to enter new markets or
technologies
 Strategic Postures
Strategic Definition Advantages Disadvantages
Posture
Defender Focus on a narrow  Focus on limited set of  Reliance on the success of narrow product
market with limited products and services line
number of products  Focus is on narrow  Must have long/sustaining product life
or services and market segment cycles
aggressively  Stable environment  Market segment must be stable – slow
defend this  Difficult for competitors change
segment through to enter this segment  May be unable to respond to major
pricing or market/industry shifts
differentiation  Difficult to enter new markets or
technologies
Prospector Continuously seek  Always involved in  Organization is in constant state of change
out new products “ cutting-edge”  New products and markets always being
and new markets developments developed
 Organization changes  Multiple technologies being employed,
with changing seldom able to achieve efficiency
environment  Tend to have lower profits because of
 Allows for a rapid continuous change
response to a changing  Tend to overextend resources
environment  Tend to underutilize financial, human, and
physical resources
 Strategic Postures
Strategic Posture Definition Advantages Disadvantages
Analyzer Balance market defense in  Allows for the  Difficult strategy to pursue

some markets with maintenance of a core of  Must respond quickly to follow

selectively entering a stable traditional products lead of key prospector while

limited number of markets and services maintaining efficiency in core
or products  Allows for high-risk products/services
products and services to be  Complex structure (matrix)
borne by prospectors  Management of both stable and
 Lower investment in dynamic products and markets
research and development  Communication is often
difficult
 Strategic Postures
Strategic Posture Definition Advantages Disadvantages
Analyzer Balance market defense in  Allows for the  Difficult strategy to pursue

some markets with maintenance of a core of  Must respond quickly to follow

selectively entering a stable traditional products lead of key prospector while

limited number of markets and services maintaining efficiency in core
or products  Allows for high-risk products/services
products and services to be  Complex structure (matrix)
borne by prospectors  Management of both stable and
 Lower investment in dynamic products and markets
research and development  Communication is often
difficult

Reactor Reacts to the strategies of  Little strategic planning  Inconsistency in response to

competitors required (monopolistic or environmental change
highly regulated  Instability in organization
environment)  Organization becomes both
ineffective and inefficient
 No effective guide for decision
making
 Positioning Strategies
Directional Adaptive Market Competitive
Strategies Strategies Entry Strategies
Strategies
 Expansion of Scope Purchase Strategic Posture
Mission  Diversification  Acquisition  Defender

 Vertical Integration  Licensing  Prospector

 Vision  Market  Venture capital  Analyzer

Development investment  (Reactor)

 Values  Product

Development Cooperation Positioning

 Goals  Penetration  Merger Market-wide
 Alliance  Cost leadership

Contraction of Scope  Joint venture  Differentiation

 Divestiture
 Liquidation Development Market Segment
 Harvesting  Internal  Focus/Cost
 Retrenchment development leadership
 Internal  Focus/

Maintenance of Scope venture differentiation

 Enhancement
 Positioning Strategies

Positioning Definition Major Advantages Major Disadvantages

Strategy
Cost Leadership Low-cost/price  Provides clear competitive  Must obtain large volume
strategy directed advantage  Product/service must be
toward entire market  Provides clear market standardized
position  Product/service may be
 Provides opportunities to viewed as low quality
spend more than
competition
 Positioning Strategies

Positioning Definition Major Advantages Major Disadvantages

Strategy
Cost Leadership Low-cost/price  Provides clear competitive  Must obtain large volume
strategy directed advantage  Product/service must be
toward entire market  Provides clear market standardized
position  Product/service may be
 Provides opportunities to viewed as low quality
spend more than
competition
Differentiation Development of  Product/service viewed as  Often difficult to adequately
unique unique differentiate product or
product/service  Often viewed as high service
features directed quality  Product/service may be
toward entire market  Greater control over higher priced
pricing
 Positioning Strategies

Positioning Definition Major Advantages Major Disadvantages

Strategy
Focus – Cost Low-cost/price  Appeals to market  Low quality may be
Leadership strategy directed segment seeking low price associated low price
toward a particular  May develop good  Expansion of market may be
market segment relations with market difficult
 Positioning Strategies

Positioning Definition Major Advantages Major Disadvantages

Strategy
Focus – Cost Low-cost/price  Appeals to market  Low quality may be
Leadership strategy directed segment seeking low price associated low price
toward a particular  May develop good  Expansion of market may be
market segment relations with market difficult
Focus -- Development of  Product/service may be  Market segment may remain
Differentiation unique customized to the special small
product/service needs of the segment  Price will probably be high
features directed  May develop close
toward a particular relationship with market
market segment segment
Strategy Combinations and Phases
External Environment

Boundary Set by
Mission/Vision

Market Development
SSU 1 Retrenchment (Product)

Market
SSU 2 Development Vertical Integration (forward) Market
Development
SSU 3
Harvest
ing /Divest
sh
Ca

External Environment Boundary Set by

Mission/Vision

Today Year 1 Year 2 Year 3 Year 4 Year 5 Time

 Chapter 6 Conclusions
After reading Chapter 6, you should be able to define
the following terms:
Key Terms Key Terms
Acquisition Cooperation Strategy
Adaptive Strategy Cost Leadership
Alliance Defender Strategic Posture
Analyzer Strategic Posture Development Strategy
Backward Vertical Integration Differentiation
Combination Strategy Diversification
Competitive Strategy Divestiture
Concentric Diversification Ends-Means Chain
Conglomerate Diversification Enhancement
 Chapter 6 Conclusions
After reading Chapter 6, you should be able to define
the following terms:
Key Terms Key Terms
Expansion of Scope Strategy Internal Venture
Focused Factory Joint Venture
Focus Strategy Licensing
Forward Vertical integration Liquidation
Generic Strategy Maintenance of Scope Strategy
Harvesting Market Development
Horizontal Integration Market Entry Strategy
Implementation Strategy Marketwide Strategy
Internal Development Merger
 Chapter 6 Conclusions
After reading Chapter 6, you should be able to define
the following terms:
Key Terms Key Terms
Penetration Strategy Related Diversification
Positioning Strategy Retrenchment
Product Development Status Quo
Prospector Strategic Posture Strategic Posture
Purchase Strategy Strategy Formulation
Reactor Strategic Posture Unrelated Diversification
Reconfigure the Value Chain Venture Capital Investment
Reduction of Scope Strategy Vertical Integration
Assignment

 Using the Strategic Thinking Map – Hierarchy of

Strategic Decisions and Alternatives in Chapter 6 as
a guide, find examples of three types of strategies
(for example, market development, merger,
alliance) from the popular literature.
 Good sources of healthcare strategy examples
include The Wall Street Journal, Business Week,
your local newspaper, or one of several health care
periodicals.
 You may also use website searches.