Liberty University Ch 3 Business Models and Common Strategies Paper please respond to the question in 1- 1.5 pages using the attached ppt as well as schola
Liberty University Ch 3 Business Models and Common Strategies Paper please respond to the question in 1- 1.5 pages using the attached ppt as well as scholarly sources. You will write a 1-1.5 page paper in current APA format that addresses
the case questions presented in the assignment below. Your answers
must be supplemented with research from your textbook, peer-reviewed
references, and other quality sources.
Note: A minimum of 3 scholarly, peer-reviewed references published
within the last 5 years and the course textbook must be used to support
the groups responses in the paper. This is an academic, APA formatted
paper, must use titles and subheadings to guide the reader through the
narrative.
1. How would General Medical Clinics business model need to
change if it moved to either model? Specifically, how would its
value, input, processes and evenues change?
CHAPTER 3: BUSINESS MODELS
AND COMMON STRATEGIES
LEARNING OBJECTIVES
Understand the concept and use of business models.
Be able to describe how business models vary in
healthcare and how business models may provide
competitive advantage.
Comprehend generic strategies and their application to
healthcare.
Be familiar with strategies for differentiation in healthcare,
including focused factories.
Recognize the advantages and disadvantages of firstmover strategy.
Copyright 2013 Health Administration Press
BUSINESS MODELS
Core elements of an organization and how it is
structured to deliver value to its customers and
generate revenues
Encompass all aspects of organizations, including
their economic, operational, and strategic domains,
and successful organizations design their business
models around their internal competencies
Copyright 2013 Health Administration Press
SIMILARITY OF
BUSINESS MODELS
Established firms are often similar (isomorphism)
Effects of barriers to entry
Competition between similar products and services
Copyright 2013 Health Administration Press
EXAMPLE: WEBVAN
What was wrong with the business model of
Webvan?
How could the company have altered its model to
be successful?
Look up www.peapod.com. How does Peapods
business model seem to differ from Webvans?
Copyright 2013 Health Administration Press
FOUR COMPONENTS OF BUSINESS MODELS
Value to Customers
What value is created for customers
in terms of product quality, cost, or
access and availability?
Inputs
What inputs distinguish the
organization in terms of the
combination of resources it uses to
produce the product/service?
Processes
What processes are used to create
and provide the product/service?
Revenue Generation
What financial mechanism is used
to generate revenues to sustain the
provision of the product/service?
Copyright 2013 Health Administration Press
VALUE TO CUSTOMERS
What value is provided to the customer segments
served?
What customer problems are solved by the
organizations product/service?
What customer needs does the product/service satisfy?
What needs are not satisfied?
Does the value created by the organization support its
mission and vision?
How does this value distinguish the organization from
competitors?
Copyright 2013 Health Administration Press
INPUTS
What key inputs directly contribute to the value of the
product/service?
Are any inputs inconsequential? Could the organization
lower costs or increase value if it changed any of its
inputs?
Are there new technologies that the organization should
consider adding as new inputs?
Copyright 2013 Health Administration Press
PROCESSES
How do the organizations processes differ from those of its
competitors?
Which processes add value and which do not?
Could processes be redesigned to eliminate unneeded
steps?
Do processes unnecessarily delay final outputs?
Can processes be automated?
Is there new technology that could streamline existing
processes?
Copyright 2013 Health Administration Press
REVENUE GENERATION
In what ways does the organization generate revenues?
If the organization generates revenues in multiple ways,
which are the most important? Which will be the most
important in the future?
Could new technology significantly affect the ways the
organization generates revenues?
Does the organization generate enough revenues to
achieve its mission? If not, what needs to occur?
Copyright 2013 Health Administration Press
CHANGING PHARMACEUTICAL
BUSINESS MODEL
Refer to Exhibit 3.3, page 49 of the text.
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PROBLEMS WITH HEALTHCARE
BUSINESS MODEL
Based on treating illness, not wellness
Providers paid by piecework; no incentive to keep
patients healthy
Inputs: high cost structures
Lack of evidence-based treatment (frequently)
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CHANGING HEALTHCARE
BUSINESS MODEL
Refer to Exhibit 3.4, page 51 of the text.
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DISCUSSION: UNIVERSITY DEGREE
BUSINESS MODELS
What is the value customers seek?
Different segments?
What are different possible inputs?
What processes could be different?
How could it be supported financially?
Copyright 2013 Health Administration Press
DISRUPTIVE INNOVATION
Type of Innovation
Radical
Sustaining
Technological
innovation
Business model
innovation
Business Model Change
None
New
Need
Copyright 2013 Health Administration Press
High potential
for disruptive
innovation;
incumbents
threatened
Low potential for
disruptive
innovation;
innovation benefits
incumbents
Low potential for
disruptive
innovation; new
innovations change
market
relationships
No potential for
disruptive
innovation;
incumbents
strengthened
NOVEL BUSINESS MODELS?
Value to customers
Inputs
Processes
Revenue generation (or
profitability)
Copyright 2013 Health Administration Press
COMPETENCY DESTROYING
INNOVATIONS
What happened to Kodak?
Copyright 2013 Health Administration Press
DIFFERENT GENERIC STRATEGIES
Refer to Exhibit 3.6, page 55 of the text.
Copyright 2013 Health Administration Press
BROAD LOW-COST STRATEGY
Broad customer base
Low costs and underpricing competitors
Narrow product lines/no-frill goods
High asset turnover
Control of purchases and procurement
Low-cost distribution systems
Copyright 2013 Health Administration Press
FOCUSED LOW-COST STRATEGY
A market segment base/niche
Low cost
Limited selection of products and services
Example: ALDI
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EXAMPLE: ALDI VERSUS WALMART
Refer to Exhibit 3.7, page 58 of the text.
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LOW-COST STRATEGIES IN
HEALTHCARE
Correlation of cost and quality
Ambulatory surgery centers and specialty
hospitals
When is this feasible in healthcare?
Copyright 2013 Health Administration Press
BROAD DIFFERENTIATION
STRATEGY
Unique products and services
Broad market focus
Effective when
buyer preferences and values are diverse,
many organizations offer common products, and
product innovation is rapid.
Copyright 2013 Health Administration Press
WAYS TO DIFFERENTIATE
PRODUCTS, SERVICES,
PERSONNEL, DISTRIBUTION,
AND IMAGE
Refer to Exhibit 3.8, page 59 of the text.
Copyright 2013 Health Administration Press
FOCUSED DIFFERENTIATION
STRATEGY
Targets narrow industry niche or customer
segment
Highly differentiated products/services
Focused factories?
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EXAMPLE: CONCIERGE
MEDICINE
Focused differentiated strategy
How is this differentiated?
What are the target markets?
Copyright 2013 Health Administration Press
MIDDLE STRATEGY
Best-cost strategy
Feasible?
Stuck in the middle?
In healthcare?
Copyright 2013 Health Administration Press
SHIFTING STRATEGIES
Cost Position
Medium
Low Cost and
High Differentiation
Medium
Low
Differentiation
High
Low Cost
High Cost
High Cost and
High Differentiation
Middle Position
Low Cost and
Low Differentiation
High Cost and
Low Differentiation
Source: Adapted from Luke, Walston, and Plummer (2004).
Copyright 2013 Health Administration Press
EXAMPLE: ALDI
Original: ALDIlow-cost strategy
Shift: Trader Joesfocused differentiation
strategy
Builds on low-cost strategies of ALDI
Copyright 2013 Health Administration Press
FIRST MOVERS
Advantages can be gained from
Technologies
Patents, distribution channels, learning
Acquisition and control of scarce resources
Location, employees, and partners
Customer loyalty and reputation
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TODAYS FIRST MOVERS
Twitter
eBay
Others?
Copyright 2013 Health Administration Press
FAST FOLLOWERS
Subsequent entrants
Enjoy a free ride on first movers research and
investments
Take advantage of established framework and
groundwork
Copyright 2013 Health Administration Press
EXAMPLE:
FAST FOLLOWERS
CT scanner
Apple
Others?
Copyright 2013 Health Administration Press
EFFECT OF TECHNOLOGY AND
MARKET GROWTH ON FIRST
MOVERS SUCCESS
Refer to Exhibit 3.11, page 67 of the text.
Copyright 2013 Health Administration Press
CHAPTER QUESTIONS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
How do the four components of a business model affect each other? For example, how can the depth of value to
customers influence the means of revenue generation?
What difficulties does an organization face when seeking to change its business model? In your opinion, why have
Blockbuster and Continental Airlines struggled to shift their business models?
How can a new business model become a competitive advantage for an organization?
What changes could hospitals, physicians, pharmaceutical companies, and insurance companies make to their
business models to better position them for the future?
Generic strategies dimensions include type of competitive advantage and target market. In your opinion, how
would a focused strategy differ from a broad strategy?
Are middle strategies most commonly used? Why or why not?
What actions can an organization take to offer a product at the lowest cost?
When is low cost a viable strategy in healthcare? When would it not be viable?
Which shift in strategy would be most difficult in your opinion: moving from low cost and high differentiation to high
cost and high differentiation, or moving from high cost and high differentiation to low cost and high differentiation?
Why?
A first mover can sustain its market advantage through technology, control of scarce resources, and reputation.
Look at the first movers you are familiar with. Which of these approaches have they taken?
How does technological change affect a first mover?
Copyright 2013 Health Administration Press
CHAPTER 4: GROWTH AND
INTEGRATION STRATEGIES
LEARNING OBJECTIVES
Understand how organizations use different growth strategies.
Perceive the advantages and disadvantages of the types of
strategic expansion.
Grasp the strategic concepts of vertical integration.
Comprehend the issue of transfer pricing and its effect on
vertical integration.
Recognize the difference between ownership and integration
and the methods by which integration can be accomplished.
Know the strategic concepts of horizontal expansion.
Be familiar with the concepts of related and unrelated
diversification expansion.
Copyright 2013 Health Administration Press
IS BIGGER ALWAYS
BETTER?
Example of growth strategy: Conseco, Inc.
Why did it grow?
What were growths advantages?
Disadvantages?
Copyright 2013 Health Administration Press
GROWTH STRATEGIES
Internal expansion
Acquisition
Networks and alliances
Copyright 2013 Health Administration Press
INTERNAL EXPANSION
May include developing new products and
services, launching marketing efforts to
increase market share, and entering existing
products in new markets
Less risk, preservation of culture
Long time in development
Copyright 2013 Health Administration Press
ACQUISITION
Rapid market entry
Reduced competition
Instant volume and market acceptance
Possible incompatible cultures
High costs
Copyright 2013 Health Administration Press
NETWORKS AND ALLIANCES
Quick entry with minimal risk
Less control and ability to manage
60 to 70 percent fail due to operating styles
and cultures
Possible lost of proprietary knowledge
Copyright 2013 Health Administration Press
ADVANTAGES AND
DISADVANTAGES
OF DIFFERENT GROWTH
STRATEGIES
Refer to Exhibit 4.2, page 75 of the text.
Copyright 2013 Health Administration Press
OTHER EXPANSION STRATEGIES
Vertical expansion: Occurs when an organization
acquires a business that is either a source of supplies
(backward expansion) or an entity that may purchase
from the organization (forward expansion)
Horizontal expansion: Occurs when similar organizations
merge or are acquired
Diversification: Acquisition of organizations in different
businesses
Copyright 2013 Health Administration Press
VERTICAL EXPANSION
Expansion is not necessarily integration!
Healthcare vertical integration upstream and
downstream are not as clear as in other
industries
Refer to Exhibit 4.3, page 79 of the text
Copyright 2013 Health Administration Press
PROMISES OF VERTICAL
EXPANSION
Cost efficiencies from
Improved internal control and coordination
Increased market power
Integrated delivery systems in healthcare
Goal congruence
Standardization of processes
Quicker adjustment to market conditions
Copyright 2013 Health Administration Press
CHALLENGES OF VERTICAL
INTEGRATION IN HEALTHCARE
Benefits of vertical ownership do not simply materialize but are achieved only when
the organizations vertical components are proactively integrated though appropriate
management structures, protocols, processes, and incentives.
According to Burns and Pauly (2002, 132): All too often, however, they [verticalowned healthcare organizations] failed to develop a common, standardized set of
activities across the different IDN [integrated delivery network] components to
closely link the new structures with the new organizational processes of providing
incentives to physicians, managing medical staffs, and developing leadership. Thus,
the structural integration was not accompanied by a processual approach to
integration. All too often the structural and processual activities were only loosely
linked together, with some disregard for day-to-day operations.
Copyright 2013 Health Administration Press
TRANSACTION COST
ECONOMICS
An explanation for vertical integration
Cost in exchanges (transactions)
When costs become large, organizations may vertically expand
Costs increase in these scenarios:
Few suppliers or buyers
High frequency of exchange
Information not freely shared
Little trust
Rampant opportunistic behavior
Copyright 2013 Health Administration Press
EXAMPLE: TUFTS AND BCBS OF
MASSACHUSETTS
What is the cause of this negotiation problem?
Would vertical integration solve it?
Look up the case at
www.tuftsmedicalcenter.org/default/BCBSMATuftsNEQCA-PublicStatementFINAL_12.7.11.pdf.
Read the settlement and discuss it in terms of
vertical expansion issues.
Copyright 2013 Health Administration Press
TRANSFER PRICING
Price charged for a transaction between two
divisions of an organization; set through one of
three methods:
1. Cost-based prices: Prices based on actual fixed
and variable costs or just variable costs
2. Full-market prices: Prices based on actual
market prices
3. Discounted prices: Prices discounted from
actual market prices
Copyright 2013 Health Administration Press
CHALLENGES FOR
TRANSFER PRICING
What are the incentives for the following?
Vertically Owned Healthcare Company
Insurance
Company
Hospital
1. Pay hospitals and
physicians costs?
2. Pay full prices?
3. Pay a discount?
Copyright 2013 Health Administration Press
Physicians
COMPETITION WITH
CUSTOMERS
Vertical integration may create competition with
existing customers
Example: Healthcare system owns insurance
company, hospitals rely on many insurance
companies, and owned insurance companys product
competes with non-owned physicians and insurance
company
Most favored nation clauses
Copyright 2013 Health Administration Press
UNMATCHED MARKETS
Differences in Service Areas for Vertically Integrated
Healthcare Systems Components
Insurance MarketStatewide
Hospital
marketregional
Hospital
marketregional
Physician
marketlocal
Physician
marketlocal
Physician
marketlocal
Copyright 2013 Health Administration Press
INTEGRATION OF
VERTICALLY OWNED
STRUCTURES
Four areas of integration
1. Operational integration: Standardization of the technology
and infrastructure
2. Intellectual integration: Development of a shared
knowledge base
3. Social integration: Creation of cultural bonds that drive
collective performance
4. Emotional integration: Establishment of a common identity
and purpose
Copyright 2013 Health Administration Press
ACOS AS VI ORGANIZATIONS?
Newer approaches emphasize outcomes of care and would
hold health systems to a new level of accountability. It is
unlikely that either health systems or physicians will be able to
meet these challenges without closer integration and
cooperation in redesigning how health care is delivered and
measured. The new accountability demands could push
physicians and health systems closer together but could also
pull them farther apart. Physicians are unlikely to cooperate
with heightened accountability requirements if health systems
cannot provide clinically relevant feedback.
Budetti and colleagues (2002, 209)
Copyright 2013 Health Administration Press
EXAMPLE: HIGHMARK AND WEST
PENN ALLEGHENY
Highmark (Blue Cross of Pennsylvania) controlled 65% of Western PA market.
UPMC (10-hospital system) provided services to 34% of patients in Western PA.
Highmark proposed to merge with West Penn Allegheny in 2011.
Read more about this story at www.post-gazette.com/stories/business/news/westpenn-allegheny-health-system-highmark-deal-unraveled-gradually-655563/.
What risks did the merger create?
Copyright 2013 Health Administration Press
VIRTUAL VERTICAL INTEGRATION
Interorganizational alliance that relies on a mix of
exclusive long-term contracts and operating
agreements that align the organizations purpose and
integrate stages of care
Insurance companies now the virtual integrator of
healthcare?
Will ACOs cause the need for greater virtual
integration?
Copyright 2013 Health Administration Press
HORIZONTAL EXPANSION
Merger of two or more organizations that produce the
same product or service
Physicians: In 1983, 60% of physicians worked in
group practice. By 2008, this had increased to almost
70%.
Insurance: Rapid, large mergers
Hospitals: In 2009, 80% of US hospitals belonged to a
health system, network, or alliance.
Copyright 2013 Health Administration Press
PROMISES OF HORIZONTAL
INTEGRATION
Refer to Exhibit 4.7, page 89 of the text.
Copyright 2013 Health Administration Press
FINDINGS ON HORIZONTAL
INTEGRATION
Increase in market power and higher
prices
Often little efficiencies and cost savings
Copyright 2013 Health Administration Press
TYPES OF
HORIZONTAL INTEGRATION
Dispersed system
Concentrated system
Widely
dispersed or
concentrated
Copyright 2013 Health Administration Press
CLUSTERING EXAMPLES
HCAs TriStar: 18 hospitals and 10 surgery centers
in Tennessee, Kentucky, and northern Georgia
TriStar describes the advantages of
regionalization:
Across the country, there is a continuing increase in the
cost and complexity associated with healthcare delivery.
The benefits of a number of hospitals and medical centers
working together, sharing the best practices in quality
care and focusing on reducing …
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