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Healthcare
Healthcare strategic management strategic
and the resource based view management
Bita Arbab Kash
Department of Health Policy and Management,
Texas A&M Health Science Center, College Station, Texas, USA
251
Aaron Spaulding Received 18 June 2013
Department of Public Health, Brooks College of Health, Revised 19 November 2013
19 December 2013
University of North Florida, Jacksonville, Florida, USA Accepted 23 December 2013
Larry D. Gamm
Department of Health Policy and Management,
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Texas A&M Health Science Center, College Station, Texas, USA, and
Christopher E. Johnson
Department of Health Services, University of Washington,
Seattle, Washington, USA
Abstract
Purpose – The purpose of this paper is to examine how two large health systems formulate
and implement strategy with a specific focus on differences and similarities in the nature of
strategic initiatives across systems. The aim is to gain a better understanding of the role of
resource dependency theory (RDT) and resource based view (RBV) in healthcare strategic
management.
Design/methodology/approach – A comparative case study design is used to describe, categorize
and compare strategic change initiatives within a children’s health and a multi-hospital system located
in two competitive metropolitan markets. A total of 61 in-person semi-structured interviews with
healthcare administrators were conducted during 2009. Summary statistics and qualitative content
analysis were employed to examine strategic initiatives.
Findings – The two health systems have as their top initiatives very similar pursuits, thus indicating
that both utilize an externally oriented RDT method of strategy formulation. The relevance of the RBV
becomes apparent during resource deployment for strategy implementation. The process of healthcare
strategic decision-making incorporates RDT and RBV as separate and compatible activities that are
sequential.
Research limitations/implications – Results from this comparative case study are based on only
two health systems. Further, the RBV perspective only takes managerial resources and time into
consideration.
Practical implications – Given that external resources are likely to become more constrained, it is
important that hospitals leverage relevant internal resources, in the identification of competitive
advantages and effective execution of strategic initiatives.
Originality/value – The author propose a refined healthcare strategic management framework that
takes both RDT and RBV into consideration by systematically linking strategy formulation with
deployment of resources.
Keywords Strategy implementation, Resource based view, Healthcare strategic planning,
Strategic management framework
Paper type Case study
Journal of Strategy and Management
Vol. 7 No. 3, 2014
pp. 251-264
r Emerald Group Publishing Limited
This study was funded by the National Science Foundation’s Center for Health Organization 1755-425X
Transformation’s Grant No. IIP-0832439. DOI 10.1108/JSMA-06-2013-0040
JSMA Introduction
7,3 Organizational strategy is dependent upon a defined mission or set of objectives that
are intended to help direct an organization toward a desired outcome (Rangan, 2004).
However, despite having overarching goals to accomplish, the manner that an
organization chooses to fulfill its mission is often limited by resource availability
(Froelich, 1999; Nimwegen et al., 2008; Rangan, 2004). Resources can be internal or
252 external to the organization, and be further segmented into resources an organization
acquires or resources an organization already owns. How a healthcare organization
views the state of its internal and external resources and coordinates the deployment
of these resources dramatically affects strategic decision making and fulfillment of
strategic goals.
The purpose of this comparative case study is to examine the similarities and
differences in strategic decision making across two large metropolitan health
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systems operating in two separate markets within the same state. Resource
dependency theory (RDT) and the resource based view (RBV) theory are used to
interpret responses to environmental factors and internal resource considerations
in strategy development (Swayne et al., 2006; Barney and Clark, 2007; Hillman et al.,
2009; Pfeffer and Salancik, 1978). Each theory (RDT and RBV) contributes to how
healthcare managers can behave as they analyze their external and internal situation
and resources.
This comparative case study adds to our understanding about the nature of
strategic decisions and initiatives, their differences and similarities, and how managers
allocate resources during strategy implementation. Interpretation of results from
this analysis will also assist in the development of a conceptual framework for
healthcare strategic management.
The problem
Looking across the US healthcare sector, one can easily detect common strategic
initiatives shared among hospitals, including process re-engineering, care
coordination, horizontal integration, electronic medical records (EMR), culture
change, quality improvement, and physician engagement, among others. All seem to
be driven by the need to prepare for future environmental changes associated
with healthcare reform, and are often embedded within an organization-wide strategic
plan (Vest and Gamm, 2009). An external orientation predicts firm behavior based
on external environmental changes, constraints, and benchmarks, which can result in
similar strategic decisions and initiatives across healthcare organizations due to
the common external forces experienced (Marlin et al., 2002). Intuitively, the hospital
sector is expected to be highly externally oriented as it faces a rapidly changing
and demanding environment of regulation and payment changes. However, it is clear
that different organizations perform at different levels, thus prompting the question:
do external or internal environmental considerations primarily drive strategy
formulation? Further, if internal resource coordination and deployment does differ
across hospitals, how does the allocation of certain internal productive resource
capabilities play a role in defining the strategic management framework?
This study of two large health systems is geared toward improving our
understanding of the strategic decision process, strategic initiatives, and management
behavior related to strategy implementation in hospitals. To do this, we rely upon
healthcare leaders’ assessments of their organizations’ strategic initiatives. We seek to
identify similarities and differences among strategic initiatives across the two health
systems based on how the initiatives are identified and described. Further, this study
allows for the evaluation of rankings of initiatives, managers’ time consumption,
and number of key managers involved in each strategic initiative. We facilitate this
analysis by grouping strategic initiatives, similar in nature and focus, and comparing
results between the two very different systems. In addition, we try to understand
the importance of the external vs internal environmental considerations in formulating
strategy. To improve our understanding of the nature of strategic initiatives within
health systems we focussed on the following three research questions:
RQ1. Are the nature and focus of the strategic initiatives among the two health
systems highly similar or different?
Results will provide an enhanced conceptual and empirical base for understanding the
nature of strategic management in healthcare and the balance between external and
internal resource considerations.
254
Methods
This paper uses comparative case study design to describe, categorize and compare
the strategic initiatives within two large, metropolitan healthcare systems (Yin, 2010;
Anaf et al., 2007). In-person semi-structured interviews were conducted with top-level
healthcare leaders and administrators within these two settings during 2009. Summary
statistics and qualitative content analysis were employed to identify characteristics
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Setting
The two health systems participating in this study are located in different urban
markets within one state. Table I includes an organizational profile for both health
systems. The Children’s Health System is located in a large metropolitan area that is
highly concentrated with healthcare providers and competing hospital systems.
Analytical approach
For this study, we focussed on results from four interview questions:
(1) identification and description of strategic initiatives (open ended question);
(2) the number of key managers engaged in each strategic initiative;
(3) percentage time spent on each strategic initiative (as self-reported by the
interviewees); and
(4) ranking of initiatives in terms of how mission critical they are to the system.
Although the classic view of RBV includes people, capabilities and financial resources,
we did not focus on financial resources allocated to strategic initiatives identified in
the two systems, assuming that financial resources have been made available by top
JSMA management to allow successful implementation. Further, the RBV perspective places
7,3 increased attention on the development of “dynamic capabilities” and “productive
resources” as potential sources of competitive advantage (Penrose, 1959). The research
team focussed great attention on these aspects of the RBV perspective when analyzing
descriptive statistics and qualitative data describing strategic initiatives.
Results center around the qualitative, descriptive nature of the first question,
256 assuring that the respondents agree on the number and nature of each initiative
identified. We approached the results of the administrators’ interviews with the
purpose of understanding the nature of each strategic initiative. Similarities and
differences were identified based on how alike the assigned title, purpose and
descriptions of the initiatives were across the two health systems using
content-analytic summary tables. Coding of the interview transcripts was performed
by teams of two researchers with the addition of a third independent coder who
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validated the coding and helped in situations when the first two coders disagreed.
Findings
The 61 interview participants in the two health systems had between 1 and 41 years of
healthcare experience, had been at their current organization between six months to 39
years, and included 19 physicians (physician administrators and clinicians). The
interviewees were split equally in terms of gender: 29 females and 32 males. At the
Children’s Health System the majority of the interviewees held positions of Director/Chief/
MD, Vice President or Senior Vice President. The Multi-Hospital Health Systems
interviewees mostly held positions of Executive Vice President/President, Senior Vice
President, or Vice President. A complete profile of the interviewees and the two health
systems is presented in Table I. Detailed discussion of key staff members and leaders as
sources of “distinctive competencies” follows in the discussion of results linked to the
implementation of strategic initiatives. In general, we considered organizational capabilities
that are distinctive enough such that they might confer competitive advantage to the firm
as “distinctive competencies” and explained them as such (Wernerfelt, 1984).
Results by health system – the children’s health system
This organization was pursuing eight strategic initiatives including:
(1) an inpatient quality and patient safety program;
(2) a medical education consolidation initiative which included the restructuring
and formalization of the relationship with a medical school in order to ensure a
continuing supply of medical providers;
(3) implementation and integration of a new EMR (EPIC);
(4) a culture of Cost Containment initiative to better manage utilization of
resources;
(5) a new clinical building to house an innovative program and a satellite hospital
to support a new clinical program initiative;
(6) various coordinated patient flow improvement initiatives across the system;
(7) a research center involving large investments in research initiatives and a new
research building; and
(8) launching of a physician service organization to serve as a hospital-based
billing and collecting service for contracted physicians’ professional fees.
The multi-hospital health system Healthcare
At the time of the study, five initiatives designed to transform its 25 hospitals were strategic
being pursued as part of the system strategic plan, each associated with specific goals
to meet over the next five to ten years. These initiatives included: management
(1) a quality and safety initiative, which focusses on reducing medical errors;
(2) a culture change initiative, including application to the Malcolm Baldrige 257
National Quality Award program;
(3) a physician engagement initiative, through which the health system desires to
advance physician alignment with the organization;
(4) a cost-effectiveness initiative which is intended to help the organization to
more effectively manage resources; and
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(5) a provider and coordinator of care initiative which is designed to align and
integrate patient care and coordination throughout the system.
A total of 13 strategic initiatives were identified across the two health systems.
The Multi-Hospital Health System did not identify any building projects. Results
presented in Table II list each initiative identified in the two settings and present the
number of key managers engaged in each strategic change initiative, average time spent
on transformations, and the average rating of the transformation by respondents in
terms of how mission critical they perceive the transformation to be for the organization.
The number of key managers the Children’s Health System had engaged in its eight
strategic change initiatives ranged from 11 to 34 members (including administrators
and managers at many levels of the organizations). The Patient Flow initiative had the
fewest key personnel engaged, while the culture initiative, which spanned across
Comparative results
Table III illustrates how the research team grouped the strategic initiatives together
based on observed similarities in focus and nature of the initiatives. There are clearly
Mission Number of key
Healthcare
Average critical personnel strategic
Organization Initiative % time rank involved management
Health System Quality 17.5 1 13
Children’s
Hospital Quality/patient safety 17.5 1 21 259
Health System Physician engagement 20.6 3 14
Children’s Physician services
Hospital organization 12.8 6 24
Health System Cost-effectiveness 17.1 4 15 Table III.
Children’s Comparison of strategic
Hospital Culture/cost containment 25.7 3 34 initiative groups by
Health System Culture 23.8 2 16 health system
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more similarities than differences between the two health systems when examining
their strategic initiatives. The system leaders even use similar titles and names for the
initiatives that are similar in nature. We found that seven out of 13 initiatives identified
clearly fell into three common groups of strategic initiatives across health systems.
Both health systems seem to be engaged in initiatives driven by external requirements
and industry standards for quality and patient safety, expected reimbursement
changes that will require a closer partnership with physicians, and the need for cost
containment.
Strategic initiatives that were identified as similar across the two systems were
grouped together and compared within each of three strategic initiative groups. The
three resulting strategic initiative groupings are: Quality and Quality/Patient Safety;
Physician Engagement and the PSO; and culture and Cost Containment (Table III). The
strategic initiatives that did not group are the two building and the medical
consolidation projects within the Children’s Hospital System and the Provider and
Coordinator of Care initiative pursued by the Multi-Hospital System. Based on
respondents’ descriptions, the building projects were related to further vertical
integration of the Children’s Health System driven partly by mission and scientific
advances that make women’s health services an extension of pediatric specialties;
while the Provider and Coordinator of Care initiative was an opportunity for the
Multi-Hospital System to leverage its horizontally integrated system to benefit from
future population health based models of reimbursement. It is important to note that
the Multi-Hospital System’s Provider and Coordinator of Care initiative is very similar
to the well-established and integrated primary care provider network at the Children’s
Health System. Both systems demonstrate significant attention in strategy to ensuring
responsiveness to a changing external resource environment. In both, finance related
initiatives and physician engagement initiatives are clearly connected to the external
resource considerations and demands linked to healthcare reform, which is aligned
with the RDT point of view. The quality and culture initiatives were driven by both
RDT (via value-based purchasing and patient satisfaction reporting requirements)
and internal resource capabilities and allocation considerations in both health
systems. The building of a maternity center at the Children’s Health System and a new
research institute was also driven by a combination of external and internal resource
considerations.
JSMA Research limitations
7,3 This study has two general research limitations. First, the results of this comparative
study are based on only two settings, although both systems were multi-hospital
systems operating in highly competitive market areas. Second, this study did not
consider financial resources allocated to implement strategy by measuring actual
dollar amounts. However, the RBV related elements studied include number of key
260 managers, time consumption, and the combination and coordination of these human
resources and capabilities, which do indirectly address some financial considerations.
We hope to expand this work in progress in future multi-site study by applying
additional elements of the RBV framework.
Discussion
The results from the comparative case study, combined with our review of RDT and
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RDT
Scarcity of Resources
Multiple
Strategic
Strategic Strategic Initiatives
Alternatives Decision &
Implementation
Planning
Capital Resources
RBV
Figure 1.
Strategic decision-making
Human Resources External Environment: Highly Competitive
framework – role of RDT
and RBV in the strategic
management process Allocation of key Staff and Talent
Investment in and deployment of key management resources and talent to effectively Healthcare
implement strategy will over time build larger organizational capacity designed to take strategic
advantage of external environmental challenges requiring industry wide quality and
efficiency gains (Kash et al., 2013) management
Contribution to knowledge and theory
Based on our results and the proposed healthcare strategic management framework, 261
healthcare systems generally take on an external environmental perspective in order
to establish strategic choice and, as a result, develop similar strategic initiatives.
This process is theoretically driven by the RDT components of a highly regulated and
uncertain external environment that hospitals are facing today. The internal perspective
is not as prevalent in strategic decision making, but plays a greater role in the
implementation phase, through offering key human resources and organizational capacity
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Practice implications
Healthcare strategic planning conversations are often centered on shared external
uncertainties faced by all US hospitals, including health care reform, specific
reimbursement and program spending cuts, and other payment incentives. Solutions
to these uncertainties often result in similar strategic decisions, indicating that
today’s healthcare organization are often first focussed on external environmental
requirements (Swayne et al., 2006).
JSMA A compliment to this external view in the early stages of the strategic planning
7,3 process (the situation analysis stage) is the RBV, which takes an internal orientation
by systematically evaluating relevant organizational resources, which could present
potential competitive advantages. The RBV indicates that organizations should
focus on combinations of rare resources that promote an organization’s competitive
advantage (Newbert, 2008). It is of particular interest to the healthcare strategic
262 planning and decision making process as it helps organizations identify “distinctive
competencies” in a highly innovation-driven market often expected to be disrupted
by low cost-high value substitutes to traditional medical care models (Wernerfelt,
1984). When healthcare organizations combine the internal RBV perspective with
relevant external environmental factors, they are able to develop differentiation and/or
diversification strategies focussing the organization on specific markets or specialty
services (Mahoney and Pandian, 1992). In an ever evolving, and complex healthcare
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