Phi 410 Study Guide

KENYATTA UNIVERSITY

SCHOOL OF PUBLIC HEALTH

DEPARTMENT OF HEALTH MANAGEMENT AND INFORMATICS

PHI 410: STRATEGIC MANAGEMENT NOTES

KENYATTA UNIVERSITY
SCHOOL OF PUBLIC HEALTH
DEPARTMENT OF HEALTH MANAGEMENT AND INFORMATICS

PHM 407: STRATEGIC MANAGEMENT

LECTURER: GIFTON MKAYA

COURSE OUTLINE

COURSE OBJECTIVES

Broadly, the course is intended to examine in greater depth aspects of strategy analysis, strategy formulation, implementation and evaluation and to specifically:

1. Enhance the student’s understanding of strategic requirements of organization.

2. To develop an appreciation of the dynamic and intricate external environment within which
organizations functions and the need to plan and initiate appropriate responses.

3. To develop an understanding of the intricacies of general management and the role of strategic management in the formulation and implementation of appropriate strategies in a healthcare and other organizations.

TEACHING METHOD

The course will be taught by way of lectures, case studies, class presentations and discussions. Students will be expected to complete regular readings as well as written assignments.

COURSE CONTENT

1. Introduction and General overview • Definition, • Theories • Practices and concepts 2. Strategic planning process

• Vision,/mission/ core values

• Internal strengths and weaknesses External opportunities and threats 3. Strategic Analysis:

• Internal analysis

• External analysis

• Industry analysis

4. Strategic Formulation

• Creating and sustaining competitive advantages

• Tips on creating competitive advantage

• Generic strategies

• Choice of strategy

5. Strategy Implementation

• strategic control

• Corporate governance,

• Creating effective organizational designs

6. Strategy Evaluation

• Strategy review

• Evaluation and control

READING MATERIALS

1. Johnson, G. and Scholes, K.R. (2002), Exploring Corporate Strategy: 6th Edition, Prentice Hall, London.

2. Porter, M.E. Michael Porter on Competition. Boston, MA: Harvard Business School Press, 1998.

3. Thompson Jnr, Arthur A, and A.J.Strickland III, Strategic Management: concepts and cases (11th Edition), BPI, Homewood, Illinois 1999.

4. Pearce II, John A. and Richard B. Robinson Jnr., Strategic management: Formulation, implementation and Control (6th edition), Irwin, Chicago 1997.

5. Dr. John Yabs (2010): Strategic planning practices:,A Kenyan perspective

COURSE EVALUATION

Continuous Assesment Tests and Assignments 30%

End of Semester Final Examination 70% Total 100%

1.

0. INTRODUCTION AND GENERAL OVERVIEW

1.1Background

Strategic management has its roots in a Greek word ‘strategos’ which means general or grand. It was a term that the Greeks used a lot for military purposes as they were making plans to fight and conquer their enemies. Therefore the concept of strategy is very ancient which originated from success in war under adversarial conditions.

In war, a leader must be a strategist who should be in position to see the beginning to the end, putting in place all the tactics he will need to overcome the enemy.

In business, the leader is a manager and the “enemy” is competition. Until recently, the business arena was very calm, hence no competition. However, in the recent past the business environment has become turbulent, due to;

• Proliferation of business entities

• Imitations (counterfeiting)

• Increased environmental instability and unpredictability

Due to the above reasons, there is need to survive and hence the need for strategic planning/ management.

1.2 What is strategic management? (Definitions)

1. It is the systematic analysis of the factors associated with customers and competitors and the organization itself to provide the basis for maintaining optimum management practices

2. Strategic management is the set of managerial decision and action that determines the long-run performance of a corporation. It includes environmental scanning (both external and internal), strategy formulation (strategic or long range planning), strategy implementation, and evaluation and control. The study of strategic management therefore emphasizes the monitoring and evaluating of external opportunities and threats in lights of a corporation’s strengths and weaknesses.

1.3 Importance of Strategic Planning/management

Generally Strategic planning serves a variety of purposes in organizations which include:
1. Serves as radar to the mgt and the entire organization giving the direction to follow.
2. Clearly define the purpose of the organization and to establish realistic goals and objectives consistent with that mission in a defined time frame within the organization’s capacity for implementation.
3. Communicate those goals and objectives to the organization’s constituents.
4. Develop a sense of ownership of the plan.
5. Ensure the most effective use is made of the organization’s resources by focusing the resources on the key priorities (i.e., ensures proper allocation of resources)
6. Provide a base from which progress can be measured and establish a mechanism for informed change when needed.
7. Ensures co-ordination in the whole organization. 8. Enables managers to be more proactive instead of being reactive. 9. Enables an organization to respond to winds of change.
N/B: A organization/hospital/health system should have a strategic plan to: • Improve the organization/hospital’s performance • Determine the organization/hospital’s future direction • Provide high quality health care services • Optimize resource allocation • Meet accreditation and regulatory requirements • Meet the organization/hospital’s vision and mission statement • Maximize its chances for success

Basic model of strategic management

[pic]

1.4 Strategic management Concepts
1. Strategy- Alfred D. Chandler defined strategy as “the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources for carrying out these goals.”
2. Strategic planning- it is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. In order to determine where it is going, the organization needs to know exactly where it stands, then determine where it wants to go and how it will get there. The resulting document is called the "strategic plan”- which is a document derived from the process of strategic planning which has the following uses; ➢ Serve as a framework for decisions or for securing support/approval. ➢ Provide a basis for more detailed planning. ➢ Explain the business to others in order to inform, motivate & involve. ➢ Assist benchmarking & performance monitoring. ➢ Stimulate change and become building block for next plan.
A strategic plan should not be confused with a business plan. The former is likely to be a (very) short document whereas a business plan is usually a much more substantial and detailed document. A strategic plan can provide the foundation and frame work for a business plan.
*A strategic plan is not the same thing as an operational plan. The former should be visionary, conceptual and directional in contrast to an operational plan which is likely to be shorter term, tactical, focused, implementable and measurable. As an example, compare the process of planning a vacation (where, when, duration, budget, who goes, how travel are all strategic issues) with the final preparations (tasks, deadlines, funding, weather, packing, transport and so on are all operational matters).
3. Strategic Plans –these are broad plans developed by top managers to guide the general direction of the organization.

4. Tactical plans: they are concerned with how to implement the strategic plans and they have a moderate scope. They are developed by middle managers

5. Operational plans: they have the narrowest scope and they deal with the fairly small set of activities. They fall in many types that include;

i) Standing plans- they are developed to handle recurring and relating routine situations. They enhance efficiency by routinization of decision making eg policies, standard operating procedures, rules and regulations etc

ii) Single use plan- they are developed to carry a course of action that is not likely to be repeated in the future. They are of two types-

a) Programs- it is a single use plan for large set of activities e.g. it may consist of identifying procedures for introducing a new product line, opening a new facility or changing the organization’s mission.

b) Projects-it is similar to a program but generally of less scope and complexity. A project may be part of a broader program.

Strategic thinking • Is defined as the generation and application of unique business insights and opportunities, to create competitive advantage for a firm or organization. • It can be done individually, as well as collaboratively among key people who can positively alter an organization’s future. Group strategic thinking create more value by enabling a provocative and creative dialogue, where we gain other people's perspectives on critical and complex issues which is an important benefit in today's highly competitive and fast-changing business landscape. • Strategic thinking is about finding and developing a strategic foresight capacity for an organization, by exploring all possible organisational futures, and challenging conventional thinking to foster decision making today.
| |
| |

• Strategic thinking focuses on finding and developing unique opportunities to create value by enabling a provocative and creative dialogue among people who can affect a company’s direction. It is the input to strategic planning—good strategic thinking uncovers potential opportunities for creating value and challenges assumptions about a company’s value proposition, so that when the plan is created, it targets these opportunities. Strategic thinking is a way of understanding the fundamental drivers of a business and rigorously (and playfully) challenging conventional thinking about them, in conversation with others.

6. Vision statement/ statement of intent - Vision Statements defines the organizations reason for existence, in terms of the organization's values (values are guiding beliefs about how things should be done.) The vision statement communicates both the purpose and values of the organization. For employees, it gives direction about how they are expected to behave and inspires them to give their best. Shared with customers, it shapes customers' understanding of why they should work with the organization.

7. Mission statement - defines the organization's purpose and primary objectives. Its prime function is internal – to define the key measure or measures of the organization's success – and its prime audience is the leadership team and stockholders.

8. Goals and objectives- A goal or objective is a desired result an organization envisions, plans and commits to achieve—a personal or organizational desired end-point in some sort of assumed development. Many people endeavor to reach goals within a finite time by setting deadlines.It is roughly similar to purpose or aim, the anticipated result which guides reaction, or an end which is an object, either a physical or abstract object that has intrinsic value.

1.5 Theories of strategic management
The development of the field of strategic management within the last two decades has been dramatic. While its roots have been in a more applied area, often referred to as business policy, the current field of strategic management is strongly theory based, with substantial empirical research, and is eclectic in nature. This review of the development of the field and its current position examines the field’s early development and the primary theoretical and methodological bases through its history. Early developments include Chandler’s (1962) Strategy and Structure and Ansoff’s (1965) Corporate Strategy. These early works took on a contingency perspective (fit between strategy and structure) and a resource-based framework emphasizing internal strengths and weaknesses. Perhaps, one of the more significant contributions to the development of strategic management came from industrial organization (IO) economics, specifically the work of Michael Porter. The structure-conduct-performance framework and the notion of strategic groups, as well as providing a foundation for research on competitive dynamics, are flourishing currently. The IO paradigm also brought econometric tools to the research on strategic management. Building on the IO economics framework, the organizational economics perspective contributed transaction costs economics and agency theory to strategic management. More recent theoretical contributions focus on the resource-based view of the firm. While it has its roots in Edith Penrose’s work in the late 1950s, the resource-based view was largely introduced to the field of strategic management in the 1980s and became a dominant framework in the 1990s. Based on the resource-based view or developing concurrently were research on strategic leadership, strategic decision theory (process research) and knowledge-based view of the firm. The research methodologies are becoming increasingly sophisticated and now frequently combine both quantitative and qualitative approaches and unique and new statistical tools.
NB/ Strategic management is a young field of study and most of the theories are still in the forming stage and have not crystallized into proper theories.
1.6 Best Practices of strategic planning

The following are some of the best practices of strategic planning:

1. Pull together a diverse, yet appropriate, group of people to make up your planning team. Diversity leads to a better strategy. Bring together a small core team — between six and ten people — of leaders and managers who represent every area of the company. 2. Allow time for big picture, strategic thinking. We tend to try to squeeze strategic planning discussions in between putting out fires and going on a much needed vacation. But to create a strategic plan, your team needs time to think big. Do whatever it takes to allow that time for big-picture thinking (including taking your team off-site). 3. Get full commitment from key people in your organization. You can’t do it alone. If your team doesn’t buy into the planning process and the resulting strategic plan, you’re dead in the water. 4. Allow for open and free discussion regardless of each person’s position within the organization. Someone who doesn’t have any stake in your success (an outsider) should be hired to facilitate the planning sessions. Active participation should be encouraged, but no one person should dominate the session. 5. Think about execution before you start. It doesn’t matter how good the plan is if it isn’t executed. 6. Use a facilitator, if your budget allows. Hire a trained professional who has no emotional investment in the outcome of the plan. An impartial third party can concentrate on the process instead of the end result and can ask the tough questions that others may fear to ask. 7. Make your plan actionable. To have any chance at implementation, the plan must clearly articulate goals, action steps, responsibilities, accountabilities, and specific deadlines. And everyone must understand the plan and their role in it. 8. Don’t write your plan in stone. Good strategic plans are fluid, not rigid and unbending. They allow you to adapt to changes in the marketplace. Don’t be afraid to change your plan as necessary. 9. Clearly articulate next steps after every session. Before closing the strategic planning session, clearly explain what comes next and who’s responsible for what. When you walk out of the room, everyone must fully understand what they’re responsible for and when to meet deadlines.
10.
Make strategy a habit, not just a retreat. Review the strategic plan for performance achievement no less than quarterly and as often as monthly or weekly. Focus on accountability for results and have clear and compelling consequences for unapproved missed deadlines.

7. The players and their roles in organization/hospitals’ strategic planning process

The strategic planning process is said to be an “orchestra like” activity, meaning many players are involved. Therefore in the context of a organization/hospital, the following players are involved:

1. Governing board(BOD)
THE GOVERNING BOARD HAS THE PRINCIPAL RESPONSIBILITY FOR STRATEGIC PLANNING. THE BOARD GUIDES THE DEVELOPMENT OF THE PLAN CONSISTENT WITH THE ORGANIZATION/HOSPITAL’S MISSION, PHILOSOPHY AND VALUES. THE ROLE OF THE GOVERNING BOARD IN STRATEGIC PLANNING PROCESS INCLUDES:
Approval of the organization/hospital’s vision, mission statement and goals
Suggestion and considerations of strategies
Approval of the strategic plan and its implementation
Monitoring and updating the plan and its implementation
The chair of the Governing Board appoints the Strategic Planning Committee.

2. Strategic planning committee
The Strategic Planning Committee is responsible
for: Organizing the planning process
Scheduling and conducting meetings
Focusing the planning process
Ensuring that Board and community values are reflected in the plan
Developing the strategic plan
Periodically reviewing the organization/hospital’s mission and vision statement
Monitoring trends, demographics, technology and community needs
Reviewing and approving annual strategic planning goals and objectives
Monitoring progress toward objectives.

3. Chief executive officer (CEO)
THE ORGANIZATION/HOSPITAL’S CEO IS INVOLVED IN THE PLANNING PROCESS AS A STRATEGIST, ORGANIZER, TACTICIAN AND FACILITATOR. THE CEO IS RESPONSIBLE FOR CARRYING OUT THE STRATEGIC PLAN AFTER IT IS APPROVED BY THE BOARD.

4. Medical staff
INVOLVEMENT OF THE MEDICAL STAFF IN STRATEGIC PLANNING IS FUNDAMENTAL TO ENSURING THE DEVELOPMENT AND IMPLEMENTATION OF THE STRATEGIC PLAN. THIS INVOLVEMENT CAN TAKE SEVERAL FORMS. REPRESENTATIVES OF THE MEDICAL STAFF SHOULD SERVE ON THE STRATEGIC PLANNING COMMITTEE. THE MEDICAL STAFF MAY HAVE ITS OWN PLANNING RESPONSIBILITIES AND, UPON COMPLETION OF THOSE RESPONSIBILITIES, REPORT THE RESULTS TO THE STRATEGIC PLANNING COMMITTEE.

5. Department heads
ORGANIZATION/HOSPITAL DEPARTMENT HEADS MAKE AN EXTREMELY VALUABLE CONTRIBUTION TO THE STRATEGIC PLANNING PROCESS. THEIR INTERNAL, FUNCTIONAL PLANNING SERVES A MAJOR ROLE IN DEVELOPING OBJECTIVES, WEIGHING ALTERNATIVES AND IMPLEMENTING THE BOARD-APPROVED PLAN.

6. Patients and community
THE ROLE OF PATIENTS AND THE COMMUNITY IN THE STRATEGIC PLANNING PROCESS MERITS SPECIAL CONSIDERATION, FOR THESE GROUPS PROVIDE INFORMATION WHICH NOURISHES TWO VITAL STEPS IN THE ORGANIZATION/HOSPITAL’S PLANNING: ANALYSIS OF THE INTERNAL AND EXTERNAL ENVIRONMENTS, AND DEVELOPMENT OF THE ORGANIZATION/HOSPITAL’S MISSION. WHILE ACTUAL PARTICIPATION BY THESE GROUPS IN THE PROCESS MAY BE LIMITED, COMMUNITY AND PATIENT USE OF AND ATTITUDES ABOUT THE ORGANIZATION/HOSPITAL ARE REFLECTED IN ALL STEPS OF THE PLANNING PROCESS.

7. Planner/Administrator
THE ORGANIZATION/HOSPITAL PLANNER IS INVOLVED IN STAFFING ALL ASPECTS OF THE PLANNING PROCESS.
THE PLANNER PERFORMS FEASIBILITY AND PLANNING STUDIES, DEVELOPS THE ENVIRONMENTAL ASSESSMENT FOR THE STRATEGIC PLANNING COMMITTEE’S CONSIDERATION AND PROVIDES ASSISTANCE IN DEVELOPING THE PLAN’S FORMAT, TIMETABLES AND EVALUATION PROCEDURES. IN ORGANIZATION/HOSPITALS WITHOUT A PLANNER, THESE FUNCTIONS ARE THE RESPONSIBILITY OF THE ORGANIZATION/HOSPITAL ADMINISTRATOR.

8. Consultants
CONSULTANTS ARE HELPFUL IN THE STRATEGIC PLANNING PROCESS TO:
Prepare the Governing Board for the planning process through education or retreats
Give an objective assessment of the organization/hospital’s strengths and weaknesses
Steer the Board and Strategic Planning Committee through the process
Keep the planning process on track
A consultant cannot substitute for the Board’s unique knowledge of the organization/hospital and its mission. The consultant is not the planner but only a facilitator.

8. ACTIVITIES

1. As the manager of your organization/hospital/department, attempt to identify members of your staff who could form the Organization/hospital’s strategic management team.

2. Interrogate some of these members to get their views on strategic planning in your
organization/hospital/department.

3. Are their views in tandem with the views learnt in this topic?

9. SELF-TEST QUESTIONS

1. What are the strategic management responsibilities of a organization/hospital manager?

2. Distinguish between strategic and operational management

3. Explain why in the recent past, there has been a paradigm shift from operational management to strategic management.

4. State and explain the benefits that would accrue to a organization/hospital that is keen in strategic planning.

1.9 GLOSSARY 1. Strategy: the direction and scope of an organization over the long term , which achieves advantages for the organizations through its configuration of resources within a changing environment, to meet the needs of markets and fulfill stakeholders expectations (Johnson and scholes, 2008)

2.0 STRATEGIC MANAGEMENT PROCESS

2.1 INTRODUCTION

In this chapter, the step by step strategic management process is discussed. The strategic management process means defining the organization’s strategy. It is also defined as the process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance. Strategic management is a continuous process that appraises the business and industries in which the organization is involved; appraises its competitors; and fixes goals to meet the entire present and future competitor’s and then reassesses each strategy. These steps involved include: 1. Environmental scanning 2. Strategy formulation 3. Strategy implementation 4. Strategy Evaluation

2. TOPIC OBJECTIVES

By the end of this topic, you should be able apply the strategic management process in your organization/hospitals
3. ENVIRONMENTAL SCANNING

Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes. It helps in analyzing the internal (e.g. availability of skilled health workers, competitive pricing of services, unique specialized clinics etc), external factors (e.g. Government regulation, demands by stakeholders, competition from other service providers etc) influencing a organization/hospital. After executing the environmental analysis process, the management of the organization/hospital should evaluate it on a continuous basis since the environment is very dynamic.

4. STRATEGY FORMULATION

Strategy formulation is the process of deciding best course of action for accomplishing organization/hospitals’ objectives and hence achieving organizational purpose. After conducting environment scanning, managers formulate corporate, business and functional strategies.

5. STRATEGY IMPLEMENTATION

Strategy implementation implies making the strategy work as intended or putting the organization/hospital’s chosen strategy into action. Strategy implementation includes designing the organization/hospital’s organization structure (organo-gram), distributing resources (human, finances, commodities etc) developing decision making process, and managing human resources.

6. STRATEGY IMPLEMENTATION

Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well as it’s implementation meets the objectives of the organization/hospital.

7. SUMMARY The strategic management components as summarized in figure 2.8 below are steps that are carried, in chronological order, when creating a new strategic management plan. Organization/hospitals that have already created a strategic management plan will revert to these steps as per the situation’s requirement, so as to make essential changes. Strategic management is an ongoing process. Therefore, it must be realized that each component interacts with the other components and that this interaction often happens in chorus. Figure 2.7: Components of Strategic Management Process [pic]

Strategic management is an ongoing process. Therefore, it must be realized that each component interacts with the other components and that this interaction often happens in chorus.

8. ACTIVITIES

Do a simple assessment of your organization/hospital strengths in terms of resource endowment to establish whether the strategic process can be executed in this facility.

[pic]

3.0 STRATEGIC ANALYSIS FOR A ORGANIZATION

3.1 INTRODUCTION

In this chapter, you will learn in details the various levels in which strategic analysis can be performed in a organization/hospital and the tools used. These levels are:
1. Industry analysis
2. External analysis
3. Internal analysis

2. OBJECTIVES By the end of this topic, you should be able to perform a complete strategic analysis for your organization/hospital.

3. INDUSTRY ANALYSIS

3.3.1 Introduction

An industry is a group of firms whose products have similar attributes so that they compete for the same buyers e.g. health care industry.

Industries differe in terms of characteristics and attractiveness or profitability.

3.3.2 Purpose for industry Analysis

The main purpose is to identfy opportunities and threats posed by he state of the industry so as to match strategy to industry conditions. For examle making entry and exit decisions i.e. entry and exit strategies may be necessary depending on industry attractiveness.

3.3.3 Key issues in Industry Analysis

These are the issues that constitute the frame work of industry analysis.These issues include:

a. Degree of competition in the industry.

b. Dominant economic features.

c. Drivers of change in the industry.

d. Key success factors in the industry.

3.3.4 Industry competition

Industry competition depends on the structure of the industry as defined by forces affecting it. For example, in the health care industry these forces would include; availability of appropriate health infrastructure (buildings and medical equipment), qualified health workers, pharmaceutical and non pharmaceutical commodities, quality of service among others.

These forces would determine profitability or attractiveness of the industry.

Understanding the industry profitability or attractiveness is important for entry, exit and other strategic decisions.

Porter's five forces analysis is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard school in 1979. This framework is used to understand industry competition. Porter discuses five forces that determine the nature of competition in an industry. These are; threat of new entrants, rivalry among industry competitors, threat of substitute products, bargaining power of suppliers and bargaining power of customers (buyers). 1. Threat of new entrants This depends on entry barriers such as; • Economies of scale • Product differences • Brand identity • Switching costs • Capital requirements • Access to distribution • Government policy 2. Rivalry within the industry This depends on factors such as; • Industry growth rate • Product differences • Brand identity • Switching costs • Exit barriers 3. Threat of substitute products Substitute here refers to products other than industries that can be used to substitute the industry’s products. This depend on factors such as; • Relative price performance of substitutes • Switching price performance of substitutes • Switching costs • Buyer propensity to substitute 4. Supplier power This depends on factors such as; • Differentiation of inputs • Switching costs of suppliers and firms in the industry • Presence of substitute inputs • Supplier concentration • Threat of forward integration relative of backward integration by firms in the industry. 5. Buyer power Depends on factors such as; • Buyer concentration • Buyer volume • Buyer switching costs relative to firms switching costs • Ability to backward integrate • Substitute products • Price sensitivity • Product difference • Brand identity

3.3.5Dominant economic features.

A dominant feature in an industry is an outstanding factor that characterise the industry. Extreme factors rather than moderate tend to be outstanding e.g.quality of service is a dominat factor in the health care industry

Other examples of dominant features in this industry are: market size, market growth rate, scope of rivalry (whether local, national, regional or global), Number of competitors, profitability, resource requirements among others.

3.3.6 Drivers of Change

A driver of change in an industry refers to what is causing change in that industry.

Examples of drivers of change include: changes of long term industry growth rate, buyers or users of the product, use of product, product innovation, technological change, globalization, government policy changes.

3.3.7 Key success factors

A success factor in an industry is a factor that enables firms in the industry to succeed. These may be many but key ones or those with strongest effect are few.

Key success factors in health care industry include: Management, health workers (HR), health infrastructure (buildings and medical equipment), health commodities, operation costs, service user fees, finance, quality of service, research and development, health data among others.

4. EXTERNAL ANALYSIS

Organizations including organization/hospitals depend on their external environment for survival. External analysis is conducted to generate information about this external environment. The analysis includes:

a) Environmental scanning- macro-environment

b) Competitor analysis

c) Customer analysis

1. Environmental scanning

This is an assessment of the assessment of the macro-environment factors that affect would affect the organization/hospital. Environmental scanning can be done internally or outsourced from consultants. The strategic management tool that can be used to perform environmental scanning of a organization/hospital is PESTEL (P=Political-legal, E=Economic, S=Socio-cultural, T=Technological, E=Environmental, and L= legal factors) i. Political environment: this involves looking at how the political factors will impact both positively and negatively on the business of the organization/hospital. These factors include; Taxation Policy, Trade regulations, Governmental stability, Unemployment Policy etc ii. Economic environment- looking at economic factors that will impact on the business of the organization/hospital. Inflation rate, interest rates, Growth in spending power, Rate of people in a pensionable age, poverty levels, etc. iii. Social-cultural environment-The social environment contains many possible strategic factors that would affect a organization/hospital include: age distribution, education levels, income level, consumerism, diet & nutrition, population growth, life expectancies, Religion , alternative medicine etc. iv. Technological factors/ Ecology- changes in technology affect the organization/hospitals’ processes and patients’ wilingliness to consume medical service. v. Environmental factors- looking at the country’s laws that deal with organization/hospital waste management/ disposal, energy/water consumption, pollution monitoring etc. vi. Legal factors- include; Employment act, Occupation safety and Health act, Product safety, advertising regulations etc.

3.4.2 Competitor analysis Competitor analysis is an assessment of the strengths and weaknesses of current and potential competitors of the Organization/hospital. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats. Profiling coalesces all of the relevant sources of competitor analysis into one framework in the support of efficient and effective strategy formulation, implementation, monitoring and adjustment. Competitor analysis is an essential component of corporate strategy. It can be done at 3 levels viz: a) Constructing a competitor array b) Competitor profiling c) Media scanning d) Predicting new competitors

Constructing a competitor array
This is a common and useful technique is competitor analysis. The steps include: 1. Define your industry - scope and nature of the industry 2. Determine who your competitors are 3. Determine who your customers are and what benefits they expect 4. Determine what the key success factors are in your industry 5. Rank the key success factors by giving each one a weighting - The sum of all the weightings must add up to one. 6. Rate each competitor on each of the key success factors 7. Multiply each cell in the matrix by the factor weighting.

This can best be displayed on a two dimensional matrix – competitors (Organization/hospitals) along the top and key success factors down the side. An example of a competitor array is as shown in table 3.5.2 below

Table 3.5.2: Competitor array

|Key Industry |Weighting |Organization/hospital |Organization/hospital |Organization/hospital |Organization/hospital |
|Success Factors | |#1 rating |#1 weighted |#2 rating |#2 weighted |
|1.Quality of service |0.4 |6 |2.4 |3 |1.2 |
|2 .Commodities storage |0.3 |4 |1.2 |5 |1.5 |
|3. Professionalism |0.2 |3 |0.6 |3 |0.6 |
|4 - Product innovation |0.1 |7 |0.7 |4 |0.4 |
|Totals |1.0 |20 |4.9 |15 |3.7 |

In this example organization/hospital number1 is rated higher than organization/hospital number2 on product innovation ability (7 out of 10, compared to 4 out of 10) and quality of service (6 out of 10), but organization/hospital number 2 is rated higher on commodities storage (5 out of 10). Overall, organization/hospital number one is rated slightly higher than organization/hospital number two (20 out of 40 compared to 15 out of 40). When the success factors are weighted according to their importance, organization/hospital number1 gets a far better rating (4.9 compared to 3.7).
Competitor profiling
The strategic rationale of competitor profiling is powerfully simple. Superior knowledge of rivals offers a legitimate source of competitive advantage. The raw material of competitive advantage consists of offering superior clients/patient value in the organization/hospital’s chosen market. The definitive characteristic of client value is the adjective, superior. Client value is defined relative to rival offerings making competitor knowledge an intrinsic component of corporate strategy. Profiling facilitates this strategic objective in three important ways. ➢ First, profiling can reveal strategic weaknesses in rivals that the firm may exploit. ➢ Second, the proactive stance of competitor profiling will allow the firm to anticipate the strategic response of their rivals to the firm’s planned strategies, the strategies of other competing firms, and changes in the environment. ➢ Third, this proactive knowledge will give the firms strategic agility. Offensive strategy can be implemented more quickly in order to exploit opportunities and capitalize on strengths. Similarly, defensive strategy can be employed more deftly in order to counter the threat of rival firms from exploiting the firm’s own weaknesses.
A common technique is to create detailed profiles on each of your major competitors. These profiles give an in-depth description of the competitor's background, finances, products, markets, facilities, personnel, and strategies. This involves: • Background o location of offices, plants, and online presences o history - key personalities, dates, events, and trends o ownership, corporate governance, and organizational structure • Financials o P-E ratios, dividend policy and profitability o various financial ratios, liquidity, and cash flow o profit growth profile; method of growth (organic or acquisitive) • Products o products offered, depth and breadth of product line, and product portfolio balance o new products developed, new product success rate, and R&D strengths o brands, strength of brand portfolio, brand loyalty and brand awareness o patents and licenses o quality control conformance o Reverse engineering • Marketing o segments served, market shares, customer base, growth rate, and customer loyalty o promotional mix, promotional budgets, advertising themes, ad agency used, sales force success rate, online promotional strategy o distribution channels used (direct & indirect), exclusivity agreements, alliances, and geographical coverage o pricing, discounts, and allowances • Facilities o plant capacity, capacity utilization rate, age of plant, plant efficiency, capital investment o location, shipping logistics, and product mix by plant • Personnel o number of key health workers and skill sets o strength of management, and management style o compensation, benefits, and employee morale & retention rates • Corporate and marketing strategies o objectives, mission statement, growth plans, acquisitions, and divestitures o Marketing strategies

Media scanning
Scanning competitor's ads can reveal much about what that competitor believes about marketing and their target market. Changes in a competitor's advertising message can reveal new product offerings, new production processes, a new branding strategy, a new positioning strategy, a new segmentation strategy, line extensions and contractions, problems with previous positions, insights from recent marketing or product research, a new strategic direction, a new source of sustainable competitive advantage, or value migrations within the industry. It might also indicate a new pricing strategy such as penetration, price discrimination, price skimming, product bundling, joint product pricing, discounts, or loss leaders. It may also indicate a new promotion strategy such as push, pull, balanced, short term sales generation, long term image creation, informational, comparative, affective, reminder, new creative objectives, new unique selling proposition, new creative concepts, appeals, tone, and themes, or a new advertising agency. It might also indicate a new distribution strategy, new distribution partners, more extensive distribution, more intensive distribution, a change in geographical focus, or exclusive distribution. Little of this intelligence is definitive: additional information is needed before conclusions should be drawn.

Predicting new competitors
In addition to analyzing current competitors, it is necessary to estimate future competitive threats. The most common sources of new competitors are: • Companies competing in a related product/market • Companies using related technologies • Companies already targeting your prime market segment but with unrelated products • Companies from other geographical areas and with similar products • New start-up companies organized by former employees and/or managers of existing companies
The entrance of new competitors is likely when: • There are high profit margins in the industry • There is unmet demand (insufficient supply) in the industry • There are no major barriers to entry • There is future growth potential • Competitive rivalry is not intense • Gaining a competitive advantage over existing firms is feasible

3.4.3 Customer analysis
Customer/client analysis is the process of determining customer segmentation, value, purchasing behavior and motivation in order to better target marketing and increase sales.
The crux of customer analysis is that all clients are not the same. Organization/hospitals have some clients who are worth than the others. They frequent the organization/hospital more often and thus consume the health services more than the others. Further, they are easy to deal with because they are easily satisfied with service rendered. They also have clients who make life miserable. They inundate customer service centers with calls and they are infrequently and are happy to visit other health facilities.
Organization/hospitals should pay more attention to the first group of clients and deal more cautiously with second group.

5. INTERNAL ANALYSIS

This deals with the assessment of the organization/hospital’s resource to identify its strengths and weaknesses. The assessment should be done as realistically as possible. This may require the input of an independent party.

The internal analysis considers the situation within the organization/hospital such as: • Key Resources (e.g. Finances and Key staff) • Organization/hospital’s culture • Organization/hospitals image • Organizational structure of the organization/hospital • Access to natural resources e.g. water source • Operational efficiency • Operational capacity • Brand/s awareness • Market share The strategic management tools that can be used to perform internal analysis are SWOT (situation analysis) and Value chain approach.

1. Situation analysis (SWOT analysis)

The purpose of situation analysis is to understand the organization/hospitals present situation and to some extent its background i.e. where it has come from and how it has come to the present. Understanding the position or situation of the organization/hospital requires identifying its strengths and weaknesses as well as the opportunities and threats facing it i.e. SWOT analysis.

SWOT analysis (alternately SLOT analysis) is a strategic management tool used to evaluate the Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in a organization such as a organization/hospital. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective.
Setting the objective should be done after the SWOT analysis has been performed. This would allow achievable goals or objectives to be set for the organization.
• Strengths: characteristics of the organization/hospital that gives it an advantage over others
• Weaknesses (or Limitations): are characteristics that places the organization/hospital at a disadvantage relative to others
• Opportunities: external chances to improve performance (e.g. provision of quality health services that will attract more clients).
• Threats: external elements in the environment that could cause trouble for organization/hospital.
Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs. First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated.
The outcomes of the situation analysis are usually documented and the contents of this document include: • Past changes and the organization/hospitals responses • Key achievements (e.g. reduced maternal mortality rates) • Key constraints (e.g. Inadequate finances) • Audit of current strategic plan, if any. • Key issues for future action ❖ Issues to be addressed include: • Financial performance ( past, present and future or trend) • Organizational culture • Market position • Customer satisfaction • Organizational systems • Competition ( past, present and future) • Developments in the external environment

2. Value Chain approach

The fundamental assumption I the value chain approach is that the basic purpose of business is to create and deliver value to customers. For organization/hospitals, they are supposed to give value to their clients/patients by offering quality health care.

The approach conceives value creation as a process consisting of distinct activities that are linked in some kind of a chain process. This process comprises a series of distinct activities rather than one activity and they are internal and not outsourced. Each activity adds to value and cost as well.

Some activities may add more to cost than value leading to very low profit margins. Such activities may be considered for business process re-engineering.

The value chain approach consists of the following major steps;

1. Disaggregate the organization into its separate value creation activities:

a) Primary activities which include:

• Inbound logistics e.g. purchases, receiving, storage, inspection and inventory management.

• Operations e.g. quality assurance, processing and maintenance

• Outbound logistics e.g. order processing, distribution and inventory management.

• Marketing and sales: research, planning and promotion

• Service: after sale services e.g. follow ups, complaints handling and re-assurance.

b) Support activities will include:

• Health infrastructure e.g. buildings, medical equipment and furniture

• Human resource management

• Technology development

The value chain model can be illustrated as in figure 3.5.2 below

Figure 3.5.2: Value chain model

Source: Michael E. Porter, Competitive Advantage

2. Determine the cost and value of each activity i.e. the profit the organization/hospital make in offering a value creation service. 3. Evaluate each margin of each activity to determine whether the activity represents a strength or weakness 4. Identify key issues as opposed to mere elephant issues. Key issues require strategic action.

6. ACTIVITIES

1. Refer to table 3.5.2 and construct a competitor array and use it to perform a competitor analysis for your organization/hospital. 2. Perform a situation analysis of your organization/hospital using the SWOT tool.

4.0 STRATEGY FORMULATION

4.1 INTRODUCTION
In this chapter, you will learn how to formulate strategy/ies for your organization/hospital. The steps involved in doing this are discussed which include; • Coming up with the organization/hospital’s vision and mission statement • Setting strategic objectives • Choice of Strategy

4.2 TOPIC OBJECTIVES

By the end of this topic, you should be able to formulate a strategic plan for your organization/hospital

3. VISION AND MISSION STATEMENT

Vision and Mission provide direction and scope for the Organization/hospital’s activities. They also provide guidance for the organization/hospital’s strategic objectives and strategies.

1. Vision

Vision addresses the question:where do we want to be? This is the first question that should be asked in the strategic planning process.

Vision refers to what an organization is trying to do or to be i.e. what it aspires to be in the future. It is the the organization’s ideal future or a dream reflecting its best.

A good vision incorporates a level or standared of performance, the very best attainable by the organization.

2. Mission

A Mission Statement defines the organization's purpose and primary objectives. Its prime function is internal – to define the key measure or measures of the organization's success – and its prime audience is the leadership team and stakeholders.

Mission Statement Creation

1. To create your mission statement, first identify your organization/hospital's "winning idea". 2. This is the idea or approach that will make your organization/hospital stand out from its competitors, and is the reason that clients will come to you and not your competitors (see example below). 3. Next identify the key measures of your success. Make sure you choose the most important measures (and not too many of them!) 4. Combine your winning idea and success measures into a tangible and measurable goal. 5. Refine the words until you have a concise and precise statement of your mission, which expresses your ideas, measures and desired result.
Example:
Take the example of XYZ hospital whose winning idea is "quality healthcare". The managers identify two keys measures of their success: Quality healthcare and customer satisfaction. They create the mission statement – which is the action goal that combines the winning idea and measures of success.
The mission statement of XYZ hospital will thus be:
"To become the number one hospital in the region offering the best quality health care, that is accessible and affordable to all with 98% customer satisfaction."

Vision Statement Creation

Once you've created your mission statement, move on to create your vision statement: 1. First identify your organization's mission. Then uncover the real, human value in that mission. 2. Next, identify what you, your customers and other stakeholders will value most about how your organization/hospital will achieve this mission. Distil these into the values that your organization/hospital has or should have. 3. Combine your mission and values, and polish the words until you have a vision statement inspiring enough to energize and motivate people inside and outside your organization/hospital.
Using the example mission statement developed for XYZ organization/hospital, the managers examines what the customers and other employees value about the mission.
The four most important things they identify are: quality service, affordability, and accessibility to healthcare. Therefore their vision will be:
"We help the families of this region live happier and healthier lives by providing quality healthcare that is affordable and open to all."

4. STRATEGIC OBJECTIVES

A strategic objective is an objective of medium and long term in nature that aims either at exploiting an opportunity or strength, or deals with a threat or weakness facing the organization.

Strategic objectives therefore are based on factors identified in environmental analysis. They take advantage of favourable factors and deal with unfavourable factors that are identified in external and internal analyses.

For example, due to advancement in communication technology (opportunity), XYZ organization/hospital may set itself for the following objective:

• In three years to come, at least 80% of XYZ organization/hospital clients should be able to book for clinics on-line

The objective will only be realistic if the organization/hospital is strong financially enough to be able to install the required information technology system (Strength).

The objective will be necessary if information technology was an area of weakness in this organization/hospital (Weakness)

To respond to the threat of competition (Threat), XYZ organization/hospital could set the following objectives.

• In three years to come, 60% of XYZ employees should have achieved have sub-specialties in their areas of specialization.

• In three years to come XYZ organization/hospital should achieve at least 95% customer satisfaction.

These two objectives will only be realistic if the organization/hospital is strong financially to be able to train its employees and as well improve its services. (Strength)

As is evident in from these examples, strategic objectives help align the organization/hospital’s strengths and weaknesses to the environment opportunities and threats.

4.4.1Characteristics of good objectives

1. Measurable

This may require:

✓ Operationalization of abstract concepts

✓ Quantification of the objective

✓ Giving time frame to the objective

2. Acceptable to those responsible for implementation

✓ Should be set participatory

✓ Should be challenging i.e. difficult but attainable i.e. neither too difficult nor too easy

3. Flexible

✓ It can easily be modified to match changed circumstance or conditions i.e. not too rigid.

4. Motivating

✓ Should be challenging

✓ Linked to rewards i.e. attainment towards attainment is rewarded.

5. Consistent with other objectives

✓ It should not conflict with other objectives

6. In harmony with vision and mission

✓ It should not contradict vision and mission but it should lead to the realization of such vision and mission.

7. Should not be abstract but are capable of being developed into strategies and actions.

✓ Should be capable of being operationalized i.e. translated into operation and tactics plans for implementation.

8. Should relate directly to factors discovered in SWOT analysis

Should aim at one of the following;

✓ Exploit an opportunity in the external environment

✓ Exploit strength of the organization

✓ Deal with the threats in the external environment

✓ Deal with the weakness of the firm.

2. Areas for strategic objectives

Strategic objectives should be set on key aspects of the organization/hospital such as;

1. Profitability/ Revenue

e.g. to increase net profit/revenue by 30% by the end of three years from now.

2. Productivity

e.g. To improve the rate of return on assets by 40% in the next three years

3. Competitive position

e.g. to improve the organization/hospitals leadership in the industry at least to position three in the next three years

4. Employee development

E.g. in the next three years, at least 70% of the employees should be professionally qualified in their jobs.

5. Employee relations

E.g. to reduce employee complains by 60% in the next 3 years.

6. Technology

E.g. in the next 3 years 70% of the organization/hospital’s departments should be computerized or

To double the number of computers in the next 2 years

7. Public and social responsibility

e.g. to increase the budget for free medical clinics/outreaches by 200% in the next 3 years

8. Customer care or service

e.g. in the next 3 years the organization/hospital should realize at least 95% customer satisfaction.

9. Growth

E.g. to increase the total assets of the organization/hospital by 50% in the next 3 years or

To increase the market share by 30% in the next 3 years.

4. CHOICE OF STRATEGY 1. Introduction Choice of strategy is the ultimate step in Strategy Formulation. The best course of action is actually chosen after considering the organization/hospital’s goals, strengths, potential and limitations as well as the external opportunities.
Once a clear picture of the organization/hospital and its environment is in hand, specific strategic alternatives can be developed. While different firms have different alternatives depending on their situation, there also exist generic strategies that can be applied across a wide range of organizations. Porter (1998) identified cost leadership, differentiation, and focus as three generic strategies that may be considered when defining strategic alternatives. These three approaches are examples of "generic strategies", because they can be applied to products or services in all industries, and to organizations of all sizes. They were first set out by Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating uniquely desirable products and services) and "Focus" (offering a specialized service in a niche market). He then subdivided the Focus strategy into two parts: "Cost Focus" and "Differentiation Focus". These are shown in Figure 1 below.

The terms "Cost Focus" and "Differentiation Focus" can be a little confusing, as they could be interpreted as meaning "A focus on cost" or "A focus on differentiation". Remember that Cost Focus means emphasizing cost-minimization within a focused market, and Differentiation Focus means pursuing strategic differentiation within a focused market.

4.5.2 The Cost Leadership Strategy

Porter's generic strategies are ways of gaining competitive advantage – in other words, developing the "edge" that gets you the sale and takes it away from your competitors. There are two main ways of achieving this within a Cost Leadership strategy: • Increasing profits by reducing costs, while charging industry-average prices. • Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.
Remember that Cost Leadership is about minimizing the cost to the organization/hospital on the services rendered to the clients. The cost or price paid by the customer is a separate issue. The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your industry or market. Simply being amongst the lowest-cost producers is not good enough, as you leave yourself wide open to attack by other low cost producers who may undercut your prices and therefore block your attempts to increase market share.
You therefore need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have: • Access to the capital needed to invest in technology that will bring costs down. • Very efficient logistics. • A low cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other competitors.
The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you, and that other competitors copy your cost reduction strategies. This is why it's important to continuously find ways of reducing every cost. One successful way of doing this is by adopting the Japanese Kaizen philosophy of "continuous improvement".

4.5.3 The Differentiation Strategy

Differentiation involves making your products or services different from and more attractive those of your competitors. How you do this depends on the exact nature of your industry and of the products and services themselves, but will typically involve features, functionality, durability, support and also brand image that your customers value.
To make a success of a Differentiation strategy, organizations need: • Good research, development and innovation. • The ability to deliver high-quality products or services. • Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.
A organization/hospital pursuing a differentiation strategy need to stay agile with its new product/service development processes. Otherwise, it may risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments.

4.5.4 The Focus Strategy

Organization/hospitals that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low cost or well-specified products for the market. Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers. This makes their particular market segment less attractive to competitors.
As with broad market strategies, it is still essential to decide whether you will pursue Cost Leadership or Differentiation once you have selected a Focus strategy as your main approach: Focus is not normally enough on its own. But whether you use Cost Focus or Differentiation Focus, the key to making a success of a generic Focus strategy is to ensure that you are adding something extra as a result of serving only that market niche. It's simply not enough to focus on only one market segment because your organization is too small to serve a broader market (if you do, you risk competing against better-resourced broad market companies' offerings.)
The "something extra" that you add can contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to increasing differentiation (though your deep understanding of patients' needs).

4.5.5 Choosing the Right Generic Strategy

Your choice of which generic strategy to pursue underpins every other strategic decision you make, so it's worth spending time to get it right. But you do need to make a decision: Porter (1998) specifically warns against trying to "hedge your bets" by following more than one strategy. One of the most important reasons why this is wise advice is that the things you need to do to make each type of strategy work appeal to different types of people. Cost Leadership requires a very detailed internal focus on processes. Differentiation, on the other hand, demands an outward-facing, highly creative approach.
So, when you come to choose which of the three generic strategies is for you, it's vital that you take your organization's competencies and strengths into account.
Use the following steps to help you choose. Step 1: For each generic strategy, carry out a SWOT Analysis of your strengths and weaknesses, and the opportunities and threats you would face, if you adopted that strategy. Having done this, it may be clear that your organization is unlikely to be able to make a success of some of the generic strategies. Step 2: Use Five Forces Analysis to understand the nature of the industry you are in. Step 3: Compare the SWOT Analyses of the viable strategic options with the results of your Five Forces analysis. For each strategic option, ask yourself how you could use that strategy to: • Reduce or manage supplier power. • Reduce or manage buyer/customer power. • Come out on top of the competitive rivalry. • Reduce or eliminate the threat of substitution. • Reduce or eliminate the threat of new entry.
Select the generic strategy that gives you the strongest set of options.
Tip:
Porter's Generic Strategies offer a great starting point for strategic decision making.
Once you've made your basic choice, though, there are still many strategic options available. Bowman’s strategy clock helps you think at the next level of details, in that it splits Porter's options into eight sub-strategies. You can also use USP Analysis and Core competence Analysis to identify the areas you should focus on to stand out in your marketplace.

Key Points:

According to Porter's Generic Strategies model, there are three basic strategic options available to organizations for gaining competitive advantage. These are: Cost Leadership, Differentiation and Focus.
Organizations that achieve Cost Leadership can benefit either by gaining market share through lowering prices (whilst maintaining profitability) or by maintaining average prices and therefore increasing profits. All of this is achieved by reducing costs to a level below those of the organization's competitors.
Companies that pursue a Differentiation strategy win market share by offering unique features that are valued by their customers. Focus strategies involve achieving Cost Leadership or Differentiation within niche markets in ways that are not available to more broadly-focused players.
| | |

4.6 ACTIVITIES

1. Attempt to figure out the generic strategy for your Organization/hospital. How does this affect the choices you make in Organization/hospital?
2. Assuming that your organization/hospital is committed to achieving Cost Leadership, a) Try to weigh out the advantages of either reducing costs by hiring less expensive staff or training them or by reducing staff turnover by paying them hefty salaries. b) Think of how you can reduce expenses by using technology such as e-health as opposed to the traditional referral system.
3. If your organization/hospital is pursuing a Differentiation strategy, think and list all the activities that would help in improving customer service and also help to foster a culture of continuous improvement and innovation in your team?

CHAPTER FIVE

5.0 STRATEGY IMPLEMENTATION IN ORGANIZATION/HOSPITALS

5.1 INTRODUCTION
Once the creative and analytical aspects of strategy formulation have been settled, the managerial priority is one of converting the strategy into operationally effective action. Indeed a strategy is never complete, even as formulation until it gains a commitment of the organization’s resources and becomes embodied in organizational activities. Therefore, to bring the result, the strategy should be put to action because the choice of even the soundest strategy will not affect organizational activities and achievement of its objectives. Therefore, effective implementation of strategy is a must for the organization. Implementation of strategy can be defined as follows: a) The translation of chosen strategy into organizational action so as to achieve strategic goals and objectives b) The manner in which an organization should develop, utilize, and amalgamate organizational structure, control systems, and culture to follow strategies that lead to competitive advantage and a better performance.
In this chapter, you will learn how implement the already formulated strategy. This involves two key activities; • Institutionalizing the strategy • Operationalization of the strategy

5.2 INSTITUTIONALIZATION OF STRATEGY

The first basic action that is required for putting a strategy into operation is its institutionalization. Since strategy does not become either acceptable or effective by virtue of being well designed and clearly announced, the successful implementation of strategy requires that the strategy framer acts as its promoter and defender. Often strategy choice becomes a personal choice of the strategist because his personality variables become an influential factor in strategy formulation. Thus, it becomes a personal strategy of the strategist. Therefore, there is an urgent need for the institutionalization of strategy because without it, the strategy is subject to being undermined. Therefore, it is the role of the strategist to present the strategy to the members of the organization in a way that appeals to them and brings their support. This will put organizational people to feel that it is their own strategy rather than the strategy imposed on them. Such a feeling creates commitment so essential for making strategy successful. This involves ensuring that,

i) The strategy fits in the organization structure. The structural design of an organization helps to determine the sort of work relationships that do promote effective strategy implementation.

ii) The strategy is consistent with the type of leadership of the organization. For a strategy implementation to succeed the leader must provide leadership in terms of vision, inspiration and communication.

iii) The culture of the organization has to be compatible with the strategy being implemented. If not then, the strategy will be like that of strange bed fellows. This is important because organization culture gives the organization a sense of how to behave and act. It also influences the actions of employees.

iv) Adequate resources which are important for implementing the strategy. These can be acquired from outside or generated internally.

v) To ensure the implementation process runs smoothly, there must be support systems (these are activities that are undertaken in an organization to enable it run smoothly; e.g. informational services, reprographic services etc).

3. OPERATIONALIZATION OF STRATEGY

|Operationalization of strategy is successfully initiated in 4 basic steps; viz |
|Creation of clear action plans and short term objectives- they help guide implementation by converting long term plans in short term actions|
|and targets. They translate long range aspirations into this year’s or this month’s activities. |
|The importance of action plans and short term objectives comes about due to the fact that the various players in an organization who |
|actually do the work need to know their achievements in the short term basis. This makes the long term objective become a reality. Therefore|
|the short term objectives provide specific guidance to what is to be done and clear delineation of impending actions that need to be |
|undertaken. |
|However such action plans are effective when they incorporate the following elements; |
|The identification of specific actions to be undertaken on daily, weekly, and monthly basis. |
|They must provide clear time frame for completion of various actions and activities |
|Identification of responsible persons for specific activities. This makes people know their contributions as individuals in the achievements|
|of the desired results, which may motivate them. |
|They must operationalize the long term objectives. |
|Development of specific functional tactical plans- these are routine activities in each functional area (e.g. marketing, finance, Research |
|and development, human resource e.tc) that help translate the strategy into the sort of activities that create competitive advantages. In |
|essence functional tactics translate the grand strategy into action designed to accomplish specific short term objectives. By their nature |
|functional tactics help to clarify business strategy by giving specific guidance to operating managers in various operating areas. |
|Creating appropriate policies- they empower operating personnel by defining guideline for making decisions. |
|Provision of adequate budgets- they help avail resources to apply in various activities. |

The following are the main steps in implementing a strategy:
| |Developing an organization structure having potential of carrying out strategy successfully. |
| |Disbursement of abundant resources to strategy-essential activities. |
| |Creating strategy-encouraging policies. |
| |Employing best policies and programs for constant improvement. |
| |Linking reward structure to accomplishment of results. |
| |Making use of strategic leadership. |
| |CREATING AN EFFECTIVE ORGANIZATION DESIGN |
| |5.4.1 Introduction |
| |Organization design can be defined narrowly, as the process of reshaping organization structure and roles, or it can more effectively be |
| |defined as the alignment of structure, process, rewards, metrics and talent with the strategy of the business. Good organizational design |
| |aligns the company’s processes and management functions with its overall goals. Poor design can be most easily identified when a company |
| |utilizes traditional methods of organization rather than looking for innovative solutions. |
| |The most effective way to organize a company depends entirely upon the company’s specific needs, functions, and goals. When considering the|
| |best design, one must first define the purpose of the company. All other features of the company’s organizational methods should center on |
| |fulfilling this purpose. A company whose purpose is centered on helping others, for example, would need a very different design than a |
| |company that is technologically focused. If both companies were to utilize the same design principles, one or both would be operating well |
| |below their optimum potential. |
| |In addition to considering the purpose of the company, organizational design must also evaluate the skills and purposes of the individual |
| |employees. A creative company may thrive with a loose organizational system, ample opportunities for free brainstorming, and playful |
| |incentives. A company with more left-brained individuals may do better with a rigid, well-defined structure. Most situations will call for |
| |a unique blend of these methods. Organization design may involve strategic decisions, but is properly viewed as a path to effective |
| |strategy execution. The design process nearly always entails making trade-offs of one set of structural benefits against another. Many |
| |companies fall into the trap of making repeated changes in organization structure, with little benefit to the business. This often occurs |
| |because changes in structure are relatively easy to execute while creating the impression that something substantial is happening. This |
| |often leads to cynicism and confusion within the organization. More powerful change happens when there are clear design objectives driven |
| |by a new business strategy or forces in the market that require a different approach to organizing resources. |
| |A company’s organizational design also serves to define the chain of command and division of labor within the group. It determines who each|
| |individual reports to, what various departments are responsible for, and how everyone works together. The best designs typically allow for |
| |plentiful communication both between managers and employees as well as between various divisions of the company. |
| |Organizational design can also be improved from within. Managers who are open to making changes in the way the company functions can often |
| |discover new ways for the group to meet its goals. Rearranging internal structure is often an effective way to begin. Encouraging |
| |departments that typically work independently to merge their talents, for example, can improve many areas of the company. The best |
| |organizational design solutions will always align the company’s actions with its goals. |
| | |
| |[pic] |
| | |
| | |
| |Fig.5.4.1(a): Elements of an effective organization design |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |[pic] |
| |Fig.5.4.1(b): Building blocks an effective organization design |
| | |
| |5.4.2 Characteristics of effective organizational design |
| |Some systems are effective and efficient whereas others are not. Successful systems may be attributable to the skill exercised in designing|
| |the system or to the quality of management practised during operations, or both. Successful systems are characterized by their simplicity, |
| |flexibility, reliability, economy, and acceptability. Simplicity, flexibility, and reliability tend to be a function of design, whereas |
| |economy and acceptability pertain to both design and operations. Numerous relationships exist among these characteristics; for example, |
| |simplicity will affect economy and possibly reliability. Moreover, management must reach a compromise between economy and reliability, and |
| |between technical efficiency and organizational climate. The balance reached will determine whether short- or long-run objectives are |
| |optimized. |
| |Simplicity |
| |An effective organizational system need not be complex. On the contrary, simplicity in design is an extremely desirable quality. Consider |
| |the task of communicating information about the operation of a system and the allocation of its inputs. The task is not difficult when |
| |components are few and the relationships among them are straightforward. However, the problems of communication multiply with each |
| |successive stage of complexity.The proper method for maintaining simplicity is to use precise definitions and to outline the specific task |
| |for each subsystem. Total systems often become complex because of the sheer size and nature of operations, but effectiveness and efficiency|
| |may still be achieved if each subsystem maintains its simplicity. |
| |Flexibility |
| |Conditions change and managers should be prepared to adjust operations accordingly. There are two ways to adjust to a changing operating |
| |environment: to design new systems or to modify operating systems. An existing system should not be modified to accommodate a change in |
| |objectives, but every system should be sufficiently flexible to integrate changes that may occur either in the environment or in the nature|
| |of the inputs. For example, a pharmaceutical company should not use the same system to manufacture poisons as it uses to manufacture |
| |medicines. However, it should be possible to modify an existing system to produce different sizes, varieties, or types of the same product |
| |or service. A practical system must be well designed but it cannot be entirely rigid. There will always be minor variations from the |
| |general plan, and a system should be able to adapt to such changes without excessive confusion. The advantages associated with having a |
| |flexible system will become more apparent when we consider the difficulty of administering change. |
| |Reliability |
| |System reliability is an important factor in organizations. Reliability is the consistency with which operations are maintained, and may |
| |vary from zero output (a complete breakdown or work stoppage) to a constant or predictable output. The typical system operates somewhere |
| |between these two extremes. The characteristics of reliability can be designed into the system by carefully selecting and arranging the |
| |operating components; the system is no more reliable than its weakest segment. When the requirements for a particular component — such as |
| |an operator having unique skills — are critical, it may be worthwhile to maintain a standby operator. In all situations, provisions should |
| |be made for quick repair or replacement when failure occurs. One valid approach to the reliability-maintenance relationship is to use a |
| |form of construction that permits repair by replacing a complete unit. In some television sets, for example, it is common practice to |
| |replace an entire section of the network rather than try to find the faulty component. Reliability is not as critical an issue when prompt |
| |repair and recovery can be instituted. |
| |Economy |
| |An effective system is not necessarily an economical (efficient) system. For example, the postal service may keep on schedule with mail |
| |deliveries but only by hiring a large number of additional workers. In this case, the efficiency of the postal system would be reduced. In |
| |another example, inventories may be controlled by using a comprehensive system of storekeeping. However, if the cost of the storekeeping |
| |were greater than the potential savings from this degree of control, the system would not be efficient. It is often dysfunctional and |
| |expensive to develop much greater capacity for one segment of a system than for some other part. Building in redundancy or providing for |
| |every contingency usually neutralizes the operating efficiency of the system. When a system's objectives include achieving a particular |
| |task at the lowest possible cost, there must be some degree of trade-off between effectiveness and efficiency. When a system's objective is|
| |to perform a certain mission regardless of cost, there can be no trade-off. |
| |Acceptability |
| |Any system, no matter how well designed, will not function properly unless it is accepted by the people who operate it. If the participants|
| |do not believe it will benefit them, are opposed to it, are pressured into using it, or think it is not a good system, it will not work |
| |properly. If a system is not accepted, two things can happen:(1) the system will be modified gradually by the people who are using it, or |
| |(2) the system will be used ineffectively and ultimately fail. Unplanned alterations in an elaborate system can nullify advantages |
| |associated with using the system. |
| | |
| |5.4.3 Differentiation and Integration |
| |A basic consideration in the design of organizations is dividing work into reasonable tasks (differentiation) while giving simultaneous |
| |attention to coordinating these activities and unifying their results into a meaningful whole (integration). Two guidelines may be followed|
| |in grouping activities: |
| |Units that have similar orientations and tasks should be grouped together. (They can reinforce each other's common concern and the |
| |arrangement will simplify the coordinating task of a common manager). |
| |Units required to integrate their activities closely should be grouped together. (The common manager can coordinate them through the formal|
| |hierarchy). |
| |When units neither have similar orientations nor share their activities, the task of grouping becomes more difficult. For example, when |
| |units are similar in nature and function but are also relatively independent, the manager must base his decision on the most appropriate |
| |way to group activities according to his past experience. |
| |A difficult task associated with system-subsystem determination is to establish proper boundaries of operations. The more specific and |
| |distinct the goals of the operation, the easier it is to set boundaries. Other factors such as the influence of the environment, the |
| |availability of men and machines, the time schedule for design and operation, the cost of alternative designs, and the particular biases of|
| |the designers must be considered when establishing boundaries. |
| |5.4.4 Making Organization Design Decisions |
| |Given the many choices of structure, how do you go about making organization design decision for your business? Different organization |
| |structures have different benefits in different situations. What matters is the overall organization design is aligned with the business |
| |strategy and the market environment in which the business operates. It must then have the right business controls, the right flexibility, |
| |the right incentives, the right people and the right resources. |
| |Here are just some of the many things that you can consider when thinking about the structure of your organization. |
| |Strategy – The organization design must support your strategy. If your organization intends to be innovative then a hierarchical structure |
| |will not work. If however, your strategy is based on low cost, high volume delivery then a rigid structure with tight controls may be the |
| |best design. |
| |Size – The design must take into account the size of your organization. A small organization could be paralyzed by too much specialization.|
| |In larger organizations, on the other hand, there may be economies of scale that can be gained by maintaining functionally specialist |
| |departments and teams. A large organization has more complex decision making needs and some decision making responsibilities are likely to |
| |be devolved or decentralized. |
| |Environment – If the market environment you work in (customers, suppliers, regulators, etc.) is unpredictable or volatile, then the |
| |organization needs to be flexible enough to react to this. |
| |Controls – What level of control is right in your business? Some activities need special controls (such as patient services in hospitals, |
| |money handling in banks and maintenance in air transport) whilst others are more efficient when there is a high degree of flexibility. |
| |Incentives – Incentives and rewards must be aligned with the business's strategy and purpose. When these are misaligned, there is a danger |
| |that units within the organization become self-serving. Using the earlier example of a company that wants to grow by acquiring new |
| |customers, the sale team is incentivized on customer retention, and therefore is self-serving rather than aligned with the business |
| |purpose. |
| |There is much more to organization design than deciding on its structure. This list shows just some of the facets organization design that |
| |can be taken into accountin thinking about this. With each stage of growth or each change, the organization design needs to be reassessed |
| |and realigned as necessary. The list can also help you identify issues that might be causing team problems or holding back you business. |
| | |

6. ACTIVITIES

1. Attempt to operationalize a low cost strategy in your organization/hospital by ;

a) Drawing simple but relevant action plans

b) Ask some of your heads of departments to formulate functional tactics

c) Draw a corresponding budget required to carry out the various activities required to implement the suggested strategy.

18 STRATEGY EVALUATION AND CONTROL

6.1.0 STRATEGIC REVIEW

6.1.1 Definition
Strategic Review is a selective evaluation or review of a project, programme, organizational unit or policy undertaken at the request of the Director or senior manager of the organization.

6.1.2 Purpose
A Strategic Review examines key strategic issues related to the rationale, relevance, effectiveness, efficiency and financial viability of a unit in order to make conclusions about its performance. Their request may be triggered by specific concerns about the performance of the unit and by questions raised in annual programming and budgeting cycles. The Review results are used to make key decisions about the future of an organizational unit – its rationale, focus, content, location, scope, direction, and levels ofresource allocation. Strategic Reviews, in this sense, differ from in-depth technical programme Reviews in that they seek to answer higher order strategic questions and they look at both organizational as well as programmatic performance.

6.1.3 What and Who Triggers a Strategic Review?
Typical issues that may trigger Strategic Reviews include questions or uncertainties related to the mandate, financial viability or location of an office or a programme, its relationship with members, donors and other partners. In these cases, senior management may request that a Strategic Review be undertaken, or the Review may be self-initiated by a Regional Director or Head of a programme to obtain feedback from key stakeholders on their perception of the performance of an office.

6.1.2. Planning a Strategic Review
A Strategic Review is comprised of five major stages:
1. Planning (also called the preparatory stage),
To develop the plan, you must establish priorities by considering the needs, strengths, and resources of your organization. Three key questions must be answered: • What do we want to accomplish? • What will we do to get there? • How will we know if we are making progress?

2. Data collection

3. Data analysis,
4. Reporting, and
5. Change implementation.

6.2.0 EVALUATION AND CONTROL

6.2.1 INTRODUCTION
Strategy Evaluation is as significant as strategy formulation because it throws light on the efficiency and effectiveness of the comprehensive plans in achieving the desired results. The managers can also assess the appropriateness of the current strategy in today’s dynamic world with socio-economic, political and technological innovations. Strategic Evaluation is the final phase of strategic management.
Strategy evaluation and control is unique as compared to other control mechanisms due to the fact that strategies are forward looking designed to be accomplished several years into future and based on management assumptions about numerous events that have not yet occurred (Thomson at el, 1999).Therefore, an approach that recognizes long term needs of strategy is necessary. This should include the tracking of the strategy as it is being implemented, detecting any problems or changes in its underlying premises and making necessary adjustments.
In response to these developments and changes, there is need to put in place certain mechanisms in place. Such mechanisms would in include: • Premise control • Implementation • Strategic surveillance • Special alert control

6.2.2 PREMISE CONTROL
It is based on the premises (assumptions) that are used when the strategy is being formulated (e.g. internal and external environmental premises). Premise control as a control mechanism is therefore meant to check systematically and continuously whether the premises which the strategy is based are still valid. If there are any of such premises that are no longer valid, the strategy may have to be changed or revised.

The premises here are mainly of planning type and are of environmental factors/premises and industrial factors.

Environmental factors include but not limited to following factors: inflation rates, technology, interest rates, government regulations, demographics and social changes.

Industrial factors forms a vital part of these premises which include: competition, suppliers,

product substitutes, barriers to entry among others.

Managers must try to select premises whose change are most likely and those which would have a major impact on the organization and its strategy i.e. the monitoring of these premises should be focused on the key ones. The key premises should be updated and new predictions should be made.

6.2.3IMPLEMENTATION CONTROL

Strategy implementation takes place as a series of steps, programs, investments, as well as new moves that occur over an extended period of time. In essence managers implement strategies by converting broad plans into concrete implementable actions and results of specific units and individuals. Therefore implementation is a type of strategic control that must be exercised as those events unfolds.

Implementation control is designed to assess whether the overall strategy should be changed in light of the results associated with incremental action that implement the overall strategy.

The two basic types of implantation control are:

i. Monitoring strategic thrusts (narrow strategic plans)

ii. Milestone reviews

Strategic thrust provide managers with useful information as to how things are moving or whether some activities should be adjusted.

Milestones are some sort of benchmarks which when reached or realized also provide very good indication on how further progress is likely to be during the period of implementation. Such milestones may be in form of critical events, major resource allocation or passage of some time.

Milestone reviews are normally used for reassessment of whole progress that is made so far and which is likely to be made.

6.2.4 STRATEGIC SURVEILLANCE

While premise and implementation control are highly focused forms of control mechanisms, strategic surveillance is designed to generally monitor a broad range of events inside and outside the firm, that are likely to affect the course of its strategy. Its main objective is to discover any important and yet unanticipated information through general monitoring. For this reason, surveillance monitoring must be kept unfocused as much as possible. This can be through a simple scanning of the environment by just looking at media reports, press conferences, conversations, political statements and any other observations by the managers.

Despite of its looseness, strategic surveillance provides an ongoing roadmap based vigilance in all daily operations of the firm that may help discover that may help discover information that is relevant to its strategy.

6.2.5 SPECIAL ALERT CONTROL MECHANISM

It is the thorough and often rapid reconsideration of the firm’s strategy because of sudden, unexpected events which can be in the form of governmental change that should trigger an alert to the firm, acquisition of a leading supplier e.t.c. Such events should trigger an immediate

and intensive assessment of the firm strategy. Crisis teams should handle the firm’s initial response to such unforeseen events that may have immediate impact on its strategy. However most firms develop contingency plans alongside crisis teams to respond to such circumstances that are emergency in nature.

6.2.6CONCLUSION

Strategic controls are designed continuously and proactively, depending on the basic direction and appropriateness of a strategy. Each type of strategic control has the intensions i.e. to assess whether the strategic direction should be altered in the light of unfolding events. However all strategic controls should be augmented by operational controls which are also necessary in guiding the strategic management process.

Operational control systems help in guiding, monitoring and evaluating progress in meeting short term objectives. While strategic controls are meant to steer the company (or even institutions e.g. organization/hospitals) over an extended period , usually over five years or even more, operational controls provide post action evaluation over short periods usually from one month to one year. To be effective, operational control systems must be based on four steps which are common to all post action controls. These steps include:

i. Setting performance standards

ii. Measuring actual performance

iii. Identification of deviations from the set standards

iv. Initiating corrective action/s.

| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|[pic] | |
| | |
| | |

-----------------------
WRITTEN BY: GIFTON MKAYA

[pic]