Value Chain & Competitive Advantage



In Chapter 4, you learned that internal environmental analysis can be accomplished using a tool known as the value chain (see pages 131-135). After studying this section, please use the value chain components presented in Exhibit 4-2 to create a table describing the existence or lack thereof of these value chain components in your organization. You may not know about each and every component listed, but try to include a bullet for those you do know about. In addition, when searching for competitive advantage, which characteristic of a strength or weakness (value, rareness, imitability, sustainability) is the most important in health care organizations? Discuss your response. Organizational Value Chain Health care organizations have numerous opportunities to create value for patients and other stakeholders.4 For example, efficient appointment systems, courteous doctors and nurses, “patient-friendly” billing systems, easy-to-navigate physical facilities, and the absence of bureaucratic red tape can greatly increase satisfaction.5 The organizational value chain is an effective means of determining how and where value may be created.6 The value chain illustrated in Exhibit 4-2 has been adapted from the value chain used in business organizations to more closely reflect the value-adding components for health care organizations. The value chain utilizes a systems perspective; value may be created in the service delivery subsystem (upper portion of the value chain) and by effective use of the support activities (lower portion). Service delivery is the primary way organizations create value for the customer/patient through pre-service, point-of-service, and after-service activities. Service delivery activities are placed above the support activities, as they are the fundamental value creation activities; however, they are buttressed (supported) by activities that facilitate and improve service delivery. Sheet show chain value with columns for support activities, service delivery, add value, and markings for pre-service, point-of-service, after-service, organizational culture, organizational structure, and strategic resources. Exhibit 4.2 The Value Chain Source: Adapted from Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985), p. 37. The three elements of service delivery – pre-service, point-of-service, and after-service – incorporate the production or creation of the service (product) of health care and include primarily operational processes and marketing activities. Organizational culture, organizational structure, and strategic resources are support activities that may add value to service delivery by ensuring an inviting and supportive atmosphere, an effective organization, and sufficient use of resources such as finances, highly qualified staff, information systems, and appropriate facilities and equipment. Although not always apparent, such support systems and the value they add are critical for an effective and efficient organization. The value chain as a strategic thinking map provides the health care strategist with a framework for internal analysis of the organization (see Exhibit 4-2 and Exhibit 4-3). Value Chain Component Description Service Delivery Activities Creation of value that is directly involved in ensuring access to, provision of, and follow-up for health care services. Service Delivery – Pre-Service These activities create value prior to the actual delivery of health care. Market/Marketing Research Identification of recognizable groups (segments) that make up the market; information gathering to improve quality, how to meet consumers’ needs. Target Market Determination of the appropriate segment(s) to satisfy with specific health care services. Services Offered/Branding Dissemination of information to prospective patients and other stakeholders regarding the prices, range of products, and location of available services by an identified health care organization; promotional information; brand-quality relationship. Pricing Determination of the charge schedule (prices) for available services. Distribution/Logistics Actions that aid patient/customer entry into the health care delivery system, including appointments, registration, and parking. Promotion Communication of information to customers concerning the health care offering; includes advertising, events (health fairs, 10K sponsorships), social media, and so on. Service Delivery – Point-of-Service These activities create value at the point where health care is actually delivered to the patient. Clinical Operations Delivery of health care to patients. Quality Improvements in the efficiency and effectiveness of health care services as perceived by the patient. Process Innovation Improvements in existing or new operational processes. Marketing Determination of new products and prices; identification of new customers; provision of information to customers; convenience of access. Patient Satisfaction Enhancement of the patient/customer health care experience. Service Delivery – After-Service These activities create value after the patient/customer has received the initial health care. Follow-up Determination of additional services needed to supplement the initial health care need. Clinical Tracking of subsequent procedures and appointments. Marketing Actions that provide information, assessment of patient/customer satisfaction, and continuous improvement in quality of care. Billing Implementation of clear, easy to understand billing procedures and documents. Follow-on Facilitation of patient/customer entry into another health care setting. Clinical Referrals to the proper clinical settings. Marketing Provision of information concerning follow-on clinical settings for further (extended) care, tracking of outcomes of care. Support Activities The activities in the value chain that are designed to aid in the efficient and effective delivery of health services. Support Activity – Culture Values, norms, artifact, and assumptions that serve as a guide for behavior. Shared Assumptions The assumptions employees and others share in the organization regarding all aspects of service delivery (e.g. needs of patients, goals of the organization). Shared Values The guiding principles of the organization and its employees. The understandings people in the organization have regarding excellence, risk taking, etc. Behavioral Norms Understandings about behavior in the organization that can create value for patients. Support Activity – Structure Those aspects of organization structure that are capable of creating value for customers/patients. Functional Structure based on processes or activities used by employees (e.g. surgery, finance, human resources). Divisional Major units operate relatively autonomously subject to overarching policy guidelines (e.g. hospital division; outpatient division; northwest division). Matrix Two-dimensional structure where more than one authority operates simultaneously (e.g. interdisciplinary team with representatives from medicine, nursing, administration). Support Actiivty – Strategic Resources Value-creating financial, human, information resources, and technology necessary for the delivery of health services. Financial Financial resources required to provide the facilities, equipment, and specialized competencies demanded by the delivery of health services. Human Individuals with the specialized skills and commitment to deliver health services. Information Hardware, software, and information-processing systems needed to support the delivery of health services. Technology The facilities and equipment required to provide health services

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