The competitive advantage: strategic thinking for physician leaders. (Planning).

In the constantly changing world of health care delivery, the competitive advantage will go to physician executives who are fast and focused in their ability to continuously reinvent their careers.

A shift in values must occur with physician leaders. They must view themselves the same way large manufacturing and service firms view themselves in the global marketplace. The physician, like the firm, must embrace strategic thinking as an integral part of their success.

More than just enhancing leadership and interpersonal skills, physician leaders need to gain strategic competencies by combining current management theory and relevant research with real-world experiences to address the major competitive challenges of the 21st century.

Strategy is about creating value and defining the scope of services resulting in professionalism, self-governance and self-determination.

How to own the market

Definitions of strategy are often narrow and industry specific. Kluyer proposes a broader definition. "Strategy is about positioning an organization for sustainable competitive advantage. It involves making choices about which industries to participate in, what products and services to offer and how to allocate corporate resources to achieve such a sustainable advantage. And its primary goal is to create value for shareholders and other stakeholders by providing customer value." (1)

By conceptualizing the physician leader in these terms, it becomes clear that strategic planning is essential for value creation. Leaders must position themselves by choosing which industry (insurance, hospital, pharmaceutical), what products to offer (clinical expertise, business acumen), and how to allocate personal resources (tacit knowledge) for sustained competitive advantage. Strategy is best thought of as being crafted as opposed to planned. (2)

Using the analogy of the potter's wheel, strategies may emerge in addition to being systematically planned. Just as a potter plans the subject and crafts the emerging form, so do successful firms and physician leaders.

Equally important is the constantly changing nature of strategy. Nowhere is this more evident than in the context of globalization and the recent economic downturn. While the principles of strategy remain the same, the speed of change has rapidly accelerated. Strategy is about being different and offering unique products and services while remaining simple and uncomplicated. (3)

In the employee benefits industry, defined contribution plans are an excellent example. They are a response to consumer's desire for less tightly managed care and employer's desire to shift costs. Insurers are adding this option along side more traditional plans. Physician leaders, like insurers, must continually reinvent themselves to maintain a superior competitive advantage.

A discussion of strategy is not complete without a mention of what strategy is not. Strategy is not operational effectiveness or tactics. Operational effectiveness deals with performing a task better than the competition. This is not strategy, which is performing a task differently. Superior operational effectiveness rarely leads to sustained competitive advantage as it is readily duplicated.

In addition, strategy is not just a sales plan. Sales executives think in the following terms:

* Sales volumes over profits

* Short-run over long-run

* Individual customers over market segments

* Field work rather than desk work

Marketing executives, on the other hand, think in terms of profit planning, long-term threats, trends and opportunities, market segment differences and systems for market analysis, planning and control. (4) This is more closely aligned with strategic planning.

So why is strategy important for the physician leader? The health care sector of the economy has become much more integrated in the last decade with hospitals, physicians, insurance and employer groups blurring their boundaries.

Like the global economy, a greater degree of interdependence is occurring. In addition, the financing of health care is undergoing significant changes with the introduction of defined contribution plans as one example. With this, physician leader opportunities are expanding.

The physician executive is no longer confined to health maintenance organizations, insurance carriers, hospitals and pharmaceutical firms. These are the years of the free agent. As such, the physician executive must begin to reframe the concept of career from "employee" thinking to "firm" thinking. By moving in this direction, strategy takes on an even greater meaning and importance.

Petzinger, in his book The New Pioneers, describes how the West is now no longer a place, rather a frontier of technologies, ideas and values. "The new pioneers celebrate individuality over conformity among their employees and customers alike." (5) He goes on to give multiple examples of the new pioneers in the age of adaptation. The physician executive exemplifies the new pioneer.

Strategic analysis, environmental uncertainties

Uncertainty and change are characteristics of all environments, including the health care sector. Strategy is concerned with not only monitoring the external environments, but also with shaping their direction. This includes both market and non-market components.

The non-market components focus on the public regulatory environments that involve organizational decisions including the impact of law, regulation and technology on corporate decision making. These are pressures that affect firms in all industries.

Successful firms may be found even in weak industries. This occurs when strategy builds strengths out of industry wide weaknesses. (6) In addition, competitive forces are at work within an industry itself. These are best described and analyzed by Porter's five-force model that describes the essence of strategy as coping with competition. It provides a framework for analyzing the:

* Threat of new entrants

* Bargaining power of buyers and suppliers

* Threat of substitutes

* Jockeying among current players.

The collective strength of these forces determines the ultimate profitability within an industry. Emphasis is placed on industry-specific analysis with strategies for protection and exploitation of the risks. (7)

The information economy has accelerated the change in the external environment. As a result, strategy has to change as well. Encyclopedia Britannica is an example of how, ignoring the realities of the information age, one company met its ultimate demise. (8)

The health care industry provides multiple examples of how strategy needs to change with the information age. Innovations in the last years have surpassed all those in the history of medicine. The change is dizzying, making strategy even more important. In addition, the Internet has directly resulted in a change in strategic thinking.

Now that both supply and demand end functions are linked, firms are finding that rapid employment of Internet technology is no longer an option to maintain a competitive advantage. The Internet cannot replace traditional strategic strengths such as unique products, proprietary content, distinctive physical activities, superior product knowledge and strong personal service. (8)

In addition to external analysis, a thorough assessment of internal resources is necessary. Internal resources are often described as core competencies. The battles for corporate leadership are described as being waged on three fronts:

1. Core competence 

2. Core products

3. End products (1)

Core competencies are defined as the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of knowledge. It is important to keep in mind that unlike other corporate assets, they do not decrease with use.

The most important core competencies of a physician executive include strong leadership, technical expertise and management know-how. (10) Other core competencies of physician executives include innovation, critical and systems thinking.

Innovative people may be thought of as idea people, however, they often have talent trained out of them. Entrepreneurs are hands-on people who take up the challenge of new ideas. Likewise, entrepreneurial teams consist of volunteers recruited by the entrepreneur.

3M's project system provides an excellent example. Sponsors are those who protect work from corporate destruction and gain resources. Finally, climate makers are those, such as Hewlett Packard's founders who came out of retirement to reaffirm the company's commitment to an entrepreneurial climate. (11)

Innovation, however, cannot occur unless organizational systems are in place to encourage its development. Climate factors that lead to innovation include a clear vision, focus on customers, valuating risk-taking, discretionary resource at low levels, discretionary time, empowered project teams, boundary crossing and measurement.

Virtual forms of organizations, with their flexibility and dynamism, enable organizations to better manage their knowledge by constructing repositories, sharing personal knowledge and creating knowledge networks. (12)

So what are the "internal climate factors" that promote innovation in physician leaders?

Competitive success's foundation depends on knowledge and learning, however, the way physician leaders reason about their behavior often blocks learning. (13)

Defensive thought patterns fail to allow physician leaders to succeed. Embedded in medical education is the fear of failure. The morbidity and mortality conference is an example.

Innovation is promoted when individuals begin to think in a creative and critical manner. Unlearning and letting go of old ways of thinking promotes innovation. In addition to knowledge, flexibility is paramount as patterns in the external environment are constantly in a state of flux.

Physician executives must leave rigid thought processes behind and constantly be able to anticipate and adapt to change. Innovative climate factors are difficult to maintain in both an individual and organizational level due to the nature of knowledge itself.

Knowledge is messy as well as self-organizing. It is created, sustained, killed and renewed. It is community-seeing and travels on language. It is a social process that resists rules and systems, instead preferring loose systems. (14)

In addition, it is useful to describe a classification strategy for knowledge management. One type consists of a codification strategy where companies provide standardized products that fill common needs. The information is stored in repositories and databases. This is in contrast to the personalization strategy where companies provide highly customized solutions to unique problems through person-to-person contacts."

Physician leaders clearly must rely on a combination of both types of knowledge management.

Developing a competitive advantage

Once both the internal and external environments are thoroughly analyzed, the next step is developing a strategic principle. Two generic competitive strategies are often described as being either low-cost or differentiated. These may be applied to firms in any industry.

The cost leadership strategy exploits opportunities for cost minimization through economies of scale. Expenses such as R&D, marketing and overhead are minimized, An example is Wal-Mart.

Differentiation strategies, on the other hand, are based on the creation of unique value. Examples include Walt Disney Productions and KPMG Consulting. (1) Clearly, physician leaders will take the differentiated route.

Successful, clear and guiding founding principles that ultimately became the essence of strategy may be found in Southwest Airlines and Wal-Mart. In contrast, GE crafted strategic principles at important junctures of its development.

This is similar to the development of a mission statement. It reflects who the company is, and what they aspire to be. In addition personal attributes form the foundation of strategic success. They include being a great teammate and supportive colleague, an expert at something that creates value, a visionary and a businessperson obsessed with pragmatic outcomes. (16)

New product development is essential for successful strategy. Physician leaders must be concerned with developing new products just as manufacturing and service firms. New products are the lifeblood of the marketplace. American companies turn out 20,000 new products each year; unfortunately, about eight out of 10 fail. (17)

More than just the concepts of intellectual capital and the balanced scorecard approaches that are rooted in the industrial age business models, a value network model operates on the fair exchange of not only goods, services and revenue, but knowledge and its intangible benefits. (18)

In fact, the sources of innovation in the manufacturing sector may be described as a resulting from a conscious, purposeful search for innovative opportunities as opposed to a flash of genius. Within an industry, these may be found from unexpected occurrences, incongruities or process needs. Outside sources may result from demographic changes, changes in perception or new knowledge. (19)

Likewise, physician leaders may decide to either extend their current product line or develop entirely new lines. Examples include adding management skills or entering a new aspect of health care altogether.

Marketing

The final component of the strategic plan involves mapping and marketing. Marketing is, in essence, defining what piece of the whole pie belongs to the firm. (20)

As noted previously, the rapid pace of technological change, coupled with the globalization of business, increased the competitive pressure on physician leaders to more quickly evolve their product and service offerings. Just as in manufacturing, stable product design and long production runs are no longer the norm.

Because product life cycles are now often measured in months rather than years, physician executives want to customize their products to sustain customer loyalty. The products range from specific technical abilities to the vast network of professional relationships built over a career.

Formulating effective marketing programs that address the continuous flow of new products is paramount to attaining a competitive advantage. In particular, electronic commerce is an increasingly popular distribution channel. Networking may occur through a variety of mediums including electronic bulletin boards in addition to traditional venues such as medical societies and professional organizations.

The principles of branding that have been well established in other industries can be used to establish and "sell" the reputation of the physician. This involves a thorough understanding of marketing concepts.

A framework begins with clear objectives and follows with the strategic alternatives, customer and competitor targets. The competitive advantage, or core marketing strategy, is formulated according to three general approaches:

1. Cost

2. Quality

3. Perceived quality-based advantage (21)

"Products without precedent need an entirely different marketing plan--one that stresses education over sales." (22) Nowhere is this truer than in the case of the physician executive.

Aspects of strategy that take on new meaning in this context include mergers, acquisitions and divestitures. The business literature is full of studies on strategy linked to mergers and acquisition. When physician executives become employed, the relationship may be thought of as a merger and acquisition.

In the manufacturing industry the literature suggests that:

* The acquirer overpays.

* Friendly deals involving stock options succeed.

* CEO's become emotionally involved in deals and don't walk away when they should.

* Integration is difficult and rarely done consistently. Physician executives should keep this in mind when considering corporate employment.

Divestiture, likewise, is a means to enable a company to grow and provide greater shareholder wealth. Firms that actively acquire and divest consistently outperform their competitors that passively hold their companies. Divesting allows the funds, management time and support capacity to be freed up for more attractive growth opportunities. (23)

Physician executives must sometimes divest skills and abilities. More often than not, clinical skills are the first to go.

In the end, physician executives must view themselves as free agents in a market of free agents, with their services analogous to the services and products of successful firms. Crafting a clear strategy will enable physician leaders to position themselves and their companies for success in the rapidly changing health care environment.

References

(1.) de Kluyver, C. Strategic Thinking: An Executive Perspective. Upper Saddle River, NJ: Prentice Hall, 2000.

(2.) Mintzberg, H. "Crafting Strategy." Harvard Business Review. July/August 1987, 65(4).

(3.) Eisenhardt, KM. Has Strategy Changed? Sloan Management Review. Winter 2002, 43(2)

(4.) Kotler, P. "From Sales Obsession to Marketing Effectiveness." Harvard Business Review. Nov/Dee, 1977.

(5.) Petzinger, T. The New Pioneers. New York, N.Y., Simon & Schuster, 2000.

(6.) Angeli, P. Business Horizons. May/June, 1995, 38(3).

(7.) Porter, ME. "How Competitive Forces Shape Strategy." Harvard Business Review. March/April, 1979, 57(2).

(8.) Evans, P. and Wurster, TS. "Strategy and the New Economics of Information." Harvard Business Review. Sept/Oct. 1997, 75(5).

(9.) Porter, ME. "Strategy and the Internet." Harvard Business Review. March, 2001, 79(3).

(10.) Lazarus, M. "Cultivate Your Core Competencies." May/June, 2002, The Physician Executive.

(11.) Pinchot. "The Five People of Innovation."

http://www.Pinchot.com/MainPages/BooksArticles/InnovationIntraprenuri ng/FivePeople.html (Current as of 11/6/02).

(12.) Dickson. G. and DeSanctis, G. Information Technology and the Future Enterprise. Upper Saddle River, NJ., Prentice Hall, 2001.

(13.) Argyris, C. "Teaching Smart People How To Learn." Harvard Business Review. May/June, 1991, 69(2).

(14.) Alee, V. "The Art and Practice of Being a Revolutionary." Journal of Knowledge Management. May, 1999, 3(2).

(15.) Hansen, M. and Nohria, N. "What's Your Strategy for Managing Knowledge?" Harvard Business Review. March/April, 1999, 77(2).

(16.) Peters, T. "The Brand Called You." Fast Company. August, 1997, 10(83).

(17.) Primo, A. "Thinking Out of the Box: A New Approach to Product Development." Business Horizons. May/June, 1995, 38(3).

(18.) Alee, V. "Tenets of Knowledge." Executive Excellence, Inc., Sept., 1998.

(19.) Drucker, P. "The Discipline of Innovation." Harvard Business Review. Nov./Dec., 1998, 76(6).

(20.) McKenna, R "Marketing is Everything." Harvard Business Review. Jan/Feb., 1991, 69(1).

(21.) Winer, C. Strategic Thinking: An Executive Perspective. Upper Saddle River, NJ. Prentice Hall, 2000.

(22.) Waite, T. "Marketing Breakthrough Products." Harvard Business Review. Nov/Dec. 1999, 77(6).

(23.) Dranikoff, L., Koller, T. and Schneider, A. "Divestiture: Strategy's Missing Link." Harvard Business Review. May, 2002, 80(5).

Christopher Spevak MD, MPH, MBA, is a health policy and government relations consultant to the MidAtlantic Permanente Medical Group. In addition, he is an assistant clinical professor at Georgetown University School of Medicine. He can be reached by email at [e-mail].