MZUMBE UNIVERSITY
SCHOOL OF PUBLIC ADMINISTRATION AND MANAGEMENT
(SOPAM)
COURSE
: MSC. HEALTH SYSTEM AND MANAGEMENT (Msc. HSM)
SUBJECT
:
CODE
:
TASK
: TERM PAPER
STUDENT NAME :
REG. NUMBER
:
Situation 1
The TMS hospital authorities in Dar es Salaam have realized that the volume of patients and
family planning clients in their hospital is dropping steadily.
Required:
Use your knowledge on Porters Industry Structural Analysis perspective and Portfolio Analysis
to advice the hospital.
Introduction
Porter's Five Forces Framework is a method of analysing the operating environment of a
business's competitiveness. It derives five forces from industrial organisation (IO) economics
that impact the competitive intensity and, thus, the attractiveness (or lack thereof) of an industry
in terms of profitability. An "unappealing" industry is one in which the combined effect of these
five forces affects overall profitability. The most unappealing industry would be one that
approaches "pure competition," in which all firms' available earnings are driven to normal profit
levels. The five-force perspective is named after its creator, Harvard University's Michael E.
Porter. In 1979, the Harvard Business Review published the concept for the first time (Porter,
1979).
Porter refers to these forces as the microenvironment, as opposed to the broader term
macroenvironment. They are the external influences that affect a company's capacity to serve its
consumers and generate a profit. Given the total change in industry knowledge, a change in any
of the forces usually necessitates a re-evaluation of the marketplace by a business unit. The
general attractiveness of the business does not indicate that every firm in the industry will be
profitable. Firms can use their core strengths, business model, or network to earn a profit that
exceeds the industry average.
Harry Markowitz created the Modern Portfolio Theory (MPT). He assumed that most investors
want to be careful while investing and that they want to accept the least amount of risk in order
to earn the maximum possible return, hence optimising the return to risk ratio. According to
MPT, looking at the predicted risk and return of a single stock is insufficient. An investor can
gain the benefits of diversity, as well as a reduction in the volatility of the entire portfolio, by
investing in more than one company (Markowitz, 1959).
Portfolio analysis is a management technique for streamlining the allocation of cash to
programmes. Each programme is evaluated based on its financial performance and significance
to the organisation. A decision-making matrix organises programmes into a logical sequence.
When costs and effects are unknown, portfolio theory has been proposed as a way to improve the
risk–return characteristics of investments in health-care programmes through diversification
(Fagefors and Lantz, 2021). When a corporation sells a variety of products or services, it must do
portfolio analysis on a regular basis. This entails examining each product separately in terms of
profitability, revenue contribution, and growth potential. This study makes it easier to spot goods
that aren't lucrative or perform poorly within the group (Sendi and Rutten, 2014).
Pre-defined parameters such as sales value, market share, gross profitability, contribution
margin, and life cycle are used to categorise the products. The findings could clearly lead to
items that should be removed off the market or receive less funding. It could also mean that the
corporation needs to devote more resources and resources to a few high-potential projects. The
goal of the portfolio analysis is to improve the overall performance of the portfolio because the
ultimate goal is to maximise profit for shareholders.
Main body
The TMS hospital is advised on the basis of Porters five forces and Portfolio analysis as follows:
The TMS hospital should consider the competitive rivalry
For most industries the intensity of competitive rivalry is the biggest determinant of the
competitiveness of the industry. Having an understanding of industry rivals is vital to
successfully marketing a product. Positioning depends on how the public perceives a product and
distinguishes it from that of competitors. For this case TMS hospital must be aware of its
competitors' marketing strategies and pricing and also be reactive to any changes made.
The hospital should consider the threat of new entrants
New entrants to an industry can raise the level of competition, thereby reducing its attractiveness.
The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in
some industries whereas other industries are very easy to enter. The TMS hospital is advised to
consider the threat of new entrants by increasing its capital requirements, lowering price, product
differentiation and boosting economies of scale. Through resolving these barriers the level of
competition will increase and hence increases the volume of patients at TMS.
Reducing bargaining power to suppliers
Suppliers are the businesses that supply materials and other products into the industry. The cost
of items bought from suppliers (e.g. medicines, other equipment’s etc.) can have a significant
impact on a company’s profitability. If suppliers have high bargaining power over a company,
then in theory the company’s industry is less attractive. The TMS hospital is advised to reduce
the bargaining power to suppliers of materials and other products such as the supply of
medicines and other equipment’s in the hospital. This will encourage many customers (patients)
to use the service or product in the hospital and hence make TMS hospital attractive to patients
and increases their volume of attending the hospital.
Reducing customers bargaining power
The bargaining power of customers is also described as the market of outputs: the ability of
customers to put the firm under pressure, which also affects the customer's sensitivity to price
changes. Firms can take measures to reduce buyer power, such as implementing a loyalty
program. Buyers' power is high if buyers have many alternatives. It is low if they have few
choices. Since the number of choices among patients is higher in Dar es Salaam, the TMS is
advised to ensure the availability of products in order to avoid buyers to substitute them for
another hospital and controlling price for products or service. By doing so, the TMS hospital will
increase the volume of patients and family planning clients.
Basing on Portfolio analysis the TMS hospital will consider the following factors in order to
maintain its patients and increase their volume:
Diversification
Diversification is the key to new age healthcare transformation. Under this context let’s consider
health-care programs as risky assets. As a result of decline in volume of patients and family
planning clients, TMS hospital is advised to perform diversification which can help in attracting
clients and investors in healthcare industry. Investors regard healthcare industry growth as a
means to gain higher-value revenue streams. TMS can build new businesses through
diversification. Furthermore, this makes it easier for payers to enter the care management space
and manage population risks more efficiently. For instance, adding digital services can enable
TMS hospital to better connect with patients and accommodate changes in care delivery. This
will generally attracts and increase volume of patients in a TMS hospital.
Consider risk and return
Since, portfolio theory has been suggested as a means to improve the risk–return characteristics
of investments in health-care programs through diversification when costs and effects are
uncertain. Portfolio theory has been suggested as a means to improve the risk–return
characteristics of investments in health-care programs through diversification when costs and
effects are uncertain. The risk and return relationship form the entire basis of investment
decisions. Investors are risk averse; i.e., given the same expected return, they will choose the
investment for which that return is more certain. Therefore, investors demand a higher expected
return for riskier assets. A higher expected return does not guarantee a higher realized return.
Because by definition returns on risky assets are uncertain, an investment may not earn its
expected return. The mean (average) annual return increases as the dispersion of returns
increases. This is so the case for TMS, with a decrease in volume of customers it clearly indicate
that the hospital expect low returns. TMS hospital is advised to consider the risks and returns in
providing services and ensure that it increases the volume of patients.
Conclusion
Generally, TMS hospital is encouraged to use multiple methods or techniques to ensure it attract
its customers, given that porter’s analysis will encourage retain hospital competitive advantage.
However, the applicability of portfolio methods to improve the risk-return characteristics of
investments in health care is limited to situations where the available budget is much smaller
than the expected costs of the programs to be funded.
REFERENCES
Porter, M. E. (1979). How competitive forces shape strategy. Vol.57, No.2, pp.137-145
Sendi, P., Al, M. J., & Rutten, F. F. (2014). Portfolio Theory and Cost‐Effectiveness Analysis: A
Further Discussion. Value in health, 7(5), 595-601.
Fagefors, C., & Lantz, B. (2021). Application of portfolio theory to healthcare capacity
management. International Journal of Environmental Research and Public Health, 18(2), 659.
Markowitz, H. M. (1991). Foundations of portfolio theory. The journal of finance, 46(2), 469477.