Internal Environmental Analysis
HCAD 5390
Assessing Organizational Ability
to Make Strategy
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Analyze historical and current financial
performance
Review strategic assets – resources and
competencies
Breakdown and evaluate the internal value chain
Historical Financial Performance
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Sales, market share, and profits
Free cash flow
External capital sources
Capital project hurdle rate
Other capital demands
Shareholder value
Increasing Shareholder Value
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Achieve existing profits with less capital
Increase profits with no additional capital
Decrease the cost of equity capital
Invest more capital in strategic projects that earn
above average rates of return
Current Financial Performance
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Balance sheet
Operating or income statement
Cash flow statement
Statement of changes in owners’ equity (forprofit) or net assets (not-for-profit)
Ratio Analysis of Financial Statements
- Liquidity
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Current ratio
Average collection period
Days cash-on-hand, short-term sources
Average payment period
Ratio Analysis of Financial Statements
- Profitability
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Operating margin
Total margin
Return on net assets
Ratio Analysis of Financial Statements
– Operating Efficiency
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Total asset turnover
Fixed asset turnover
Inventory turnover
Ratio Analysis of Financial Statements
– Capital Structure
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Net assets (or equity) to total assets
Long-term debt to net assets (or equity)
Debt service coverage
Non-Financial Operating Indicators for
a Hospital Organization
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Average length of stay
Occupancy rate
Outpatient revenue as % of total revenue
FTE employees per occupied bed
External and Internal Analyses
Environment
Sociocultural
Industry
Environment
By studying the external
environment, firms identify
what they might choose to do
Opportunities and threats
Competitor
Environment
Technological
General
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External and Internal Analyses
By studying the internal
environment, firms identify
what they can do
Unique resources,
capabilities, and core
competencies
(sustainable competitive
advantage)
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Value Creation
V-P
V
P-C
P
C
C
V=Value to Consumer
P=Price
C=Costs of Production
V-P=Consumer Surplus
P-C=Profit Margin
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Components of
Internal Analysis
Core
Competencies
Discovering Core
Competencies
Value Creation
Competitive
Advantage
Capabilities
Four Criteria
of Sustainable
Advantages
Resources
• Tangible
• Intangible
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•
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Valuable
Rare
Costly to Imitate
Nonsubstitutable
Value
Chain
Analysis
• Outsource
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Challenge of Internal Analysis
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How do we effectively manage current core
competencies while simultaneously developing
new ones?
How do we assemble bundles of resources,
capabilities and core competencies to create value
for customers?
How do we learn to change rapidly?
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Discovering Core
Competencies
Resources
• Tangible
• Intangible
Resources are what an
organization has to work
with--its assets--including
its people and the value of
its brand name
Resources represent inputs into an
organization’s production
process... such as capital
equipment, skills of employees,
brand names, finances and
talented managers
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Discovering Core
Competencies
Resources
• Tangible
• Intangible
Tangible Resources
• Financial
• Organizational
• Physical
• Technological
Intangible Resources
• Human
• Innovation
• Reputation
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Discovering Core
Competencies
Capabilities
Capabilities become important when they are
combined in unique combinations which create core
competencies which have strategic value and can
lead to competitive advantage
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Discovering Core
Competencies
Capabilities
Capabilities are what an organization does, and
represent the organization’s capacity to deploy
resources that have been purposely integrated to
achieve a desired end state
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Discovering Core
Competencies
Core
Competencies
Core competencies are resources and capabilities that serve as
a source of competitive advantage over rivals
Core competencies distinguish a company competitively and
make it distinctive
McKinsey and Co. recommends using three to four
competencies when framing strategic actions
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Discovering Core
Competencies
Four Criteria
of Sustainable
Advantages
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Valuable
Rare
Costly to Imitate
Nonsubstitutable
Valuable: Capabilities that help an organization
neutralize threats or exploit opportunities
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Discovering Core
Competencies
Four Criteria
of Sustainable
Advantages
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•
•
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Valuable
Rare
Costly to Imitate
Nonsubstitutable
Rare: Capabilities that are not possessed by many
others
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Discovering Core
Competencies
Four Criteria
of Sustainable
Advantages
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•
•
•
Valuable
Rare
Costly to Imitate
Nonsubstitutable
Costly to imitate: capabilities that other organizations
cannot develop easily, usually due to
• Unique historical conditions
• Causal ambiguity
• Social complexity
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Discovering Core
Competencies
Four Criteria
of Sustainable
Advantages
•
•
•
•
Valuable
Rare
Costly to Imitate
Nonsubstitutable
Nonsubstitutable: capabilities that do not have
strategic equivalents
• Invisible to competitors
• Firm specific knowledge
• Trust-based working relationships between
managers and nonmanagerial personnel
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Categories of Strategic Resources
Tangible (visible, touchable, measurable)
 Financial
 Organizational
 Physical
 Technological
Intangible (unseen, amorphous)
 Human
 Creative
 Perceptual
Competencies Leading to Sustainable
Competitive Advantage
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Valuable to the organization
Unique among competitors
Difficult or impossible to imitate
No substitute competencies
Strategic Uses of
Resources and Competencies
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Discovery (did not know we had them)
Creation (make or acquire new ones)
Combination (use them together)
Preservation (maintain them)
Concentration (use them for the right purpose)
Porter’s Generic Internal Value Chain
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Procurement
Human Resource Management
Technology Development
Procurement
Primary Activities
Internal Value Chain for a Hospital
Financial Management, Payer Contracting, Billing
Governance, Stakeholder and Public Relations
Medical Research, Medical Student Training
Legal, Compliance, Patient Advocacy, Patient Satisfaction
SUPPLIERS
(Physicians,
MCOs)
Marketing and
Promotion
ER, Admitting, and
Patient Intake
Tests, Diagnosis,
Treatment, and
Referral
Discharge
Planning, Rehab/
LTC Referral
Facilities, Security, Maintenance, Housekeeping
Clinical, Financial, and Managemant Information Systems (EMR, CPOE)
Human Resource Management, Medical Staff Relations, Nurse Recruiting
Risk Management, Case Management, Quality Assurance
Referral and
Follow-Up
CUSTOMERS
(Patients, payers,
employers)
Procurement
Technological Development
Human Resource Mgmt.
Firm Infrastructure
Support Activities
Hospital
Value Chain
After-Service
Point-of-Service
Pre-Service
Service Activities
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How Resources and Competencies
Become Competitive advantage
Resources and Competencies
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are the basis of
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Individual Activities
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that can be managed to
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Reduce Costs or Provide Additional Value
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in order to gain
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Competitive Advantage
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