Learning Outcomes Analyze the current internal and external driving forces affecting the healthcare industry. Develop strategic goals for various levels of a healthcare organizatio

Chapter 2 External Analysis

Why External Analysis Is Important

President Kennedy’s quote reminds us that organizational failure is often the result of failing to look to the future. Organizations fail to anticipate significant external changes and subsequently do not make the necessary adjustments in strategy that might save them. Organizational success is predicated on tailoring strategy – not to the past or even the present – but rather to well-informed, cred- ible assumptions about the future.

Looking to the future is both an art and a science. The art involves strategic think- ing and the science involves rigorous external analysis. Together, strategic think- ing and external analysis processes enable the generation of realistic strategic

“Change is the law of life. And those who look only to the past or present are certain to miss the future.”

—JOhn F. KenneDy, 35Th PresiDenT OF The UniTeD sTATes

Ginter, Peter M., et al. The Strategic Management of Health Care Organizations, John Wiley & Sons, Incorporated, 2018. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/franklin-ebooks/detail.action?docID=5228460. Created from franklin-ebooks on 2023-09-29 01:09:17.

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38 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

assumptions about the future for strategy building. Both the art and science are critical for envisioning the future.

The art of looking into the future requires a strategic manager who is informed about and perceptive to an organization’s external changes – requiring an external orientation and inquisitive awareness. strategic managers must be able to see the big picture, understand relationships, and use systems thinking. They have to use critical thinking to determine the consequences and implications of what they see. These leaders need creativity to transform change signals into actions as well as create visions and strategic goals. As introduced in Chapter 1, strategic thinking is an art made up of awareness, anticipation, analysis, interpretation, synthesis, and reflection driven by a passion to know, understand, and succeed.

The science of anticipating the direction of change involves using structured processes for understanding an organization’s external conditions – the general (macro-environment), health care system, and service area changes – utilizing the processes of a number of external analysis tools and techniques. These processes help organize and structure information, aid in focusing on what is important, and provide a foundation for integrative strategic thinking. external analysis coupled with strategic thinking will generate new perspectives and insights to provide a plausible glimpse of tomorrow.

Use the concepts in this chapter to see into the future!

learning objectives

After completing the chapter you will be able to: 1. Discuss the significance of external analysis for health care organizations. 2. Articulate the specific goals of external analysis. 3. Point out some limitations of external analysis. 4. Describe how various types of organizations in society (the macro-environment),

the health care system, and the service area influence the delivery of health care. 5. Identify major general environment, health care system, and service area trends

affecting health care organizations. 6. Describe the utilization of key sources of external information. 7. Discuss important techniques used to identify and analyze external issues, trends,

and events. 8. Suggest several questions to initiate strategic thinking that focus on identifying

and responding to external change.

Strategic Management Competency After completing this chapter you will be able to map and analyze external issues, trends, and events in the general environment, the health care system, and the service area for a health care organization.

Ginter, Peter M., et al. The Strategic Management of Health Care Organizations, John Wiley & Sons, Incorporated, 2018. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/franklin-ebooks/detail.action?docID=5228460. Created from franklin-ebooks on 2023-09-29 01:09:17.

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Chapter 2 external analysis 39

The External Nature of Strategic Management

external analysis requires strategic managers who search for ways to radically alter the status quo, create something totally new, or revolutionize processes. They search for opportunities to do what has never been done or to do known things in a new way. Therefore, the fundamental nature of strategic management requires awareness and understanding of outside forces. strategic managers encourage adoption of new ideas in the system, maintain receptivity to new ways of operating, and expose themselves to broad views. More specifically, leaders must have an understanding of the current and potential external issues, trends, and events that may impact the organization and be able to see new possibilities that these changes may bring. This understanding is informed through the pro- cess of external analysis. External analysis is a strategic thinking activity directed toward identifying, aggregating, and interpreting the issues outside an organiza- tion to determine the implications of those issues on the organization as well as providing information for internal analysis and the development of the direc- tional strategies. external analysis can remove the protective covering in which organizations often seal themselves.1 external analysis is a part of the situational analysis section of the strategic thinking map presented in Chapter 1 (exhibit 1–1).

The Goals of External Analysis Although the overall intent of external analysis is to position the organization within its industry and service area, more specific goals may be identified. The specific goals of external analysis are:

● To identify and analyze current important issues and changes that will affect the organization.

● To detect and analyze early or weak signals of emerging issues and changes that will affect the organization.

● To speculate on the likely future issues and changes that will have signifi- cant impact on the organization.

● To classify and order issues and changes generated by outside organizations.

● To provide organized information for the development of the internal analy- sis, mission, vision, values, goals, and strategy of the organization.

● To foster further strategic thinking throughout the organization.

in addition to the identification of current issues, external analysis attempts to detect early or weak signals outside the organization that may portend a future issue. Weak signals are early evidence of emerging trends from which it might be possible to deduce important changes in demography, technology, customer tastes, social, political or regulatory shifts, or economic patterns.2 sometimes based on little hard data, managers attempt to identify patterns that suggest emerging issues that will be significant for the organization. such issues, if they continue or actually do occur, may represent significant challenges or opportuni- ties. Timely identification of external issues aids in developing strategy.

Ginter, Peter M., et al. The Strategic Management of Health Care Organizations, John Wiley & Sons, Incorporated, 2018. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/franklin-ebooks/detail.action?docID=5228460. Created from franklin-ebooks on 2023-09-29 01:09:17.

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40 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

strategic managers must go beyond what is known and speculate on the nature of the industry, as well as the organization, in the future. This process often stimu- lates creative thinking concerning the organization’s present and future products and services. such speculation is valuable in the formulation of a guiding vision and the development of mission and strategy. The bulleted list of evolving exter- nal issues at the beginning of Chapter 1 provided some of the emerging and spec- ulative forces that strategic managers might incorporate into their thinking today. There is an abundance of such external data. For it to be meaningful, managers must identify the data sources and aggregate and classify the information. Once classified, important issues that will affect the organization may be identified and evaluated. This process encourages managers to view external changes as issues that may affect the organization.

When strategic managers – top managers, middle managers, and front-line supervisors – throughout the organization are considering the relationship of external forces to the organization, innovation and improved customer satis- faction are likely. strategic thinking within an organization fosters adaptability, and those organizations that adapt best will ultimately displace the rest.

The Limitations of External Analysis external analysis is critical for understanding external changes, but it provides no guarantees for success. The process has some practical limitations that the organi- zation must recognize. These limitations include:

● external analysis cannot foretell the future. ● Managers cannot see everything. ● sometimes pertinent and timely information is difficult or impossible to

obtain. ● There may be delays between the occurrence of external events and man-

agement’s ability to interpret them. ● sometimes there is a general inability on the part of the organization to

respond quickly enough to take advantage of the detected issue. ● Managers’ strongly held beliefs sometimes inhibit them from detecting

issues or interpreting them rationally.3

even the most comprehensive and well-organized external analysis processes will not detect all the changes taking place. events may occur that are significant to the organization but were preceded by few, if any, signals; or the signals may be too weak to be discerned.

Perhaps the greatest limiting factor in external analysis is the preconceived beliefs of management. in many cases, what leaders already believe about the industry, important competitive factors, or social issues, inhibits their ability to perceive or accept signals for change. Because of managers’ beliefs, signals that do not conform to what they believe may be ignored. What an individual actually perceives is often determined by established paradigms (ways of thinking and beliefs). Thus, data that exist in the real world that do not fit the paradigm will have a difficult time permeating the individual’s filters – he or sh

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