Michael Porter's Five Forces Model - Assignment Example

1) What does michael Porters Five Forces Model attempt to explain? Describe each of the five forces and Provide an example of how you would use it strategically in a health care organization. Competitive intensity. There is a level of competition in almost everything. The level of the competition varies. One my argue the more competitive you are the better you would come off in the end. Some types of completive intensity is price increases and decreases, sales, commercials, new features, better features more customer satisfaction the amount of money and time spent on competing. The problems that such a high intestacy of competition cant maintain itself the whole time which is why the same company doesnt always remain on top. Threats of entry by Competitors from outside the industry. Sometimes other companies will expand and a business that was never a threat to one company takes over and becomes their biggest competitors. They enter the market with various approaches. This company could give life and a new, fresh approach to a dyeing and staling market. Contrarily the said company could also serve as a model of how not to be in comparison to the already established businesses. The problem is that new companies that choose to enter an already completive business have a harder time starting out. At first they usually have to invest a large amount of money but if the other institutions in the market are doing very well in comparison more than likely the new capital will have a fighting chance. Switching costs is a key point that Porter makes. In particular switching costs pertaining to outsourcing. The world apparently seems to be headed in this direction. When a company outsources their billing, information technology and their clerical they dont have to pay benefits and usually since they are not officially employed by the said company there these workers will be paid much less. Availability of Equivalent substitute products. Generic or comparable products is often used in the healthcare field as a away to cut costs. If the “alternative” medicine is at least close to the product it is trying to emulate it more than likely will survive. Furthermore it also helps if the the cost is significantly lower than the main stream products. On another level there is also the more substantially different medications those that are more natural and earth friendly. Those products that treat the person more holistically and also may hold a smaller price tag but the physical side effects maybe less than those drugs that one can only get at a pharmacy. Bargaining power of buyers or customers. The power of bargaining is a ball that the consumer and purchasers have in their court. This is a very easy play to run with. A customer has many choices where they choose to go for healthcare. In network, out of network, there are many choices. The real question is what is going to keep that customer from staying with one doctor whos out of network but whom he is comfortable with to one that is in network but doesnt necessarily specialize in the problem they are experiencing? It is worth it for the insurance company to work with his client. And also to work with the doctor to receive the most money on all levels or at least pursue doctors who have more specialties for any given discipline. It is also extremely beneficial for buyers who need to purchase goods at the lowest cost to hopefully achieve the lowest over all price in the end. At the end of the day the products dont vary substantially from seller to seller. Basically the product is usually the same with slight variations. This means that ultimately there is no need to pay an astronomically price for a product that ranges from eleven dollars to one hundred and eleven dollars. If the buyer and customers had all the power then the suppliers would never really make any money. Bargaining Powers of Suppliers or Employers is the fifth and last principles. Suppliers work with each up and often a group of “available suppliers is more concentrated than the industry it sells to.” ( Porter pp. 112) because of this the competition seems a bit scarce. Imagine a pharmaceutical sales person. This persons job hinges on sales of all of his products for the best possible price. This is very important since the majority of his sales are commission base. A person who is in pharmaceutical sales has to highlight Porters five principals daily. He must have a competitive intensity and spirit. He must make a sale daily, or risk not being able to pay his bills or put food on the table. He obviously is not the only sales men who sells these products. He must sacrifice free delivery of his products at the cost of his paycheck or personally picking up payment of the bills in order to sweeten a deal. Anything to make him pop in an even playing field of other sales people. Next when it comes to the availability of equivalent, substitute products. How can he help market compete with a another company selling the same or similar products at a better price. He will highlight the products flaws. Hes selling a CPAP machine. One machine one hundred dollars the second is sixty dollars. Yes the sixty dollar one cheaper but it doesnt have the built in radio and five year warranty that the hundred dollar one has. He has to convince the client that more expensive product is better and that this is something that they cannot live without. Next we move to the Bargaining Power of Buyers or Customers. Yes, this CPAP machine has a radio and a five year warranty but this client is planning on losing weight so he/she may not have sleep apnea in the next five years but still wants the CPAP machine with the radio. What can this salesman do for her? He takes a cut of his commission, selling one the more expensive machines at a lesser price is better than selling the cheaper machine at the advertised price. The salesman cuts ten dollars off the product cutting his commission by 20 percent but still making more money off the hundred dollar CPAP rather than the sixty dollar machine. And lastly the principles of Bargaining Power suppliers and Consumers. It just happens that the person the salesman sold the CPAP machine has a son who is a supplier of a major pharmacy and drug store. He learns of how his father was able to get a great deal on a CPAP machine. He thinks that if this salesman would cut 10 dollars off a single CPAP machine he would ten thousand dollars off a hundred thousand CPAP machines. The salesman cant argue with that yet again he takes a commission cut but he still gets his money, pays his bills and can put food on the table. 2) What is value base competition and How does it differ from Zero-sum competition. Value base or Positive Sum competition at its essential question is “Who provides the best value?” (Porter pp. 7) Which is a very far cry from the features of Zero sum competition “Where the system participants divide value instead of increasing and in some case cases they may even erode value instead of increasing it.” (Porter pp. 4) there are eight core differences that Michael Porter and Elizabeth Teisberg. They are Level of Competition, Objective, Forms of Competition, Geographic market, Strategies and Structure, Information, Incentive for payers and Incentives for Providers. Essentially Porter and Teisberg basically emphasize how they believe the Positive Sum method is the most fair and non bias and gives an even amount of control to both the individual, hospitals and insurance providers. Furthermore, Porter reiterates throughout this article that “The wrong kinds of competition have made a mess of the American Healthcare system. The right kinds of competition can straighten it out” “The Level of Competition” is incorrect when the competition is among health plans, hospitals and networks but right when it is the competition is to prevent, diagnose and treat specific diseases. The wrong objective is cost reduction. Participants try and to cut their own costs by moving them to someone else without reducing the amount spent. “The right objective” is to improve the care that is given for the amount of money shelled out by the individual. The wrong forms of competition is to align oneself with various health care companies. Methods include cutting costs to the larger health care monopolies, reducing to leverage bargaining power and moving monies around. The right competition is highlight the importance of research needed to reduce of eliminates certain illness or conditions that are taking over our world to show that ultimately the goal is not money driven but to improve lives. The wrong geographic is competition at a neighborhood level. The right is the competition is national. Yes local can be good but when there are money people involved from all over the world it ups the anti for each company to put their best foot forward there by reducing costs by competition. The wrong Strategies and Structures companies build an all inclusive network of providers there is little to no competition because all companies provide and want the same strategies The right strategies and structure. The focus is competition and a varieties of providers who focus on different specialties providing different levels of costs for the individual. The Wrong Information focusing on the healthcare providers satisfaction surveys. The right information means focusing on treatments and providers as ways to change specific problems and conditions. Not focusing on the companies but the people who keep the companies in business and how to successfully treat their diseases instead of having them return with more diseases or more problems. The wrong Incentives for payers. Trying to attract only health subscribers and raise the price of unhealthy participants. The are very strict in regards to in and out of network providers participants get very little choice in the matter. This eventually will bring ideas and creativity to an end. The right incentives for Payers means bills are paid quicker because subscribers look for the best people to perform the best care on a more individual basis cutting out the middle man. The wrong incentives for providers a more general approach to medicine. A sort of jack of all trade mentality were patients are referred in network means less time with patients and results in the revolving door syndrome. Patients are in and out quickly. The right incentives for providers. This provides more individual care. Treating patients symptoms to evaluate one the actual problem is, which engages the insured and helps improve the level of care they receive by providing physicians who specialize in the discipline the insured is having problems with. Competition is healthcare is a very real problem. Zero sum competition is exactly that. There is no competition that does not benefit itself. That is the sum of the competition is zero in the end the only person that will gain from this practice is the insurance and healthcare providers. The value base or the Positive sum benefits the individual thereby benefiting healthcare as a hold. When the individual is happy the providers will happy. If not for the insured there would be no use for insurance companies as a hold service will be better for all parties involved. 3) Define Mission, Vision and Values and explain how they are the foundation for strategy development and implementation. In his book Managing Health Care Business Strategy. George B Moseley outlines his strategy for implementation of a good business. It it a best practice for all business and not just health care facilities. For the purpose of this paper we will focus on the healthcare industry. People in this line of business focus on real people not just facts and figures. Life and death situations come up everyday because of this Moseleys three principles are extremely important. His ideas on mission, vision and values are particularly important since healthcare industries are dealing with people. A good mission state outlays the purpose of the organization. It tells you what drives them. This is particularly helpful in a healthcare industry where what a company stands for is extremely important. “It is a practical summary of the activities and operations of the firm, often expresses in terms of the products that is intends to manufacture and sell and the markets/customers it intends to serve.” (Moseley p.p 135) It tells us what it does and the efficiency in which it will accomplish said task. It is a way to market its business. Most good companies cant operate without a mission statement. Overall, its a good way for the general public and others in the industry to identify with the company. An organizations vision is just as important to help others relate to it. A vision helps those to see its immediate results as well as where a company is headed. What are its long term goals? This may help to establish its longevity with the customers. If its a nursing home: will it be around in ten years when the client will bury his grandfather? If its a hospital: will the same doctor treating a clients mother for breast cancer be there for her in her finals days? If its a pharmacy: will I always be able to get the same care from my pharmacist who knows that this client is allergic to penicillin?” “One of the best ways to think about the future is to imagine the most desirable ideal future state of the organization. If the organization, its leaders and its employees could operate in the best possible world five years from now, what would it look like? The conditions of that world would be captured in a vision statement” (Moseley p.p 141) Values is the last implementation strategy. This is a set of guidelines needed for everyone to hold on to. It also helps to keep them accountable when thinking to cut corners or falter. They are a set of beliefs. What ever your spiritual thoughts may be, its essential to have a core set of moral obligations that would make one think twice before doing anything that would jeopardize a company in anyway. This is a set group of ideas that everyone needs to follow across the board, from the CEO to the after hours cleaning staff. It has to be consistent on all levels to work. Although, values are most important when it come to superiors. Obviously when your manager is following the ideas set out this encourages you to do so. “Explicitly stating managements expectations for employee behavior is a good way to start. It helps too, if ethics and values are taken into consideration during the hiring state, and if managers themselves model the behavior they would like to see in their subordinate.(Moseley pp. 143) The readings of Managing Health Care Business by Moseley and the article Redefining Competition in Health Care Business Strategy by Porter are two very interesting pieces of literature that are helping to reshape healthcare as it is today. Improvements have been made and are definitely needed. Most consumers, buyers and suppliers should find comfort in the fact that these theories and ideas are all encompassing. Meaning, that the right competition is needed to fix the problems brought on by the large monopolies whom have obtain all the power leaving little for the middle man or consumer. By focusing on everyone each entity receives an equal and fair amount and this competition is the best kind of competition of all. REFERENCES Moseley, G.B III (2009). Managing Health Care Business Strategy. Boston: Jones Bartlett Publishing LLC. Porter, M.E and Teisberg, E.O (2004) Redefining Competition in Healthcare. Harvard Business Review Read More