Porter's generic strategies, discontinuous environments, and performance: a longitudinal study of changing strategies in the hospital industry

Health Services Research, Dec, 1993 by Bruce T. Lamont, Dan Marlin, James J. Hoffman

with an increase in performance.

Methodology

SAMPLE AND DATA COLLECTION

The sample consisted of a cross-section of 172 general, short-term, acute care hospitals in the state of Florida. The hospital industry is an appropriate industry for testing the hypotheses developed here for several reasons. First, examining a single industry controls for industry related performance effects (Dess, Ireland, and Hitt 1990), facilitates making industry-specific strategies operational (Hambrick 1980), and aids in interpreting potential anomalies in the data and results (Thomas and McDaniel 1990). Further, the dramatic changes that swept through the hospital industry during the middle 1980s have placed at least some hospitals in choice situations very different from what they were experiencing before PPS. Top managers of hospitals have been forced to recognize organizational competencies and weaknesses, resolve strategic issues, and develop coherent strategies (Thomas and McDaniel 1990).

The years 1984 and 1988 were chosen as the beginning and ending points in the study, since four years was considered to be a sufficient time lag for hospital administrators to develop and implement at least initial strategic responses to the effects of the PPS changes reverberating throughout the industry. The sample was limited to hospitals in a single state due to the dramatic differences in the level and types of governmental regulations from one state to another (Blair and Boal 1991; Zajac and Shortell 1989).

All of the general, short-term, acute care hospitals in Florida for which adequate data could be obtained were examined in the study. Archival data were collected for 1984 and 1988 from two sources: The American Hospital Association's Guide to the Health Field and the State of Florida. Hospital Cost Containment Board publications.

STRATEGY CLASSIFICATIONS

The hypotheses required classifying each hospital's business strategy as one of three types: differentiation, cost leadership, of muddling. Classification of each hospital's strategy was based on three measures of service differentiation and three indicators of cost orientation, the selection of which was based, in part, on telephone interviews and discussions with industry experts and administrators at the State of Florida Hospital Cost Containment Board. In an attempt to capture multiple ways in which a hospital might differentiate- itself from competitors, and in line with the theoretical emphasis here on resources based product/service innovations (as opposed to purely marketing-based differentiation), three indexes of differentiation were used in the study: technological sophistication of service offerings, breadth of service offerings, and number of rare service offerings. Following prior research (e.g., Hartz, Krakauer, Kuhn, et al. 1990), technological sophistication was measured as the total numbers of the following equipment and facilities at the hospital: a cardiac catheterization laboratory, an extracorporeal lithotripter, a facility for magnetic resonance imaging, a facility for open-heart surgery, and organ transplantation capability. A hospital's breadth of service Offerings was measured as the total number of services offered, of a possible 54 services identified in the American Hospital Association's Guide to the Health Care Field. The last differentiation measure was calculated as the total number of rare services offered by the hospital, with "rare" defined as a service offered by fewer than 50 percent of all the hospitals in the sample. Examples of rare services included: burn care, radiation therapy, hemodialysis, various psychiatric services, birthing room, geriatrics, and various alcoholism-related services. Low-cost orientation was based on three measures: (1) total expenses divide by the average number of occupied beds for each hospital, (2) cost adjusted per patient day, and (3) salary adjusted per patient day.