Porter's Five Forces and Healthcare

What is Strategy: Healthcare Organizations

Although Michael Porter penned his famous article “What is Strategy” in 1996, many of his basic strategies still apply to healthcare institutions today, Porter stressed the idea that every institution must choose between a cost leadership versus a differentiation strategy (Hamdan, 2017). Porter noted how while quality, speed, operational efficiency and other enhancements can enhance sales and increase revenue, a strategy should not be confused with such factors. Strategy involves developing a strategic competitive advantage, or a unique offering, that cannot be easily or efficiently replicated by competitors.

Porter (1996) notes that many companies like Southwest Airlines and Vanguard have capitalized upon price-sensitive consumers as a way of garnering a competitive advantage, or offering what other organizations do not. Although healthcare is a less price-sensitive industry than the airline industry, walk-in clinics and pharmacies which offer basic care is an example of healthcare entities offering a cost leadership alternative to more costly clinical practices or emergency rooms.

Other institutions enhance their strategy through specialization versus cost. Hospitals which specialize in orthopedic surgery, cancer treatment, or other specialized services or technology are capitalizing upon a strategy of being known for offering one, particular type of service really well, versus offering inexpensive services. Finally, it is possible to merge both a price and a specialization strategy. A telehealth organization which offers low-cost mental health services is an example of capitalizing both upon price and a specific and unique approach to care, as well as offering convenience to those who lack the ability to travel easily to providers. Healthcare institutions are increasingly using knowledge management to create such an advantage, deploying the technological knowledge of personnel and increased level of comfort offering care in diverse ways to gain an edge over competitors (Lethbridge, 2011).