Strategic Management Process Brookdale Senior

Strategic Management Process

Brookdale Senior Living competes in the Assisted Living industry. Brookdale's operations are national in scope in the United States, and they operate 548 senior living and retirement communities (BrookdaleLiving.com, 2009). The industry has been subject to strong growth in recent years, but the recent collapse of the American housing market is causing some stagnation in the industry.

One tool to analyze any industry is Porter's Five Forces. These forces are supplier power, buyer power, barriers to entry, threat of substitutes and degree of rivalry (QuickMBA.com, 2007). Put together, these forces indicate how favorable an industry is. This analysis will be taken in the context of Brookdale, currently the industry leader in the U.S.

Supplier power is medium-to-high; for Brookdale leaning more towards medium. Suppliers to the industry are large suppliers of institutional goods, for whom assisted living companies typically make up a small portion of business. Contracts generally reduce the ability to switch between suppliers. Brookdale is sufficiently large to win favorable nationwide negotiations, giving it a competitive advantage over smaller operators. There is low threat of forward or backward integration in this business. The difficulties that the major firms in the industry have had with regards to profitability in recent years, despite occupancy over 90% (Assisted Living Federation of America, 2009)

Buyer power is high. Brand strength in the industry is low. The industry is fragmented, only beginning in recent years to see consolidation, as evidence by the rapid growth of Brookfield and competitor Emeritus (MSN Moneycentral, 2009). Combined with high price sensitivity, buyers have choice with respect to their continuing care options. Firms compete on price, facilities, location, staff and several other variables. That there are a number of different types of assisted living facilities complicates the issue for most firms in the industry. There are a wide range of substitutes available as well.

There are low barriers to entry. Assisted living facilities have a moderate start-up cost. There is a relatively low learning curve. They must meet certain regulatory requirements, both at the federal and state levels, but these do not appear to be deterrents, in part because governments recognize the need for a proliferation of ALFs. There are certain economies of scale, which give advantage to larger operators. Indeed, there is the ongoing threat presented by major institutional operators such as Marriott and Hyatt moving into the industry, as they have most of the core competencies and ample cash (Ginn & Young, 2003).

There is a high threat of substitutes. In addition to the myriad of segments within the continuing care industry (assisted living, independent living, nursing homes), there is also a significant threat from seniors who wish to continue living at home. Indeed, the recent collapse of the housing market has compelled many seniors to delay selling their home, which in turn has caused a slump in the assisted living industry (Grimes, 2008). Complicating the issue is the high degree of turnover in some segments of assisted living. New customers must constantly be attracted as older ones either pass away or move on to other types of continuing care.

There is low intensity of rivalry at present in the assisted living industry. The industry is highly-fragmented (low concentration) and there are fairly low barriers to exit, primarily due to relatively low fixed costs. The industry has been growing rapidly as the baby boom generation begins to enter its senior years, fuelling demand within the industry. At present, there is some overcapacity, but well-run and well-located facilities operate at over 95% capacity (ALFA, 2009). There is some diversity of rivals, but the growing market and multitude of players means that firms seldom compete against each other, but are focused more on internal efforts to boost revenues and cut costs.

Overall, the assisted living industry is relatively favorable at present for Brookdale. Although the current challenges with respect to the economy have impacted on Brookdale's profitability in recent years, these challenges are temporary. If Brookdale is able to reduce its operating costs, the company should be able to capitalize on the growth opportunities that the next few years and a rebound in housing prices will represent, allowing it to return to profitability, a track that it should be able to carry for several years or even decades.

The company has reasonable power over its suppliers, and its size allows it to offer prospective customers a wide range of options, which can reduce shopping around. The industry has low intensity of rivalry, although it must contend with some strong substitutes at times. The demographic trends, however, favor continued growth, which combined with the other factors renders the industry favorable for Brookdale.

In addition to the Five Forces, it is worth considering the industry life cycle. Most industries can be seen as having four distinct life cycle stages: Introduction, Growth, Maturity and Decline. The assisted living industry is in a growth cycle but is heading towards maturity. The business will peak in the coming decades, according to the demographic trends. Although the industry has exited for a long time, the current growth spurt has rejuvenated an otherwise maturing business. However, the demographic situation post-baby boomer represents a multitude of challenges for Brookdale, as the industry will enter the decline stage of the industry life cycle.

The strategy that Brookdale should adopt, given that they are already the largest player in the business, is to take advantage of the growth to build the size of its firm. This will involve purchasing other firms within the industry, in an act of consolidation. Ultimately when the business matures, Brookdale's size will give them the brand recognition and economies of scale to better compete against smaller rivals. Fortunately, one of the characteristics of a mature industry is that it can be a cash cow. The free cash flow that Brookdale generates from the high occupancy during the maturity years will be needed to formulate and implement strategies that will help transition the company into the more difficult operating environment that is expected when the decline stage begins.