Business Strategy

Porter Five Forces Analysis



COMPETITIVE RIVALRY: HIGH – within a 20 mile radius of SMC there exist many other hospitals; University Medical Center of Princeton, Robert Wood Johnson University Hospital, JFK Medical Center, Hunterdon Medical Center, Newton Medical Center, Morristown Memorial Hospital, Overlook Medical Center and Saint Peter’s University Hospital. Coupled with primary care and the growing popularity of Medi and Surgery Centers, SMC is literally fighting for survival. Until recently their reach and influence was limited to local residents. However over the past few years they have initiated investments into: partnering with various Medi and Surgery centers, expanding their family practice service, establishing new relationship with care providers and distinguishing themselves by focusing on specific market segments, all in an attempt to keep their doors open. Nevertheless the reality of the healthcare industry has caught up, forcing them to seek a merger or risk having to close their doors like so many other healthcare institutions in NJ.

BARGAINING POWER OF CUSTOMERS: MEDIUM – due to the fierce “COMPETITIVE RIVALRY” we expected customers to have the last say but that is not always the case. Medicaid, Medicare and Private Insurance compensation, accounts for more than 95% of SMC’s revenue. SMC capitalize on this by negotiating favorable terms with provider, this in turn compels patients to patronize SMC’s facility and their affiliate or risk paying more out of pocket. Furthermore SMC target specific market segment “FOCUS – DIFFERENTATION” achieving “National Recognition” for their Excellent Service and Care, Sleep for Life, Sports Performance & Medicine, Orthopedics Surgery & Services and The Steeplechase Cancer Center programs. Excelling in these areas provides additional leverage and diminishes a customer bargaining power. However SMC is not alone. Larger organizations with significantly more resources are implementing similar strategy in various other market segments. A customer’s decision is influenced, not only by what they like or prefer but rather by a combination of; what their insurance carrier dictates, what illness they have, where they live and what facility is best recognized for the care and service they require.

BARGAINING POWER OF SUPPLIERS: MEDIUM – SMC has a certain degree of leverage over its suppliers. They provide rewarding compensation package, career advancement opportunity, training and a favorable work atmosphere, to attract and retain a vital workforce and physician service. Its leverage on vendors results from their high purchasing power, direct association with reputable manufacturers and suppliers, commitment to sustainable long term vendor relationships, dedication to proactively analyze cost saving prospects and implement alternative measure to stimulate competition with current vendors and open the doors for others. SMC distinguishes themselves as a "World Class Medical Facility" and understands that it is essential to extend that motto when procuring raw material, supplies and services. However SMC’s appeal is small compared to other well established facilities within the industry; they lack the necessary capital enjoyed by their competitors and crucial to being on the forefront of innovation and technology within the healthcare industry.

TREAT OF NEW ENTRANTS: LOW – healthcare today is not the same as it was last year and neither will it be the same next year. The volatile nature of the healthcare industry is the strongest barrier for new entrants. Evident from our case study of Somerset Medical Center, focus differentiation, recognition of service excellence, innovation and technology alone does not guarantee a sustained profitable venture. Furthermore the capital require for new entrants and the uncertain profitability of the industry make success even less realistic. Larger establish organizations within the industry are rapidly expanding through merger and acquisition rather than starting anew. An indication to prospective ventures of the harsh reality in the healthcare industry today.

TREAT OF SUBSTITUTIONS: LOW – Medi and Surgery centers poses the most direct risk to SMC, due to their favorable appeal with providers and customers. Providers embraces these centers because they are cheaper (smaller overhead and multiple locations) which translates into cheaper premiums and better access to health services for customers. SMC have embrace this reality by establishing partnership with these centers, seeking referral for patients requiring hospitalization. They have also invest in numerous locations of their own, tapping into this alternative market. Healthcare is a necessary public good in a civilize society with little or no alternatives, thus as the population continue to grow so does the demand for healthcare services. However being able to exploit this force as an established institution hinders on your ability to overcome and address the other industry wide forces that are not as favorable.  



Competitive Strategy

   At its inception SMC’s Competitive Strategy was to provide affordable health care to local residents, “Focus-Low Cost” was adopted. As it grew out of a residential home and into a world class healthcare facility, a modification of strategy was require to justify expanding and sustain growth, “Industry Wide-Low Cost” was adopted. Due to the ever-changing healthcare industry over the past decade, SMC realized that they needed a change in strategy if they are to remain relevant, “Focus-Differentiation” was adopted and continues today.

  The healthcare industry today have little sympathy for small institutions. Individual hospital such as SMC are losing leverage in the market to system of hospitals under a single banner. A direct result of their limited resource, influence, presence and relevance in the industry. Accepting this reality and determine to keep its doors open while remaining sovereign, SMC distinguishes itself from the competition as a facility focused on providing excellent service and care, while targeting specific market segments. Excellent service and care: received Magnet Recognition status in 2011. Sleep for Life: holistic approach to sleeping disorder, accredited by American Academy of Sleep Medicine, 2007 expanded to a new 20 bed, 14,000 square-foot location. Sports Performance & Medicine: on the forefront of sports medicine, care and services, focusing on preventing injury and maintaining good health. Orthopedics Surgery & Services: among top 5% of hospitals nationwide, 2011 Health Grades Orthopedic Surgery Excellence Award, invested $2 mill on  the Davinci Robot. The Steeplechase Cancer Center: invested $28 million, opened in 2007, partnered with Sanofi US Breast Care Program.