Patterns of strategic responses by hospitals to changes in the competitive environment of the hospital industry : a study in strategic groups

Recent research in strategy content has focused on the concept of strategic groups as one explanation for persistent differences in strategy and performance across firms within an industry. If strategic groups exist in an industry, they have implications for the pattern of competition in that industry and may serve as a theoretical bridge between industry structure and strategic management research. This study examined the pattern of strategic responses and the formation of strategic groups among a population of competing hospitals in the hospital industry during the period from 1980-1985, a time of dramatic change in the competitive dynamics of the industry. Using Porter's (1980) industry analysis model, this study described and analyzed the competitive industry environment for hospitals recognizing that the nature and character of the competitive conditions facing a firm determine a firm's strategic opportunities.

The study population consisted of all short-stay hospitals in the five standard metropolitan statistical areas of Tennessee (n = 67). Seven strategic responses were measured for each hospital. Values on the seven strategic responses were used as input variables in a clustering algorithm to identify strategic groups in the Tennessee hospital industry. The cluster analysis identified four clusters or strategic groups and these were labelled analyzers, prospectors, reactors and defenders based on the pattern of strategic responses in each group.

Tests were performed for differences between strategic groups on four organizational contingency variables--size, location, multihospital system membership, and ownership status. Only size was statistically significant. The nonsignificant finding for ownership status was the most surprising result, but appears to support recent findings that the strategic behavior of not-for-profit and for-profit hospitals is con verging. When tested for differences in financial performance (ROA), there was no statistically significant difference between the strategic groups. This result seems to refute emerging strategic group theory, but may reflect the loosely bounded nature of the strategic groups in the hospital industry, and the fluid financial state of the industry during the time period of this study. A model of the competitive dynamics of the hospital industry in Tennessee was developed based on the concept of strategic groups.