The Role of Marketing in Determining
the Technology of a Hospital
John Popper
BACKGROUND
Amongst the more difficult decisions a hospital administra-
tor has to grapple with is that of defining the investment strategy
that the hospital should pursue. Once entered upon, it is not easy
to change emphasis or direction without significant financial
penalty.
This decision is in large part decided by defining the type
and level of clinical services that a hospital elects to offer to the
community that it is servicing. For example, if oncology services
were to be offered then once the primary decision has been made
the investment strategy becomes self determining. A basic tech-
nology configuration would be two linear accelerators plus a
simulator, radiotherapy unit, cobalt unit and ancillary chemo-
therapy facilities. The investment requirement though high at set-
up stage has a low recurrent capital requirement in terms of
upgrade demands allied to long life expectancy of the equipment.
A life expectancy that is measured in terms of ten years or better.
The strategy involving say cardiac diagnostic services are equally
potentially capital intensive but the working life of the equipment
is much shorter and the requirement for upgrades more frequent.
Cardiac equipment normally has a working life of some six to
eight years in total before replacement, not upgrade,
willbecome
necessary.
A consequence of the investment strategy adopted is that it
will define the type of clinician that the hospital attracts, and
retains, and the level of specialisation that it pursues.
Presented at the Vlth Congress of the Indonesian Hospitals Association
Hospital Expo, Jakarta 21 25 November 1993
MARKETING AND ITS ROLE IN DEFINING THE
INVESTMENT STRATEGY
In marketing terms there are basically three strategies that
are followed by hospitals, namely :
·
Undifferentiated
·
Niche
·
Market leader
These three strategies can be expressed in graphical form
relative to return on investment. Clearly the best financial returns
are to be achieved by adopting either a market leader approach or
in filling
a
niche opportunity with a particular clinical service or
suite of services.
Earlier this year I surveyed thirteen private hospitaIs here in
Jakarta and found that in fact virtually all were pursuing an
undifferentiated strategy. Where investment in specialised tech-
nology had been made, it was upon the request of a particular
doctor rather than in terms of a clearly thought through strategy
linking clinical service development with market needs. The
consequence was a very high level of under utilisation of equip-
ment and subsequent lack of return on investment. Lithotripsy
units servicing two or three patients a week, cardiac catheterisa-
tion laboratories performing twenty angiograms a month, these
levels of utilisation are not only not commercially viable they
reflect a poor understanding of the cost of capital and the notion
of opportunity cost of capital. Money invested in these capital
intensive, low utilisation technologies offer no payback to the
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Cermin Dunia Kedokteran, Edisi Khusus No. 90, 1994
investors and deny access to this money to other potentially
viable projects that would yield a return on investment.
In discussing with hospital administrators how these invest-
ment decisions were made it was clear that market demand and
payback analyses were not performed with any discipline but
rather the decisions tended to be made based on intuion and blind
faith.
Marketing frameworks encourage consideration of two major
aspects that should underpin any investment considerations.
They are those of target market demand e.g.
·
Is there a market for the service under consideration?
·
If so, is the demand of sufficient level to be economic?
·
If the answer appears yes, is that demand sustainable?
Affirmative answer to these questions still should not lead to
an investment in the proposed technology yet though. The second
situation analysis needs to also be undertaken, that of considera-
tion of competitor positioning. It is a truism that if you can see an
opportunity in the marketplace so can a competitor. This being
the case :
·
What are the responses of a competitor likely to be?
·
Are they also investing in similar technologies, or contem-
plating doing so?
·
If so, is the market big enough for two or more players, or,
can your facility gain a sustainable competitive advantage rela-
tive to the proposed technology?
·
Apart from market, demand considerations are there any
other issues such as restriction of the number of clinicians or
technicians associated with operating the technology? Is this a
limiting resource?
·
What are the lead times involved for a competitor follow you
into the market?
·
If your hospital entered the market with the proposed service
would it make it nonviable for a competitor to set up in compe-
tition?
These sorts of considerations need to be individually
answered. They are built around the concept of a core compe-
tence, that is to say those things that a hospital does that gives it
a sustainable competitive advantage over a competitor. Those
one, two, or three areas of clinical service that your hospital is
able to offer at a level of excellence that is not readily imitated by
a competitor.
A core competence should :
·
Be difficult for competitors to imitate, especially if it is based
on a combination of corporate culture and technologies
·
Be focussed on meeting a perceived need by the hospital s
customers namely the doctors, patients, visitors and staff
·
Be a basis for potential, or actual, business acquisition
To assist in these sorts of analyses a number of different
frameworks are useful.
To formulate considerations about whether or not a potential
investment in a new service is likely to be attractive Porter s
Industry Attractiveness Model is very useful to guide analysis.
This is a very comprehensive framework and leads to wide
ranging considerations about the potential marketplace and its
structure.
The model has as its core the need to predict the degree of
rivalry a business could be predicted to experience. In order to
assess the threat of rivalry issues that impact on the attractiveness
of an opportunity are considered such as threat of entry into the
marketplace, threat of substitution of the service or product and
consideration of the relative roles of suppliers and customers in
impacting on the business.
Once an investment strategy has been defined and embarked
upon marketing concepts also help to define how a hospital
should position itself relative to competitors.
Ansoffs product/market grip offers a useful framework
from which to consider existing products and markets and
potential new ones. By using this model it helps focus a hospital s
marketing efforts and place them in a context that investors and
staff can understand.
A third model that is of particular value in terms of develop-
ing responses to market opportunities considers the attractive-
ness of that market relative to its strategic value to the hospital.
By performing this type of strategic value analysis it helps a
hospital administrator to determine their marketing initiatives.
SUMMARY
The intention of each hospital should be to develop two or
three distinctive clinical competencies that give it a sustainable
competitive advantage over other facilities and from which it can
therefore achieve economies of scale for those clinical services.
It is through economies of scale that technology becomes viable
and thus allows a hospital to build profitability.
Marketing concepts allow a clear framework to be applied to
the decision making process in an objective and rational manner
in determining which technologies a hospital should invest in.
Once investment has occurred, marketing models help
define how to position and develop a hospital s clinical products
and how to respond to changes in competitor behaviour. Indeed,
systematically applied these frameworks offer considerable
predictive capabilities for the astute administrator.
Cermin Dunia Kedokteran , Edisi Khusus No. 90, 1994
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