Leaders at Wellington University Medical Center feel under assault from all sides. Wellington has a century-old legacy of pioneering research and a reputation as one of the nation’s top hospitals. Still, its financial performance has eroded significantly over the past five years. Its tertiary and quaternary market share has begun to shift to competitors. Anxiety about the future already has caused some key faculty members to accept positions elsewhere and, at all levels of the organization, employees are considering their options.
The deterioration in Wellington’s financial status and market position recently precipitated a downgrade in its bond rating. Bondholders have become nervous. Investments in new facilities and recruitment have been put on hold. Full integration of Wellington’s information systems remains unfinished. Leaders of the community hospitals, whose employed physicians represent major referral sources, have stopped attending Wellington’s network affiliation meetings, and health insurers have become noticeably inflexible in their negotiations with the academic medical center.
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There is, of course, no Wellington University Medical Center. Unfortunately, the confluence of a number of forces reshaping the health care landscape could turn fiction into reality for many of America’s academic medical centers. Already they face significant reductions in reimbursement from public and private sources as well as cuts to research and education. These reductions coincide with rising expenses related to increased consumer expectations, advancing technology and the need for qualified staffing.
Differentiation as Key to Competitive Advantage
Today, rather than representing a besieged sector of health care, academic medical centers as a group continue to outpace community hospitals. They generally have higher margins and better bond ratings. They also continue to dominate the upper strata of U.S. News & World Report’s list of best hospitals and tend to command the highest consumer-preference levels.
Differentiation is the essence of competitive strategy. It is only through meaningful differences that organizations create value. There are “core differentiators” inherent to every academic medical center that help to account for their enviable performance. Taken together, these core differentiators generate and fortify a unique and powerful value proposition. Academic medical centers derive considerable benefits from four core differentiators, all of which arise from their unique tripartite mission that combines commitments to teaching, research and patient care:
Depth and breadth of capability. Academic medical centers, because of the depth and breadth of their specialty capabilities as well as their commitments to research, are well-positioned as the preferred resources for complex care.
Michael Treacy and Fred Wiersema in their book, The Discipline of Market Leaders, building on work by Harvard’s Michael Porter, argue that there are essentially three megastrategies for winning in a competitive environment. You can win by offering customers the “best total solution,” delivering a product at the “best total cost” or offering what the market views as the “best product.” The last alternative requires an organization that “continually pushes its products into the realm of the unknown, untried or highly desirable … ” and “strives to provide its market with leading edge products or useful new applications of existing products or services.”