Strategic Groups

A strategic group is a collection of health care organizations that use similar strategies. All the members of a specific strategic group must be direct competitors (that is, all members must compete head-to-head in identifiable markets). For example, two acute care hospitals would be considered direct competitors, whereas an acute care hospital and a behavioral health hospital would likely not be considered direct competitors.

The competing firms that make up a strategic group are clustered together based on similar patterns of various strategic factors. The clustering process seeks to find the common ground among competing firms, as opposed to identifying outlier organizations. Categorizing competitors into strategic groups is an intermediate level of analysis. In other words, the concept of strategic groups lies somewhere between the firm level of analysis and the industry level of analysis. Classifying competitors into strategic groups facilitates the overall understanding of how all the firms in a given market position themselves.

Strategic groups are created based on strategic (that is, competitive) factors that each organization internally controls. The clustering technique used to create strategic groups must measure the strategic decision-making processes within each organization. The different types of strategic decision-making factors can include specific competitive strategies, the way stakeholder relationships are managed, specific facility structures, types of products and services offered, specific target markets, top management personnel decisions, physician credentialing processes, resource allocation algorithms, short-range versus long-range perspective, profitability objectives, quickness and flexibility in the product development process, technology investment goals, and even the range of organizational collaborative activities.

Although strategic group creation is based on similarities of strategic decision making among direct competitors, the operations within each organization can actually vary quite a bit between members of the same strategic group. What this means is that, even though firms may utilize similar macro-level strategic decision making, these firms may have created radically different operational processes to carry out similar strategic goals.

One purpose of classifying firms into strategic groups is to determine, for all the competitors in an identified market, which specific pattern of strategic factors leads to the highest performance. For example, a metropolitan area may have 10 primary care (PC) medical practices. If a strategic group analysis results in three identifiable strategic groups, we may find that group 1 contains four PC practices, group 2 includes four other PC practices, and group 3 counts the remaining two PC practices as members. Once this clustering of the ten PC practices into the different strategic groups is accomplished, the performance outcomes of the medical practices are compared to ascertain if any of the three strategic groups exhibits a significantly higher level of performance. For example, if group 2 had the best-performing PC practices, then the pattern of strategic decision-making processes that characterize group 2 would be deemed to produce higher performance, given the specifics of the market.