The company, its environment and the market

We have defined mission and objectives, which serve as the background to start with strategic planning.  But, a company never operates in isolation. It always does its activities interacting with different elements from the environment. The first step of any strategic plan is to know the market where the company will work. This is done with the environmental scan.

Market

all the actual and potential customers of a given company.

The environmental scan includes all the processes that are done to know and understand the environment where the company operates. It is divided in the external analysis and the internal analysis. As well, the external analysis is split in two parts, the macro-environment and micro-environment (Figure 1). After both parts of the external analysis are done, the internal analysis is the next task.

We’ll see each one of them. We will be referring indistinctly to the company, the enterprise or the organization, but have in mind that the following analysis can be applied to projects, products, services or brands.

Figure 1

External analysis

The external environment includes everything that is occurring outside the atmosphere of the company that ultimately will affect its activities. The company continuously interacts with the environment, it’s a back and forth relationship, factors that affect the environment will have some consequences for the company, while to a different and usually minor extent (depending on the magnitude of the company), its decisions will affect the external environment. As we just said, the external environment is divided in the macro-environment and the micro-environment. Both are important and have different impact on the company:the macro-environment includes all factors that influence an organization but are out of its direct control. The market or environment is continuously changing and the company must be able to adapt and to detect opportunities from it. The better a company knows the macro-environment, the better the changes will be predicted and managed. Changes in the macro-environment will affect the company in mid-term, while the changes in the micro-environment have immediate consequences for the company.

The 2008 economic crisis is an example of how an economic change has affected health care. It was common for US people to travel to top medical centers to have specialized care for some illnesses. But with the economic crises, it became more usual for people to look for medical attention closer to home and avoid the expenses of traveling if at all possible. The economic crises affected, as it did with other businesses, the financial circuit and credit line in the health care system. Hospitals and physician group practices had to cut back on technological investments and even reduce the workforce. This is how something happening in the macro-environment affected health care as well as other areas. The consequences of the economic crisis were not seen immediately in the health care system, but they were apparent after some months.

This is how the macro-environment affects the company in the mid-term, along with other industries or areas. Some industries will be more susceptible to certain changes than others. As we said, variables in the macro-environment are out of the company’s control.

Something similar happens with the health care reform. This is another example of how changes in legislation (macro-environment) will affect the way hospitals function. Changes won’t be seen immediately, it will take time for all these changes to take place. In the health care reform Web site³, there is a timeline indicating when the changes will be implemented. Changes will take up to 2015 to occur. The health care reform not only will impose changes in health care organizations, but also in many other industries that work along with health care.

To be aware of all the variables that can affect the macro-environment, the analysis can be done with the PEST analysis. PEST stands for Political factors, Economic factors, Social factors and Technological factors. Opportunities (O) and threats (T) for the company will be identified as a result of the PEST analysis. As we will see later, O and T will be included in the SWOT analysis, a key tool used to see how the company adapts to the environment (we will see it in our next class).

Let’s start with the PEST analysis:

Political factors

this category includes all the government policies and legal issues that regulate the activity of the company. O and T should be identified among the political factors. Many things are considered:

• Government type
• Tax regulations
• Price regulations
• Employment regulation and regulation trends
• Relation with labor unions
• Political stability
• Changes in government

Economic factors

includes all the variables that can affect the acquisition power of the customers. Again,  have in mind which of these variables can represent O or T for your company.

• Economic growth of the country
• Interest rates
• Inflation rates
• Unemployment rate
• Likely economic changes
• Workers’ salaries
• Access to credit

Social factors

these are the cultural aspects of the environment. Once more, try to identify which of these factors could be O or T.

• Population age and growth rate
• Health of the population
• Education of the population
• Press, public opinion
• Life styles

Technological factors

they represent the equipment and tools available for industries. If technology is not accessible, it can represent a barrier for a company. This is quite notable in health care as much of the new technology is expensive and not widely and easily available to everyone. Imagine you want to develop a diagnostic imaging center. Modern technology will be quite expensive in this field and could represent an important barrier to start a business like this. On the other hand, if you have the access to the best technology your company will probably be more competitive. Consider these variables to identify O and T for the company:

• New technologies
• Research and Development (R&D) activity
• Likely changes in technologies
• Costs of technology for the industry
• Rate of technology change

Once the macro-environmental analysis is done, it’s time to move to the micro-environment analysis. The micro-environment includes those factors that are close enough to the company to have a direct impact on the everyday activities. These factors include: customers, employees, suppliers and competitors.

Customers

Without customers there is no company. They are a very important part of the equation. If the company fails to make profitable and durable relationships with their customers, the activity of the company will be immediately affected. In health care, the customers are usually patients. The type of patients the organization takes care of must be described: demographics, prevalence of diseases, needs, expectations and everything related to the patients or the community.There is something unique in health care, something similar to what happens in the B2B market. Remember that B2B marketing is when a company sells products or services to another company. It is quite notable in B2B that the one using the product is not the one paying for it. Imagine a hospital: the surgeon using certain type of suture is not the one paying for them, the hospital does. However, surgeons will be very influential at the time of deciding which sutures the hospital should buy as they will be the ones actually using them. Also, one should keep in mind that, in health care delivery, the final user of the service (the patient) is not always the one paying for the service (insurances or governments, depending on the health system). This is why a health care organization will focus on developing strong relationships with their patients (final customer), but at the same time should negotiate convenient contracts with health insurance providers (payers).

Employees

Employees are an essential part of the company. When describing the service chain value in the first class, and we said that investing in human resources increases customer satisfaction and improves profits as a result. Employees are a key component in the development and manufacturing of products, but even more important in the delivery of services. In a health care organization it includes doctors, residents, fellows, interns, nurses, research staff, other allied-health care staff and support personnel.

Suppliers

Closer supplier relationship is one way of ensuring competitive and quality products or services for an organization. Suppliers provide all the necessary goods for a company to function. If the supplying chain is affected, the activities of the company will be affected. Not only are the providers of goods considered suppliers, but also those that provide services. A hospital depends on the suppliers of medications, sutures, surgical instruments, food and so many other things to function smoothly. Services as Internet connection and communications are also necessary for appropriate health care delivery.

Competitors

This is a very important element in marketing that is not considered very often in health care. Knowing the competitors allows the company to develop a unique selling proposition: something that is not provided by others and can be offered by the company. It is important to recognize the competitor’s strengths and weaknesses to know how your proposition can be improved and develop strategies to be profitable. In health care the question is: what can we offer differently to the patients? Why the patient should choose me instead of my colleague?