Introduction
Numerous companies do not attain the profitability they desire due to utilizing erroneous systems or frameworks to establish the correct costs of products. Such a failure to appropriately identify the costs related to enterprise affects not only the profitability but in addition the company’s competitive edge.
So as to determine if the company is succeeding in realizing maximum resource distribution, the company should consider the method first demonstrated by Michael Porter and called the value chain analysis. This methodology aims to describe the full chain via which commodities are delivered to clients (Porter, 1998).
The value chain analysis can be a strong instrument in increasing a company’s competitive strength; by appropriately pricing goods and determining the correct costs of labor and raw materials; a company can align the expansions in effectiveness, quality, and profit margins with its strategic goals.
Value chain analysis is utilized to explain the operations that occur within the company and relate such activities to a study of the competitive advantage of the company. Porter (1998) observed that the actions of a company could be classified into two groups: Major operations are activities that are directly related to developing and delivering products and supporting operations.
This category comprises activities indirectly engaged in production; such a category as well adds values to the company since its processes aid in increasing competence or effectiveness. Porter as well affirmed that was unusual for a company to carry out all core and support operations (Porter, 1998).
Started in 1952, Kaiser Permanente (KP) is a non-profit health care facility based in Oakland. There are three diverse organizations that make up Kaiser Permanente, Foundation Health Care System, Foundation Clinics, and Medical Groups.
Based in eight regions, Kaiser Permanente presently is the biggest non-profit healthcare facility in the United States with roughly 8.8 million healthcare plan participants, over 100,000 workers, 13, 856 nurses, 33 healthcare clinics, 483 medical outlets, and $29 billion in yearly sales.
Its income system is determined not by the number of customers served per week, but rather by the number of participants integrated in their medical plan.
Thus, the organization controls its funds based on gross rate analysis of average cost per medical department (Toba et al., 2008). This paper will examine the strengths and weaknesses of Kaiser Permanente. It will as well define and describe the competitive relevance of the identified strengths and weaknesses.
Strengths and weaknesses
Strengths
One of the strengths of Kaiser Permanente is Integrated Practice Unit. The health care value chain is a framework to analyze and maximize the full process of medical care in the organization. Kaiser Permanente is structured in Integrated Practice Unit, each focused on a disease or associated category of diseases, and committed to attain excellence in developing patient value in its area.
The value chains for all the Integrated Practice Units should be involved in an association with physicians, and organizational persons with decision authority. Each unit has a patient manager who guides the patients through the health care procedures, and represents the Integrated Practice Unit during board meetings.
Such a patient manager does not have to be an expert. A person with knowledge in health care administration or business management could perform this job. This would be a future-based approach of managing a hospital and face the emerging competition (Volpe, 2007).
The other strength of Kaiser Permanente is the ability to create strategic alliances with other health care organizations. The value chain refers to a well-organized way of identifying synergies with other physicians (Toba et al., 2008). Kaiser Permanente’s advantage is in the change of resource-oriented administration towards a patient-based attitude with the objective of maximizing customer value.
Critical concerns in the management of the value chain ar profitability and responsibility. In Kaiser Permanente, responsibility is equally distributed.
Without motivation, organizations are little encouraged to take more responsibility for their activities; alternatively, the government and medical systems cannot anticipate the health care organizations to be capitalist without giving such organizations responsibility and the required space for expansion (Volpe, 2007).
Weaknesses
Health care organizations tend to have obsolete information technology systems in efficient managing their value chains as frequent investment in information technology assumes a back seat. One identified section in value chain design that Kaiser Permanente could develop is in the field of ordering technologies and system.
Their ordering and raw material systems developed in the 1970’s were gradually pooled and incorporated in 1986. This obsolete information management software does not have the capability of handling the transformations and requirements today.
The issue encountered by Kaiser Permanente is how to flawlessly transfer the information without restructuring the current ordering system and inter-sectional incorporation (Toba et al., 2008).
Another weakness of the organization originates from inventory management. Unlike other companies where a stock issue leads to the loss of income, the implications of an inventory problem in a health care organization environment are harsh. It is important for health care facilities always to ensure an adequate level of stock to make sure the desires of their customers are met at all times.
Kaiser Permanente keeps a structure of both the local and the regional storage facilities in its stock planning software. The main storage facility is located in California. The central storage facility works not only as a regional storage facility, but it collaborates directly with the other warehouses to carry out product testing prior to deployment to Kaiser Permanente centers (Toba et al., 2008).
Competitive relevance
Both the utilization of Integrated Practice Units and the ability to form alliances have assisted Kaiser Permanente to streamline the purchasing system and offer cost savings. Indeed, Kaiser Permanente anticipates most of their value chain cost cuttings to originate from improved alliance terms.
In 2005, it demonstrated that Integrated Practice Units provided $100M in economic gains to Kaiser Permanente via savings from quality developments, refunds, managerial levies and operating costs (Toba et al., 2008, p. 51).
On the other hand, obsolete information systems and poor inventory management have been a challenge to Kaiser Permanente.
As a result, the hospital has faced a challenge in recruiting people able to understand the old approach utilized by the current information system to successfully move the organization to a better competitive level. Even though this is a common challenge faced by Kaiser Permanente, there are no industry benchmarks that can simply assist in providing a reliable solution (Polte, 2007).
Conclusion
In conclusion, accurate utilization of the value chain approach results in improved patient value and thus a competitive strength for Kaiser Permanente. The concept provides the model for strategic development. Today’s medical care administration seems to emphasize too much on the organization’s operational efficiencies.
The value chain refers to a method of optimizing competitive positioning of organizations. Competitive medical care facilities provide better patient value than they did before. However, Kaiser Permanente administration should put strategic concentration on providing customer value.
References
Polte, S. (2007). Out with the old, in with the New. Health Management Technology, 28(3), 14-21.
Porter, M. (1998). Competitive Advantage: Creating and Sustaining Superior Performance, New York: Free Press.
Toba, S., Tomasini, M., & Yang, H. (2008). Supply chain management in hospital: A case study. California Journal of Operations Management, 6(1), 49-55.
Volpe, J. (2007). We Have a Preference Too. Modern Healthcare, 37(8), 23-28.