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The Importance of Strategy for the Evolving Field of Radiology¹

¹ From the Department of Radiology, Columbia University, 177 Fort Washington Ave, Milstein Hospital Bldg, 3rd Fl, New York, NY 10032. Received August 15, 2001; revision requested October 11; revision received December 11; accepted January 7, 2002. Address correspondence to the author (e-mail: sc56@columbia.edu).

	ABSTRACT

TOP ABSTRACT INTRODUCTION OVERVIEW OF STRATEGY FRAMEWORK FOR STRATEGY... EVOLUTION OF STRATEGIC THINKING:... DEALING WITH UNCERTAINTY ABOUT... CONCLUSION REFERENCES

 
During the 20th century, the field of radiology experienced extraordinary growth and became an essential component of the practice of clinical medicine. In the 21st century, it is likely that radiology will continue to grow by interfacing with new and important domains such as information technology and molecular biology and by playing a more central role in general medical education, biomedical research, and noninvasive therapeutic interventions. To sustain such wide-ranging growth and yet remain intact as a medical specialty, the profession will require many radiologists who can provide leadership to bridge the many gaps between the various frontiers and the traditional core of radiology. These radiologists will need skills and background in two critical management areas: leadership and strategy. This article approaches the broad topic of strategy in several ways. First, it provides the radiologist with a basic framework for strategy development. Second, it summarizes central ideas from the evolving field of strategic thinking. Finally, it outlines a strategy-based method for dealing with uncertainty about the future and identifies situations where specific strategic tools and techniques are likely to be helpful.

© RSNA, 2002

Index terms: Radiology and radiologists, socioeconomic issues • Review

	INTRODUCTION

TOP ABSTRACT INTRODUCTION OVERVIEW OF STRATEGY FRAMEWORK FOR STRATEGY... EVOLUTION OF STRATEGIC THINKING:... DEALING WITH UNCERTAINTY ABOUT... CONCLUSION REFERENCES

 
The extraordinary growth and increasing importance of imaging technology have dramatically affected the practice of clinical medicine over the past few decades. The authors of a recent article (1) found that physicians view computed tomography (CT) and magnetic resonance (MR) imaging as the two most important medical technologies to have been developed in the past 30 years. In turn, rapid changes in the health care environment have affected the practice of radiology in ways that had not been foreseen. The advent of managed health care, the emergence of the acquired immunodeficiency syndrome pandemic, and the increasingly consumerist nature of patients (aided by the development of the Internet) are only a few of the important developments that have had a major impact on radiology practice.

In responding to such challenges, radiologists have embarked on different initiatives, some of which are fostering new views of the role of radiology in the health care industry. These include views of radiology as each of the following: (a) an information technology; (b) an essential teaching tool for general medical education; (c) an independent research discipline, as recognized with the establishment of the National Institute of Biomedical Imaging and Bioengineering; (d) a diagnostic technology with direct relevance to patient outcomes; (e) an important screening technology for early detection of disease; and (f) a visualization technology that facilitates minimally invasive therapy.

As radiology continues to grow and evolve, there has been increased interest in preparing radiology for the future (2). New conceptions of radiology require practicing radiologists not only to learn new tools and bodies of knowledge but also to open their minds to new contexts and different values (3). For example, many radiologists have recognized the need for modern management and marketing techniques to optimize their clinical practices, but use of these tools also raises expectations that radiologists will increase their focus on issues of cost, timeliness, and customer satisfaction (4). While the current information explosion makes it difficult for radiologists to keep up with advances in both clinical medicine and imaging technologies, it may be even more difficult to integrate new value systems. This problem will require practicing radiologists to develop and hone managerial, interpersonal, and learning skills that were not necessary in the past. To become adept in managing change and dealing with difficult decisions, the radiologists of the future will require a background and core skills in two essential management areas: leadership and strategy. The importance of leadership development in radiology has been discussed in a number of recent publications (5,6). This article will serve as an introduction to strategy.

Recently, there have been a number of articles in the literature that articulate the relevance of specific strategic concepts to the practice of radiology. These concepts include value innovation (7), discontinuous technology (8,9), and activity-based costing (10). An even larger number of articles covering various strategic concepts are available in the general medical literature and in the lay press. Indeed, these strategic concepts are useful constructs for managers and professionals with a background and experience in strategy development. However, how can a practicing radiologist with no such background determine which strategic concept is valid or which strategic tool is useful for a given strategic situation? The aim of this article is to provide radiologists with the central concepts of strategy and a basic framework with which to approach the development of strategy. To provide a common point of departure, I provide a highly simplified definition of strategy that involves both substance and process. Strategy is the overall plan that is used to align the purpose, direction, and activities of an organization and intimately involves the in-depth decision-making process used to create that plan.

	OVERVIEW OF STRATEGY

TOP ABSTRACT INTRODUCTION OVERVIEW OF STRATEGY FRAMEWORK FOR STRATEGY... EVOLUTION OF STRATEGIC THINKING:... DEALING WITH UNCERTAINTY ABOUT... CONCLUSION REFERENCES

 
The development of strategy requires two intellectual processes: analysis and synthesis (11). Analysis involves breaking down a problem into parts. Analytic thinking is well known to radiologists as an intrinsic part of evaluating signs and symptoms in clinical medicine, observing findings on images, and examining data for scientific studies. By itself, however, analysis is insufficient for developing strategy (11). On the other hand, synthesis is the process of creating a whole from smaller pieces and may be involved in formulating a list of differential diagnoses, selecting the most likely diagnosis, and generating scientific hypotheses. In the field of strategy, synthesis is generally referred to as "formulation," a term that will be used henceforth in this article. Although they are described separately in this section, it is essential to realize that the two intellectual processes of analysis and formulation are interwoven throughout strategy development.

Strategic analysis requires knowledge about one’s own firm or organization, as well as of the external environment in which the organization competes. With respect to the organization, it is important to have general knowledge about its overall structure, internal operations, and culture. It is also important to acquire a deeper understanding of those critical business processes that determine the organization’s overall success. With respect to the external environment, strategists must not only be attuned to current events and trends, but must also be able to evaluate their importance and anticipate their evolution. In addition to learning the details about the organization and the trends in the external environment, strategists must understand the dynamic interrelationships between the organization and the external environment. At this point, strategists may begin to form initial ideas and hypotheses about ways in which the organization may succeed in the future. This is the beginning of strategy formulation. As further knowledge is gained from successive components of the strategic analysis, other strategy options may be created that will require further analysis and refinement. Finally, one of the strategy options is chosen and then further elaborated for the purpose of implementation. As described above, the processes of strategic analysis and formulation are used in an iterative and cyclic fashion to arrive at an optimal strategy.

The strategy development process may also be framed in a learning-oriented context. The beginning of a strategy development process must address many important and basic questions such as "How are we doing now?" or "What new developments are occurring in the outside world?" The later stages of strategy development will require an approach to difficult higher order questions that follow from the findings of initial strategic analysis. Examples of such questions are "Given the expected changes in the external environment, how well are we likely to do if we maintain the status quo?" or "Exactly how do these developments threaten to impact our current practice?" Toward the end of the strategy development process, the ultimate questions arise: "Given the results of our entire strategic analysis and formulation processes, which, if any, of the strategy options do we choose?" and "How will we implement our chosen strategy?"

For the purposes of simplification, I will make three assumptions about decision makers’ context for strategy development:

1. Strategy is being formulated for a single business unit, or SBU, regardless of size, such as a single radiology group practice, a department of radiology at an academic medical center, or a single teleradiology-based company.

2. The perspective of the decision-makers is at an organization-wide level.

3. The strategic choices made (and not made) by the decision makers are sufficiently important to affect the long-term performance of the SBU and to require the use of substantial organizational resources.

What Strategy Is
There are many dimensions associated with strategy, thus leading to numerous definitions of strategy. Peter Drucker cites strategy as the "theory of the business" (12). Michael Porter emphasizes the "creation of a unique and valuable position, involving a different set of activities" (13). Henry Mintzberg alludes to the multidimensional nature of strategy with his "5-P" definition of strategy: Depending on the situation, strategy may be viewed alternatively as a plan, a pattern, a position, a perspective, or a ploy (14). Finally, while Collis and Montgomery (15) emphasize value creation as the major goal of strategy, Bruce Henderson (16), the founder of the Boston Consulting Group, always maintained that the essence of strategy is the establishment of unique advantages over other competitors.

Despite the many definitions of strategy, no single definition truly captures all of its different dimensions. In this article, however, a working definition of strategy is offered that is based on the processes that underlie strategy development. Strategy consists of two main interrelated processes: (a) gaining insight into the organization and its environment and (b) positioning the organization for sustained competitive advantage. This process-oriented definition of strategy has the virtue of emphasizing the attitudes and qualities required for group-oriented strategy development. The development of strategy requires each of the decision makers to be prepared with an open mind and a multidimensional outlook that can incorporate different kinds of information. It also requires them to "let go" of obsolete concepts, create relationships that facilitate learning, appreciate rates of change vis-à-vis the external environment and competitors, and develop a system-wide perspective of the organization (17).

What Strategy Is Not
At this point, we can further refine the notion of strategy by stating what it is not. Certain elements have often been confused with strategy. The first is tactics. Tactics constitute the detailed actions that are performed to implement a strategy. For example, a radiology practice may decide to adopt the strategy of offering comprehensive diagnostic imaging services at each of its outpatient facilities so that it can obtain sufficient referrals for certain high-margin diagnostic imaging services such as MR. One of the tactics involves offering broad coverage of a highly utilized imaging technology that is associated with low operating profits (eg, mammography). If a new radiology practice manager was to confuse the tactical action of wider provision of mammography services as the main part of the radiology group’s strategy, then one possible result could be the subsequent decision to open a free-standing mammography clinic. While there may be a potential for associated benefits (related to remuneration, economies of scale, or enhanced reputation), this act is inconsistent with the intended strategy of providing comprehensive imaging services to ensure referrals for high-margin imaging services.

The second element is operational effectiveness (18). There are certain managerial approaches, such as total quality management, time-based competition, and reengineering, that have the major goal of optimizing operational effectiveness. An inherent assumption of each of these approaches is that improvement, redesign, or elimination of the specific work process will yield strategically important results for the business. Certainly, there are well-known instances where a specific work process is integral to the competitive and financial position of an organization, such as the work process involved in the "made-to-order" manufacturing of personal computers at Dell Computer (19). However, as Porter (18) points out, one cannot assume that operational excellence is the sine qua non of an effective strategy, since any given specific work process may have little relevance to customer values, organizational reputation, or financial well-being. As in the situation with tactics, the issue of operational effectiveness is subservient to strategy in determining whether substantial effort devoted to work-process improvement is likely to result in a sustainable competitive advantage.

The third element is the process of determining the mission and vision of the organization, as well as the production of mission and/or vision statements. In many cases, organizations have involved many, or even all, of their employees in the process of writing mission statements. This process has often been considered an empowering one, because it typically involves employees at all levels of the organization and allows them to provide input on issues that concern the organization. It is also true that a sound strategic analysis requires clear understanding of the organization’s mission and vision. However, the process of writing mission statements only represents the point of departure for the development of strategy and, by itself, does not constitute strategy.

	FRAMEWORK FOR STRATEGY DEVELOPMENT

TOP ABSTRACT INTRODUCTION OVERVIEW OF STRATEGY FRAMEWORK FOR STRATEGY... EVOLUTION OF STRATEGIC THINKING:... DEALING WITH UNCERTAINTY ABOUT... CONCLUSION REFERENCES

 
There are many approaches to strategic analysis and development. Indeed, Mintzberg et al (20) cite 10 major schools of strategy formulation and analysis. Examples of frameworks used by various schools include "the wheel of competitive strategy" (21), "portfolio planning" (22), and "the balanced scorecard" (23). While the philosophic approach and intellectual framework of each school of strategy are different, most share the same basic strategic concepts and tools. In this article, I present a simple approach to the process of strategy development by means of an analogy to the process of medical decision making. In medical decision making, it is important to perform every clinical observation and consider all relevant questions before focusing on the salient details that lead to an appropriate list of differential diagnoses and the "correct" diagnosis (24). Similarly, an important (and rarely stated) paradigm in strategy development is that while "everything" must be considered in a strategic analysis, the formulation of an optimal strategy requires a focus on the relatively few elements that are likely to lead to sustained competitive advantage. In that vein, a three-stage framework for strategy development is presented (Fig 1); the specific aim of the entire framework is to answer three essential strategic questions (25): (a) Where is our organization right now? (b) Where do we want to go in the future? (c) How do we get there?

View larger version (71K): [in this window] [in a new window] [Download PPT slide]   Figure 1. Basic framework for strategy development. SWOT = strengths, weaknesses, opportunities, and threats.

First, an environmental analysis is a review of the events and trends that have occurred, are occurring, or are anticipated to occur in the external environment. To ensure a comprehensive review, questions should be addressed about economic, governmental, technologic, physical, cultural, and managerial process forces that are changing the external environment (26). Strategists should assess the effect of these environmental forces not only on the organization but also on its customers, suppliers, and competitors.

Second, an industry analysis is performed to determine the structure of the industry, the expected changes in the industry, and the identity and strength of the competitors. The "five forces" framework for industry analysis is described in a later section. The advantages of performing an industry analysis include the following (27): Such an analysis (a) facilitates understanding about the drivers of industry profitability, (b) helps identify attractive and unattractive segments in the industry, (c) may uncover opportunities to improve industry structure, and (d) provides data that allow initial evaluation of newly devised strategic options.

Third, an organizational analysis is performed to evaluate the structure, operations, resources, and culture of the organization (28). This is essential not only for identifying the current capabilities of the organization but also for determining the level of resources and capabilities available for future strategic initiatives. In evaluating various strategic options (during the strategy formulation process), an important step will be determining the degree of organizational alignment with each strategy. If a given strategy is adopted for which there is limited organizational alignment, then strategists must recognize the need for substantial efforts to effect organizational change.

Fourth, a competitor analysis is performed to develop a profile of each competitor, including each competitor’s current strategy, capabilities, future goals, market position, and executive leadership (27). The main idea is to gain insight into the future intent of other competitors and to anticipate their competitive moves and reactions to others’ moves in the future. An important aspect of a good competitive analysis is the ability to adopt the competitor’s perspective while attempting to understand and predict its future behavior.

Other types of business analyses may be added to this stage of strategy development, depending on the particular strategic situation. Examples include marketing analysis (including customer analysis), operations analysis, and research and development analysis. Because these represent more specialized forms of analysis, they are often performed after the overall strategy for the organization has been developed.

Second Stage: Developing Insight and Generating Options for the Future
This stage is centered on gaining insight not only about the organization and its external environment but also about the interrelationships between the two. The first step is to perform a simple integrative analysis known as a SWOT analysis (21). A SWOT analysis forces the strategist to make assessments about the inherent strengths and weaknesses of the organization, as well as the opportunities and threats facing it. At the conclusion of a SWOT analysis, each category will be composed of a list of evaluated attributes, either about the organization or about relevant environmental factors facing the organization. An example of a SWOT analysis is provided in Figure 2 and is formulated from the perspective of any one of the national radiologic societies. By using this SWOT analysis, radiologists can recognize various individual elements that together constitute the strategic situation facing national radiologic societies at the beginning of the 21st century. The SWOT analysis has the dual virtues of being simple and of providing an overall summary of the current strategic situation. It also offers the first glimpse about the range and types of strategic choices that may be available to the organization.

View larger version (73K): [in this window] [in a new window] [Download PPT slide]   Figure 2. Possible SWOT analysis of radiology from the perspective of national radiologic societies. NIH = National Institutes of Health.

In complex or rapidly changing business environments, however, strategic formulation based mainly on SWOT analysis becomes more difficult. By virtue of its relative simplicity, SWOT analysis does not facilitate an in-depth analysis of an array of possible strategic moves by the organization or its competitors, nor does it provide a readily usable framework for expressing uncertainty in environmental trends and developments. Over the past 3–4 decades, other techniques have been developed to aid analytic thinking in situations characterized by major complexity and/or rapid change. For example, the techniques of Monte Carlo simulation (32) and real-options analysis (33) have each been combined with decision analysis under conditions of uncertainty. Tools from the field of game theory have been applied to characterize business situations in which various firms make strategic moves in anticipation of similar moves or countermoves on the parts of their competitors (34). Finally, another technique that has been successfully applied to strategic analysis is scenario analysis (35). This technique involves the identification of critical business factors about which there is substantial uncertainty. Various future scenarios are then created and elaborated that cover various contingencies associated with those critical business factors. With these scenarios in mind, various strategic options devised in the strategic formulation process would then be evaluated under the conditions of each scenario.

Third Stage: Strategic Choice and Implementation
After generating a set of potential strategic options, decision makers must evaluate them for their likelihood of success, as well as for the magnitude of that success. In doing so, the decision makers determine how each option fits with the desired future of the organization (as described in the mission and vision statements), as well as what organizational resources will be required for each strategic initiative. The decision makers also must consider the amount of risk the organization is willing to bear. After choosing a particular strategy for implementation, the strategists must articulate the strategy, plan the redesign of the organizational structure and/or work processes, and communicate the vision about the desired future throughout the organization.

In the past, some large multidivisional corporations used large strategic-planning committees to map out the specific actions, budgets, and contingencies required to implement a new strategy (36). However, this form of strategic planning fell out of favor as the resulting strategic plans became too detailed and cumbersome to implement and caused different divisions to be inflexible in the face of changing business conditions and new competition. This process may also have lead to "disempowerment" of the managers and employees who were responsible for implementation of the chosen strategy. Over the past several decades, most of these firms have dismantled their large strategic planning committees and have reaffirmed the responsibility of line managers and their employees to implement strategy, as well as their accountability for the work performance of their business units (36).

Instead, the authors of recent publications cite the importance of the concept known as "strategic intent," by which strategists articulate the desired leadership position of the future, but leave the precise implementation details to the different business units (37). This is in accordance with the management principle that tactical or operational decision making is best made at the level at which the work is performed. An important concept related to strategic intent is that of organizational "stretch." In articulating a new strategic goal, there may be an extreme misfit between available resources and the resources needed for the desired goal. Top management can use this disparity to challenge the entire organization to close the gap by building new capabilities and being inventive in the use of limited resources. Collins and Porras (38) cite the use of a "big hairy audacious goal," or BHAG, that has motivated organizations to perform beyond expectations, such as NASA landing a man on the moon in the 1960s.

Naturally, the accomplishment of such organizational feats requires more than just strategic analysis and formulation. The executives in charge of developing and implementing a new strategy must be capable of leading the organization along the new path and must be able to communicate the need for required changes. Besides possession of leadership skills and a great deal of energy, leaders will need to exercise imagination and creativity throughout the development and implementation of strategy (39). Because it is relatively rare to find individuals who are known to possess this combination of skills, executives with proven track records have been in high demand in the business world. While remuneration for such executives in the health care world may be less than that in the business world, the need for such individuals will be equally great in health care organizations, including in radiology (6). Recently, radiologic organizations have recognized the need for programs to develop leaders within radiology (2).

	EVOLUTION OF STRATEGIC THINKING: PRACTICAL CONCEPTS

TOP ABSTRACT INTRODUCTION OVERVIEW OF STRATEGY FRAMEWORK FOR STRATEGY... EVOLUTION OF STRATEGIC THINKING:... DEALING WITH UNCERTAINTY ABOUT... CONCLUSION REFERENCES

 
There have been many important developments in the evolution of strategic thinking, but emphasis is placed here on concepts from two of the most important strategy schools. The first school is the industrial organization school of economics, as epitomized by the work of Michael Porter. Porter’s seminal contributions to the field of strategy include the "five forces model" for industry analysis (13), generic competitive strategies (13), and value-chain analysis (40). The second school is derived from another field of organizational economics known as the "resource-based view of the firm" (RBV) school. Originally based on work by Birger Wernerfelt (41), this school of thought was popularized by Prahalad and Hamel (42), who articulated the critical concepts of core competency and strategic intent.

The industrial organization school and the RBV school hold diametrically opposed views with respect to the importance of the external environment versus that of the organization’s capabilities and resources. According to the industrial organization school, environmental influences represent the primary determinant of organizational success, whereas proponents of the RBV school believe that it is the development of an organization’s particular set of resources and capabilities that determines its success. Many leading strategists suggest that both viewpoints have validity and that the relative importance of the external environment and organizational capabilities may be contingent on the particular industry and individual business situation. It is likely that practical knowledge about the central concepts of both schools would promote understanding of the dynamic interactions between an organization’s strategic approach, its resources and capabilities, and the external business environment.

Industrial Organization School: Five Forces Model for Industry Analysis
The industrial organization school emphasizes the role of the external environment in imposing pressures and constraints that favor certain strategies over others. Organizations that recognize these favored strategies and are able to position themselves in ways that facilitate pursuit of these strategies are likely to be strong competitors in the long run. It is a fundamental assumption of this school that most organizational resources can be bought or easily developed. As most organizations within a given industry control the relevant resources, they are able to implement strategies that are favored by the environment. Therefore, organizational success can be explained in large part by two major factors: industry attractiveness and relative position within the industry (13).

Five forces model.—Porter (13) developed the five forces model to help determine industry attractiveness. According to this model, industry attractiveness is explained by the five forces: (a) the degree of rivalry among existing firms, (b) the threat of new entrants (into the industry), (c) the bargaining power of customers, (d) the bargaining power of suppliers, and (e) the threat of substitute products.

With the imaging "industry" as an example, practicing radiologists are currently faced with a number of powerful forces (Fig 3). These include increased rivalry among radiologists (eg, "cut-rate" bids for capitation contracts from managed care organizations), increased rivalry between radiologists and cardiologists for peripheral vascular radiologic procedures, the threat of new entrants (eg, cardiologists reading cardiac MR studies), increased bargaining power of managed care organizations (customers) and radiologic equipment manufacturers (suppliers), and the potential threat of substitute products (eg, computer-aided diagnosis software). In a more detailed five forces analysis, strategists could delve deeper into the specifics of each separate imaging market to determine its relative attractiveness, as well as to perform an overall assessment of the future prospects for radiology practice in a given regional health care market.

View larger version (59K): [in this window] [in a new window] [Download PPT slide]   Figure 3. Five forces analysis. Many experts add regulators as a "sixth force" to be considered in this framework. This is because governmental regulation may serve as a constraint on the range of strategic options to be considered and may have a tangible effect on the outcome associated with a chosen organizational strategy. ASP = application service providers, HCFA = Health Care Financing Administration, PACS = picture archiving and communication system.

First, a low-cost strategy is one in which the organization pursues a set of policies aimed at allowing it to offer a basic product or service at a price that is lower than that of its competitors. In most industries, the low price enables the firm to generate sufficiently large volumes of business that allow it to keep its costs low (through a combination of spreading of fixed costs, taking advantage of economies of scale, and minimizing of costs in less essential work processes).

Second, a differentiation-based strategy is one in which the organization markets a product or service of presumed greater value at a higher (but still attractive) price than that of the low-cost producer; the organization hopes to gain by offering a greater "value package." The organization aims to produce something that is considered by customers and its competitors to be unique. In general, differentiation-based strategies yield higher margins for each product sold or each service rendered and are sustainable because of the development of brand loyalty and the resulting lower sensitivity to price.

During most of the 20th century, radiology practices generally pursued differentiation strategies, as denoted by the promise of higher value (eg, performance and interpretation of imaging studies by specialty-trained board-certified radiologists) in exchange for commensurately higher margins over cost of service. With the advent of managed health care, these margins have generally been reduced to the point that they often represent a small fraction of their former size. This state of affairs has encouraged some radiology groups to switch from a differentiated competitive position to a low-cost competitive position. In the era of managed health care, this position has been denoted by the successful placement of relatively low bids on capitation contracts from managed health care organizations, with the concurrent aim of keeping imaging costs and services to a minimum. Other radiology groups have maintained differentiated competitive positions by offering even greater value than before, such as maintaining 24-hour call coverage 7 days a week or by providing newer services such as screening CT or MR services.

RBV School
The RBV school is derived from the view of an organization as a collection of tangible and intangible assets, as well as organizational processes, that together define its distinctive competences. Organizational resources include "all assets, capabilities, organizational processes, information and knowledge" that reside within the organization (42). The fundamental tenet of the RBV school is that the development of a firm’s particular set of resources leads to sustainable competitive advantage. As successful strategies tend to be imitated by competitors, it is critical to know which resources permit a competitive advantage to be sustained. Particular resources generally have the following four characteristics (42): (a) They are valuable in improving the organization’s productivity, (b) they are rare and in high demand, (c) they are difficult to imitate, and (d) few substitutes are available to replace them.

Although there are certainly many tangible resources (such as mineral rights, prime real estate, trademarks, and patents) that have provided firms with sustainable competitive advantage, greater attention is now being paid to intangible resources that may also provide long-term competitive advantage. These include business relationships, special skills, operational processes and systems, nonpatented trade secrets (such as the recipe for Coke [Coca-Cola, Atlanta, Ga]), and knowledge. Because the specific contribution made by intangible resources to the overall success of the firm has often been difficult to recognize, let alone duplicate, this form of resource-based advantage is also highly sustainable. Research in this field has focused on the role of organizational learning, architecture, and culture in promoting strategic advantage, as well as on the business evaluation of intangible resources such as intellectual property.

The tenets of the RBV school are especially important to radiologic organizations because of the dynamic interaction of three major features of the radiology environment. These include (a) the rapid pace of advances in imaging technology and clinical medicine, (b) the relatively high fixed costs of establishing imaging centers (especially for MR- and positron emission tomography–based technologies), and (c) the necessity for radiologists and other highly skilled personnel to keep up to date with developments in their field so as to maintain their knowledge bases and skills. In the future, top radiology management will need to balance their investments in tangible resources, such as new imaging technologies and infrastructure improvements, with their investments in intangible resources, such as recruitment of highly specialized imaging scientists and educational programs for radiologists.

Core Competencies
Core competencies refer to the collective organizational learning that results in superior performance, especially with regard to the coordination and integration of organizational activities (42). In general, core competencies represent the key set of organizational activities that underlie the array of products and services that are the building blocks of the various businesses. Examples of core competencies include the ability of 3M (St Paul, Minn) to engineer "sticky tape" for all sorts of adhesive products, including Post-it Notes, magnetic tape, photographic film, and coated abrasives (43). Another example is Honda Motor’s (Aoyama, Japan) core competence in the production of various sizes and types of engines and power trains for incorporation into all sorts of motorized vehicles, including automobiles, motorcycles, power generators, and lawn mowers (43). A final example is the core competence of the Harvard Business School (Boston, Mass) in maintaining a leadership role in management research by means of the mutually reinforcing processes of publishing a prestigious business journal (Harvard Business Review), hiring highly productive professors who publish regularly in academic journals, and engendering a reputation for scholarly excellence.

To build core competencies, radiology organizations must obtain and develop disparate resources and capabilities in order to form a coherent and smooth work process. However, the establishment of distinctive core competencies is not so readily accomplished, because many of the requisite elements—skills, knowledge, people, technologies, and processes—can be replicated by other organizations (whether by means of acquisition, hiring, or imitation). Examples of distinctive core competencies in the health care field include (a) customer-friendly service combined with performance of high-volume surgical procedures (44) and (b) medical technology entrepreneurship. The development of new core competencies will be even more critical to radiology organizations as the practice of radiology extends broadly into new scientific realms such as molecular biology and bioengineering and into other medical fields such as medical informatics and public health. Radiology organizations should find it useful to heed Hamel and Prahalad’s conclusion that "an organization’s capacity to improve existing skills and learn new ones is the most defensible competitive advantage of all" (42).

What are the critical strategic issues for radiologic organizations that involve core competencies? First, the RBV model readily illustrates how resource-based competitive advantages may have arisen in the past. However, it should be noted that the model does not provide a clear modus operandi that shows how to develop core competencies in the future nor how to make investment choices that promote core competencies. Second, the RBV school has shown that the development of distinctive core competencies is a critical strategic factor in promoting future organizational success. While core competencies can be readily maintained over the long term, it is more difficult to maintain their distinctiveness. This suggests that radiologic organizations that maintain distinctive core competencies are more likely to achieve sustainable competitive advantage.

	DEALING WITH UNCERTAINTY ABOUT THE FUTURE

TOP ABSTRACT INTRODUCTION OVERVIEW OF STRATEGY FRAMEWORK FOR STRATEGY... EVOLUTION OF STRATEGIC THINKING:... DEALING WITH UNCERTAINTY ABOUT... CONCLUSION REFERENCES

 
Bruce Henderson noted that "business thinking starts with an intuitive choice of assumptions" (45). In devising strategic plans, managers must deal explicitly with projections and assumptions about the future. In some cases, it may be reasonable to assume that the status quo will continue indefinitely or that certain trends may continue, especially if supported by demographic analyses, epidemiologic data, or financial projections. For example, a health care strategist at a cancer center might assume that the incidence of cancer would continue to increase and that the reimbursements for cancer-related imaging studies would continue to decrease slowly. However, it is absolutely necessary to state the main underlying assumptions explicitly so that others may understand the conditions under which the strategic analysis was performed. In this way, decision makers can determine at a future point whether the previous strategic analysis remains valid.

In the strategy development process, there are a number of external events or environmental trends that cannot be foreseen by most observers. In the analytic process, however, strategists should attempt to identify environmental factors or trends that could affect or even invalidate the viability of each strategic option that is considered. Failure to take into account such factors may lead to the lack of available resources or capability to deal with critical situations. For example, strategists may rely on projections made by reputable groups. However, even these projections may be in error, such as a 1994 projection suggesting that a 66% surplus in the supply of subspecialty-trained physicians would exist in the year 2000 (46). These numbers certainly provided the Health Care Financing Administration with an incentive to maintain a "cap" on the number of Accreditation Council for Graduate Medical Education–funded radiology residency positions that it supported, although data from the radiology market in the mid-1990s demonstrated no evidence of radiologist oversupply (47). Ironically, the current focus of our major radiologic societies is on how to deal with the insufficient number of radiologists to fill the jobs currently available (48). Given the anticipated shortfall in radiologist supply during the 1st decade of the 21st century, it is clear that organizational strategies based on the earlier projection of a radiologist surplus are likely to be invalid.

In strategic analysis, an estimate of the degree of uncertainty is an important step. Errors in addressing uncertainty may introduce large flaws into the strategic analysis. An underestimate of uncertainty may cause the organization to be unprepared for future crises or newly emergent opportunities. However, overestimates of uncertainty may likewise lead to poor decision making because strategists may overrely on prior experience or "sheer gut instinct" in formulating strategies. To address this problem, a group of management consultants introduced a concept called residual uncertainty (49). Residual uncertainty is defined as the uncertainty that remains after completion of the initial steps of the strategic analysis, including the SWOT analysis. Then, the degree of residual uncertainty determines the type of analytic tool that is to follow the SWOT analysis in the classic strategic framework. Courtney et al (49) classify the levels of uncertainty into four groups: (a) level 1: a clear-enough future; (b) level 2: alternate futures; (c) level 3: a range of futures, and (d) level 4: true ambiguity.

At level 1, a clear-enough future is a single forecast of the future that is sure enough and precise enough for strategy development. An example given by Courtney et al (49) is the situation that faces an established airline carrier when a new low-cost competitor enters the industry. The established airline carrier already knows its own costs, the industry pricing structure, and the likely responses of the other competitors. In addition, it may have faced a similar challenge in the past. In radiology, a similar situation could arise in the decision of a local radiology group about whether or not to accept the invitation of a local hospital to extend its practice to that site.

At level 2, the future can be described as having only one of a few discrete scenarios or outcomes. The example given is the situation that faced long-distance phone companies seeking to enter local phone markets pending legislation permitting such entry (49). The few discrete scenarios might include (a) the legislation fails, and no entry is permitted; (b) the legislation passes, and immediate entry is allowed; and (c) the legislation passes, but entry is regulated by governmental agencies. In radiology, this could involve a situation in which two expanding radiology groups are deciding whether to merge, compete against one another, or look for growth opportunities outside the area of competition.

At level 3, a range of futures can be described that vary by a limited number of factors, but no set of discrete scenarios or outcomes can be defined. An example would be a start-up company competing in an established industry (49) or a multinational firm marketing its products or services for the first time in a country with a newly industrialized economy. In each case, there are several factors that may determine success or failure in the venture, but it is not clear which of the factors will be most important, nor is the likely outcome of each factor known. For example, in entering a country with a newly industrialized economy, it may not be clear whether it is the choice of internal distribution partner, consumer need, brand-name recognition, or product quality that matters most. In addition, the relative merits of competitors’ offerings may not be so well defined. In radiology, this is the situation that may be faced by some start-up companies in the teleradiology business.

At level 4, the future is characterized by true ambiguity and is filled with so many dimensions of uncertainty as to create an environment in which predictions are nearly impossible. An example might be the formation of a "dot-com" (Internet-based) start-up company from scratch in 2001 (just after the "dot-com crash" in the stock markets); other examples exist (49). In these cases, the business is faced with too many unknown variables to permit satisfactory prognostication. In radiology, this might be a situation faced by companies seeking to exploit an imaging-related technology that is "far ahead of its time."

What is the value of this framework? Strategic tools now exist that allow each of the four levels of residual uncertainty to be considered with the appropriate level of detail (Fig 4). In the past, many strategists probably used a two-pronged mental model in assessing the effects of uncertainty. If enough detail about the strategic situation was known, then this situation would have been treated as a clear-enough future, with further detailed strategic planning to follow. Otherwise, the strategic situation would have been handled as a future with true ambiguity, and further strategic evaluation would have been considered equivalent to guesswork. Now, the four-level uncertainty framework makes it clear that there are strategic situations that are associated with intermediate levels of uncertainty. These may consist of situations in which discrete elements of the future can be predicted with relative certainty or other situations in which the probability of occurrence of a specific event or trend can be estimated. In either case, assessment of the residual uncertainty of the strategic situation allows classification into either a level 2 or 3 future.

View larger version (41K): [in this window] [in a new window] [Download PPT slide]   Figure 4. Analytic tools used for different levels of residual uncertainty.

	CONCLUSION

TOP ABSTRACT INTRODUCTION OVERVIEW OF STRATEGY FRAMEWORK FOR STRATEGY... EVOLUTION OF STRATEGIC THINKING:... DEALING WITH UNCERTAINTY ABOUT... CONCLUSION REFERENCES

 
In this article, the topic of strategy was distilled to the following four elements, with a special emphasis placed on the multidimensional nature of strategy. First, strategy is composed of the twin processes of gaining business insight and positioning the organization for sustainable competitive advantage. Second, a simple, classical framework is presented for strategic analysis and formulation. Third, while there is a major academic conflict about the relative importance of the external environment versus that of the internal capabilities and resources of the organization, concepts from both schools of thought must be incorporated in the development of strategy. Finally, the concept of residual uncertainty was introduced, leading to discussion of the availability of more refined strategic tools that take into account the level of residual uncertainty that strategists face in dealing with the future.

	FOOTNOTES

 
Abbreviations: RBV = resource-based view of the firm, SWOT = strengths, weaknesses, opportunities, and threats

	REFERENCES

TOP ABSTRACT INTRODUCTION OVERVIEW OF STRATEGY FRAMEWORK FOR STRATEGY... EVOLUTION OF STRATEGIC THINKING:... DEALING WITH UNCERTAINTY ABOUT... CONCLUSION REFERENCES

 

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