Increasing Strategic alliances between hospitals as healthcare reform evolves

Increasing Strategic alliances between hospitals as healthcare reform evolves

Using insights from the strategic-alliance literature and anecdotes from the healthcare consulting firm, we refocus attention away from the traditional, solitary model of leadership to a shared model of leadership among the top executives of the partner organizations. In so doing, we advance three lessons for leaders to predict and explain strategic alliance success in the healthcare industry. Specifically, these lessons direct attention to top executives' joint abilities to collaborate from a distance, to focus on creating customer value above all else, and to experiment and implement innovative ways to compete in the industry with a partner.

A key market determinant of alliance formation is the ability of aligning organizations to be viable players in a competitive market. Strategy researchers argue that a highly competitive product market increases the vulnerability of the firm's strategic position by reducing margins and making product differentiation more problematic. Firms increasingly engage in cooperative activity to reduce costs, share risks, or develop differentiable products and services as product market competition increases Alliances can also increase the legitimacy of firms in the eyes of potential buyers and suppliers by augmenting firms' visibility and touting the perceived advantages of cooperation. Vertical dependencies among firms can also influence alliance formation. Firms may enter alliances to reduce the threat of opportunism and small-numbers bargaining between buyers and sellers in a market and when needed resources are scarce and concentrated in the hands of a few organizations. Finally, alliances can serve to increase a firm's market power by combining the distribution channels and bargaining power of the alliance partners, as well as by exchanging knowledge-based resources concerning partners' production processes that give them competitive advantage over rivals.

Hospitals are confronted with competition in their supply and distribution markets. Healthcare constitutes major purchasers of hospital services by virtue of their brokering of the flows of premium dollars from employers and governmental payers to providers, and their contracting decisions (i.e., which physicians and hospitals to include in their panels).

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