Rethinking The Hospital

Rethinking the hospital
The value of business models for hospitals
Master thesis
Maarten den Braber (m@mdbraber.com)
October, 2008 – Enschede, The Netherlands
Rethinking the hospital
The value of business models for hospitals
Master thesis
University of Twente
School of Management and Governance
master Industrial Engineering and Management
track Health Care Technology and Management
Student
M.M. den Braber BSc. (s0010863)
m@mdbraber.com
Supervisor
Prof. Dr. H.E. Roosendaal
h.e.roosendaal@utwente.nl
Co-supervisor
Prof. Dr. W. van Rossum
w.vanrossum@.utwente.nl
Company supervisor
The Decision Group
Ir. M. Koomans
m.koomans@thedecisiongroup.nl
Front page: The photo depicts “Maggie’s Centre” at Dundee, United Kingdom. The
building is designed by the architect Frank Gehry and located at Ninewells Hospital in
Dundee. It was opened in 2003 and fulfills the purpose of helping people with cancer,
their carers, family and friends to learn how to manage the physical and emotional impact
of living with cancer.
Photo courtesy of “Royal Arch”

http://flickr.com/photos/46235637@N00/526055454/
Table of contents
ACKNOWLEDGEMENTS ................................................................................................................... 1
EXECUTIVE SUMMARY .................................................................................................................... 3
1 INTRODUCTION: MAKING THE RIGHT CHOICES................................................. 9
2 RESEARCH BACKGROUND......................................................................................... 11
2.1 POSITION OF THIS RESEARCH ................................................................................................ 11

2.2 FOCUSING ON THE BUSINESS MODEL .................................................................................... 12
2.3 RESEARCH QUESTIONS ......................................................................................................... 13
2.4 RESEARCH METHOD ............................................................................................................. 14
2.5 EXPLORATORY RESEARCH .................................................................................................... 14
2.6 RESEARCH CONTEXT ............................................................................................................ 15
2.7 CONCLUSION ........................................................................................................................ 16
3 STRATEGIC ENVIRONMENT OF DUTCH HOSPITALS ........................................ 17
3.1 EVOLUTION OF THE HOSPITAL .............................................................................................. 17

3.2 POSITION OF THE HOSPITAL IN THE HEALTHCARE DELIVERY SYSTEM ................................... 19
3.3 HOSPITAL LANDSCAPE ......................................................................................................... 20
3.4 HOSPITAL FUNCTIONS AND ACTIVITIES ................................................................................ 22
3.5 DUTCH HOSPITAL REFORM: A SHORT HISTORY ..................................................................... 24
3.6 CONCLUSION ........................................................................................................................ 25
4 BUSINESS MODEL THEORY ....................................................................................... 26
4.1 CONCEPT OF THE BUSINESS MODEL ...................................................................................... 26

4.2 THE BUSINESS MODEL OF CHESBROUGH & ROSENBLOOM ................................................... 28
4.3 BUSINESS MODEL AND VALUE .............................................................................................. 30
4.4 A MODEL APPROACH TO STRATEGY ...................................................................................... 32
4.5 BALANCING VALUE IN STRATEGY: INSIDE-OUT VERSUS OUTSIDE-IN .................................... 33
4.6 CONCLUSION ........................................................................................................................ 34
5 STRATEGIC ISSUES FOR THE HOSPITAL............................................................... 36
5.1 FIELD RESEARCH .................................................................................................................. 37

5.2 INTERVIEWS ......................................................................................................................... 38
5.3 DISCUSSION SESSIONS .......................................................................................................... 39
5.4 OUTCOMES ........................................................................................................................... 46
5.5 CONCLUSION ........................................................................................................................ 52
6 BUSINESS MODEL THEORY AND HOSPITAL POLICIES .................................... 53
6.1 LITERATURE REVIEW............................................................................................................ 54

6.2 MCKEE AND HEALY (2002) ................................................................................................. 55
6.3 NVZ VERENIGING VAN ZIEKENHUIZEN (2000) ..................................................................... 56
6.4 MACKINNON (2002) ............................................................................................................ 57
6.5 DARZI (2007) ....................................................................................................................... 58
6.6 CONCLUSION ........................................................................................................................ 59
7 VALUE OF BUSINESS MODEL THEORY FOR HOSPITALS ................................. 60
7.1 VALUE PROPOSITION ............................................................................................................ 60

7.2 MARKET SEGMENT ............................................................................................................... 62
7.3 STRATEGIC POSITION ............................................................................................................ 64
7.4 VALUE CHAIN ....................................................................................................................... 66
7.5 COMPETITIVE STRATEGY ...................................................................................................... 68
7.6 COST STRUCTURE / REVENUE POTENTIAL ............................................................................. 70
7.7 BENEFITS AND LIMITATIONS OF THE BUSINESS MODEL APPROACH ....................................... 72
7.8 CONCLUSION ........................................................................................................................ 74
8 CONCLUSIONS, DISCUSSION AND FURTHER RESEARCH ................................ 76
8.1 CONCLUSIONS ...................................................................................................................... 76

8.2 DISCUSSION.......................................................................................................................... 80
8.3 FURTHER RESEARCH............................................................................................................. 83
REFERENCES ..................................................................................................................................... 85
APPENDIX A INTERVIEWEES ............................................................................................... 89
APPENDIX B ATTENDEES DISCUSSION SESSION ........................................................... 90
APPENDIX C STRATEGY CANVAS SCORING QUESTIONS ........................................... 91

List of figures, tables and boxes
FIGURE 3.1 HOSPITAL LOCATIONS IN THE NETHERLANDS (RIVM, 2007) 20
FIGURE 3.2 DIFFERENT DUTCH HOSPITALS 21
FIGURE 3.3 OVERVIEW OF INTERNAL HOSPITAL (SERVICE LINE) ACTIVITIES 23
FIGURE 4.1 APPLICATION OF THE BUSINESS MODEL IN 6 SEQUENTIAL STEPS 30
FIGURE 5.1 PRESSURE FOR CHANGE IN HOSPITALS (MCKEE & HEALY, 2002, P. 37) 37
FIGURE 5.2 STEPS FOLLOWED TO BUILD STRATEGY CANVASES AND FIND DIFFERENTIATING FACTORS 40
FIGURE 7.1 HEALTHCARE DELIVERY VALUE CHAIN (PORTER & TEISBERG, 2006) 67
FIGURE 7.2 PORTERS FIVE FORCES MODEL 69
FIGURE 7.3 BCG MATRIX (JOHNSON ET AL., 1997) 71
FIGURE 8.2 APPLICATION OF THE BUSINESS MODEL IN 6 SEQUENTIAL STEPS 77
TABLE 3.1 HISTORICAL EVOLUTION OF HOSPITALS ADAPTED FROM MCKEE & HEALY (2002).............. 18
TABLE 4.1 PROPOSED ROLES OF THE BUSINESS MODEL .......................................................................... 27
TABLE 6.1 ANALYSIS OF CURRENT IMPLICIT DUTCH HOSPITAL BUSINESS MODELS (ESTABLISHED
POLICIES) ....................................................................................................................................... 54
TABLE 6.2 POSSIBLE ROLES OF A DISTRICT GENERAL HOSPITAL (MCKEE & HEALY, 2002, P. 69) ......... 55
TABLE 6.3 STRATEGIC PATHS TO FUTURE CHANGE IN THE ORGANIZATION OF HOSPITAL HEALTHCARE
(NVZ VERENIGING VAN ZIEKENHUIZEN, 2000).............................................................................. 56
TABLE 6.4 NEW HOSPITAL ENTERPRISES ONTARIO HOSPITAL ASSOCATION (MACKINNON, 2002) ........ 57
TABLE 6.5 DELIVERY MODELS NHS LONDON (DARZI, 2007)................................................................ 58
BOX 2.1 THE NEED FOR INCLUSIVE WAYS OF FRAMING PROBLEMS ........................................................ 12
BOX 2.2 RESEARCH QUESTIONS ............................................................................................................. 13
BOX 3.1 VALETUDINARIUM ................................................................................................................... 17
BOX 3.2 DUTCH HOSPITAL TYPES .......................................................................................................... 21
BOX 3.3 FUNCTIONS OF AN ACUTE CARE HOSPITAL ............................................................................... 23
BOX 4.1 ABOUT XEROX CORPORATION AND ITS SPIN-OFFS ................................................................... 29
BOX 4.2 ATTRIBUTES OF THE BUSINESS MODEL (CHESBROUGH & ROSENBLOOM, 2002)....................... 29
BOX 4.3 ZERO-SUM COMPETITION ......................................................................................................... 31
BOX 4.4 ATTRIBUTES OF VALUE CREATION IN HEALTHCARE ................................................................. 32
BOX 4.5 STRATEGY AS A MODEL ........................................................................................................... 32
BOX 4.6 COMPLEXITY AND DELIVERING VALUE .................................................................................... 33
BOX 5.1 INTERVIEW GOALS ................................................................................................................... 38
BOX 5.2 INTERVIEW STARTER QUESTIONS ............................................................................................. 39
BOX 5.3 OUTCOMES OF THE FIRST DISCUSSION SESSION ........................................................................ 41
BOX 5.4 GUIDING QUESTIONS DEFINING THE VALUE PROPOSITION ........................................................ 43
BOX 5.5 GUIDING QUESTIONS DEFINING THE MARKET SEGMENT ........................................................... 43
BOX 5.6 GUIDING QUESTIONS DEFINING THE STRATEGIC POSITION........................................................ 43
BOX 5.7 GUIDING QUESTIONS DEFINING THE ORGANIZATIONAL ASPECTS (VALUE CHAIN)..................... 44
BOX 5.8 GUIDING QUESTIONS DEFINING THE COST STRUCTURE AND REVENUE POTENTIAL ................... 44
BOX 5.9 HOSPITAL CONFIGURATION IDEAS FOR THE SECOND DISCUSSION SESSION WORKSHOP ............ 45
BOX 5.10 OUTCOMES OF THE SECOND DISCUSSION SESSION .................................................................. 46
BOX 5.11 MOST IMPORTANT OUTCOMES OF FIELD RESEARCH (INTERVIEWS, DISCUSSIONS) .................. 47
BOX 7.1 BENEFITS OF THE BUSINESS MODEL APPROACH FOR HOSPITAL................................................. 72
BOX 7.2 LIMITATIONS OF THE BUSINESS MODEL APPROACH FOR HOSPITAL ........................................... 73
Rethinking the hospital Maarten den Braber
Acknowledgements
After organizing Orientation Week 2005 I made a very distinct choice to pursue a career
path involving people and healthcare, and have not regretted it since. During these past
few years I have been able to meet, discuss and work with the most interesting and
skillful people I can imagine.
I would like to thank my friends and roommates, Joost and Maarten. Thank for your
passionate discussions, honest critiques and always being there when I most needed you
guys. Don’t know where this would have ended without you!
To my other friends Lumine, Koen, Peter, Marieke, Mirte, and Annet: thank you for your
humor and kind remarks. You never ceased listening to my ever-changing ideas and
concepts about my thesis. I look forward to being able to discuss, talk and laugh with you
for a long time to come.
Professor Hans Roosendaal I would like thank for his inspiration and showing me
insights into strategic management, also for not letting me walk the easy route. And
Professor Wouter van Rossum I thank for his comments and shared insights on this
thesis.
To everyone at The Decision Group, Maarten, Merijn, Roald, Fred, Lydia, Karin and
Wendie, thank you for all the expertise, taking ideas to the next level and never holding
back on your feedback. Thank you for letting me experience consulting and giving me a
seat at the table. I still do not know of any other place that would have done the same!
And all the inspiration from the Nexthealth crowd: Martijn, Jen, Jacqueline, Niels and
Jeroen. We have already accomplished some mind-blowing things and I am confident it
will not end here. A special thanks to Jen, my English-speaking partner in crime and
things even beyond Nexthealth. Never forget that the ones that talk about changing the
world are often the ones that do!
Also a big thank you to all of you who have taken the huge effort in reading, spell-
checking and logic testing this document!
And last but not least a great thank you to all my family: mom, dad, Marieke and
Gerhard. You may have not always got all the details of what I was working on, but you
have never ceased to show your interest in what I was doing. Thanks for your everlasting
support and love!
1
To end this acknowledgement…: I am looking ahead to the future, and it is bright. I

know of no better words than those of two friends who also made me smile every day
writing this thesis. So in the words of Calvin and Hobbes, created by Bill Waterson, I’d
like to close by saying: “It’s a magical world…
Maarten den Braber

Amsterdam, October 2008
2
Executive summar y
Running a hospital is a balancing act. Hospital decision makers must balance pressures
from the demand-side (demographics, patterns of disease, public expectations), the
supply-side (technology and clinical knowledge, health care workforce) and the wider
societal level (financial pressures, internationalization, global R&D market). This leaves
many of them questioning how to react. We analyze the strategic background and issues
of hospitals to better understand what causes this anxiety. As a case example we focus on
the situation of the Dutch hospital.
Hospitals emerged in the 1st century when they were mainly focused on providing
curative, stationary therapy to soldiers of the Roman Empire. Later they evolved into
“places where people could die” (by isolating them from the rest of society). Well after
that – from the 19th century onwards – hospitals evolved more and more into places
where symptom-based, treatment-oriented care was administered. Important in the last
two centuries (19th and 20th century) was the development of aseptic and anti-septic
techniques, better understanding of infections and the development of effective
anesthesia. Overall, the development of the hospital in these two centuries was driven
largely by technology. But unfortunately, other roles and service line strategies on the
other hand developed with little conscious thought.
Where is the hospital today? The link with the environment of the (Dutch) hospital is
mostly determined by its “neighboring medical institutions”, such as GPs or other
hospitals. There is a structure that determines the position of the hospital based on the
complexity of care and level of specialization. We discern 5 types: general hospital, top-
clinical hospital, academic hospital, specialty hospital and focus clinic. With each of these
hospitals there is a different mix of six main functions that the organization provides:
patient care, teaching, research, health system support (e.g. management of primary care),
employment role and societal role (e.g. provider of social care). Analysis shows relatively
large similarities between current hospital configurations.
What about strategic change? Hospitals have a long history of reactive behavior towards
change (coinciding with their overall organic, rather than proactive change). Hospital
reform in The Netherlands has been, especially from the 1980s, a struggle between
government, hospital management and medical specialists. Attempts to implement new
fee structures and fee cuts therefore never proved effective.
In this research we establish what possibilities for change there are according to current
decision-makers. We have conducted semi-structured interviews with 11 field experts
3
(chairmen and members of hospital boards of directors). The main question of the
interview was: “Will future hospitals be different and where/how will they differ?”
The interviews were structured based on themes of the business model: what will be the
(future) value proposition, market segment, strategic position, value chain, competitive
strategy and cost structure/revenue potential. This structure provided us with a
framework to categorize the different questions as well as the outcomes to later identify
the applicability of the business model framework as a relevant theory to build current
and future hospital strategy.
The outcomes of the interviews are two-fold. On the one side it shows us that the
themes of the business model structure give a comprehensive view of current and future
hospital strategy and are relevant themes to hospital decision makers. On the other side
the interviews express anxiety of hospital decision-makers how change could be structured
and/or accomplished. Few of the interviewees expressed that they were confident about
how they could structure change in their own organization. These concerns added to the
fact that it is useful to focus on tools, such as business model theory, that hospitals can
use to build strategy.
Tools can be considered the opposite of pre-defined solutions (which are proposed by
many consultants or advisory bodies). Pre-defined solutions often look interesting and
thought-provoking, but they give no pointers on how to realize and implement the
proposed changes. Also pre-defined solutions are exclusive: they only address a fixed
number of solutions. Decision-makers identified this as a major short-coming of such
models, because such solutions therefore never align with organization characteristics.
Another problem with pre-defined solutions is that they tend to focus on providing value
for the organization rather than the customer (patient).
The solution to building sustainable future hospital configurations is not in focusing on a

single. Sustainable future hospital strategy will have to balance views that provide value for
the consumer with views that provide value for the organization. To do so they need to
provide a coherent and sound logic. This is why we focus on the business model: a
comprehensive strategy building tool using a model (template) approach with value at its
core.
We have been able to identify four distinct uses of the business model as defined in
literature: strategic choice, linking different strategic domains, focus on value creation
and focus on value appropriation.
4
The business model is an approach that balances the inside-out views of strategy (based
on the resources an organizations has) with the outside-in views of strategy (what the
competition offers and customers demand). The uses “strategic choice” and “linking
different strategic domains” shows the comprehensiveness of the business model. It does
not focus on one specific strategic domain (e.g. the value chain), but on providing a
sound business logic that connects different domains. Using the business model to focus
on both value creation and value appropriation makes sure that what is asked for can be
delivered, and what can be delivered is what is really for.
Using a model approach to strategy, such as the business model, gives structure to be
able to answer complex questions. This is useful to hospital decision makers that have
since long had an organic approach to strategy. By using a structured approach it also
enables decision makers to be better knowledgeable about sources of success and failure
in the past, present and future – which is something that often lacks in organizations like
hospitals that have little experience with explicit strategy making.
The business model used in this research is based on that of Chesbrough & Rosenbloom
(2002). This theory is operationalized well, compared to other definitions available in
literature. See the figure below for a graphical overview.
Business model
Customer Value Market Strategic Value Competitive Cost / Value

preferences proposition segment position chain strategy revenue delivered
value value
implementation
creation appropriation
The business model consists of six different elements linked in sequential order: value
proposition, market segment, strategic position, value chain, competitive strategy and
cost structure / revenue potential. At the start of the model customer preferences drive
the value proposition and the result is value delivered.
The notion of value is at the core of the business model: value as input and value as
output. This is important to solve current problems in healthcare. The current problem
in healthcare is aptly described by Porter & Teisberg (2006) as zero-sum competition: no
value is created, competition is about shifting costs, increasing bargaining power and
competition to capture patients. Escaping this zero-sum competition can be done
through a value-based strategy. Value for hospitals is defined by three dimensions: it
must be viewed from the customer perspective, it must span the complete process and
be delivered through a sustainable process.
5
To research the value of the business model approach to strategy we asked hospital
decision makers for their strategic issues. See the list below for the ten most apparent
issues found. Using these issues we have tested the business model approach in how it
can help solve these issues.
1. Providing specialized medical care is considered core business

2. Strategic decisions are often supply-driven
3. Scale and scope are considered most important axes for change
4. Current governance structure complicates decision-making
5. Relationship with the patient is considered of growing importance
6. Financial structures difficult to match with strategic initiatives
7. Hospitals show large similarities in strategic structures/configuration
8. Patients are not always considered end-users
9. Regulated competition is not fully functioning yet
10. Strategy development is replacing established policies
In addition to the strategic issues found through field research, we have also analyzed
four different sources in literature about hospital strategies (Darzi, 2007; MacKinnon,
2002; McKee & Healy, 2002; NVZ vereniging van ziekenhuizen, 2000).
From the analysis of the literature we conclude that hospital strategy literature focuses on
pre-defined solutions, rather than on techniques and tools to build strategy. The focus is
often on value realization (through strategic positioning or value chain optimization), but
less on questions about what value should be realized (value proposition) or how value is
appropriated (cost structure / revenue potential). The reasoning with hospital strategy in
literature is often inside-out: strategy is built based on the resources the hospital has,
rather than the value it should provide. The value of the business model in this aspect is
the fact that it balances an inside-out with an outside-in view on building strategy.
The elements of the business model (value proposition, market segment, strategic
position, value chain, competitive strategy and cost structure/revenue potential) together
build comprehensive, concise business logic of the organization. Each of the individual
elements can provide (different) value for the hospital in tackling their strategic issues.
Defining a value proposition requires the hospital to think about its stakeholders and its
end-customers. The value proposition is not only about products and services but about
core functions: is the hospital focused on curing sick people or keeping people healthy?
The market segment follows the value proposition and focuses on segmenting potential
customers in quantifiable groups and specifying targets for what customers to reach
when. Current hospitals are showing only little segmentation in their customer focus.
6
The link with the environment is the third element of the business model (strategic
position) and oriented towards how to create the relevant value. It puts the attention of
the hospital on issues of organizational structure, such as (de)centralization,
in/outsourcing, transaction/coordination costs and addressing issues of governance. The
relevance of determining the strategic position is that is makes clear what the borders of
the organization are: where does it start and where does it end.
These organizational borders are needed to further explicate the value chain of the
hospital: what does the hospital do itself and where and how does it add value? In each
step of the value chain the hospital takes, value is exchanged, which must be relevant to
the value proposition. The following element, competitive strategy, is relevant for
hospitals to offer sustainability and not be overtaken by competitors. Competitors might
not be limited to the “usual suspects” of other healthcare organizations, but might come
from other industries as well. Therefore also reconsidering the focus on medical-
technical quality as a single competitive dimension is relevant.
The cost structure and revenue potential of the business model shift focus towards the
fact that no organization is sustainable if no revenue is generated. The hospital needs to
build a comprehensive service portfolio balancing cost as well as revenue-generating
activities. Considering what customers are willing to pay for (exchange value) can help in
identifying new revenue streams that go beyond the current mechanism of paying for
procedures.
Through field research, literature research and assessing the model elements we have
reached the point to draw the conclusions about the value of the business model
approach as a whole, our main question for this research. We do this by evaluating the
business model based on three criteria to evaluate strategic options: suitability, feasibility
and acceptability.
Suitability is concerned with the questions whether an option fits the firm’s situation and
if there is evidence to support it. The business model helps to answer seemingly complex
issues by using a model approach to strategy, putting hospital decision makers in control
of their own strategic decisions, rather than providing ill-aligned pre-defined solutions.
The business model solves the issue of causal ambiguity by making decision-makers
aware of the (needed) logic behind strategic scenarios. It enables decision makers to
expand the scope of their strategy beyond medical care as their core business and focus
on value as defined by customers. Strategic issues (scale/scope, governance, competition,
financial incentives) all get a place within the elements of the business model to be
adequately addressed as part of the comprehensive approach connecting all the domains.
7
And not only can the business model be used to test current strategies, it is also usable to
test new scenarios for hospitals looking at how to gain competitive advantage in the
future.
Feasibility is concerned with the question whether there are resources to do it and likely
competitor response. The business model is no easy solution to implement for hospitals
that have long followed established policies, rather than explicit strategy development.
Rigor and discipline is needed to determine what sound business logic is. But hospitals
also do not have to (re)invent the wheel. We have shown with each step in the business
model that there are methods, tools and techniques that help the hospital assessing and
connecting the different strategic domains. When the hospital connects these tools and
techniques through the comprehensive business model it can evaluate the business logic
of the current strategy as well as test future scenarios. But building a business model
needs also a strategic mindset throughout the organization. When not everyone inside of
the organization is knowledgeable about what the ultimate value delivered should be, it
will be hard the least to deliver this, even if there is a sound logic in theory.
The acceptability of using the business model is closely linked to willingness of the
hospital to rethink the organization. If there is no perceived need for change with the
decision-makers, there will likely be little interest in any value-based strategy (building
tool) at all. If the hospital is aware of the fact that delivering value in a sustainable way is
of increasing importance they will be more likely to accept the business model. During
our field research we have found many examples of the fact that hospitals do perceive
the need for change as well as the need for inclusive ways of framing seemingly complex
problems. The business model is a likely candidate for this as we have been able to proof
in this research.
The business model contributes to the efforts of hospital decision makers interested in
providing value to their customers and their organization: it provides them with a tool
rather than a pre-defined solution. The model approach of the business model makes the
hospital (decision maker) smarter and allows for a clear strategic fit with the organization.
Using business models hospitals can focus on delivering value for the consumer as well as
for the organization.
8
“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where…” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
-- LEWIS CARROLL, Alice in Wonderland
1 Introduction: Making the right choices

Hospitals and other healthcare organizations are working their hardest to deliver optimal
care in cost-efficient ways. Examples are many and include finding optimal planning
algorithms, patient satisfaction surveys or building new clinical paths, such as mamma-
care service lines for focused breast cancer screening and treatment. The tension between
these two objectives is challenging for decision-makers to manage. Choices ultimately
have to satisfy the preferences of the patient (optimal care, outstanding communication
and collaboration or information transparency, just to name a few). At the same time
organizational issues have to be addressed in order to deliver products in services in a
sustainable way (cost-effective, evidence-based, state-of-the art, etcetera). How than can
the hospital make the right choices to balance the interest of the patient/customer as well
as the organization?
Process optimization, total quality management or medical-technical innovations are

some of the efforts organizations in healthcare are making to deliver the best care
possible to patient/customers. Analyzing different parts of the hospital process and
looking at the many new initiatives in healthcare, the question comes up: what value does
the hospital provide? Is the current hospital the best way to deliver value to the
patient/customer? In other words: do we still know why the hospital should actually
exist?
Hospitals have a long history of responsive organic changes, rather than a history of
predictive explicit changes (explored further elsewhere in this research). But current
pressures demand organizations cultivate an awareness of the value they deliver: what,
why, how and when. But answering these questions is not a challenge just for hospitals, it
is a challenge for all that deal with balancing customer and organizational preference.
Therefore we take a premise in this research that best practices from other domains such
as business can be used to help hospitals address this issue.
9
Business strategy is the scientific domain focusing on making choices. “What?”,

“when?”, “how?” and “who?” are four questions for any organization to answer about
their business. Hospitals can benefit from a comprehensive and structured approach to
help them answer these strategic questions and make the right choices: balancing
patient/customer and organizational preferences. This research is about what is available
for hospitals to use and focuses in-depth on the approach of the business model.
10
“Research is to see what everybody else has seen, and to think what nobody else has thought.”
-- ALBERT SZENT-GYORGI, Nobel Price for Medicine 1937
2 Research background
Helping hospitals make the right choices can be as easy as trying to point out the direction
to go. But who follows such a suggestion without knowing if it is the right one for his
organization? And how would you know that it is the right solution? There is definitely
value in visionary answers and possible routes to take: they are often thought-provoking,
good start for a discussion and may be close to the actual best route possible. But there is
additional value in asking good questions: it is 100% focused on the specifics of the
organization, it calls for a sound logic to connect the dots and it can be repeated if
situations change.
We show an overview of current approaches to new hospitals strategies and

configurations in 2.1. Following that we will explain that we chose the business model as
the research object of this master thesis and why the business model adds to the current
research domain (2.2). To guide the research we pose a set of research questions (2.3)
and list the research methods (2.4). The context of this research is exploratory (2.5 and
2.6).
2.1 Position of this research

What hospitals might look like in the (near) future is becoming an increasingly popular
field of research. Not surprisingly maybe, consultants are amongst the most avid
publishers of change in healthcare, issuing (trend) reports about future configurations of
hospital and other healthcare organizations (PriceWaterhouseCoopers, 2005; Roland
Berger, 2007; Vreeman & Laeven, 2008). Often these reports are trying to give insight
into several exclusive paths that healthcare organizations within a certain field (e.g.
hospitals, nursing homes, primary care) can possibly take. Not only consultancy firms are
publishing about paths for the future, also policy makers, associations and other non-
commercial parties are doing so (Darzi, 2007; MacKinnon, 2002; McKee & Healy, 2002;
NVZ vereniging van ziekenhuizen, 2000). How can hospitals go about incorporating
these possibly innovative ideas into their own organizations?
When we look at the academic literature for references to “recipes” rather than pre-
defined solutions we find some literature that point to different elements: blending
11
custom and standard care (Bohmer, 2005), analysis of integrated delivery networks
(Burns & Pauly, 2002), transformation processes (Golden, 2006) or an analysis of
configurations (Reeves, Duncan, & Ginter, 2003). Most of the publications found have
two things in common: (1) most of them focus on an analysis of the present-day
situation and (2) they often focus on one specific issue. Our goal is to look for ways or
tools that can help hospitals find new inclusive ways of innovating strategies, rather than
only giving pre-defined solutions (Box 2.1).
Box 2.1 The need for inclusive ways of framing problems
“We live an extremely complex, pluralistic society where it is increasingly difficult to achieve consensus. In the
effort to deal with the complexity, we often oversimplify by posing "solutions" in either-or terms. We need more
inclusive ways of framing problems and challenges that permit us to consider the inherent complexity of the issues
in a meaningful way.”
(Shortell et al., 2000)
2.2 Focusing on the business model

This research focuses on a comprehensive method for innovating hospital strategy: the
business model. A business model explains how different elements of a business are tied
together to embody coherent and comprehensive business logic. It does so by combining
a perspective from both the organization (e.g. how can we sustain?) and customer (e.g. do I
get what I want?).
The business model may differ from the focus of strategy in at least three important
ways: (1) it focuses on creating value for the customer, (2) it focuses more on creation of
value for the business than for the shareholder and (3) it assumes knowledge is
cognitively limited and biased by earlier success of the firm (Henry Chesbrough &
Richard S. Rosenbloom, 2002, p. 535). The attributes of the business model mentioned
in the previous paragraph can be beneficial for hospitals: combining customer value
creation with creating value for the business. Non-profit businesses, as viewed from a
strategic standpoint, can benefit from the same tools and discipline as used by for-profit
businesses (Collins, 2005).
The question of what the value of the business model is for (non-profit) healthcare organizations will
be at the center of this research. We focus on one specific type of healthcare
organization: the hospital. Using the hospital makes it possible to relate to real-world
examples and test validity through example. Further research may extend this research to
healthcare organizations other than the hospital.
12
We analyze the use of business models as a way to rethink the hospital. We acknowledge
therefore that this approach might mean changing our ideas about what defines a
“hospital”. We assume that the strategic definition of a hospital is not written in stone,
instead can be a myriad of different things. Today’s healthcare organizations, particularly
‘one stop shops’ like hospitals, must have a fluid, adaptable approach to strategy
development. We test this one approach, the business model, to be able to judge at the
end of this research the potential value for reexamining non-profit hospitals strategic
positioning using traditional business models.
2.3 Research questions

“What is the value of business model theory for hospitals?” is the main research question for this
research. We follow this by breaking down this research in six different sub-questions in
Box 2.2.
Box 2.2 Research questions
What is the value of the business model theory for hospitals?
1. What is the strategic environment of hospitals?

2. What defines a business model?
3. What is value?
4. What indicates a need for the approach of business model theory for hospitals?
5. What value does business model theory add for hospitals, compared to existing
literature and methods already available?
6. What are the benefits and limitations of the business model elements and approach for
hospitals?
To be able to asses the value of the business model we need to understand in what realm
we are testing value. We choose hospitals as the one type of healthcare organization to be
the case example for using the business model in the wider realm of healthcare
organizations. The Dutch hospital situation is known to the author and useful to show
the relevance of the business model by example.
The second research theme is the subject of our research question: value. Starting to
define value immediately raises a plethora of additional questions: value for whom, which
type of value, when is value delivered? We define value in the second part of this research
to know what we link to the business model in the third part of this research.
The strategic environment of hospitals and the definition of value are linked to the
business model in the subsequent part. The three sub questions concerning the business
model are:
13
1. What are the theoretic elements of the business model?

2. What value do business model elements deliver in building hospital strategy?
3. What are the uses of the business model for current hospital makers?
2.4 Research method

For this research we use both literature and field research. Literature offers us many
views and theories of what business models can offer. We test how these different views
of the business model might apply to hospitals. We gain information about the current
and future strategic issues of hospitals and healthcare in The Netherlands from
interviews and two discussions sessions with relevant decision makers.
Eleven interviews were conducted, mainly with Board of Directors chairmen and
members (general hospital 2, top-clinical hospital 4, academic hospital centers 3,
specialist hospitals 2) and 1 healthcare entrepreneur. A complete list with names and
functions of the interviewees is found in Appendix A.
The discussion sessions were attended by a total of 33 people, representatives of hospital

or healthcare delivery organizations, (specialist) associations, hospital-related government
organizations and facilitating organizations. A complete list with names and functions
can be found in Appendix B.
The interviews and groups discussions were held in private settings. This allowed the
interviewees and attendees to speak freely and allowed for more room to express
strategic issues or concerns. The outcomes of these interviews and discussions are
summarized in chapter 5, where the strategic issues for the hospital in building strategy
are discussed. In the tables below (2.1 – 2.3) we listed the attendees for the interviews
and the first and second
2.5 Exploratory research

This research offers an explorative view on a combination of two otherwise often
disjunctive concepts: business (models) and healthcare. Because of the exploratory nature
of this research we have chosen a qualitative approach. When searching for available
literature on conducting sound academic research in a non-quantitative ways, we utilize
the theories of Popper (1935), later adapted by Kuhn (1962) and Lakatos (1970). They
can guide us through this explorative research.
Popper introduced the theory of falsification: while there is no one definitive way to
prove a single statement or theory, we can falsify it if we find a proper counter-example
14
(all swans are white – until we find a black one). Kuhn identified that in practice this isn’t
the case with most scholars. Many hang on to their theory, dismissing any counter-
evidence, stating it is unsound or not true, rather than admitting their theory may be
wrong. Explorative research such as this might lead others to state that the business
model theory is not applicable to hospitals and other healthcare organizations. We take
the stand in this research that this is not the case, until we have found a counterexample
(evidence which shows that business model theory does not apply to hospitals)
Lakatos, another scholar of research philosophy, offered an alteration to the theories of

Kuhn and Popper. He didn’t view a theory as a single statement, but rather as a
collection of statement, he called a research program. The research program is made up of a
hard core and different auxiliary hypothesis. With business models we can mirror this:
the hard core is the fact that strategy can captured in a model, while the auxiliary
hypotheses can be seen as the different themes and elements residing under that model,
which might need to be changed at a later stage. This is than without dismissing the fact
that strategy can be viewed as a model (see for a more detailed explanation section 4.4).
Changing these auxiliary hypotheses can explain apparent refutations and possibly also
produce new facts. Lakatos named such a rule a positive heuristic. If changing the auxiliary
hypotheses does not yield the prediction of new facts then it would be labeled degenerative.
A progressive research program, with a positive heuristic, is interesting for scholars to
research further, because it produces new facts and can explain apparent refutations. We
look into if the theory of business model to research if it provides such a positive
heuristic.
2.6 Research context

This research is the master thesis project of the author, enrolled in the master track
Health Care Technology and Management (HCTM). HCTM is a specialization track of
the master Industrial Engineering and Management (IEM), taught at the School of
Management and Governance at the University of Twente (Enschede, The Netherlands).
This research was supervised by Prof. Dr. Hans Roosendaal (Professor of Strategic
Management at the Dutch Institute for Knowledge Intensive Entrepreneurship -
NIKOS) and co-supervised by Prof. Dr. Wouter van Rossum (Professor of Innovation
Management and director of the Institute of Governance Studies - IGS). Both NIKOS
and IGS are directly linked to the University of Twente.
The day-to-day research has taken place at The Decision Group (Breukelen, The
Netherlands), where the author has been employed full-time from October 2007 to June
2008 as a business analyst. The Decision Group is a strategy consulting firm with more
15
than half of its client base in the health care and life-sciences sectors. Supervision at the
Decision Group was performed by Drs. Merijn Stouten (consultant) from October 2007
to April 2008 and by Ir. Maarten Koomans (partner) from May 2008 to June 2008.
Data for this research was gathered from the study “Changing Roles and Configurations
of Hospitals,” executed as a joint-venture by Nyenrode Business Universiteit (Breukelen,
The Netherlands), The Decision Group and Assist BV. Supervision of the study is by
Prof. Dr. Fred van Eenennaam (Professor of Dynamics of Strategy at Nyenrode
Business University and partner at The Decision Group). The author has been a member
of the research project group for the full duration of the project.
2.7 Conclusion
This research focuses on devising whether the business model approach applies to
healthcare and is able to ask the right questions instead of giving pre-determined routes
of change. The main reasons why this research is different from currently available
research is that focus on inclusiveness (“asking questions”) rather than exclusiveness (“giving
answers”). The goal is to provide decision-makers with tools which can be tailored to our
specific situation and repeated to strengthen our own decision-making.
The research object is the theory of the business model and the according research
question is: “What is the value of the business model?” The themes of this research are
three: the hospital, the business model and value. There are six guiding questions used
throughout this research:
1. What is the strategic environment of Dutch hospitals?

2. What defines a business model?
3. What is value?
4. What indicates a need for the approach of business model theory for hospitals?
5. What value does business model theory add for hospitals, compared to existing
literature and methods already available?
6. What are the benefits and limitations of the business model elements and
approach for hospitals?
Our research is exploratory in nature and we use qualitative research methods

(interviews, discussions sessions) which give more insight in the relevance of the business
model theory we are researching. We state that the business model can be used as a
model to build strategy for hospitals. The contents of this business model we will have to
test in this research.
16
“A hospital is no place to be sick.”

-- SAMUEL GOLDWIN, Hollywood producer
3 Strategic environment of Dutch hospitals

The business model is part of the domain of tools at our disposal to build strategy.
Strategy as we will discuss in more detail in the next chapter evolves around questions of
what, where, how and when products and services are delivered1 . If we want to be able
to analyze further the value of the business model, we need to know more about in what
context it is applied. This context is the strategic environment of the hospital: its
positions in the landscape of healthcare organizations and its functions and activities.
To be able to place this research in a broader context that also shows why any approach
to building strategy is relevant, we show the evolutionary stages of the hospital.
3.1 Evolution of the hospital

There is no single definition of “the” hospital. The first notions of what may be
considered the emerging of a hospital can be traced back to the Asclepius temple, 300
B.C. (NAi, 2006; Wikipedia contributors, 2008a) and the Roman valetudinarium, see Box
3.1.
Box 3.1 Valetudinarium
“The hospital as institution was invented about 2 000 years ago, in the era of emperor Augustus (63 B.C. to 14
A.D.). It emerged in the context of the transformation of the Roman army from mobile troops to an army of
occupation. Roman officers created a new type of building, the valetudinarium (military hospital) which was
integrated within large permanent headquarters. Hence any service a patient might have required – from an
operating theatre to a sickroom – was available under one roof […] As opposed to medieval hospitals which
devotedly supplied health care for the poor, the weak and the sick, Roman hospitals were exclusively organized
with the aim of providing curative, stationary therapy and simultaneously furthering the education of physicians
and nursing staff”
(Wilmanns, 2003)
1
The questions of what, where, how and when are not defined as one distinct strategic theory but are apparent in many
strategic theories and related literature. We use them in this research as guiding questions that help us easily identify what
strategy is about in its core (Mintzberg, Ahlstrand, & Lampel, 1998; H.E. Roosendaal, 2006)
17
Table 3.1 gives an overview of the historical evolution of hospitals as well as their
changing role in current society.
Table 3.1 Historical evolution of hospitals adapted from McKee & Healy (2002)
Role of hospital Time Characteristics
Curative, stationary therapy 1st to 5th century Focused on soldiers
Practicing medicine as science 7th century Byzantine Empire, Greek and Arab
theories of disease
Nursing, spiritual care 10th to 17th Hospitals attached to religious
centuries foundations
Isolation of infectious patients 11th century Nursing of infectious diseases such as
leprosy
Health care for poor people 17th century Philanthropic and state institutions
Medical care Late 19th century Medical care and surgery; high mortality
Surgical centers Early 20th century Technological transformation of
hospitals; entry of middle-class patients;
expansion of outpatient departments
Hospital-centered health systems 1950s Large hospitals; temples of technology
District general hospital 1970s Rise of district general hospital; local,
secondary and tertiary hospitals
Acute care hospital 1990s Active short-stay care
Ambulatory surgery centers 1990s Expansion of day admissions; expansion
of minimally invasive surgery
Clinical pathways 2000s Focusing not only on medical treatment,
but on control of the complete path of
care given.
Online and offline personalized Next Providing information, advice and
health related services treatment in personalized service
concepts both online and offline
(McCabe Gorman & den Braber,
2008)
Starting out as military institutions, the first hospitals grew out of care made available
through those realizing the Christian ideal of providing relief for the sick and poor.
Together with this function came also the ‘added benefit’ of isolating those with
infectious diseases from the rest of society. With the rise of industrialization,
urbanization expanded (19th century) and the state stepped in, alongside religious and
18
philanthropic institutions, forming public hospitals. Admission was no longer based so

much on social status, but rather on medical criteria.
The 19th century also saw the rise of symptom-based, treatment-oriented medical care:
infection was better understood, aseptic and anti-septic techniques developed, effective
anesthesia became available etcetera. Together with greater surgical knowledge and an
increase in medical technology, these developments gave rise to the model of health care
delivery we now see in most Western countries.
In the 20th century military surgery had a profound impact on hospitals, introducing
advances including: safe blood transfusion, penicillin, and surgeons trained in trauma
techniques. Chemical engineering meant an increase in the diseases that could be treated.
This broadened the scope of hospitals, but also medical technology got more expensive
and complex. In the second half of the 20th century medical technology increased even
further, especially the field of medical imaging and diagnostics. All these improved
technologies also mean an increased burden on the health care system - people that
would otherwise have died can now be kept alive much longer, especially with the now
common use of life support technologies in industrialized nations such as the United
States.
This quick 2 overview shows that the evolution of hospitals is organic. In the last two
centuries the configuration of hospitals was driven largely by technology, and other roles
and service line strategies developed with little conscious thought (Edwards, Wyatt, &
McKee, 2004).
3.2 Position of the hospital in the healthcare delivery system

The Dutch healthcare delivery system consists of three separate modalities: public health
services, primary care and secondary/tertiary care 3 . Primary healthcare is provided by
family physicians, district nurses, home care givers, midwives, physiotherapists, social
workers, dentists and pharmacists. Each patient is supposed to be on a GP patient list
and must be referred to specialist physicians or the hospital by the family physician.
Secondary and tertiary care in hospitals is largely provided in private not-for-profit
institutions.
2
Much more can be said on the background and evolution of hospitals. The scope of this research does not provide sufficient
space for an in-depth review of all developments. For those interested in such a review, we recommend reading the second
chapter (The evolution of hospital systems) of ‘Hospitals in a changing Europe’ (McKee & Healy, 2002).
3
The division of care delivery in three separate modalities can be argued: the distinction between secondary and tertiary care is
not always clear: e.g. psychiatric care is part of hospital care (secondary) as well as considered tertiary care (independent
psychiatric hospitals). It is important to make a distinction between primary and ‘further’ care because of the referral system
used in The Netherlands.
19
The family physician (GP) is the gatekeeper of the healthcare system in The Netherlands.
The gate keeping principle is one of the main characteristics of the system. It denotes
that patients do not have free access to specialists or hospital care, but must go
“through” the GP. Family physicians “specialize” in common and minor diseases, in care
for patients with chronic illnesses and in addressing the psychosocial problems related to
these complaints. Complicated non-comprehensive (and expensive) specialist care is
reserved for patients who require special expertise and highly technical skills (European
Observatory on Health Systems and Policies, 2004, p. 63).
“In the Dutch system, family physicians do not have hospital privileges: they cannot admit their
patients to, nor treat them in, the hospital. They may, however, use the hospital for diagnostic
procedures, such as blood tests, X-rays, endoscopies and lung tests. Although some family physicians visit
their hospital patients, this is not common in practice. This illustrates one of the disadvantages of the
existing health care system: a gap between outpatient and hospital care.” (European
Observatory on Health Systems and Policies, 2004, p. 69)
3.3 Hospital landscape

Currently there are 93 non-academic and 8 academic hospital organizations in the
Netherlands providing specialized medical care combined with (overnight admissions)
stay, comprising 141 hospital locations and 45 outpatient clinics (see Figure 3.1).
Figure 3.1 Hospital locations in The Netherlands (RIVM, 2007)
Current Dutch hospitals are defined as ‘institutes delivering specialized medical care
including stay’ (RIVM, 2007). In Dutch law all hospitals are known as institutes for
specialized medical care. This same name is given to independent/focus clinics. The
20
difference between those clinics and other institutes for specialized medical care is that only
hospitals are allowed to offer stay, or overnight admissions.
The three main functions of Dutch hospitals are patient care, education and research
(Ministerie van Volksgezondheid, Welzijn en Sport, 2006; STZ, 2006). Through analysis
of available publications and views expressed by different stakeholders of hospitals a
categorization of hospitals in five distinct types emerges: general, top-clinical, academic,
and specialty hospitals and the focus clinic, see
Box 3.2.
Box 3.2 Dutch hospital types
! General hospital : regional focus, wide range of treatments

! Top-clinical hospital: regional focus, wide range of treatments, offering teaching facilities
and some highly specialized medical treatments
! Academic hospital: national focus, focusing on complex treatments, offering teaching and
research facilities
! Specialty hospital: national focus, focusing on a single treatment category (e.g. oncology
or rehabilitation), may offer teaching and research facilities
! Focus clinic: national focus, specializing in a single type of treatment or medical condition,
does not offer teaching and research facilities
The differences between the hospitals (as defined by the interviewees and discussion
participants themselves) are based on differences in complexity and specialization of
patient care. Detailing the different types of hospitals based on these two axes yields the
figure displayed in Figure 3.2.
Figure 3.2 Different Dutch hospitals

Complexity of care
Academic hospital
Specialty hospital
Focus clinic
Top- clinical
General hospital hospital
(STZ)
Specialization
21
Dutch hospitals and other institutions for specialized medical care are not permitted to be
organized around a for-profit classification. Most other healthcare organizations,
including general practitioners, dental care or paramedic care providers are allowed to be
for-profit organizations. An important distinction between for-profit and not for-profit
organizations is the component of overnight admission. When offered care is inpatient
(including overnight admission), organizations are not allowed to be for-profit.
Establishing a (new) health care institution in The Netherlands is regulated by means of

the Health Care Establishments Licensing Act (Wet Toelating Zorginstellingen). An
application has to be submitted to the Netherlands Board for Health Care Institutions
(Bouwcollege) who tests the application on the four different themes: transparency of
management, continuity, quality and that accumulated equity is kept for health care
purposes. This test is compulsory for institutions such as hospitals and care, but not for
maternity care, dental care and GPs (Ministerie van Volksgezondheid, Welzijn en Sport,
2007b).
Medical treatments in the Dutch system are reimbursed based on diagnosis treatment
combinations (DBC), somewhat similar to the American system which uses Centers for
Medicare and Medicaid Services (CMS) diagnosis related group (DRG) nomenclature.
This implies a ‘package of care activities’ with a single price for a complete diagnose and
related treatment. Currently these are divided into two segments. The B-segment entails
20% of all treatments, most of them low in terms complexity (such as cataract surgery or
hip replacement). Prices may be negotiated between the hospital and the insurer. For the
other 80% (A-segment) prices are not negotiable (set by the government).
3.4 Hospital functions and activities

The current hospital is a virtual organization: it often presents itself as a monolithic,
singular, homogeneous entity to the outside world, but on the inside it is a network of
different entities, working together in different ways at different stages of the process. An
acute care hospital delivers six functions (McKee & Healy, 2002, p. 79) listed in Box 3.3.
22
Box 3.3 Functions of an acute care hospital
Patient care
Inpatient, outpatient and day patient; emergency and elective; rehabilitation
Teaching
Vocational; undergraduate; postgraduate; continuing
Research
Basic research; clinical research; health services research; educational research
Health system support
Source for referrals; professional leadership; base for outreach activities; management of primary care
Employment
Inside: Health professionals; Other healthcare workers; Outside: suppliers; transport services
Societal
State legitimacy; political symbol; provider of social care; base for medical power; civic pride
The first three functions in the previous box (patient care, teaching and research) directly
translate to service line activities inside the hospital, see Figure 3.3. Service line activities
inside the hospitals are often grouped around a specific medical field (e.g. surgery) rather
than a specific condition. There is a shift towards organizing around clinical pathways
and diseases (e.g. diabetes, COPD, heart failure). This shift is an important shift towards
focusing more on the customer. See Figure 3.3 for an overview of internal hospital
(service line) activities.
Figure 3.3 Overview of internal hospital (service line) activities

Research
Teaching
Patient care
Internal Operating Neuro- Biomedical Supporting Integrated
- Internal medicine - Cardiology
sensing - Anatomy - Allergy/asthma/immunology
care
- Endocrinology - Physiotherapy - Biochemistry - Transplantation immunology
- Dermatology - Diabetes care
- Hematology - Surgery - Cell biology - Hematology laboratory
- Pediatrics - Heart failure clinic
- Gastroenterology - Obstetrics / gynaecology - Epidemics and statistics - Chemical endocrinology
- Geriatrics - General Practitioner
- Oncology - Orthopedics - Pharmacology/ toxicology - Clinical chemistry
- Otolaryngology (ENT) - IVF treatment
- Kidney diseases - Plastic surgery - Medical- and biophysics - Clinical pharmacy
- Ophthalmology (eye care) - Prenatal diagnostics
- Pulmonology - Emergency medicine - Medical microbiology
- Outpatient care - Thorax surgery

- Oral / dental surgery Extramural - Nuclear medicine
- Mamma-care
- Neurosurgery - Neonatology
- Rheumatology - Urology - GP care - Pathology
- Neurology - Psychiatric ward (PAAZ)
- Social medicine - Radiology
- Neurophysiology - Emergency Care
- Nursing home care - Radiotherapy
- Psychiatrics - Stroke Unit
Diagnostics Medical facilities Personal services

- MRI - Anesthesiology
- Maternity ward
- Diabetes nurse
- CT - Intensive care
- Pharmacy
- Dieticians
- Ultrasound - Operating theatres

- Plaster room
- Medical social work
- Bucky - Nursing ward

- Transport
- Mediator
- Blood sampling - Sterilization

- Transfer point
- Religious support
- Endoscopy - Admission desk

- Blood transfusion
- Speech therapy
Management Non-medical facilities Commercial activities

- Board of Directors - Personnel en organization - Advisory services
-Travel agency
- Supervisory board - Facility management - Independent clinic
-Library
- Medical staff - ICT - Facility services
-Gift shop
- Working council - Finance and control - Lifestyle advice
-Swimming pool
-Postal office
23
3.5 Dutch hospital reform: a short history

We have looked at the current-day strategic environment of Dutch hospitals. Certain
current-day practices, such as governance issues arise from the long and sometimes
difficult path of health reform in The Netherlands. To provide context on that we
provide a short background on the Dutch hospital reform.
A chronology of main events in Dutch health policies 1941-2003 lists “many radical changes
that have been realized within a relatively short period of time” (European Observatory on
Health Systems and Policies, 2004, p. 120). In the last decades there has been an
increasing focus to increase competitiveness: regulated competition. This is not similar to
a free healthcare market. Although government does not directly control volume, prices
and productive capacity, they create necessary conditions to prevent the undesired effect
of a free market (such as “cream skimming” or “cherry picking”).
Besides certain negative effects, there most certainly are also positive results to report.
“As a result of only discussing a more market-oriented health care system, a huge increase in activities
concerning quality improvement and quality assurance was observed during the early 1990s. Probably the
main driving force for all of these quality-improving activities was the idea that quality of care will be a
major issue in a competitive health care system.” (European Observatory on Health Systems
and Policies, 2004, p. 124)
During the 1980s and 1990s the relationship between specialists, health insurers and
government often was under pressure. Attempts to implement new fee structures and fee
cuts never proved effective: “The introduction of a fixed total budget for specialist care in 1988 was
a disaster from a cost-control perspective. During the period 1980 to 1989, aggregate nominal
expenditures for specialist care grew by an average of 2.6% per year. This average rose to 6.3% for the
period 1990 to 1992, when it should have been nil. Budget overruns set the stage for intense conflict,
because the Minister of Health used retrospective fee cuts to compensate for overruns of previous years.”
(Maarse, Mur-Veenman, & Spreeuwenberg, 1997). Another example is the fact that until
1992 sickness funds had the legal obligation to enter into a uniform contract with each
physician established in their working area, instead of having the option to selectively
contract with physicians (European Observatory on Health Systems and Policies, 2004).
The Biesheuvel committee in 1994 stated that there was a need for fundamental
reconsideration of the position of medical specialists. Their advice was to introduce
management participation of specialists to also let them part of the responsibility for
effective cost-control. The commission also recommended integration of the specialist’s
revenues into the hospital budget to underscore the position of the hospital as an
integrated healthcare delivery institution. Cautiously, to bypass opposition of the
24
National Association of Medical Specialist, the Minister of Health started with a small
number of experiments in that direction. “Preliminary evaluation of the experiments suggests that
the financing of specialists within budgets is a complicated matter with direct repercussions on professional
behavior” (Maarse et al., 1997).
One of the difficulties in the current healthcare system is the unique position of medical
specialists: there are few substitutes or competitors. One of the reasons for this is the
underinvestment in human resources (training and education of medical specialists) in
The Netherlands (European Observatory on Health Systems and Policies, 2004, p. 134).
For a market oriented approach of healthcare there is a need for approximately 5%
overcapacity, but the Dutch government has not committed itself to this task. As long as
this is so, a demand-driven system in healthcare will remain illusive (Raad voor de
Volksgezondheid & Zorg, 2003, p. 138)
3.6 Conclusion
Hospitals have a long history of reactive growth and development. Proactive strategy
development and subsequent decisions about products and services to deliver have
therefore not for long been part of hospital decision making. Rather hospitals would
follow established polices by “doing what they had been doing for long time.”
The current position of the Dutch hospital in the Dutch healthcare system is well
established as an institution that “follows right behind” the gate keeping function of the
GP: if the GP is not able to “solve the problem” a patient is referred to the hospital.
Hospitals between them have a role division of general, top-clinical, academic and
specialist roles with the addition of private clinics as highly specialized institutions but
with another access pattern (direct instead of through gate-keepers). The functions and
activities of the hospital can be divided in six different types: patient care, teaching,
research, health system support, employment and societal.
All in all Dutch hospitals have a well established and rather clear position. There tends to
be an increase in focusing on customer needs by providing specific services to specific
patient/customer groups. However, this shift tends to mainly exist within the current
boundaries and structures and is not accompanied by any major change in how the
hospital delivers its services and goods overall.
25
“Give a man a fish; you have fed him for today.

Teach a man to fish; and you have fed him for a lifetime”
-- CHINESE PROVERB
4 Business model theor y

Business model is a comprehensive approach to building strategy. It is a “conceptual tool
that contains a set of elements and their relationships and allows expression of the business logic of a
specific firm” (Osterwalder, Pigneur, & Tucci, 2005). We can use a business model as a tool
to build strategy balancing both the internal, organizational views as well as the external,
patient/consumer views. This sets the business model apart from other approaches at
strategy which focus one side or the other.
We define the concept of the business model in the first section (4.1) and focus on the
specifics of one the most operationalized versions of the business model, Chesbrough
and Rosenbloom in the following section (4.2). An important part of this research is how
the business model has a focus on value at its core which we highlight in 4.3. Section 4.4
and 4.5 detail the backgrounds of taking a model approach to strategy and balancing
value (inside-out versus outside-in views).
4.1 Concept of the business model

The term ‘business model’ is often used these days but seldom defined explicitly (Henry
Chesbrough & Richard S. Rosenbloom, 2002). A business model can be described as
strategic model that explains how a company does business. If we analyze what such a
description means we see that “how a company does business” draws on many different
(strategic) aspects but is not limited to a specific focus on a single area. This sets the
business model apart from other areas of strategic management, focusing on specific
issues, such as marketing strategy or value chain analysis.
To research what is proposed in literature of the function of the business model we have
analyzed different publications to compile a list of uses (Table 4.1)
26
Table 4.1 Proposed roles of the business model

Proposed use Source
Analyzing, implementing and communicating Shafer, H. J. Smith, & Linder, 2005
strategic choices
Telling a good story Magretta (2002)
Linking strategy and operations Mäkinen & Seppänen, 2007
Linking of strategic management and Amit & Zott (2001)
entrepreneurship theories of value creation
Focusing device that mediates between technology Chesbrough & Rosenbloom (2002)
development and economic value creation
Conceptual tool that contains a set of elements and Osterwalder, Pigneur, & Tucci (2005)
their relationships and allows expression of the
business logic of a specific firm
Intermediate unit of analysis in managing Mäkinen & Seppänen (2007)
technological ventures arising from R&D
Planning Magretta (2002)
Analyzing the available literature, four important dimensions are visible between the
definitions of the different authors. The business can be used for:
1. Strategic choice (Shafer et al., 2005)

2. Link different strategic domains (H. Chesbrough & R. S. Rosenbloom, 2002;
Mäkinen & Seppänen, 2007)
3. Focus on value creation (Henry Chesbrough & Richard S. Rosenbloom, 2002;
Amit & Zott, 2001)
4. Focus on value appropriation (Amit & Zott, 2001; Henry Chesbrough &
Richard S. Rosenbloom, 2002)
The use of the business model for strategic choice is not surprising. It is a technique that
is located in the domain of strategic tools and techniques all aimed at supporting strategic
choice in one way or another. What makes the business model stands out is its focus on
comprehensiveness. Compared to other strategic techniques such as SWOT-analysis or
the BCG-matrix - which only focus on specific strategic domains (competitive strategy
and strategic position respectively) – the business model links different strategic domains
focuses on a comprehensive view of the strategic option: ranging from value for the
end-user to revenue generation for the organization as we will see in the next section.
27
The comprehensiveness of the business model is expressed through the range of strategic
domains it links (we detail this in the following section). On the one side there is the
issue of what value must be delivered. This focuses on customer preferences: how do we
provide what the customer wants? Who are our customers? We will detail these questions
more in the following section.
At the “other side of the spectrum” are questions of how to realize this: what resources
do we need, how do we compete/collaborate with others and how do we generate
revenues from the activities we do, in order to provide a sustainable course of action?
The balance between these two sides makes sure that what is asked for can be delivered,
and what can be delivered is what is really asked for. This is an exercise that must be
executed by the organization; it does not come as a pre-defined solution of what to do.
What the business model provides is a consistent and comprehensive model (or:
template) of the elements needed to build a strategy that delivers value to both the
consumer and the organization.
In the following section we operationalize the elements of the business model. In chapter
5 and 6 we research what issues this model can help solve for the hospital. In chapter 7
we detail further how each element of the business model delivers value in helping solve
these issues.
4.2 The business model of Chesbrough & Rosenbloom

Strategic literature in the last few years has given rise to many different ideas and
definitions of the business model (Mäkinen & Seppänen, 2007). To decide which
definition of the business model best suits, we have analyzed strategic management
literature to look for an operationalized definition of the business model that adequately
defines three important elements: value creation, value realization and value
appropriation. We identify one business model approach (that fits our first selection
criteria) instead of reviewing and comparing all available definitions. We analyze the
selected business model approach to test whether it has as positive heuristic: the ability to
generate the discovery of new facts (Lakatos, 1970).
Our choice is the well operationalized model of Chesbrough & Rosenbloom (2002). In
their article “The role of the business model in capturing value from innovation: evidence from Xerox
Corporation’s technology spin-off companies”, they analyze how Xerox Corporation spin-offs
became successful by taking technological offerings that were not valuable using the
Xerox business model but did thrive by employing a different business model (see Box
4.1).
28
Box 4.1 About Xerox Corporation and its spin-offs
Xerox Corporation started out as the Haloid Corporation originally manufacturing

photographic paper and equipment. The company grew substantially in the 1960s by focusing
on copying (“xerography”). The Palo Alto Research Center (PARC) of the company developed
many prototype technologies, resulting in commercial spin-offs such as 3Com (network
infrastructure), Adobe (publishing software) and Documentum. (information management
structures). All successful spin-offs employed business models that differed in important ways
from the traditional Xerox business model (this notion is also important to hospitals, we get
back to this in the next chapter).
Chesbrough & Rosenbloom (2002) derive their definition of the business model from
different available definitions, focusing on detailing and operationalizing the definition.
The also note that “many of the definitions of the current day business model are actually variations
on Andrew’s 1971 classic definition of the strategy of a business unit (p. 533).
Box 4.2 Attributes of the business model (Chesbrough & Rosenbloom, 2002)
1. Articulate the value proposition, i.e. the value created for users by the offering based on
the technology.
2. Identify a market segment, i.e. the users to whom the technology is useful and for what
purpose, and specify the revenue generation mechanism(s) for the firm.
3. Describe the [strategic] position 4 of the firm within the value network linking suppliers
and customers, including identification of potential complementors and competitors.
4. Define the structure of the value chain within the firm required to create and distribute the
offering, and determine the complementary assets needed to support the firm’s position in
this chain.
5. Formulate the competitive strategy by which the firm will gain and hold advantage over
rivals.
6. Estimate the cost structure and revenue 5 potential of producing the offering, given the
value proposition and value chain structure chain chosen.
The “six attributes collectively serve additional functions, namely to justify the financial capital needed to
realize the model and define a path to scale up the business” (p. 534). The focus of the approach
of Chesbrough & Rosenbloom is technology. Our approach is to adapt the model in
4
We prefer to identify this attribute as “strategic position”, rather than “value network” which is more descriptive and
prevents discussions about the naming of value network, value constellations, value shops etcetera (Stabell & Fjeldstad,
1998).
5
Because of the non-profit nature of the (Dutch) hospital we have replaced profit potential from the model of Chesbrough &
Rosenbloom with ‘revenue potential’ to express that the generation of revenue does not necessarily has to be profit oriented as an
end-goal.
29
such a way that we can also try using it for non-technological businesses, replacing
notions of “technology” with the more generic definitions of ‘offering” where applicable.
Applying the business model the authors do not follow a sequential structure, although
they start with the value proposition. Through our field research and discussions with
various experts we conclude that is it not strictly necessary to define such a structure. At
the same time giving a possible structure acts for many as a reference to align their
thinking process. We propose a structure to identify the three main subjects: value
creation, realization and value appropriation (Figure 4.1). Also we include the underlying
notion of the business model approach that it starts with customer preferences and
“ends’ with value delivered.
Figure 4.1 Application of the business model in 6 sequential steps
Business model

value value
implementation
The six attributes of the business model and their application to form a comprehensive
and coherent model is the study object for the final part of this research. To what extent
do the sequence and combination of these elements and their combination deliver value
for the hospital?
4.3 Business model and value

The key concepts of what a business model is all evolves around value: value creation,
value realization and value appropriation. How do we define value creation for hospitals
in a way that informs future strategic planning? This research focuses on building a value-
creating strategy for hospitals in a comprehensive and coherent way. Using strategy as a
model, gives heads and tails to the question of what to analyze. It enables us to deal with
complexities - which may, in many cases, actually result from the absence of a strategy
(Kiewik, 2007).
The concept of causal ambiguity, not being knowledgeable of sources of past success,
and of impediments to future success states the need for a strategic model: “Because of
causal ambiguity, it could be that the demise of firms is more to do with not knowing exactly what to
change and what to change it to, than with any structural, or cultural rigidities.” (Bowman &
Ambrosini, 2000, p. 7)
30
Exclusive views on strategy such as RBV/CBV or the competence view (see section 4.5),
highlight just one side the metal. Such approaches can result in an unbalance skewed
either towards unsustainable value creation (too much customer focus) or towards value
capture (too little customer focus). A model focused on value-creation helps hospitals
escape zero-sum competition, which is the problem in the current healthcare systems
(see Box 4.3).
Box 4.3 Zero-sum competition
“Health care competition is not focused on delivering value for patients. Instead, it has become zero sum: the
system participants struggle to divide value when they could be increasing Zero-sum competition in health care is
manifested in a number of ways, none of which creates value for patients: competition to shift costs, competition to
increase bargaining power, competition to capture patients and restrict choice, competition to reduce costs by
restricting services.”
(Porter & Teisberg, 2006)
Value, previously viewed as the price of things (Barbon, 1937, p. 2) is now often more
market-oriented and must be viewed from the customer’s perspective (Coyle, Bardi, &
Langley, 2003). The graphical representation of the business model expresses this by
starting with customer preferences. Customer preferences are infinite, which is why we cannot
define the contents (exclusive) of value, but only its attributes (inclusive). The first attribute
is value must be viewed from the customer perspective.
The second attribute is that value spans a complete process. “Value-based competition spans
the full-cycle of care” (Porter & Teisberg, 2006). While the mention of a “cycle of care” applies
well to a healthcare delivery organization (such as a current hospital), it might be too
limited for the setting of the future hospital, which may extend its service portfolio to
wellness (rather than sickness). That is why we define that value spans the complete
process. This is different from much of the current day activities which are disparate
interactions with an intermittent process. Interactions with the healthcare system are too
often incident-based instead of focused on the complete process. Ultimately it depends
on what is the described as the process, if it is keeping people healthy e.g. than incident-
based interactions are not delivering value, as opposed to life-long coaching. If the
process is simply to “get fixed” than they may. Thus this asks for a clear view on what
the process and accompanying value proposition is.
Sustainability is the third attribute of value. Sustainability is the characteristic of a process,

system or state that can be maintained at a commensurate level in perpetuity (H.E. Roosendaal, 2006;
Wikipedia contributors, 2008b). Commensurate is defined as: comparable or compatible
with other instances.
31
Box 4.4 Attributes of value creation in healthcare
1. Value must be viewed from the customer perspective

2. Value spans the complete process
3. Value must be delivered through a sustainable process
Box 4.4 summarized the attributes of value creation in healthcare. These are the
attributes we will focus on when analyzing to what the business model delivers: is it
viewed from the customer perspective, does it concern the complete process and is it
delivered trough a sustainable process?
4.4 A model approach to strategy

Strategy, originally a military term, is defined as “the science and art of military command
exercised to meet the enemy in combat under advantageous conditions” (Merriam-Webster's Online
Dictionary, 2008). Nowadays it is used in many disciplines, but the goal of the concept is
the same for every discipline: “The essence of strategy – whether military, diplomatic, business,
sport, (or) political… - is to build a posture that is so strong (and potentially flexible) in selective ways
that the organization can achieve its goals despite the unforeseeable ways external forces may actually
interact” (Quinn, 1998). Strategy can be used as a model to analyze the environment and
set direction (Box 4.5).
Box 4.5 Strategy as a model
“Ask someone sitting in a room to describe the environment around him and he will do either of two things. The
first is that he will start naming all the different things he observes: chairs, tables, a flip-over, carpet, lights, a
plant, persons etcetera. As long as no-one gives a sign when to stop the person will go on and on naming
everything: dust particles, shadows, shirt buttons, shoelaces, window glass, a door knob, etcetera. Eventually he
will ask how long this ‘naming process’ should continue?
That moment is what another person would have asked beforehand: ‘What should I observe?’ This question gives
a frame of reference and gives heads and tails to the description of the environment. This approach can look
limiting, but is not. It can be repeated for every level of detail needed. The use of a model acting as a frame of
reference makes a potentially unanswerable question answerable. That is what happens when we view strategy as
a model.”
Roosendaal (2006) free after Popper (1963)
Most hospitals have become complicated and entangled entities in the eyes of many
decision makers. This stirs interest in an approach to strategy that can help decision
makers in hospitals (and other healthcare organizations) to make a “potentially
unanswerable question answerable”.
32
The issue of having difficulty deciding what to do is also known as causal ambiguity.
Causal ambiguity means not being knowledgeable about sources of past success, and of
impediments to future success - something that might be the case with many hospitals.
“Because of causal ambiguity, it could be that the demise of firms is more to do with not knowing exactly
what to change and what to change it to, than with any structural, or cultural rigidities.” (Bowman &
Ambrosini, 2000, p. 7).
Causal ambiguity is of great relevance to hospital decision-making. The ways hospitals

have done business has been subject to little change for many years (see the previous
chapter). Many hospital executive teams do not analytically examine potential sources of
past success, much less future positioning, using a structured approach. In the
introduction of this research and the first chapters we have clarified that current
pressures (including consumerism, changing workforce, demographics) result in
pressures on the current hospital organization. This can lead to anxiousness and
uncertainty with decision makers (see also the outcomes from the field research in the
next chapter). Results might include the unfortunate tendency to propose oversimplified
solutions to complex problems, which results in poor decision-making. We highlight
once more the quote from Shortell et al. (Box 4.6).
Box 4.6 Complexity and delivering value
“We live an extremely complex, pluralistic society where it is increasingly difficult to achieve consensus. In the
effort to deal with the complexity, we often oversimplify by posing "solutions" in either-or terms. We need more
inclusive ways of framing problems and challenges that permit us to consider the inherent complexity of the issues
in a meaningful way.”
(Shortell et al., 2000)
Strategy as a model provides structure. Without structure trying to answer questions

(what, when, where, how) is without start and end: one could go on and on defining
possible answers, just as in the example of Box 4.5. Situations where uncertainty is
prevalent and over-simplification of answers lies looming, we can benefit from the
structure of a model. A model allows us to explore decision-making within a specified,
relatively objective, structured framework (McCabe Gorman & den Braber, 2008)
4.5 Balancing value in strategy: inside-out versus outside-in

Views on strategy traditionally often focus on a particular perspective. Two prevailing
views on strategy are the inside-out and the outside-in views. We detail them here shortly
because it shows how the business model is different by balancing those views, rather
than focusing one of both.
33
The inside-out view on strategy focuses on the internal strengths of the organization to
define its strategy. Based on what the hospital itself is good at, strategy is defined. This
can also be seen with hospitals: if a hospital has specific strengths, such as rare
equipment, highly specialized surgeons or other specific assets, strategy is often based on
those strong points. In literature the inside-out view is often associated with what is
called the Resource Based View (Barney, 1991) or the Competence Based View (Teece,
Pisano, & Shuen, 1997). These views focus on the notion that a sustained competitive
advantage can be built through the potential of a firms resources.
The outside-in view on strategy opposes this view in that it focuses first on the external
environment of the organization, rather than the internal environment (resources). A
prime example of this view is the Porters Competitive Strategy which focuses on
analyzing the external environment of the organization to determine strategy (Porter,
1980). If competitors are focusing on particular market segments, using specific
resources or occupying certain strategic positions, strategy for the organization must
focus on addressing those competitive issues in order to build its own competitive
advantage.
The business model does not favor one of these two approaches, rather it balances them.
Strategic resources can be a starting point for building a business model. But they have to
be logically connected to the other elements and provide value for the end-customer.
The movements of competitors can also be reason to build or change a business model
but again, not without linking it back to the other elements such as a value chain that
connects in a logical sense to the strategic position, market segment and value
proposition.
The business model does not provide a single answer to how these issues strategies should
be built. But it continually stresses the need for logically connecting all the elements so
that eventually value is delivered for the end-user in ways that adhere to the ideas about
sustainability of the organization.
4.6 Conclusion
The business model provides a structured, comprehensive and sequential approach to
building strategy. We base our definition of the business model on the version of
Chesbrough & Rosenbloom (2002). The business model enables decision-maker such as
hospital executives to take the lead in building their own strategies through an inclusive
model, rather than following exclusive advices on predefined paths to take.
34
The model approach to strategy building provides structure that makes it possible to give
answers to increasingly complex problems in healthcare. It balances an inside-out and
outside-view on strategy. Starting with the value preferences it uses six steps to reach the
final stage of value creating. The three stages of the business model are value creation
(value proposition, market segment), value realization (strategic position, value chain,
competitive strategy) and value appropriation (cost structure / revenue potential).
35
“Resting on your laurels is as dangerous as resting when you are walking in the snow.
You doze off and die in your sleep.”
-- LUDWIG WITTGENSTEIN, philosopher
5 Strategic issues for the hospital

The previous chapter shows the strategic environment of Dutch hospitals. The Dutch
healthcare system and its hospitals are rated amongst the best (Health Consumer
Powerhouse, 2007) and followed by other countries, such as the United States., with
close attention (Naik, 2007). As with any such system, ratings in healthcare are largely
arbitrary. A prime example of the arbitrary nature of what is defined as good is the fact
that only in the Netherlands we have at least three totally different hospitals ratings
(Roland Berger, Elsevier/Lagendijk, Algemeen Dagblad), all three producing different
end results about what is the best hospital.
Producing different results (by measuring different things) is not necessarily a bad thing.
It highlights the fact that there are an infinite number of possible customers out there, all
with different wishes and expectations. These preferences are related to areas of
importance of your target market, and ‘expressed’ or value provided by service lines you
choose to offer. Serving a specific type of service for every specific patient is something
that not all hospitals are confident with yet.
Chapter 3 shows that hospital configurations have been formed in organic ways over
long periods of time. While the technical and medical advantages have been enormous
over the last 100+ years, the way hospitals treat their patients has stayed largely the same
(large buildings, function-related departments, supply-driven). Discussion about how
hospitals should treat patients has been limited. Patients have long expected hospitals to
behave the way they currently do. And because of little actual differentiation and
possibilities to compare hospitals, there was little incentive for a hospital to change the
way it did business. That was until recent years.
36
Figure 5.1 Pressure for change in hospitals (McKee & Healy, 2002, p. 37)
Current changes in healthcare are no longer mainly about technology and clinical
knowledge (supply-side), as can be seen in Figure 5.1. They are also about demand-side
(changing demographics, patterns of disease, public expectations) and wider societal
changes (financial pressures, internationalization, global market) 6 .
These changes have a different impact than the changes in technology and clinical
knowledge. They result in both patients and government (policy-makers) asking new
types of questions and expecting concise answers: why does this treatment cost more than with
another hospital?, how does the hospital address the needs of people with a large number of co-
morbidities? what is the impact of international competitors? Such questions trigger the need for
hospital to explicitly define and research their (strategic) position. This is change from
the previous situation (as we found out in our field research), where hospitals could lean
on their ‘established policies’ and do what they had done for years.
5.1 Field research

To identify what triggers the specific issues for hospitals that might lead them to rethink
their current business(es) we have performed on-site field research as we explained in our
research approach. We conducted non-structured interviews with 11 different hospital
6
For more in-depth analyses of current pressures in hospital and healthcare we refer to Innovatieplatform (2007); Ministerie
van Volksgezondheid, Welzijn en Sport (2007a); PriceWaterhouseCoopers (2005); Putters & Frissen (2006); Roland
Berger (2007)
37
decision makers and organized two discussion meetings. See Table A – 1.3 for a list of
attendees.
The interviews and discussion meetings were organized as part of the Nyenrode research
program ‘Changing Roles and Configurations of Dutch Hospitals’. The interviews were
held at the location of the interviewee (most often the hospital) and carried out and
summarized by Merijn Stouten, Paul van der Nat and the author in rotating order. As an
introduction the background of the study was given and the fact that no remarks from
the interviews would be directly quoted in a final report. This anonymity allowed all
participants to speak more freely about their strategic issues.
5.2 Interviews
The interviewees were positioned as experts in the field of what a hospital is about (also
meaning not as experts on strategic management). Goal of the interviews was defined as
getting insight into the strategic issues for hospitals within the next 5-10 years, both on
the content-side (what defines the future hospital?) as well as the process and difficulties
leading up to futuristic configurations. The five key questions of the interviews give
insight into the current and near-future dimensions of the configuration of the hospital.
These dimensions have been based on the business model theory of Chesbrough and
Rosenbloom, which we have defined in the previous chapter.
We have not asked hospitals for their competitive strategy. The current status of the
Dutch healthcare system has just yet introduced the idea of regulated competition and
competitiveness. We did not introduce the competitive strategy as a separate topic in the
interviews for the reason of wanting to focus more on the elements that come “before”
the competitive strategy, about what defines a new hospital configuration. What we have
done is review relevant literature and coined the questions of competitive strategy on
other occasions such as personal discussions and the discussion sessions to gain insight
on a broader level (5.3).
Box 5.1 Interview goals
What is considered the current and near-future (5-10 years):

1. value proposition
2. market segment
3. strategic position
4. organizational structure (value chain)
5. cost structure and revenue model
38
Because of the disjunction between terminology in the fields of business and healthcare
we have chosen to not directly use the definitions above in our interview, but use “starter
questions” that give more practical answers that can be used to fill in the different goals.
These starter questions have been defined in several brainstorm sessions with the project
team and fine-tuned during the course of the project. Box 5.2 lists the questions (in no
particular order).
Box 5.2 Interview starter questions
1. On what themes are future hospital organizations going to differentiate in the future?
2. Will patients ‘simply’ keep coming to the hospital?
3. Who will be the most important customers of future hospital organizations?
4. What will be important partners for the future hospital organization?
5. What is the relevance of ‘cooperation between competitors’ in health care?
6. What is the main incentive for changing hospital configurations?
7. Is it possible to create demand in health care?
8. What will be the influence of internationalization on the future hospital organization?
9. How are decisions about large investment taken?
10. What are the current strategic issues of the hospital?
5.3 Discussion sessions

The discussion sessions were also used to get more insight into to the current and near-
future value proposition, market segment, strategic position, organizational structure
(value chain), cost structure and revenue potential. We explained to the audience - just as
we have done in this research - that this might very well mean going outside the
“borders” of what is currently defined as a hospital.
5.3.1 Session 1 – Elements and strategy canvases

The preliminary outcomes of the interviews were that different strategic choices were
made in hospitals, but the actual “width” of these decisions was supposedly small. As an
example, look at the dimension ‘coordination of care’. Some hospitals make an effort to
coordinate a larger part of the care process, rather than ‘just’ the surgical procedures. But
considering the full potential of such an option, one could consider that the hospital
would offer coordination of care for the patient from cradle to grave, always and
everywhere. Unfortunately it seems that options chosen by the hospitals are at the “same
end” of the spectrum, such as offering coordination only around a single treatment and
only inside the organization.
Therefore to get more insight into the options we employ the strategy canvas tool.
Strategy canvases allow a graphical representation of an organization’s strategic profile
(Kim & Mauborgne, 2002, p. 78). Using the same dimensions for multiple organizations
39
and scoring them from low to high makes it possible to quickly compare the strategic
profile of similar organizations.
Figure 5.2 Steps followed to build strategy canvases and find differentiating factors
P1: Diversity in P2: Complexity

medical of medical P3: Treatment P5: Coordination P6: Education P8: Non-medical
treatments condition volume needed P4: Service level of care and training P7: Research services
Product offerings
High

Product offerings
High

Low
Product offerings
High
P1: Diversity in medical treatments
E6: Income from private payments

S1: Cooperation: primary process
S2: Cooperation: support process
E8: Income from (public) funding

S8: Public-private partnerships
P3: Treatment volume needed
O3: Management in the lead

S7: Supply chain integration
E1: Focus on cost reduction

Low
O5: Standardization of care

P6: Education and training
P2: Complexity of medical
E7: Income from non-core

E3: Value-based payment
P8: Non-medical services
O1: Process optimization

S4: Social-economic role
O2: Physician in the lead
E4: Cost-based payment

P5: Coordination of care
E9: Income from private

M5: Geographic scope
E10: Negotiable prices

E5: Insurer payments
O4: Capital intensive
M3: Healthy people
E2: Focus on profit

S6: Transparency
P4: Service level
O6: Outsourcing
M4: Sick people
S5: Innovation
M2: Physician
P7: Research
M1: Patient
Product offering Market segm S3: Growth

Strategic position Organization
P1: Diversity in medical treatments Economic engine
Product offerings P2: Complexity of medical condition
P3: Treatment volume needed
P4: Service level
Low High P5: Coordination of care
P6: Education and training
P7: Research
P8: Non-medical services
M1: Patient
M2: Physician
segments
Market
M3: Healthy people

M4: Sick people
M5: Geographic scope
S1: Cooperation: primary process

S2: Cooperation: support process
Strategic position
S3: Growth
S4: Social-economic role
S5: Innovation
S6: Transparency
S7: Supply chain integration
S8: Public-private partnerships
Low
O1: Process optimization
O2: Physician in the lead
Organization
O3: Management in the lead

O4: Capital intensive
O5: Standardization of care
O6: Outsourcing
E1: Focus on cost reduction

E2: Focus on profit
Economic engine
E3: Value-based payment

E4: Cost-based payment
E5: Insurer payments
E6: Income from private payments
E7: Income from non-core activities
E8: Income from (public) funding
E9: Income from private investments
E10: Negotiable prices
Figure 5.2 shows the steps which were followed in the workshop to identify which
elements were differentiating the organizations. The scoring questions used to build the
strategy canvases can be found in Appendix C. As seen in the figure, there were 5 steps
to draw the strategy canvases and determine the differentiating factors:
1. Start with a blank strategy canvas per theme for each of the five business model
themes (value proposition, market segment, strategic position, organizational
structure and cost structure/revenue potential).
2. Score the elements per theme for the organization of choice on a 5-point scale
(low, low/medium, medium, medium/high, high)
3. Merge all scores per theme; discuss differences in outcomes between
organizations
4. Merge all themes (this figure becomes too complex to discuss)
5. Calculate the standard deviation per element to identify the themes to
differentiate the most and the least; discuss lowest and highest scoring elements.
40
We identify that answering questions with qualitative answers such as low, medium and
high might be considered too subjective. Also the sample of organizations having filled
in the canvas can be considered arbitrary (although the mix of organizations attending
was held as diverse as possible – spread between academic, specialist, general hospitals
and other relevant organizations). But the goal of this exercise was defined as getting
more qualitative rather than quantitative insight in the “width” of the differences
between the strategic profiles, for which this method was actually proving useful.
Participants noted that strategy canvases gave them insights into their and other
organizations they had not previously encountered. The outcome of calculating the
standard deviations is shown in graphical form below in
Participants also noted that the scores within an organization about similar issues could
be far apart. Meaning that if one participant from a certain hospital would score the
dimension “diversity of medical treatments” as ‘2’ (low-medium), another participant
from the same hospital might score it as ‘4’ (medium-high) depending on his/her views.
This signals room for discussions about clearing up what defines the features of the
organization. During the sessions it became apparent that the more focused an
organization was (e.g. a specialist hospital), the more easy it was for participants to be
able to fill in the strategy canvas.
The goal of the first session was to gain more insight into the differences between the
current hospital configurations to identify dimensions that can be changed in future
hospital configurations. The most important outcomes are shown in Box 5.3.
Box 5.3 Outcomes of the first discussion session
1. Choices about what services and products delivered (and how) have a large correlation with
the issue of scale.
2. Choices about services and products are largely made on similar themes resulting in limited
distinctiveness of hospitals (small “width”).
3. Current cost structures are named as limiting the hospital in its room for innovation.
4. A strong focus on the nearby region is considered very important by many hospitals.
5. Current discussion has not yet progressed beyond defining healthcare as a win-loose game
(reshuffling existing resources and activities) – no “straying from the path”.
6. One of the ‘big unknowns’ is what near-future patient behavior will be (willingness to
choose, travel, pay).
7. Value for the patient can be defined beyond medical-technical issues, offering new
possibilities for hospitals.
8. Disruptive configurations are suspected to have large impact by current decision makers.
41
Evaluating these outcomes there are two important conclusions that we can draw:
current configurations show large similarities and reasons for similarities are often
defined in “outside factors” (location, cost structure, win-loose decisions). At the same
time room is considered for disruptive configurations redefining what quality is (more
reasoning outside-in, based on patient preferences). If such configurations would more
prominently emerge, this is considered disruptive by most current decision makers.
Examples of such configurations can be what is done now with retail clinics in the US, or
the initiatives such as Hello Health or American Well (American Well, 2008; Hello
Health, 2008; McCabe Gorman & den Braber, 2008).
In short: current hospitals are limited in their uniqueness, but are aware that the moment
truly disruptive configurations will pop up is only a matter of time (because there is
ample room for). We take this as indication for the need of a structured approach to
strategic (re)thinking the current hospitals if they want to sustain. This differs from the
current approach of following established policies.
5.3.2 Session 2 – Using structure to put together configuration

The first session indicated in several ways that there is room for changing current
configurations and possibly inventing entirely new ones. We organized a second
discussion session to test the use of a structured approach towards building
configurations in order to help hospitals (re)think their strategies. We distilled a list of
elements that had been identified in the interviews and the previous discussion session as
relevant guidance questions for hospitals to decide about the elements of the business
model (Box 5.4 - Box 5.9).
The guiding questions in the boxes mentioned are what they say: guiding questions. They
should not be viewed as the complete list of relevant questions about the different
business model elements. They can be viewed as a comprehensive list guiding structured
thinking into building strategy.
42
Box 5.4 Guiding questions defining the value proposition
What business are we in?

This hospital focuses on sickness / health / well-being / ...
What is type of products/services delivered?
The type of product / services is medical treatment / nursing care / research / education / ...
What is the primary function of the organization?
The primary function is delivering / facilitating / coordinating/ ...
Is the organization focused on B2B or B2C?
The most important customer are patients / specialists / other businesses / ...
What is the complexity of the product offering?
The products offered are complex / basic/ ...
What is the diversity of the product offering?
The medical treatments offered are diverse / specialized / ...
What is the service level provided?
The service level provided is below standard / standard / above standard / ...
Box 5.5 Guiding questions defining the market segment
What is the geographic scope?

The geographic scope is regional / national / international / ...
What are the target populations for what products?
Target populations are elderly people / expats / diabetes patients / ...
What defines the attractiveness of a market segment?
Attractiveness is defined in volume / profitability / social need / challenge / ...
What is the mobility of patients within our market segment?
Patient mobility is low / average / high / ...
Box 5.6 Guiding questions defining the strategic position
What is the competitive strategy?

To what extent is the organization collaborating / competing / collaborating and competing / ...
Why is competitive strategy relevant?
Competitive strategy is relevant because survival / sustainability / growth / ...
Who are strategic partners?
Strategic partners are other hospitals / suppliers / insurers / GPs / ...
Where (to which activities) does what competitive strategy apply and why?
Where: core processes / support processes / ...
What: collaborate / compete / compete and collaborate / ...
Why: revenue / scale / quality / reputation / ...
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Box 5.7 Guiding questions defining the organizational aspects (value chain)
What are the core activities?

Core activities are orthopedics / urology / diagnostics / ...
What are the support activities?
Support activities are pharmacy / patient transport / counseling / ...
Who has to execute the activity?
Activities can be done ourselves / joint venture / outsourced / ...
What is the scale of the organization?
The scale is small / large / dynamic / ...
What are the strategic assets?
Strategic assets are personnel / infrastructure / data / ...
What is the process focus of the activities?
The process focus is customer intimacy / product leadership / process excellence / ...
What is the governance structure (parties and responsibilities) ?
The governance structure is RvB-RvT- medical staff / cooperative / single entrepreneur / ...
Who are the strategic decision makers?
The strategic decision makers are management / medical staff / investor / ...
What is the position of the professional?
The position of the professional is on the payroll / free-employed / partnership / ..._
What is the level of independence (of the separate business units)?
Business units are completely independent / tightly coupled / (de)centralized / ...
What is the preferred organizational culture?
The preferred organizational culture hierarchic / informal / innovative / ...
Box 5.8 Guiding questions defining the cost structure and revenue potential
What is the cost structure of the product offering?

The costs for the product offering are based on labor / medicine / overhead / ...
Who pays for the services?
Services are paid for by the insurer / patient / employer / ...
What determines price?
Price is determined by quality / volume / health outcome / ...
How is economic sustainability reached?
Economic sustainability is reached mixing profitability of treatments / additional services / ...
What is the capital intensity of the organization?
The capital intensity of the organization is low / high / dynamic / ...
The structure of the discussion session was that five different groups of 4-5 attendees
with different backgrounds were given a certain direction of a possible future hospital
configuration (see Box 5.9). Participants were asked to go through the different questions
to further define the different elements of the configuration.
44
Box 5.9 Hospital configuration ideas for the second discussion session workshop
1. Large volume focus hospital: focusing on a specific type of medical condition and/or
treatment on a very large scale.
2. Small scale focus clinic: focusing on a specific type of medical condition and/or
treatment on a small scale.
3. Network hospital: hospital part of an alliance with other providers, dividing what care is
delivered where.
4. Wellness organization: organization responsible for the complete well-being of a person
or population.
5. GP hospital: hospital with a long-term relation with their customer, resulting in a low
threshold for access.
6. Virtual hospital: hospital not delivering care, but acting as a single point of entry to the
health system.
7. Personalized healthcare organization: organization providing healthcare services when
and where the clients wants.
8. Facility provider: only providing services and facilities professionals
(business to business organization).
The beneficial outcomes of this exercise were twofold: process and content. The process
of going through the different questions was assessed by almost all participants as helpful
and stimulating their thought about the implications of the different choices. Room was
given to the participants to suggest additional questions or subjects that could enhance
the current list, but, interestingly, none were given.
Critique arose because of the method used (focusing on a limited number of ‘predefined’
ideas for future configurations). Most of the critique focused on the fact that participants
felt limited by the different configurations. One of the arguments used more than once
as the fact that configurations such as these were thought up by ‘system thinkers’ (mostly
“business scholars”) and that they fail to reflect the diversity that exists in reality. A
parallel was drawn with the ideas about school reform in the Netherlands in the last
decades.
Looking at this research (assessing the value of the business model for hospitals) it is
important to note two things: (1) the business model is no tool to use in the first place
for defining systems, but rather individual organizations (or businesses as you like) and
(2) we claim there is value in explicitly defining strategy and that this does not limit the
options individual organizations have.
The business model approach does not explicitly dictate any of the choices hospitals
must make to define their strategy. It is inclusive rather than exclusive, just as the list with
guiding questions is only to be used as guidance. Employing the business model
45
approach does even the opposite: it can be used to think about the many options of
organizations in a structured and comprehensive way. But this has eventually to be
followed by choosing between these options, something which the audience still seemed
somewhat reluctant too, judging by their responses about feeling limited in their choices.
This shows the fact that hospitals have not yet completely adapted to both the ideas
about choices itself as well as making decisions about the available choices, much less
considering the impact these might have on future performance.
The outcomes about the configurations that were discussed and analyzed in the session
are listed in Box 5.10. Summarizing these outcomes we can see an interesting problem
emerge: while there maybe a string of different barriers, at the same time hospitals are
acknowledging the fact that others might be entering their domain, as well that there is a
general need to rethink the configuration (see previous paragraphs). This strengthens
our idea that the business model might be one of the tools that, by structuring the
process needed, might help hospitals find a comprehensive and concise way of modeling
how to (re)define their strategy.
Box 5.10 Outcomes of the second discussion session
1. There are several factors seen as limiting to creating new configurations, most prominently
the current cost/insurance structure and the need for solidarity.
2. There seems to be relative high reluctance of current players to allow access to other players
(while new configurations often depend on cooperation)
3. It is very much thought to be likely that other players than the current hospital (e.g. insurer,
patient organizations or industry) might develop new configurations competing with the
hospital.
5.4 Outcomes
The outcomes of both the interviews and the meetings have been summarized in this
paragraph, grouped as the 10 most important outcomes (Box 5.11). In the following
section we will detail each issue and analyze its relevance and implications from a
strategic viewpoint.
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Box 5.11 Most important outcomes of field research (interviews, discussions)

8. Patients are always end-users, but not always end-customers
5.4.1 Providing specialized medical care is considered core business

When asked to define the core business of the hospital many decision makers talk about
providing specialized medical care: surgeries, stay, nursing, diagnostics etcetera.
Much of the core business is defined in product terms. While this may seem logical - the
official definition of the hospital is after all institute for specialized medical care – many
options are left unexplored. We argue that there is much to gain from widening the scope
of what is considered core business of the hospital, by considering as its core not
products delivered (e.g. surgeries), but value delivered (keeping people healthy, patient
satisfaction, increased patient autonomy). The product of the hospital does not exist in a
vacuum, it is only relevant when it delivers value to the patient/customer.
5.4.2 Strategic decisions are often supply-driven

Hospital decision makers consider their service line portfolio one of their most important
decision points. What types of surgeries or treatments should we offer and why? Often
this analysis is based on the strengths and weaknesses of the hospitals, such as
quality/availability of the respective surgeons, available equipment, amount of revenue
generated etcetera. Decision options are considered: do-it-yourself, collaborate with other
hospitals, outsource or abandon activities.
Service line portfolio is an important decision area for current hospitals. The previously
wide scope of hospital service line portfolio is increasingly difficult to combine with the
needed scale to provide a sustainable level of quality. Decisions about what is provided
(service portfolio) are often deemed more important than how it is provided (service
level). Service portfolio decisions are mainly driven by internal factors (supply-driven)
while service level decisions are often driven by customer request (demand-driven). This
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can be considered ‘survival tactics’ of the hospital or a sign of difficulty to adapt to a new
demand-driven structure.
5.4.3 Scale and scope are considered most important axes for change
Hospital leaders often define their hospitals options on two axes: scale (increase or
decrease) and scope (increase or decrease). The most common current combination
(large scale together with large scope) is expected to be non-maintainable in the future.
Ever increasing scale is needed according to current decision makers if hospitals want to
keep offering research and education and limit risk/provide quality. Also the sheer size
of investments needed asks for a certain scale to justify those investments.
Another option: decreasing scale and scope steers the current hospitals more in the
direction of smaller focus clinics. Many hospitals do not like this direction because they
view it as their obligation (and their income stream) to deliver a wide range of services to
their geographic area. A difficult issue with changing scale and/or scope is what to do
with the complex or chronic patients who often fall between different configurations.
Figure 5.3 gives an indication of directions for hospital change on the axes of scale and
scope. Important to acknowledge is that with many decisions about scale and scope
issues of large investments done or needed play an important role.
.
Figure 5.3 Possible directions for hospital change - scale versus scope (diagram made by author)
scale
merger/
focus factory network
acquisition
specialized independent
current
hospital growth
small focus
limit access broker
clinic
scope
Scale and scope decisions are supply-driven, not demand driven. There are more options
in changing the hospitals by looking at other axes next to scale and scope (which are
definitively important). Such options may include more demand-driven axes such as
service availability or service level. This is more about the value delivered than the
structure used.
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5.4.4 Current governance structure complicates decision-making

The most significant choices in hospitals are not made on the ‘corporate’ level (whole
hospital) but on the business-unit level (specialty). Because of the level of independence
of professional partnerships in most hospitals, the ability of hospital boards to make
decisions spanning the whole of the hospital is often limited. Often it is unclear who is in
charge of the hospital: the board or the different professional partnerships of physicians.
One of the effects is that when board and medical staff clash, the board of governors has
to choose ‘sides’ often resulting in firing one or several members of the boards. A small
number of hospitals (e.g. Bronovo or Ziekenhuis Groep Twente) try to tackle this issue
by putting individual specialists on the hospital payroll.
Hospitals are virtual organizations that are viewed as a single organization by the
customer. But this ‘image’ is changing. Individual professional partnerships are
independently advertising their services directly to patients. Hospital ratings are changing
towards specialty rating. The still complex internal structure of the hospitals is often
viewed as an impediment to structural change.
5.4.5 Relationship with the patient is considered of growing importance

In all interviews and discussion it was acknowledged that the position of the patient and
the relationship with the patient is of ever growing importance. Much has been done in
the past decades to improve this relationship – and there is still much that can be done.
There are stratifying differences between hospitals in how to view their relationships with
patients: some view patients still as people who have to adapt to the structures and
processes of the hospitals, while others actively try to engage patients as responsible
actors in their own healing process. There is a notion that the (combined) views of the
patient, of the hospital and physician are increasingly important. E.g. reputation
management is actively practiced by several hospitals.
5.4.6 Financial structures difficult to match with strategic initiatives

The single most heard complaint about realizing (new) strategic initiatives is the fact that
financial incentives and reimbursement structures do no match. The main problem for
many hospitals is that better quality is not paid for. One example is that of academic
hospitals: they try to position themselves as centers for last-resort care (including
experimental treatment and other high-risk procedures). This last-resort care is more
expensive than basic or top-clinical care, but the reimbursement for these types of
treatments is disproportional (reimbursement is less than the costs). Therefore all
academic centers also deliver basic care to pay for the more expensive type of last-resort
care.
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Hospitals are right in signaling the failure of the current reimbursement structures and
financial incentives to align properly with the practice of healthcare. But this also means
that hospitals cannot afford to “sit back and wait” until better systems will “pop up”.
Other financial structures such as joint ventures with industry partners (e.g. as is
practiced in the St. Maartenskliniek) or HMO-types of financing (as was tried by Rivas
Zorggroep) may show new ways to finance healthcare. This can still complement
strategies trying to align financial incentives and reimbursement structures with the real
practice of healthcare.
5.4.7 Hospitals show large similarities in strategic structure c.q. configuration

The choices hospital make for their products or service offerings show very large
similarities (look ahead to the introduction of chapter 6). The largest distinctive criteria
are level of complexity/expertise needed, geographic location and size. Hospitals link
their position in the value chain to the level of complexity of the disease pattern or
expertise needed. General hospitals have more expertise than GPs, top-clinical hospitals
more than general hospitals and academic hospitals are used as “last resort”. Another
defining factor of the hospital is its geographic location. One of the first arguments when
choosing a hospital is defined, by both decision-makers and patients alike, to be its
geographic location. This is therefore one of the more distinctive elements of the
hospital. Also the size of the hospitals is an important differentiating factor: the number
of hospital beds ranges from small (< 50) to large (1300+) (RIVM, 2007)
Hospitals decision makers mostly talk about current distinctive characteristics in terms of
organizational features: expertise, location, size. Secondary product features that indicate
how products are delivered (staff friendliness, communication possibilities etcetera) are
not amongst the first elements that are considered important in discerning hospitals. But
changes are visible e.g. because different Dutch hospitals are now adopting concepts
such as the Plane-Tree concept that focuses on different issues than technical/product
qualities. Examples are integrating family, friends and social support, focusing on
architectural and interior design (provide a healing environment) or offer complementary
therapies (Planetree, 2008)
5.4.8 Patients are always end-users, but not always end-customers

The stakeholders in hospitals are many, including patients, physicians, nurses,
management, insurers, neighbors, government, family and suppliers. And the list can be
even longer. The question of who the consumer is for hospitals is therefore not always
easy to answer. Who should the hospital consider the patient as its “consumer” to focus
on when building value-based strategy? Should this be the patient (receiving care) or the
insurer (paying bills) or maybe the physician (providing services)? There are many
50
options to choose from, indicating that it important for the hospital to be clear about its
customers in order to be able to know what value to deliver, where, to whom etcetera.
What we can say is that the ultimately the patient is always considered the end-user: take
away the patient (person receiving care) and there is no reason for any of the other
stakeholders to be involved. This makes the patient the end-user but not necessarily
always the end-consumer. Hospitals currently express different views on who they consider
the end-consumer. Some hospitals state that the patient is their end consumer, other see
themselves as facilitators of physicians who deliver the real services, while other still
focus on the insurer as their final customer, because it defines the parameters about what
should be delivered.
Hospitals agree that the patient is always considered the end-user, but that the end-
consumer can be different depending on what/who is considered more important.
5.4.9 Regulated competition is not fully functioning yet

The system of regulated competition which was gradually introduced in The Netherlands
since the 1980s does not yet serve up to its promise of more choice and better quality for
patients. The different players of the game blame each other for slowing down or even
obstructing the process. Different problems identified that hold off regulated
competition include: lack of transparency of hospitals, no excess capacity in e.g. surgeons
or hospitals, lack of strategic entrepreneurship with physicians or perverse
reimbursement systems.
Regulated competition is one of the possible approaches to ensure better quality of care.
But after having taken this path, it has become an almost never-ending struggle between
all stakeholders involved: government, hospital management, physicians, policy advisors
etcetera (this is not only in The Netherlands, but also in other countries such as the
United States). See section 3.5 for a short history of Dutch health reform. Most
stakeholders agree on the fact that the current status of regulated competition in Dutch
healthcare is still a far cry from what it should be. But the causes for this are many and
different depending on your viewpoint. Two claims often made are that physicians and
other professionals for a long time have tried to protect their own interests (keeping the
status quo) at the expense of improving the quality of the system. Another argument is
that government has too much tried “easing in” the system instead making explicit
decisions and making hospitals more responsible e.g. for their financial situation.
5.4.10 Strategy development is replacing established policies

One of the interviewees describes the hospital strategic process in earlier days as follows:
“we used to add up all the individual wish list of the physicians, now we first define a focus and base our
51
wish lists on that focus”. Hospitals, as we found out through field research, have only rather
recently (last 5-10 years) focused on the value of an explicit strategy development process.
Because of their strategic environment (based on budgets, a steady flow of patients and
little or no competitive incentives) hospitals were run by established policies: doing
things the way they had been done for years – taking the internal drivers (supply-driven)
of the hospitals as the guideline for changing policy, rather than external drivers
(demand-driven).
If stakeholders always have been used to get what they wanted (just by yearly submitting
“wish lists:) it is more difficult to change that strategic process. A growing number of
hospitals are looking into new ways of facilitating the strategic process, e.g. by doing
SWOT-analysis per specialty, putting a manager plus physician in charge of a department
or providing education/training about strategic entrepreneurship to medical
professionals.
5.5 Conclusion
What emerges from the field research above are signs of a struggle: healthcare
organizations are actively trying to fight their old habits to increase future relevance to
the customer (focusing only medical care, large similarities between organizations,
focusing more on professionals than patients). There is large acknowledgement amongst
the participants that there is a need for change in hospitals: whether it is driven by the
need for a better financial position or more focus on the patient.
It is important to note that participants in all of these discussions have granted us

permissions to discuss their strategic issues. This alone can already be seen as an issue of
confidence or at least transparency that shows their interest in improving at least their
own position, but also the position of others by supporting this research. We have not
reached every hospital, and while this often is because of practical issues such as
scheduling and time limitations, we can never be completely sure whether or not the
current list of participants might be skewed to those more interested in realizing change
than the general average of hospital decision makers.
Many hospitals identify (possible) problems on their road to change: health systems does
not allow enough room for experiments, complex governance structures, financial
incentives are mainly perverse. There is no single, clear-cut solution that solves all the
problems, especially the scale/scope problem and the perverse financial incentive issues,
which worries many of the participants.
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“Try not to become a man of success but rather to become a man of value.”
-- ALBERT EINSTEIN, physicist
6 Business mo del theory and hospital policies

The previous chapter focused on giving an overview (using qualitative field research) of
current strategic issues for hospitals. The focus of this research is to assess the value of
the business model theory for hospitals.
Let us take a look at what we define as the current “implicit business models” of the
Dutch hospital. This term is very much a contradictio in terminis as business models are only
business models if they are explicitly defined, otherwise they are established policies
(“how we have always done it”). To be able to link these to the business model theory we
analyze the different elements of current hospital strategy as elements of the business
model (Table 6.1): value proposition, market segment, strategic position, value chain,
competitive strategy and cost structure/revenue potential.
The analysis in the table above shows relatively little differences in (implicit) business
model between the current types of hospital. The previous chapter specifies several
reasons decision-makers give for this (scale/scope issues, difficulty to match financial
structure, complex governance structures). The business model is no panacea to all of
these issues. What it does help with is providing a comprehensive and concise approach
to “asking the right” questions that eventually help tackling these problems. It is like the
quote about quality at the beginning of this chapter: “Quality is never an accident; it is always
the result of high intention, sincere effort, intelligent direction and skillful execution; it represents the wise
choice of many alternatives.”
The fifth research question is: “What value does business model theory add for hospitals,
compared to existing literature and methods already available?” The previous section lists
different reasons why there is a need for a structured comprehensive approach towards
strategy building. We analyze different literature that focuses on the issue of strategic
hospital configurations in relation to the proposed approach and elements of the
business hospital (6.1). We focus on the relation of the existing literature with the
business model elements and sequential structure: value proposition, market segment,
strategic position, value chain, competitive strategy and cost structure/revenue potential.
53
Table 6.1 Analysis of current implicit Dutch hospital business models (established policies)
General Top-clinical Academic Specialty

Focus clinic
hospital hospital hospital hospital
Value all basic care; all basic and all basic and single specialty single specialty
proposition average service top-clinical care; top-referent care; full range; above- focused range; no
teaching; average teaching; average service stay; above-
service research; average average service
service
Market segment all patients all patients all patients single patient single treatment
regional; low supra-regional; national; average type national; average
patient mobility low patient patient mobility national; average patient mobility
mobility patient mobility
Strategic between GP and between last resort; stand-alone; stand-alone;

position STZ/academic; academic and collaborate to industry competing;
collaborate to general; compete partnering; reputation
compete collaborate to competing;
compete reputation
Value chain small scale; medium scale; large scale; medium scale; small scale;
product focus; product focus; product focus; service focus; process focus;
physician self- physician self- physician on physician self- physician self-
employed employed payroll; employed employed
Competitive travel distance, treatment type expensive expert position, speed, service
strategy patient relation equipment; last customer focus,
resort speed
Cost structure / DBC A+B; DBC A+B; DBC A+B; DBC A+B; DBC B;
revenue medium capital WBMV; high research; research medium capital
potential intensity capital intensity government; high industry; high intensity
capital intensity capital intensity
Concluding from this literature review and our field research, we derive for the hospital
the benefits and limitations of the business model elements in the next chapter, in
accordance with our last research question: “What are the benefits and limitations of the business
model elements and approach for hospitals?”
6.1 Literature review

A literature review into the possible different strategic configurations and models for a
hospital returned only few results (MacKinnon, 2002; McKee & Healy, 2002; NVZ
vereniging van ziekenhuizen, 2000; Darzi, 2007). We take a look at the results found and
assess their relevance compared to what the value of the business model can be.
Beforehand we notice that none of the references found in the literature offers a (basic)
model to help decision-makers guide the strategy building process, but rather focus on
concrete and practical delineations of what the possible development routes of the
54
hospital strategies and structures can be. That differs from the business model approach,
which is actually about building strategy. But it can also be used (when the relevant
questions and elements are answered) to define those different routes. We will highlight
the different authors and approaches below.
6.2 McKee and Healy (2002)

McKee & Healy (2002, p. 69) list the possible role of a district general hospital in their
book about hospitals in a changing Europe. They define four different types of hospitals:
dominant, hub, comprehensive and separatist hospital (Table 6.2).
Table 6.2 Possible roles of a district general hospital (McKee & Healy, 2002, p. 69)
Name Description
Dominant hospital A dominant hospital monopolizes skilled staff and equipment and
consumes most of the health care budget, including resources for primary
care.
Hub hospital A general hospital may be the hub of an integrated health system for a
dened population catchment area. The hospital is involved in planning,
administering, supervising and funding (but not providing) community
health services.
Comprehensive In the comprehensive model, the hospital undertakes tertiary and
hospital secondary as well as primary care and also delivers services outside its
walls.
Separatist hospital The separatist hospital is the prevailing model in most high-income
countries. The acute hospital divests itself of all but the core functions of
short-stay specialist care, providing only services that primary care
practitioners and community-based specialists are unable (for various
reasons) to undertake.
If we look at the sequential model of the business model (Figure 4.1) we see it starts with
customer preference. The configurations described above take their strategic position as
their main driver, not the preference customer. This way of defining the hospital
corresponds directly with the inside-out reasoning in strategy.
Although the configurations above do not start with customer preferences, they can be
linked to other elements of the business model, mostly the element of strategic position.
Their structure and way of working is defined by at what place they are in the value chain
of healthcare organizations. That makes this categorization of hospitals actually usable if
hospitals have to define in more detail their strategic position.
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6.3 NVZ vereniging van ziekenhuizen (2000)

The Dutch Hospital Association (NVZ vereniging van ziekenhuizen) in 2000 issued a report
about strategic paths to future change in the organization of hospital healthcare (Table
6.3)
Table 6.3 Strategic paths to future change in the organization of hospital healthcare (NVZ
vereniging van ziekenhuizen, 2000)
Name
Open and Connecting the various organizations in the care chain; focused on
connected hospital forming strategic alliances
Specialization in Specializing in a specific area, including particular medical afflictions,
modular form community care or emergency care
High-risk Combination of a mobile internationally oriented professional workforce
professional and high risk organization where professionals have a great deal of
organization autonomy.
Civil enterprise Operates on different frontlines: the commercial competitive market, the
involvement of the public sector, and the people, both as a patient and as
a concerned citizen
The reasoning behind these hospitals is rather similar to that of McKee and Healy:
inside-out, but in certain aspects more progressed towards the value chain (internal
organization, such as workforce organization) in addition to the strategic position of the
hospital.
Also these configurations do not serve as a structured model to build strategy. They are
practical outcomes of what can by drivers for strategic change. They answer the question
of “what type of hospital do you want to be?” This question focuses on the inside-out
(organizational) side of what the hospital could be. The question about the type of
hospital (from the list of NVZ) is only part of the business model, similar to what is
defined as the strategic position (link with the environment).
Just as with the previous literature of McKee and Healy this categorization is usable with
decisions for certain elements of the business model (strategic position, value chain). It
does not provide a comprehensive overview of hospital strategy.
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6.4 MacKinnon (2002)

The Ontario Hospital Association (OHA) (MacKinnon, 2002) has published about
hospital configurations in a fashion that already resembles the approach of the hospital
business model rather well. They have defined different aspects relevant to the
configuration, beyond only defining the strategic position of the market segment.
Table 6.4 New hospital enterprises Ontario Hospital Association (MacKinnon, 2002)
Name Description
Reformed Hospital at the centre with satellite clinics and access through levels of
cathedral care; business is wellness and illness; provides full spectrum of services;
market sees hospital as core to management of health care system;
managed by clinical and management team; providers are multi-
disciplinary, work in teams and function through intra-system referrals
Focus factory Hospital with special service delivery; business is production of specialize
services; wellness, disease specific and treatment specific services; market
served is dense population requiring same service; hospital seen as
“expert” providers or centre of excellence; management horizontal and
facilitates seamless clinical care; health management team supplies services
Mall Flagship hospital can be adjacent to, or part of a traditional mall; business
is product and retail sales; services are store specific; market served is
community based; local customers seek specialty malls, power malls and
outlet malls
Broker Hospital acts as a ‘virtual mall’ or network; business is connectivity and
knowledge brokering; market served varies (large or small) – connects
customers needs with service provider; management flat, relationship
driven and very entrepreneurial; suppliers are small and large providers
Fire station Hospital facility is structured as a response model only; business is strictly
acute emergency health problems; market served varies (rural and urban)
depending on local and surrounding resources; response team is
community based; management complex (may be associated with other
centers); full spectrum of health care providers
The OHA specifies five different types of hospital: reformed cathedral, focus factory,
mall, broker and fire station (Table 6.4). The value of the approach of the OHA is also
that they address the issues of governance (who manages the organization), which is of
true importance to many of the new configurations and currently often named as a
hurdle towards changing configurations.
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6.5 Darzi (2007)

Lord Darzi researched the different healthcare delivery models for the NHS London
region (Darzi, 2007). He identified six different types: home care, polyclinic, local
hospital, elective centre, major acute hospital and the specialist hospital (Table 6.5).
Table 6.5 Delivery models NHS London (Darzi, 2007)

Name Description
Home care There is increasing potential to provide care in people’s homes, including
specialist care, rehabilitation and support for long-term conditions
Polyclinic Polyclinics provide the infrastructure to shift hospital-based care into a
more local setting and improve existing GP and community care and
social services
Local hospital Local hospitals provide non-complex inpatient and day case care in the
local setting, ensuring patient access and convenience without sacrificing
quality of care
Elective centre Elective centres focus on specific types of activity and exclude emergency
work to be more productive and produce better clinical outcomes
Major acute Major acute hospitals enable co-location and critical mass of specialist
hospital services to maximise clinical quality and efficiency, some being a hub for
teaching and R&D
Specialist hospital Specialist hospitals retain established infrastructure, expertise and focus to
deliver leading-edge complex services in a specific area
The value of the approach that Darzi has taken towards the rethinking of the healthcare
delivery models is by research systemic development as a whole, rather than focusing on
individual organizations. He identifies complementary models that together form a
healthcare system. Example of this is the identification of home care as an additional
important type of care delivery. This makes clear that we may need to think beyond the
borders of the traditional hospital, because there are needs for other types of
organizations than hospitals.
Models such as Darzi’s can be useful in different ways considering what the value
proposition and subsequent elements of a hospital business model should be. Healthcare
delivery is a point which is most visible in the business model with the element of
strategic position: where does the organization fit in “the system” with respect to other
organizations. This research makes it clear that we cannot go about defining a single
organization without placing it in the realm of the system. We can try, but that obliterates
any chance we have at obtaining or maintaining a competitive position. Even with a
“socialized” system.
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6.6 Conclusion
Looking at the six elements of the business model (value proposition, market segment,
strategic position, value chain, competitive strategy, cost structure/revenue potential) we
can conclude that there is mostly focus on the elements of strategic position and value
chain – resembling the long tradition of hospitals with reasoning inside out. There is less
reference to the value position of the hospital asking questions like “what do we want to
be for whom”. This illustrates the long tradition of hospital reasoning from the inside-
out (where can we, what can we deliver) instead of looking at the starting point of what
their ultimate customer would want.
Lacking in any of the overviews is a reference to value appropriation. This might be

absent from the strategic conversations amongst hospital executives for several reasons.
The first reason can be the diversity of cost structures around the world. There are many
different ways that healthcare organizations can get reimbursed, ranging from being
completely paid for by a government to direct payment structures. But when viewing this
from a business model perspective there is a clear link between the possible cost
structure/revenue potential of a model and the other elements, because they together will
have to form a comprehensive logic. Defining different cost structure/revenue potential
can only be done if all strategic elements are aligned and logically connected.
Another reason might be the absence of a mindset of strategic entrepreneurship

throughout the organization. Strategic entrepreneurship (SE) means managing resources
strategically: structuring the resource portfolio, (re)bundling resources and leveraging
those capabilities (flowing from financial, human and social capital) to simultaneously
enact opportunity- and advantage-seeking behavior to deliver value (Ireland, Hitt, &
Sirmon, 2003; Hagel III & Singer, 1999). SE must not be practiced only at the level of
strategic management, but through the whole organization.
The last conclusion from this analysis is the absence of a structured way (model) to
group the models and analysis we reviewed. They focus on parts of a strategic decision,
but do not offer comprehensiveness. The business model links strategic domains to offer
a comprehensive and concise view on the business logic.
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“We need more inclusive ways of framing problems and challenges that permit us to consider the
inherent complexity of the issues in a meaningful way.”
-- SHORTELL ET AL. (2000)
7 Value of business model theor y for hospitals

Business model theory focuses on comprehensiveness and a concise approach to
building strategy. The six elements of the business model all add up to sound business
logic (value proposition, market segment, strategic position, value chain, competitive
strategy and cost structure/revenue potential).
This chapter compares what the value of each element versus the current situation of
how it is defined by hospitals (7.1 - 7.6). We base our analysis on the literature review in
the previous chapter as well as the field research detailed in chapter 5. This is followed by
an analysis of the benefits and limitations of the business model approach in the last
paragraph (7.7).
What we do not do here is claiming exclusivity and focusing on concrete examples of

how each element can be defined. We focus on the inclusive ways of approaching each
element and listing how it currently is used versus how it can be used. This aligns with the
nature of the business model of inclusiveness by asking questions, rather than
exclusiveness by giving (pre-defined) answers.
7.1 Value proposition

The value proposition is about the core functions of the organization (H. E. Roosendaal
& Geurts, 1997). And when the value proposition is defined this is based on the value
preferences of the customer (Figure 4.1). Therefore the value proposition always must
include the notion of whom the core functions are offered to. When determining a value
proposition with business model theory it is not possible to define the outcome, but it is
possible to define the attributes that need to be addressed to build a relevant value
proposition. With the list of guiding questions used for the second discussion session
(Box 5.4) we have already introduced several themes that can be included in the
definition of the value proposition. We here give the summary of the attributes to be
addressed when building a valid value proposition based on the essential strategic
question: what (and for who), where, how and when. The value proposition is “at the
start” of the business model and can be seen as a summary of all following elements that
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must be appealing to the customer. Less comprehensive versions of a value proposition

can often be spotted as slogans or taglines for organizations, such as “Mayo Clinic: The
needs of the patient come first” or “Cleveland Clinic Heart and Vascular Institute: Treating heart,
vascular and thoracic conditions for patients from around the world”.
As identified the value proposition starts with the core function of the offering. Field
research indicated that hospitals define as their core offering providing specialized
medical services (5.4.1). But can this be described as the real core offering of the
organization or are there possible deeper and more fundamental functions the hospital
wishes to fulfill – from which providing specialized medical services can be one?
We can clarify this with an example from literature about scientific communication (H.
E. Roosendaal & Geurts, 1997). What is the core function of a publishing company
(focused on scientific communication)? One the surface one might say that the core
function of the publishing company is to publish scientific journals. But digging deeper
the core functions of the publishing company leads to the focus on the scientific
communication network, which can be described as four main forces and their interplay.
The forces are actors (author/reader pair), accessibility, content, and applicability.
Scientific communication is described as providing registration, awareness, certification
and archive.
The example above indicates two important issues: (1) the value proposition is not
automatically related to a concrete product or service offering and (2) has to be linked to
actors, such as customers or end-users. It is precisely these two outcomes that are
currently ill provided in hospital value propositions. Hospital decision makers, when
asked to define their core business, almost often define it as “offering specialized medical
services”. This is not wrong, but the same as with the scientific publishing company, the
real value might be elsewhere. Examples of such “deeper core” functions can be
“keeping people healthy” or “making people feel well”. When the hospitals views it value
proposition in such a way, it might just as with the publishing company, result in a shift
in focus where other service are provided that are beneficial to the deeper core functions.
The other outcome was that the value proposition is linked to actors such as customers
or end-users. The end-user of the hospital can be defined as the patient - not always the
customer, though. But as we found out through our field research – hospitals often not
base their strategic decisions on the demand-side (5.4.2) and also not always consider
patients as the end-consumer (5.4.8). Thus in order to build a solid value proposition and
answer the strategic questions of what (and for who), hospitals need to venture out and
define their core functions instead of only their (current) offerings.
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The other strategic questions are where, how and when. These are all possible attributes
of the value proposition if considered relevant. The very least, if one wants to build a
solid value proposition, it is needed to consider each of these elements. The question of
“where” can concern different definitions, including the physical location of delivery of
products/services (e.g. virtual versus brick and mortar (McCabe Gorman & den Braber,
2008)) or the geographical region (more about that also in the next section on market
segment). This indicates that issues of scale and scope are at the core of the organizations
value (and should not be determined through circumstance). This does not address the
issues of scale and scope that we have identified in the field research (5.4.3), but it
highlights that it is important to make concise choices about these aspects to be able to
build a further sustainable model.
The “last” strategic elements are related to the questions of how and when the core
offering is provided. These questions concern different topics, including the service
(level) of what is provided. We have already identified through field research that current
hospital offerings are largely similar (5.4.7) and also that there is much room for
differentiation on the theme of service (level). As an example we mention that there
currently is no one hospital that bases its business model on things as friendliness or
information provided. There are currently new models emerging, such as the Planetree
concept which has the idea of “open information” to patients at its core (Planetree,
2008).
The conclusion about the value of the value proposition for hospitals is that it
determines the attributes of the core functions of the organization, which might be more
than the current ideas about product/services offered. Elements of the business models
are concerned with the strategic questions of what, where, how and when. Attributes to
be addressed are products/services offered, consumer/end-user connection, target
market, scale/scope of the organization and service level. Additional relevant questions
can also be found in Box 5.4 which features guiding questions for building a value
proposition.
7.2 Market segment

The market segment already came into view with defining the value proposition. They
are both directly considered with the part of the business model that focuses on value
creation (see Figure 4.1). But where the value proposition focuses on the high-level
aspects of what target markets or groups to address, the element of market segment
focuses deeper on the attributes that help to further specify this.
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Defining a market segment means that a goal is set for an attainable “market share” of
possible customers. Thus the market segment must be a quantifiable and identifiable
group of persons (or maybe other entities) that is reached by the value proposition of the
organization.
This calls for a breakdown of the different possible market segments, in order to give any
relevancy to the potential of the group. This identification of possible groups poses a
difficulty for many hospitals (5.4.8). Often market segmentation in healthcare focuses at
least on people with medical conditions (patients) and also the length of the condition.
Acute patients are (to be) diagnosed and/or treated that acute patients for example. But
because hospitals are reactive organizations, the interactions of patients/consumers with
the system are also reactive. That means that hospitals often have great difficulty in
identifying e.g. what size of their current patients is to be considered chronic. This might
be possible for hospitals to identify in the case that a patient is always a patient with their
hospital, but what if this patient is treated elsewhere? This indicates why there is an
increased need for accurate information tracking and storing for medical services.
Nevertheless market segmentation (also beyond segmentation by medical indication) is
an important issue in defining the market segment.
The notion of the patient as customer of the hospital is just one of the possibilities for
the hospital as we have seen (5.4.8). To determine what stakeholders are relevant for the
hospital to define as part of its market segment, it can benefit from techniques such as
stakeholder analysis, determining stakeholders based on power, legitimacy and urgency
(Mitchell, Agle, & Wood, 1997).
If the segment is identified, it must be detailed in size/volume, which in turn is needed to

determine the potential of the segment. The current size/volume is needed to be able to
set a starting point. To define a market segment is also to set the end goal: what share of
the possible market segment does the hospital want to reach with its value proposition in
e.g. 5 years? These goals are determined by at least the potential value of the market
segment.
In business literature the value of a market segment is often determined as Net Present
Value (NPV) which is the total present value of a time series of cash flows. Using this
technique shows clearly how the choice for a specific market segment connects to a later
choice of cost structure and ultimately revenue (see 7.6). But there are also other options
on how the hospital can value different market segments. It can well be that there are
considerations of prestige or providing a full service portfolio that express the value of a
certain market segment. Which such choices it is always important that these choices
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adhere to the value proposition. Especially with choices concerning prestige or exposure
it is often very much the question how this relates to value for the customer.
We give two examples of the link between the value proposition and market segment and
how this might expand the scope of the hospital. Hospitals focus on sick people
(“patients”) in their region. When researching a large number of hospitals in our field
research we showed that the market segment of all hospitals is actually determined by the
same two attributes: a close geographic region and often “all possible types” (or a largely
similar wide customer focus) - see 5.4.7.
There are two ways that hospitals can change this market segmentation and differentiate
more. The first is the often proposed idea of specialization (Laeven & Vreeman, 2008):
the hospital can focus on a smaller niche that allows it to focus on its other relevant
business model elements of this specific niche. Another, less often used approach is to
widen the scope from the domain of “sick people” to “healthy people”. This opens up a
huge potential of new customers, although of course the hospital cannot longer do with a
value proposition of “offering specialized medical services”, but rather will have to think
about value propositions that focus on wellness and being/staying healthy.
Concluding the section on market segment it shows the need for a clear segmentation of
possible segments and identifying size/volume. This needs to be combined with a
quantifiable objective for the future to determine the potential of a certain segment.
Currently hospitals often lack such clear definitions of the market segment, making
competition harder for many because they all “shoot for the same target” (5.4.7).
7.3 Strategic position

The strategic position of an organization is about what the link is between the
organization and its environment (H.E. Roosendaal, 2007). To be able to define the
strategic position it must therefore be very clear what the borders of the organization are:
where does the organization start and where does it stop? What is considered “inside”
the organization and what is considered “outside” the organization?
Current hospitals struggle with issues of scale and scope (5.4.3). One of the results is a
tendency of hospitals to engage in mergers and acquisitions in order to tackle these issues
through increased scale. But unfortunately it is often the case that patients/customers do
not reap the benefits of such actions (Delnoij, 2003). There are many possible views on
the organizational form that can be tested for the hospital. As well as the other factors
the business model in itself does not provide an answer to what form is best, but only
that it is important to consider organizational structure.
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An apparent example of hospitals considering their strategic position and respective

organizational form is the idea of “collaborate to compete”, which was also often
mentioned during field research. “Collaborate to compete” means that hospitals on the
one side share certain facilities, e.g. diagnostic centers but at the same time compete for
customers in the same market (e.g. knee replacements). These tactics are very similar to
the tactics of car manufacturers where e.g. Volkswagen and Seat share production
facilities and ground components, but also compete in the same market.
Considering the relevant organizational form and structure for the organization, it is
needed to consider the transaction costs concerned with each decision (Johnson, Scholes,
& Whittington, 1997). While decisions to e.g. outsource certain organization elements
might seem beneficial in terms of costs or time spent, there is always the issue of (added)
transaction costs to integrate outsourced elements back into the organization
(Haspeslagh & Jemison, 1991)
Also decisions about organizational form are related to the needed agility (e.g. small and
quick but less powerful versus large and powerful but slow) or capital intensity needed.
The large capital intensity of many current hospitals is why they show such large
similarities (5.4.7), because many of their activities and also needed material (equipment)
are owned by the organization, rather than shared, leased or otherwise not part of the
organization.
The second important attribute of strategic position is the (internal) governance and
control structure. While governance structure is a complicated issue already with many
business organizations, it might be even more so with hospital organizations as we
discovered through our field research (5.4.4). The complexity of the current governance
structure complicates many decision-making efforts. To determine the strategic position
(how is the organization linked to the environment) of the hospital is also to specify the
governance structure. Is the management of the hospital independent from the different
strategic business units (SBUs, e.g. specialties) and what does this mean for the position
of the hospital? Who determines the course of which organizational element – are the
SBU independent of the organization or are they steered by centralized decision making?
The current governance structure is such that many of the strategic decisions are made
on the level of the specialty rather than at the level of the hospital management
(Lodewick, 2007). This does not have to a problem, but it signals a possible lack of
coherence between strategic decisions if these decisions are not coordinated in some way.
Also it is unlikely that it is possible for a hospital to realize the strategic objective of all
SBUs at the same time, not having to make choices. One example of a hospital where
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they have changed the decision making structure is the Bronovo Hospital in The Hague.
There all SBUs (specialties) can submit their strategic proposals to the hospital board
which is in the position to divide the total of funds between chosen projects, other than
the SBUs with the most money, being able to spend it just on their own “shop” (which
could be less beneficial for the hospital as a whole).
A third important attribute of strategic position (link with the environment) is where the
organization places itself in the value chain. Current hospitals often define their strategic
position as the “next in line of medical specialists”, because they have added expertise to
the previous party in the value chain. Examples are the general hospital following up the
GP, the top-clinical hospital following up the general hospital or the academic hospital
following up the top-clinical hospital. All of these relationships are based on differences
in expertise. But expertise is not static. This is already visible with GPs now employing
more products and services previously only offered by hospitals, or district hospitals
integrating offerings previously only seen with top-clinical or academic hospitals.
Another example is the reordering of tasks within the hospital where increasingly
complex tasks can be undertaken by an increasing number of professional trough
technological innovation (Christensen, Bohmer, & Kenagy, 2000).
We see that the strategic position of the hospital (its link with the environment) is
important because it directly shapes what the organization does itself (how it functions
internally) and what is done outside the organization. Important attributes are decisions
about centralization/decentralization (collaborate to compete, in-sourcing versus out-
sourcing, transaction costs), governance structure and position in the value chain. A list
of (additional) guiding questions concerned with strategic position can be found in Box
5.6.
7.4 Value chain

The value chain is the concept first described by Michael Porter about how in a chain of
activities value is added (downstream) in exchange for other value (upstream). Originally
the concept was focused on industrialized businesses, but in his latest publication, Porter
together with Teisberg, details what they call the healthcare delivery value chain (Figure
7.1). The healthcare delivery value chain focuses on four main levels of provided services:
informing & engaging (including communication), measuring (including diagnostics) and
accessing (including office visits). The fourth level is the actual delivery of healthcare split
up in monitoring/preventing, diagnosing, preparing, intervening, recovering/rehabbing
and monitoring/managing.
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Figure 7.1 Healthcare delivery value chain (Porter & Teisberg, 2006)
The concept behind the value chain is that every step in the chain is a value exchange.
(Lancaster, 2000; Lepak, Smith, & Taylor, 2007; Porter & Teisberg, 2006) Downstream
value must be added (e.g. in the diagnosing step of the healthcare delivery value chain, a
clear(er) diagnosis is the added value), this should be balanced by an upstream value
exchange (e.g. internal costs are calculated for performing diagnosis). This shows that
steps in the value chain only are valuable if there is a balanced value exchange. Steps in
the value chain that do not add value may be cut from the process to have a leaner
process, with less waste.
The area of value chain analysis and optimization is already relatively popular with
hospital. Value-chain wide techniques include Total Quality Management (TQM), lean
management and Six Sigma. Also many very focused techniques and tools are used such
as optimized OR scheduling tools or technology that helps apply technology only when
and where needed (such as focused radiotherapy treatment).
The value chain, as any element in the business model should always be linked back to
the core function of the hospital and is about providing value for the customer. (Lepak et
al., 2007) identified that different types of value exist. They differentiate between use value
which is subjectively assessed by customers and exchange value, which is only realized at
the point of sale. This stresses the importance for those designing and analyzing the value
chain to ask the question if the value delivered ads up to value that is appreciated by the
customer and/or end-user. Building the value chain with that idea in mind puts focus on
building a value-based strategy instead of “just” strategy. This gives hands and feet to what
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we found in our field research (5.4.5): that the relationship with the patient is considered
more and more important by hospital decision makers
We conclude that the value chain is already an item of focus for many hospitals through
process improvements and medical-technological innovation. There are many different
methods available to (further) streamline the value chain, even especially focused on
healthcare such as the healthcare delivery value chain model from Porter & Teisberg.
Throughout the value chain a focus must be kept on whether the value exchange is
ultimately beneficial to the consumer and/or end-user in order to build value-based
strategy.
7.5 Competitive strategy

Competitive strategy is not a strategic element that is on the radar of many healthcare
executives, at least not in The Netherlands. There are different reasons for this, including
the large span of basic insurance (limiting the need to search for alternatives if something
is always reimbursed), the fact that Dutch hospitals are not allowed to be for-profit and
the fact that the introduced system of regulated competitions is not fully functioning yet
(5.4.10)
A competitive strategy is relevant to the hospital in a competitive environment (even a

not fully functioning one) to deliver sustainable success. If no competitive strategy is
devised, other organizations might sooner or later provide competitive offerings,
including similar products with better service or “simply” better products. This will hit
organizations harder once the system of regulated competition matures and they are
unprepared for competition.
The question to ask is what competitive strategy is relevant for your hospital. Is it about
being the most profitable (for-profit), surviving or maybe being the best on medical-
technical level? This is another point that goes back to the value proposition (if we want
to be the number one on a medical-technical level we specify so in our value proposition
to our customers). But there are many other dimensions besides monetary or medical-
technical to base a competitive strategy on. The important question is to choose “what
race to run” and only than decide on “how to be the best” and devising ways on how to
reach that goal.
To define competitive strategy is often a work of discipline and rigor in defining goals
and how to reach them. Collins (2005) describes in “From Good To Great: The Social
Sectors” that non-profit, just as well as for-profit institutions, can define their success
(beyond the basic monetary dimensions). Collins gives an example of the Cleveland
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Orchestra. They defined their success according to three seemingly inaccessible goals:
superior performance, distinctive impact, lasting endurance. Through a disciplined and
rigorous approach they where able to measure their success (numbers of highly acclaimed
venues players, duration of applause, number of invitations).
The approaches to analyze and define competitive strategy do not have to be invented by
the hospital. There are many useful tools and techniques that can assist in determining
what the competitive environment and relevant competitive strategies are. Examples
include Porters 5 forces model (
Figure 7.2), PESTEL-analysis (Political, Economic, Social, Technological, Environment

and Legal) or SWOT analysis (Strengths, Weaknesses, Opportunities and Treats). Which
model is most useful depends on the circumstances and goals defined by the
organization.
Figure 7.2 Porters Five Forces model
Current competitive strategies are focused often on medical-technical quality (largest

number of state-of-the-art procedures, lowest number of injuries, most cited specialists).
Whether these dimensions are always relevant to patients/consumers remains the
question because as one of the interviewees put it: “[After our patient satisfaction survey] one of
the important factors for patients to decide for our hospitals turned out be the parking ticket fee.”
Formulating an explicit competitive strategy is not quite common yet with Dutch
hospitals. One of the reasons is the not fully functioning system of regulated competition
(5.4.9). But even in a not fully functioning competitive environment, being prepared for
competition is needed to deliver sustainable success (and not being put out of business).
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There are several tools and techniques available, also for non-profit organizations such as
hospitals, that can help analyze the competitive environment and provide the basis for a
competitive strategy. Examples include PESTEL-analysis, SWOT-analysis or Porters
Five Forces Framework. Important to notice is that competitive strategy in hospitals
might go beyond the theme of competing on medical-technical quality, but needs to be
concerned with what end-users consider as important.
7.6 Cost structure / revenue potential

Cost structure defines what costs the hospital has versus the possible revenues it can
generate from the products/services offered. These elements balance the business model:
without a sustainable cost structure and revenue potential there is little possibility that the
business will survive (even though the value created might be superior to everything else
out there). This is what happened to many high-tech startups in the dot-com era (Shafer
et al., 2005).
The cost structure is considered a difficult issue by Dutch hospital executives, limiting
their current abilities to innovate (5.4.6). Because of the predetermined cost structures
(including DBC payments) little room is thought to be left for deploying (innovative)
strategic initiatives. As one of the session attendees (a hospital executive) told a private
clinic executive: “Of course we also want to welcome our patients with flowers, nice paintings and fancy
decorated waiting rooms, but we don’t have any money to do so.”
The questions concerning cost structure and revenue potential are economic and do not
have to be (so much) different from other for-profit organizations. To determine the
cost structure the hospitals must analyze their economic structure. Which costs are fixed,
which are variable, what are the investments needed, what are our tangible and intangible
assets, etcetera. Such tools and techniques are not new to hospitals and already used.
What is important is that they are used within the business model to build a
comprehensive strategy – so it is shown how these cost structures are relevant to
realizing the value proposition. As we have seen in the field research hospitals are
currently in the process of slowly replacing established policies with more explicit
strategy development (5.4.10). This is different from using these techniques for
accountability purposes which is often the case nowadays.
The second important subject with this business model element is that of the service
portfolio. The service portfolio is the range of products and services the hospitals
delivers. But not all of these offerings might generate (enough) revenue to sustain
themselves. This is not a problem, as long as the hospital makes clear decisions on how
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to balance the service portfolio: how can profit centers (revenue generating activities) be
balanced with loss centers (loss generating activities) in order to provide a comprehensive
service portfolio. Many different tools and techniques are available for the hospitals to
analyze and manage the service portfolio, including the BCG matrix (Figure 7.3) and the
GE matrix (Johnson et al., 1997).
Figure 7.3 BCG matrix (Johnson et al., 1997)
Concerning portfolio analysis, the example of many academic hospitals makes for an
interesting case. Many of them would rather divest their basic care activities, because they
do not add to their value proposition of high-end, state-of-the-art care. When they do
this it leaves them with crippled business logic of not having a solid revenue stream. But
yet there seems not be one hospital that has identified a new cost structure, by revising
their business model. What triggers this reluctance might be subject for further research,
but one reason at least is the capital-intensiveness of many academic centers.
Much discussion concerning cost structure and revenue potential is about “pay for quality.”
This is interesting for hospitals because there is no strict definition about quality. Besides
medical-technical quality, there might be very different things patient/consumers and
insurers would want to pay (or exchange value) for, including additional advice, friendly
staff or better information. We explicitly include exchange value instead of only pay,
because new value exchanges are very likely to define new cost structures and revenue
potentials. Value from patients to hospitals might include patient data, choice behavior or
help in treating others. There are not yet many examples of such new types of value
exchange, indicating that those who identify them might have first mover advantages.
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Concluding we say that the element of cost structure and revenue potential is the closing
chapter of the business model and needs to be used proactively. Important focal points
are portfolio analysis (e.g. using the BCG or GE matrices) and economic
cost/investment analysis (cost types, investment needs etcetera). Currently methods
concerning costs and revenue are often used for reasons of accountability, but in building
an explicit strategy they need to be used proactively. Hospitals have room for devising
new revenue potential beyond the currently popular mechanism of “pay for quality”. To do
so the important question is if quality is always medical-technical quality or that it can
also be expanded to topics such as maybe friendliness, information shared or providing a healing
environment, resulting in new types of value being exchanged.
7.7 Benefits and limitations of the business model approach

The business model approach as we have learned through this exploratory research has
several benefits to hospitals, but also limitations – it does not solve all of hospitals
problems and questions. At the end of this research we give an overview of these in the
following sections.
7.7.1 Benefits
The benefits of the business model have been highlighted throughout the different
chapters and sections – they are listed together in Box 7.1.
Box 7.1 Benefits of the business model approach for hospital
The business model approach

1. provides an inclusive model rather than exclusive solutions
2. provides a comprehensive, structured, sequential model
3. identifies the need for making choices to build comprehensive, coherent logic
4. solves causal ambiguity
5. is usable for analyzing as well as creating new horizons
The business model is a tool rather than offering pre-defined solutions and an addition
over currently available literature on hospital strategies. The business model does this by
providing a comprehensive, structured and sequential model. That results in a clearer
identification of the fact that hospitals need to make choices in order to build this
comprehensive, coherent logic. In making these choices it solves causal ambiguity which
is currently often apparent with hospitals (they are little aware of the reasons of previous
success or failure).
Finally, the business model approach is useful at least for the analysis of current strategic
logic (steering current activities) as well as to define new and/or changed strategies (new
72
horizons). These two uses might be just two of many possible uses of the business model
approach (see discussion in 8.2.1)
7.7.2 Limitations
No model with only benefits exists. There are always limitations of what a model can do
– for the business model we list them in Box 7.2.
Box 7.2 Limitations of the business model approach for hospital
The business model approach

1. needs rigor and discipline – it does not make decisions on its own
2. only delivers results with a mindset of strategic entrepreneurship
3. works for individual organizations, less for systems
Something needing rigor and discipline might not be considered a limitation – rather a
prerequisite. We list it here because this is what puts the business model approach apart
from other types of strategic initiatives providing “ready-made” clear-cut initiatives rather
than a repeatable model approach. Therefore the business model is only of use if the
organization is willing to “invest” this rigor and discipline (including time, money and
other resources) in executing the model. It asks more from organizations then picking an
“off-the-shelf” solution. Such solutions can lead to the customer and the organization
adapting to the solution, rather than the solution adapting to the (value) preferences of
the customer and the organization.
The business model approach is of no use (implementing) if it is not accompanied by a

mindset of strategic entrepreneurship. The concept of value at the organizations core
implies that everyone in the organization must be knowledgeable about what is
considered value to deliver optimal results. If this is not the case – there is little value in
“simply” applying the model without having instilled the right mindset throughout the
organization.
The business model approach is targeted towards individual business. Several times (in
interviews and discussions) the suggestion has come up to also use the approach for
analyzing the healthcare system. What value does the system provides, for whom, in what
way etcetera. Using the business model approach to answering is problematic in that it
the business model focuses on making decisions. With defining a healthcare system the
question of finding one matching value proposition based on choices made is less likely
to happen. The question for healthcare systems is how all the individual organizations fit
the system (Darzi, 2007) for which the business model is less useful, but the element of
strategic positioning and corresponding tools/techniques might help.
73
7.8 Conclusion
The business model has the ability to address the strategic issues that hospital decision
makers see in their current strategic environment. It provides the hospital decision maker
with a model approach (template) to focus on building a comprehensive and concise
logic to make strategic decisions.
procedures.
74
Listing the benefits and limitations of the business model gives an overview of what
hospitals must realize when implementing this approach to build value-based strategy:
+ provides an inclusive model (template), rather than exclusive solutions

+ provides a comprehensive, structured, sequential model
+ identifies the need for making choices to build comprehensive coherent logic
+ solves causal ambiguity
+ analyzes current strategies as well as tests new scenarios
! needs rigor and discipline – it does not make decisions on its own
! only delivers results with a mindset of strategic entrepreneurship
! works for individual organizations, less for systems
75
“Quality is never an accident; it is always the result of high intention, sincere effort, intelligent
direction and skillful execution; it represents the wise choice of many alternatives.”
-- WILLIAM A. FOSTER, United States Marine
8 Conclusions, discussion and f urther research

8.1 Conclusions
In this research we have established the attitude towards strategic change with current
decision-makers. We have done so through conducting semi-structured interviews with
11 field experts (mainly chairmen and members of hospital boards of directors). The
main question of the interview was: “Will future hospitals be different and where/how will they
differ?” The interviews were structured using the elements of business model of
Chesbrough & Rosenbloom (2002) consisting of six sequential elements: value
cost structure/revenue potential.
The business model approach used in the interviews was considered useful by the
interviewees to structure (talking about) strategic change. But the interviewees also asked
how strategic changes could be realized, rather than only discussed. This confirms the
usefulness of researching the business model for hospitals as a strategy building tool, rather
than focusing on pre-defined strategic solutions.
Hospitals have a long history of reactive behavior towards (strategic) change. Hospital
reform in The Netherlands has been (at least since the 1980s) a struggle between
government, hospital management and physicians. But current pressures are signaling the
need for more proactive strategic behavior on the side of the hospital. Pressures at the
demand-side (demographics, patterns of disease, public expectations), the supply-side
(technology and clinical knowledge, health care workforce) and on a wider societal level
(financial pressures, internationalization, global R&D market) put hospitals in a position
where they can no longer follow established policies.
Hospitals need to balance their decisions between the value that is created for the
customer as well as for the organization. This means that different strategic options have
to be defined and evaluated. Each of these options needs to be concise and
comprehensive in order to evaluate whether it delivers value in a sustainable fashion. The
business model is a strategic model (or template) that provides decision-makers with a
76
tool to build “tailor-made” and comprehensive strategic scenarios. This is different from
offering pre-defined scenarios about strategic direction for the organization (as is often
the case with current literature on hospital strategy).
We have been able to identify four distinct uses of the business model as defined in
literature: strategic choice, linking different strategic domains, focus on value creation
and focus on value appropriation.
The business model is an approach that balances the inside-out views of strategy (based
on the resources an organizations has) with the outside-in views of strategy (what the
competition offers and customers demand). The uses “strategic choice” and “linking
different strategic domains” shows the comprehensiveness of the business model. It does
not focus on one specific strategic domain (e.g. the value chain), but on providing a
sound business logic that connects different domains. Using the business to focus on
both value creation and value appropriation makes sure that what is asked for can be
delivered, and what can be delivered is what is really for.
Using a model approach to strategy, such as the business model, gives structure to be
able to answer complex questions. This is useful to hospital decision makers that have
since long had an organic approach to strategy. In using a concise structure it also
enables decision makers to be better knowledgeable about sources of success and failure
in the past, present and future – which is something that often lacks in organizations like
hospitals that have less strategic experience than business organizations.
The business model used in this research is based on that of Chesbrough & Rosenbloom
(2002). This theory is operationalized well, compared to other definitions available in
literature. See Figure 8.1 below for a graphical overview.
Figure 8.1 Application of the business model in 6 sequential steps
Business model

value value
implementation
The business model consists of six different elements linked in sequential order: value
cost structure / revenue potential. At the start of the model customer preferences drive
the value proposition and the result is value delivered. Value for hospitals is defined by
77
three dimensions: it must be viewed from the customer perspective, it must span the
complete process and be delivered through a sustainable process.
To research the value of the business model approach to strategy we asked hospital
decision makers for their strategic issues. See the list below for the ten most apparent
issues found. Using these issues we have tested the business model approach in how it
can help solve these issues.

8. Patients are not always considered end-users
In addition to the strategic issues found through field research, we have also analyzed
four different sources in literature about hospital strategies (Darzi, 2007; MacKinnon,
2002; McKee & Healy, 2002; NVZ vereniging van ziekenhuizen, 2000).
From the analysis of the literature we conclude that hospital strategy literature focuses on
pre-defined solutions, rather than on techniques and tools to build strategy. The focus is
often on how value must be realized (through strategic positioning or value chain
optimization), but less on questions about what value should be realized (value
proposition) or how value is appropriated (cost structure / revenue potential). The
reasoning with hospital strategy in literature is often inside-out: strategy is built based on
the resources the hospital has, rather than the value it should provide. The value of the
business model in this aspect is the fact that it balances an inside-out with an outside-in
view on building strategy.
The elements of the business model (value proposition, market segment, strategic
position, value chain, competitive strategy and cost structure/revenue potential) together
build comprehensive, concise business logic of the organization. Each of the individual
elements can provide (different) value for the hospital.
78
procedures.
Through field research, literature research and assessing the model elements we have
reached the point to draw the conclusions about the value of the business model
approach as a whole, our main question for this research. We do this by evaluating the
business model based on three criteria to evaluate strategic options: suitability, feasibility
and acceptability (Johnson et al., 1997).
Suitability is concerned with the questions whether an option fits the firm’s situation and
if there is evidence to support it. The business model helps to answer seemingly complex
issues by using a model approach to strategy, putting hospital decision makers in control
of their own strategic decisions, rather than providing ill-aligned pre-defined solutions.
The business model solves the issue of causal ambiguity by making decision-makers
aware of the (needed) logic behind strategic scenarios. It enables decision makers to
79
expand the scope of their strategy beyond medical care as their core business and focus
on value as defined by customers. Strategic issues (scale/scope, governance, competition,
financial incentives) all get a place within the elements of the business model to be
adequately addressed as part of the comprehensive approach connecting all the domains.
And not only can the business model be used to test current strategies, it is also usable to
test new scenarios for hospitals looking at how to gain competitive advantage in the
future.
Feasibility is concerned with the question whether there are resources to do it and likely
competitor response. The business model is no easy solution to implement for hospitals
that have long followed established policies, rather than explicit strategy development.
Rigor and discipline is needed to determine what sound business logic is. But hospitals
also do not have to (re)invent the wheel. We have shown with each step in the business
model that there are methods, tools and techniques that help the hospital assessing and
connecting the different strategic domains. When the hospital connects these tools and
techniques through the comprehensive business model it can evaluate the business logic
of the current strategy as well as test future scenarios. But building a business model
needs also a strategic mindset throughout the organization. When not everyone inside of
the organization is knowledgeable about what the ultimate value delivered should be, it
will be hard the least to deliver this, even if there is a sound logic in theory.
The acceptability of using the business model is closely linked to willingness of the
hospital to rethink the organization. If there is no perceived need for change with the
decision-makers, there will likely be little interest in any value-based strategy (building
tool) at all. If the hospital is aware of the fact that delivering value in a sustainable way is
of increasing importance they will be more likely to accept the business model. During
our field research we have found many examples of the fact that hospitals do perceive
the need for change as well as the need for inclusive ways of framing seemingly complex
problems. The business model is a likely candidate for this as we have been able to proof
in this research.
The business model contributes to the efforts of hospital decision makers interested in
providing value to their customers and their organization: it provides them with a tool
rather than a pre-defined solution. The model approach of the business model makes the
hospital (decision maker) smarter and allows for a clear strategic fit with the organization.
Using business models hospitals can focus on delivering value for the consumer as well as
for the organization.
80
8.2 Discussion
The discussion questions below are based on several of the points touched in this
research. The first is the focus on the use of the business model use, which is (as is the
model) exclusive, rather than inclusive (8.2.1). To address the focus on value is to be
addressed by hospitals in a constructive ways. This asks for a conversation with
customers rather than a one-way information push (8.2.2). The third discussion point is
the prerequisite of a strategic (entrepreneurial) mindset needed to make the value-based
approach of the business model a success (8.2.3). The last section, 8.2.4, puts forward the
discussion that a model should matter more than outcomes for it enhances the (strategic)
capabilities of the organization, rather than providing clear-cut solutions put forward by
others outside the organization.
8.2.1 Business model uses are many

In chapter 4 the proposed uses of the business model are listed (Table 4.1) and our
analysis state four different uses: strategic choice, linking different strategic domains,
focus on value creation, and focus on value appropriation. The goal is to deliver a model
that encapsulates comprehensive and coherent business logic. But what ‘problems’ can
this model ultimately solve? We argue here that there are two clear examples (steer
current directions, set new horizons) which fit with different strategic capabilities. But
the value of the business model is ultimately in the hands of the user and might be
stretched further for different uses.
The first focus (analysis and steer current directions) is a probable approach for many
hospitals that have a not so long history with building coherent strategy. The business
model approach serves as a tool that can support analysis (through following sequential
steps): how well is the business logic of the current strategy? What are the value
preferences and what value is ultimately delivered? This approach focuses on identifying
illogic elements of the current (implicit) business model
The second focus (set new horizons) is the more probable approach for hospital
organizations already more aware of their current strategy and the soundness of the
connected business logic. The business model can be used to revise the focus for a new
value proposition and “calculate” the corresponding sequential elements. This might
result in building new and different business models that better support the new-found
value proposition, just as Xerox Corporation did with its spin-offs (Henry Chesbrough &
Richard S. Rosenbloom, 2002). This reminds us again of the fact that not one single
business model might fit all our “needs” – and we must be willing to consider splitting
up different value propositions between different business models to make business
prosper and deliver right value to the right people at the right moment in the right way.
81
The opinion of the author is that the use of the business model is likely to be often
focused on one the above approaches (analyze and steer current directions, set new
horizons) but is not limited to these. What other uses for the business model are is not
up to the author to define, but to the user. Suggestions include using the business model
as strategic position tool (comparison), corporate communication (who are we) or
internal communication (how do we work and why). The business model approach is
based on inclusiveness, as is its proposed use.
8.2.2 A conversation with customers is needed, not a one-way information push

The business model is a model that focuses on value: between value preferences and
value delivered. As we have identified value does not exist without the preferences of the
customer. To know these preferences, it is not enough (anymore) to determine if patients
are satisfied with the service provided. Hospitals must actively engage in an ongoing
conversation with their patients/customers. There is a large array of possible tools that
the hospitals can use nowadays so, many of them powered through the use of new
communication technologies.
Health 2.0 is a widespread terminology to group many of the new tools and techniques at
the disposal of (for one) the hospital organization to converse with their customers.
Health 2.0 is about content (information) and community (collaboration, co-creation).
Examples of tools are wikis (Joint Commission, 2008), blogs (Paul Levy, 2008) or even
micro-blogging (Twitter, 2008). Real value for hospitals as well as patients will be
delivered if the current tools and applications evolve from community/content to
commerce/coherence where the will be an integrated part of the healthcare products and
services delivered by a hospital (McCabe Gorman & den Braber, 2008).
8.2.3 Strategic entrepreneurship is a prerequisite for business model success

The approach of the business model as a strategy building tool will fail without a mindset
of strategic entrepreneurship throughout the organization.
The business model balances value creation, realization and value appropriation:=
(comprehensiveness). One of the aspects of comprehensiveness is that the “results” of
the business model are visible throughout the organization and all link up to sound
business logic starting with value preferences.
When all elements of the business are retraceable to the value preferences of the
customer, then all of the stakeholders of the organization must be aware that these
preferences are at the core of how the organization works. Strategic entrepreneurship is
about creating awareness in the organization at all levels. Everyone, from the cleaner to
82
the hospital executive must know what value means, to its customers (what do they
want) and the organization (how do we work).
The full potential of a value-based approach like the business model only shows when
everyone in the organization is aware of the value that forms the fundaments for
everything else the organization does.
8.2.4 A model should matter more than outcomes

Many approaches of researching hospital strategy focus on exclusive outcomes, rather
than the approach. Although the approaches presented are often thought-provoking and
a good starting point for discussion, they do not provide a constructive way into helping
hospitals solve problems on their own. It makes them “more wanting”, instead of
“smarter”.
Hospitals that focus on (strategic) sustainability of their own organizations benefit from
approaches which provide constructive tools and ways of building strategy including the
business model, than from only futuristic visions. As long as the knowledge of
constructing solid strategies still rests with consultants and other external organizations,
hospital will not have to depend on others to build their strategies, instead of being able
to stress their own preferences to their full potential.
8.3 Further research

In this research not every question posed can be answered within the research scope.
Different topics have come up that pose interesting questions for further research which
may be followed up by other scholars interesting in expand, strengthen and test business
model theory in hospital organizations and beyond.
8.3.1 What are current hospital strategy development practices?

The focus of this research has been to test the value of business model theory for
hospitals (in an exploratory fashion). This scope has limitations in that it for one does
examine current strategy building practices and compares them to the approach of the
business model.
Future research may be focused on determining the strategy development practices of

current hospitals. When comparing these with each other as well as with the business
model approach this might be insightful and help to determine where and when different
tools and methods can be optimally deployed.
83
8.3.2 Refine business model element guiding questions

The current guiding questions of the different business model elements (Box 5.4 - Box
5.9) can be further refined. Currently these questions are based on a selection of hospital
decision makers. This can be extended by taking them “outside” and combining them
with views of (1) more decision-makers and (2) others outside of the regular decision-
making field. This gives room to e.g. let patients help hospitals build strategy by defining
their value preferences, expressed as guiding questions.
8.3.3 Expand current research to other healthcare organizations

This research has explored the application of business model theory mostly for a single
type of healthcare organization, the hospital. Now the foundations for the combination
of these two - previously thought disjunctive fields - has been laid out, it is possible to
expand to other areas of research, such as other healthcare organizations.
Widening the field of possible organizations to apply the business model too, might also
call for a more specific revision of relevant guiding questions, as was defined in 8.3.2.
84
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Wilmanns, J. C. (2003). Die ersten Krankenhäuser der Welt. Deutsches Ärtzeblatt, 100(40),
2593-2597.
88
Appendix A Interviewees
Table A.1 below lists the interviewees of this research. There are a total of 12
interviewees: 11 hospital Board of Directors chairmen and members (2 general hospitals,
4 top-clinical hospitals, 3 academic hospital centers and 2 specialist hospitals) and 1
healthcare entrepreneur.
Table A.1 Interviewees

Deleted for privacy reasons – contact the author for more information
89
Appendix B Attendees disc ussion session

The tables below list the attendees of the discussion sessions of March 7th 2008 and
April 9th 2008.
The total number of attendees in the first session (March 17th, 2008) was 16. Together
they represent a diverse spectrum of hospital and healthcare-related organizations:
! representing a hospital or healthcare delivery organization (7)

! representing a (specialist) association (4)
! representing a hospital-related government organization (2)
! representing a facilitating organization (3)
Table B.1 Participants first discussion session (March 7th, 2008)

The total number of attendees for the second discussion session (April 9th, 2008) was 17
also representing a diverse spectrum of organizations:
! representing a hospital or healthcare delivery organization (7)

! representing a (specialist) association (3)
! representing a hospital-related government organization (3)
! representing a facilitating organization (4)
Table B.2 Participants second discussion session (April 9th, 2008)

90
Appendix C Strategy canvas scoring questi ons

Table C.1 Strategy canvas scoring question: value proposition
Level of Question
V1: Diversity in medical treatments What is the diversity in medical treatments?
V2: Complexity of medical condition What is the complexity of the medical condition?
V3: Treatment volume needed What is the relevance of volume, needed for medical treatments?
V4: Service level What is the level of service the organization provides?
V5: Coordination of care What is the level of coordination of care?
V6: Education and training What is the level of education and training the organization offers?
V7: Research What is the focus on research?
V8: Non-medical services What is the extent of non-medical services offered?
Table C.2 Strategy canvas scoring questions: market segment

Level of Question
M1: Patient Is the patient the primary client of the organization?
M2: Physician Is the physician the primary client of the organization?
M3: Healthy people What is the focus on healthy people?
M4: Sick people What is the focus on sick people?
M5: Geographic scope What is the size of the adherence area?
Table C.3 Strategy canvas scoring questions: strategic position

Level of Question
S1: Cooperation: primary process What is the level of cooperation with "competitors" on the primary
processes?
S2: Cooperation: support process What is the level of cooperation with "competitors" on the support
processes?
S3: Growth How important is growth?
S4: Social-economic role What is the importance of the organization as a social-economic
entity?
S5: Innovation What is the focus on finding new products and markets to serve?
S6: Transparency What is the level of openness offered to clients?
S7: Supply chain integration What is the level of integrating other parties into the organization?
S8: Public-private partnerships What is the level of participation of public-private partnerships?
Table C.4 Strategy canvas scoring questions: organizational structure (value chain)
Level of Question
O1: Process optimization What is the role of process optimization?
O2: Physician in the lead Is the physician in the lead?
O3: Management in the lead Is management in the lead?
O4: Capital intensive What is the capital intensity of the organization?
O5: Standardization of care What is the focus on standardizing care?
O6: Outsourcing What is the level of outsourced activities?
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Table C.5 Strategy canvas scoring questions: cost structure / revenue potential
Level of Question
E1: Focus on cost reduction How important is reducing costs?
E2: Focus on profit How important is profitability?
E3: Value-based payment Are payments based on the value delivered?
E4: Cost-based payment Are payments based on the costs incurred?
E5: Insurer payments Are services paid for by an insurer?
E6: Income from private payments Are services paid for directly by the client?
E7: Income from non-core activities What is the reliance on income from non-core activities?
E8: Income from (public) funding What is the reliance on (public) funding?
E9: Income from private investments What is the reliance on private investments?
E10: Negotiable prices What is the level of negotiability of prices?
92

Rethinking The Hospital - The Value of Business Models For Hospitals

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The value of business models for hospitals

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EXECUTIVE SUMMARY .................................................................................................................... 3

1 INTRODUCTION: MAKING THE RIGHT CHOICES................................................. 9

2.1 POSITION OF THIS RESEARCH ................................................................................................ 11

3 STRATEGIC ENVIRONMENT OF DUTCH HOSPITALS ........................................ 17

3.1 EVOLUTION OF THE HOSPITAL .............................................................................................. 17

4 BUSINESS MODEL THEORY ....................................................................................... 26

4.1 CONCEPT OF THE BUSINESS MODEL ...................................................................................... 26

5 STRATEGIC ISSUES FOR THE HOSPITAL............................................................... 36

5.1 FIELD RESEARCH .................................................................................................................. 37

6 BUSINESS MODEL THEORY AND HOSPITAL POLICIES .................................... 53

6.1 LITERATURE REVIEW............................................................................................................ 54

7.1 VALUE PROPOSITION ............................................................................................................ 60

8 CONCLUSIONS, DISCUSSION AND FURTHER RESEARCH ................................ 76

8.1 CONCLUSIONS ...................................................................................................................... 76

APPENDIX A INTERVIEWEES ............................................................................................... 89

APPENDIX B ATTENDEES DISCUSSION SESSION ........................................................... 90

APPENDIX C STRATEGY CANVAS SCORING QUESTIONS ........................................... 91

To end this acknowledgement…: I am looking ahead to the future, and it is bright. I

Maarten den Braber

The solution to building sustainable future hospital configurations is not in focusing on a

Customer Value Market Strategic Value Competitive Cost / Value

1. Providing specialized medical care is considered core business

1 Introduction: Making the right choices

Process optimization, total quality management or medical-technical innovations are

Business strategy is the scientific domain focusing on making choices. “What?”,

We show an overview of current approaches to new hospitals strategies and

2.1 Position of this research

Box 2.1 The need for inclusive ways of framing problems

2.2 Focusing on the business model

2.3 Research questions

Box 2.2 Research questions

What is the value of the business model theory for hospitals?

1. What is the strategic environment of hospitals?

1. What are the theoretic elements of the business model?

2.4 Research method

The discussion sessions were attended by a total of 33 people, representatives of hospital

2.5 Exploratory research

Lakatos, another scholar of research philosophy, offered an alteration to the theories of

2.6 Research context

1. What is the strategic environment of Dutch hospitals?

Our research is exploratory in nature and we use qualitative research methods

“A hospital is no place to be sick.”

3 Strategic environment of Dutch hospitals

3.1 Evolution of the hospital

Box 3.1 Valetudinarium

philanthropic institutions, forming public hospitals. Admission was no longer based so

3.2 Position of the hospital in the healthcare delivery system

3.3 Hospital landscape

Figure 3.1 Hospital locations in The Netherlands (RIVM, 2007)

Box 3.2 Dutch hospital types

! General hospital : regional focus, wide range of treatments

Figure 3.2 Different Dutch hospitals

Establishing a (new) health care institution in The Netherlands is regulated by means of

3.4 Hospital functions and activities

Box 3.3 Functions of an acute care hospital

Figure 3.3 Overview of internal hospital (service line) activities

- Outpatient care - Thorax surgery

Diagnostics Medical facilities Personal services

- Ultrasound - Operating theatres

- Bucky - Nursing ward