C432 Ch 4 Growth and Integration Strategies Notes.docx

Likewise healthcare insurance companies have rapidly

This preview shows page 8 - 9 out of 9 pages.

Likewise, healthcare insurance companies have rapidly expanded to become large, horizontal entities . Like vertical expansion, horizontal expansion has the potential to yield benefits if horizontal integration occurs. The rationale given by healthcare organizations for horizontal mergers highlights possible economies of scale/cost efficiencies and improved access/expansion of the delivery network 8
Image of page 8

Subscribe to view the full document.

Greater market power and the ability to negotiate better payments have been identified as primary reasons for horizontal expansion. Horizontal integration has the potential to reduce costs by eliminating duplicative equipment and services. Healthcare organizations can also reduce administrative and purchasing costs by spreading fixed expenses over a larger volume of business. A number of studies indicate that completed hospital consolidations do increase market power and enable facilities to raise inpatient prices, especially if the consolidated hospitals were in contiguous markets. Evidence suggests that for-profit organizations have recognized the difficulty of achieving horizontal integration across a widely dispersed system. For instance, HCA has begun to cluster its hospitals in regions to achieve greater efficiencies and better integrate its facilities. Diversification Expansion Another expansion strategy is to diversify into other types of business. Diversification may be related or unrelated. Related diversification occurs when an organization (1) enters a different business that uses similar technologies (sometimes called concentric diversification ) or (2) adds new products or services to its current offerings (also called horizontal diversification ). For example, a manufacturer of pharmaceuticals for humans might diversify into veterinary drugs. Related diversification engages new business activities—such as manufacturing, marketing, and technological development—in one or more components of an organization's value chain. This strategy seeks to leverage an organization's assets and expand its markets or products to achieve greater competitive advantage. Related diversification also pursues economies of scale by combining manufacturing, distribution, advertising, and other costs. Unrelated diversification (also called conglomerate or lateral diversification ) occurs when an organization adds new products or services that have little or no overlap with its current products and assets. Diversified organizations more often succeed when they maintain a common business model across their corporations. To diversify successfully, the central organization must recognize that its distinct services may require diverse technological, managerial, and cultural competencies to operate and that it may need to give each service sufficient autonomy to meet local needs. 9
Image of page 9
You've reached the end of this preview.
  • Fall '17
  • Horizontal integration

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern