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Question:

Discuss about the Strategic Analysis Of Estia Health Aged Care.

The report is prepared to conduct strategic analysis of an Australian public listed company that is Estia Health aged care by focusing on business of residential aged care. Discussion incorporates the background information of organization in terms of its size, history, ownership business scope, major markets and major products and services of selected organization. Macro environmental analysis of industry in which Estia Health aged care operates is demonstrated in the report and this will assist in drawing implications for organization in terms of opportunities and threats. Competitive analysis of industry is undertaken using the model of Porters five forces. Resources providing sustainable competitive advantage to business are identified by the application of VRIO that helps in determining strategic capabilities of organization.

History:

Estia Health Aged care (EHC) is one of the largest aged care providers to resident of Australia that was established in year 2005 (estiahealth.com.au 2018). Organization is historically present in four states of Australia that is Victoria, New South Wales, Queensland and South Australia and the group is well positioned to pursue and identify opportunities for acquisition in each of these states. 88% of residential aged care is placed in these four states of Australia. Prior to merger of company in year 2014, the company has a history of expanding into number of facilities and places where it operated (estiahealth.com.au 2018). Business components and aggregate number of places of Estia increased to 3203 in year 2014 compared to 1264 in year 2008. In year 2015, Estia entered into contracts for acquiring further five facilities and the expansion have been achieved via the expansion of existing facilities, acquisitions and new facilities development. Increased revenue per bed and increased occupancy rates have been achieved by acquisition of nine facilities and development of further three facilities over the period of 2012 to 2014 (Gioia, 2014).

Major products and services:

Focus of organization is to provide resonate choices to families and residents, helping in organizing program for families, straightforward services by creation of family codes. The family code is incorporate some elements such as always approachable, creating happiness, pushing limits, generating daily best and saying something by seeing something. Dedicated services and increased bed proportion are the focus of organization in terms of their services and products (E. Dobbs, 2014).

Well being and health-

  • Entertainers and concerts
  • Active games, bus trips and air and crafts
  • Guided and physic exercise
  • Religious services

Clinical care-

  • Personal care
  • 24 hour nursing care
  • Occupational and physiotherapy
  • Arranging on site visits for external medical practitioners
  • Administrative pharmaceutical and wound management

Dining and nutrition-

  • Dining and family meals
  • Nutritional requirement and dietary needs

Major Products and Services

Estia aged health carries out its operation in fragmented and growing industry and the expanding existing facilities of business intends to provide beneficial opportunities to company. Organization has market capitalization of $ 931.51 million. In the current scenario, organization operates in four states of Australia with the target of reaching 10000 beds through targeted acquisitions and development of strong organic pipeline by year 2020 (estiahealth.com.au 2018). Care requirement in the country will be driven by increased age of residents and with increase in industry growth, Estia is required to grow at double rate.

Size and Business scope:

The organization has 5910 operating place, have more than 700 employees and 68 facilities across New South Wales, Victoria, Queensland and South Australia. Story of its rapid and recent growth is based upon three residential aged business consolidations and each of it having modern facilities, strong reputation and experienced  management (estiahealth.com.au 2018). Objectives of Estia are to provide their customers with aged care services with highest standards in a supporting, innovative and caring environment. Supporting regional networks of home across Australia, using corporate centres for delivering their results, state of art clinical care utilization, people and financial system are the operational efficiency of organization. These would help in ensuring that the group serves complex and higher quality services with increase in demand. Some of the fundamental concepts for fulfilling the purpose of organization are providing quality care using specialized healthcare terms, innovation, access to helpful advice and providing caring and inclusive experience that aged care in meeting the needs of aged family.

Estia health has many homes in several states of Australia, they are well placed for meeting the demand of increasing healthcare, and they have a well-defined and clear strategy for enhancing the existing home and increasing bed capacity. Company for driving future earnings undertook a material capital-spending program and this would help in business enhancement (Dess et al., 2016).  In order to focus on high quality assets, the organization recognized the needs for stabilizing business and strategy refinement.

Macro environmental factors influencing the operations of Estia Aged Healthcare are evaluated using the PESTEL analysis.

Political factors- Health care in Australia is a joint responsibility of state and federal government and the political framework of the healthcare sector is in state of unrest. The potential for future cooperative arrangement between healthcare organizations and federal government is undermined by the budget outcome that is representing massive shift in cost to states. The state of political environment is impacted by change in Commonwealth arrangement and ending their traditional form as they are exposed to sovereign risk (Bettis et al., 2016). Operations oh healthcare companies such as Estia is impacted by the political conditions prevailing in Australia. Increased cost for government might reduce the access of health care organizations to government funding.

Size and Business Scope

Economic factors- The highest performing sector economically is the healthcare sector of Australia. Growth of healthcare sector is double the pace of growth of gross domestic product of country. In terms of public private partnership and ability of healthcare sector to attract overseas talent, Australia is ranked top three. In order to serve Australian public and to become strong contributor to economic development, healthcare companies are required to consider their roles by boosting their research and development potential and reducing unnecessary expenditures (Jenkins et al., 2017).

Socio-cultural factors- The practice and operations of healthcare companies is impacted by two main changes in social environment. Ageing of the population is the first factor followed by a big sociological shift influencing residents to move to individualized care. Current healthcare system requires drastic change due to prevailing unsustainability. Mandating co payment for medical care is likely to increase medical cost for families. However, funds generated from mandating of co payment will help in expanding medical research by assigning capital fund (Barney & Hesterly, 2015). Leadership of Estia is also affected by culture and educational level of Australian residents. Therefore, it is essential for Estia to revise the strategies in increasing medical cost for acquiring strong customer base.

Technological factors- The advancement in modern technology has considerable impact on healthcare industry of Australia. There is an increased scope for expanding use of technologies that will bring variations in cost effectiveness of companies. Accelerating ageing population, income growth, and expectation of communities, subsidised consumer price will place increased pressure on public and private health system resulting from interaction of technological advances with increasing health services demand that are driven and bet available treatment will make a potential mix (Certo et al., 2016). In recent years, medical technology advancement have been a major driver of increased health spending and this has contributed to increased spending on part of health organization on technologies and thereby reflect a significant increase un number of people being treated and improved treatment.

Environmental factors- The health system of Australia is great compared to other countries and the environmental factors are now aligned and present due to shifting to patient centric and coordinated care. The income of traditional healthcare providers is threatened by shift in preference for localised care. Complying of organization with environmental laws will help in reducing carbon emissions and comes with several health benefits for population. Organizations operating in healthcare industry should comply with the environmental laws and standards (Frynas & Mellahi, 2015).

Macro Environmental Factors

Legal factors- Operations and business of healthcare industry is influenced by legal factors of region where the organization is operating. Some of the laws impacting the operations of organization such as Estia healthcare in Australia are antitrust law, copyright, health and safety law, data protection law, discrimination law and consumer protection. Healthcare practitioner is required to comply with privacy policies. Privacy act of Australia set out the principles that are applicable to public and private healthcare service providers. Any overseas hiring of healthcare talent should have proper disclosure and practitioners are obliged to make confidentiality of patients (Henderson et al., 2017).

The analysis of industry of residential health age care is done by the application of Porter’s five forces. It is a tool of strategic management for understanding the level of competitive forces of industry and accordingly help in development of strategy.  

Suppliers bargaining power- For the management of business of health organization such as Estia heath care, this particular variable is utmost critical. Most of companies in heath organization buy their equipments from numerous suppliers. Margins earned by organizations in industry can be reduced if the suppliers are in dominant position.  Powerful suppliers in the industry can extract higher prices from the firms that help in lowering the profitability position of company (Trigeorgis & Reuer, 2017).

Buyer’s bargaining power- The bargaining power of buyers is quite limited in the field of healthcare. They seek best and quality care from the health organizations and due to existence of fewer good players in the health industry, buyer does not enjoy a high bargaining power. Customers bargaining power can be reduced by building large customer base that helps in streamlining production process and sales of organization. Bargaining power can also be limited by making rapid innovations of new products and providing offerings on existing products (Rothaermel, 2015).

Threat of substitutes- The profits of company is greatly impacted by types of services offered by other health organizations prevailing in the industry. Depending upon the types of services offered by health organizations in the industry, the threats faced varies from low to medium. If the value proposition offered by company is considerably different from the present offering of health industry, then the substitute threat is substantially higher.

Existence of rivalries- There is an increased demand for health services driven by ageing and growing population of Australia. Estia faces a very intense competition in the industry in which it operates because of increasing healthcare players. Increased player in the industry is attributable to economies of scope, access to funding provided by government and usage of effective methods of controlling cost. Overall profitability of company reduces due to prevalence of increased players in the industry.

Competitive Landscape

Threat of new entrants- In the health industry of Australia, there are moderately high barriers because of higher cost of capital and building of new hospitals in locations that are nearby viable locations. The strategy that could be viable for new entrants to enter into this particular industry is by way of acquisition. New entrant require substantial amount of funds for acquiring diversified geographical markets (Hubbard et al., 2017). It can be concluded that new entrants would find considerable amount of difficulties unless they enter by employing appropriate strategy and have adequate capital for investment.

From the analysis of aged healthcare industry of Australia, it can be inferred that the main driving force in the competitive environment is increasing growing and ageing population. Estia aged healthcare enjoys a fewer threat of new entrants due to several difficulties faced and many prerequisites for entering into industry. However, the group experiences increased competition from their rivalries due to availability of various facilities such as government funding and economies of scope. Therefore, it is required by Estia to take measures for building substantial differentiation and rather than just competing for smaller share of market, they should prefer collaboration when it seems feasible for enhancing their market size and serving old age Australian residents.

Estia health aged care has grown to be one of the largest aged care providers in Australia and enhance their service offerings that range from boutique services to community like villages.  Strategic capabilities of organization are diagnosed by determining the four criteria that provides the basis of achieving sustainable competitive advantage (Greenspan, 2015).

Values- Value network and value chain can be used to perform the diagnosis of tool that is considered valuable to customers. Value chain helps in understanding the cost position of Estia health aged care and the value of each activities that are being delivered. The primary activities of this particular health organization are to provide residents and their families in an inclusive, safe and caring environment and providing support whenever they required. On other hand, supporting activities is to make diversification across homes that make home personal to residents and providing assistance that helps in finding the right place. Homes are designed in such a way that it provides support to changing personal requirements of residents in a dignified and seamless way. Residents are involved with the activities and people they love by maintain independent and well being of hard work.

Rarity- For determining the rarity criteria, it is required to perform competitor analysis of Estia Health aged care. The unique criteria of Estia compared to other healthcare providers in the Australia are that each of homes has their distinct personality. Such distinct personality represents employees and residents within along with maintaining highest clinical care standards. It is well understood by organization that Australian residents need choices and each of services and programs are designed in a way that is easily adaptable by homes for supporting the preferences and needs of residents care and their family and friends (Peteraf et al., 2014). This uniqueness feature of homes of Estia supports the rarest criteria.

Inimitability- Inimitability of strategic capabilities of an organization can be explained in terms of casual ambiguity, complexity, culture, history and change. Continuous improvement is pursued by organization in all aspects of personal and health care as an effort to keep themselves ahead of competitors. Estia always indulge themselves in innovative activities for enhancing residential care of Australian residents.

In recent years, no competitors of Estia have provided diversified healthcare service to residents and this diversification is far from non-imitable. The current number of operational beds offered by Estia health aged care is 2705 and total number of current facilities at 34 (estiahealth.com.au 2018). Estia that has an extensive portfolio of facilities acquires business of quality aged care service models. This acquisition provided Estia an opportunity to expand their business into Qld and market of New South Wales. Service offering by Estia has always increased and this might place small operators at competitively disadvantageous state when an appropriate aged home care is to be chosen by residents. Factors that lead to higher valuations of health care companies involves potential of selling value added items, having multiple facilities, locating facilities in areas where demands are unmet, food standards and high care, quality refurbishments, good base of nurses and ability to develop and scale facilities (Wheelen et al., 2017).

Organizational support- Various platforms will continue to be used by Estia for their growth enhancement such as Greenfield expansion, Brownfield expansion, acquisition of single facilities that will help in meeting the acquisition criteria of Estia. Some other measures incorporate making improvement in existing operations and acquisition of new facilities intended to increase occupancy rate and revenue. The dining facilities offered by Estia are nutritionally balanced for meeting the needs of residents. Chefs that incorporate seasonal and local produce reflecting residents’ personal preferences create interesting options (Varabyova & Müller, 2016). The lifestyle of coordinators at Estia has close association with clinical teams for ensuring that programs are tailored for meeting the needs of residents. Employees are always encouraged for supporting the interest of residents including the management, kitchen, and maintenance, clinical and domestic teams (Brooks et al., 2015). Clinical care at Estia is an ongoing process that includes regular medication, specialist dementia care, pain management programs, high level of personal care and medical services such as pharmacy, physiotherapy, optometry, dental and podiatry. The growth of Estia has been supported by its continuous expansion during the past three years that is acquisition of Padman Healthcare and Cook care group (Ginter et al., 2018).

Estia is taking advantage of the capability of changing their service lines.  With increased acquisition of other healthcare providers, organization is pushing themselves for reaching new patient populations and creation of new service lines (Foss & Hallberg, 2014).

VRIO analysis of Estia Health aged care:

Value

Rare

Imitable

Organizational support

Competitive implication

Yes

No

Yes

Yes

Competitive advantage over small health care providers. It can be exploited if the competitors imitate such diversification of services.

Conclusion:

The healthcare industry of Australia is becoming intensely competitive due to increased number of healthcare providers. In order for organization to sustain their competitive advantage, it is required to keep upgrading their service and enhancing products and service lines. Macro environmental analysis of healthcare industry depicts that the ageing population of Australia has been attributable to increased demand in healthcare services. In a continually changing environment of high demanding expectations of age care, organizations are required to focus on strategies and practical solutions for achieving best value in terms of procurement. Analysis of strategic capabilities depict that Estia provides valuable services to its customers and their strategy of diversification of their service line is somewhat imitable. Therefore, in this regard appropriate steps should be taken to maintain and build their speciality and uniqueness. Estia Health is involved in major acquisitions that have led to its significant growth and efforts should be taken for responding to challenges they face by providing greater choice to patients, curtailing cost through process of procurement and streamlining of operations. They should be able to find opportunities for strategically sourcing products and services of aged care. Growing demand of healthcare and increasing players in healthcare market might pose threats to the business of Estia. Therefore, it is recommended to respond appropriately for sustaining their position and further increasing their market size and number of residents being served and thereby contributing to economic situation of Australia.

References:

Barney, J. B., & Hesterly, W. (2015). Strategic management and competitive advantage concepts and cases. Pearson.

Bettis, R. A., Ethiraj, S., Gambardella, A., Helfat, C., & Mitchell, W. (2016). Creating repeatable cumulative knowledge in strategic management. Strategic Management Journal, 37(2), 257-261.

Brooks, P., El-Gayar, O., & Sarnikar, S. (2015). A framework for developing a domain specific business intelligence maturity model: Application to healthcare. International Journal of Information Management, 35(3), 337-345.

Certo, S. T., Busenbark, J. R., Woo, H. S., & Semadeni, M. (2016). Sample selection bias and Heckman models in strategic management research. Strategic Management Journal, 37(13), 2639-2657

Dess, G. G., McNamara, G., & Eisner, A. B. (2016). Strategic Management: Creating Competitive Advantages, ch3 pp74-106.

Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.

Estia Health Aged Care: Australian Aged Care | Aged Care Facilities | Residential Aged Care Facilities | Nursing Homes . (2018). Estia Health. Retrieved 20 February 2018, from https://www.estiahealth.com.au/

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