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Collection Highlights

Strategic Management of Health Care Organizations Eighth


Edition. Edition Peter M. Ginter

Mobilizing knowledge in health care : challenges for


management and organization Newell

Strategic Management: Competitiveness and Globalization -


Concepts and Cases, 14e Michael A. Hitt

Operations Research Applications in Health Care Management


1st Edition Cengiz Kahraman
Strategic Management Concepts and Cases Competitiveness
and Globalization 12th Edition Michael A. Hitt

Health Care Information Systems: A Practical Approach for


Health Care Management 4th Edition Karen A. Wager

Accounting Fundamentals for Health Care Management Steven


A. Finkler

Boundaryless Hospital Rethink and Redefine Health Care


Management 1st Edition Horst Albach

Economics and Modern Warfare Michael Taillard


Michael Chletsos
Anna Saiti

Strategic
Management
and Economics
in Health Care
Strategic Management and Economics in Health
Care
Michael Chletsos • Anna Saiti

Strategic Management
and Economics in Health
Care
Michael Chletsos Anna Saiti
University of Piraeus Harokopio University
Piraeus, Greece Athens, Greece

ISBN 978-3-030-35369-8    ISBN 978-3-030-35370-4 (eBook)


https://doi.org/10.1007/978-3-030-35370-4

© Springer Nature Switzerland AG 2019


This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of
the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation,
broadcasting, reproduction on microfilms or in any other physical way, and transmission or information
storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication
does not imply, even in the absence of a specific statement, that such names are exempt from the relevant
protective laws and regulations and therefore free for general use.
The publisher, the authors, and the editors are safe to assume that the advice and information in this book
are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the
editors give a warranty, expressed or implied, with respect to the material contained herein or for any
errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional
claims in published maps and institutional affiliations.

This Springer imprint is published by the registered company Springer Nature Switzerland AG
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
To Marina, Marios, and Valya
Preface

It is well known that health care is one of the fundamental sectors necessary for the
social and economic development of a country. In practice, this means that a country
cannot effectively address far-reaching social and economic problems without pro-
viding qualitative healthcare services to its citizens. Moreover, a healthcare system
cannot become more effective without improvements in its structure and organiza-
tion. A hospital is the basic and most significant healthcare unit within the health-
care system. Hence, the application of management and economic analysis
principles would result in the smoother and more effective functioning of hospitals.
The challenge is for hospitals to have organizational and functional organs that
reflect the standards and innovations of their external environment. The rapid
changes in the global social and economic environment, together with re-alignments
in the internal environment of healthcare units (such as developments in informa-
tion technology and new working methods), call for a more strategic approach.
Strategic management addresses the challenge of how any organization or enter-
prise, public or private, profit or nonprofit, can not only survive the current demands
of a competitive market but also establish the foundations for successful perfor-
mance in the future. Certainly, it is not enough for a healthcare unit to rest on current
successes since certain conditions are required for that success to be sustained.
Strategic management can provide hospitals with a comprehensive and sustainable
way of handling organizational and managerial matters by establishing rational con-
nections between many factors and parameters.
Economic analysis also helps the healthcare sector to be more effective since it
is not just “common sense” or “presentiment” but constitutes economic thinking
that facilitates decision making through the process of economic analysis and eco-
nomic thought. Thus an analysis of, for example, how material resources could be
better managed would yield recommendations for enhancing the health unit’s
performance.
Since this book offers significant managerial and economic knowledge on hospi-
tals, it can be of value not only to employees of healthcare organizations and stu-
dents but also to any professional practitioner in other fields of, or on the fringes of,
the public sector (such as municipalities, regional authorities, and district a­ uthorities)

vii
viii Preface

as well as the private sector. This book brings together knowledge and thinking in
the realms of scientific management and economics, thus making it a valuable tool
for explaining complicated managerial and economic problems and for facilitating
decision-making processes.
The uniqueness of this book lies in the fact that it bridges management and eco-
nomic sciences—two complementary sciences that feed the process of making
rational decisions. Such knowledge may not be easily found in a single book on
health care or indeed on any other sector. This complementarity in management and
economics, together with the way the information has been laid out in this book,
will help the reader not only comprehend and analyze real problems but most
importantly make rational decisions that will significantly improve an organiza-
tion’s performance. Key points conclude each chapter to ensure understanding of
the main themes covered.
This book covers all the basic issues of strategic management and economic
analysis which are necessary elements for the smooth functioning of the most essen-
tial healthcare unit, namely, the hospital. Its content has been arranged into the fol-
lowing chapters:
• Chapter 1 refers to the basic concepts of strategic management and analyzes its
key elements.
• Chapter 2 analyzes in depth the environment (both internal and external) within
which healthcare units (including hospitals) function.
• Chapter 3 focuses on the process of strategic management and investigates the
shaping and the implementation of healthcare units’ strategies.
• Chapter 4 analyzes strategic planning in the healthcare sector and presents stra-
tegic planning models.
• Chapter 5 discusses the strategic changes in the healthcare sector and analyzes in
depth the process of a strategic change.
• Chapter 6 addresses TQM (total quality management) in the healthcare sector
and analyzes in depth the implementation of TQM in healthcare units.
• Chapter 7 presents and analyzes the organizational forms of hospitals, the differ-
ent types of hospital ownership, and the role of the government in the healthcare
system when different types of hospitals coexist.
• Chapter 8 discusses in an analytical way the economics of hospitals.
• Chapter 9 examines the hospital as a supplier of healthcare services.
• Chapter 10 addresses the nature of hospitals’ financing and analyzes their means
of financing.
• Chapter 11 addresses the efficiency and economic performance of hospitals.

Piraeus, Greece  Michael Chletsos


Athens, Greece   Anna Saiti
Acknowledgements

We would like to deeply thank our family members for their continued support and
encouragement. We would also like to express our sincere thanks to Mr Henry Scott
and Mrs Gillian Karamani for their inputs and ideas in helping shape this book into
its current form.

ix
Contents

1 Basic Dimensions of Strategic Management������������������������������������������    1


1.1 What Is Mission?����������������������������������������������������������������������������    1
1.2 What Is Vision? ������������������������������������������������������������������������������    3
1.2.1 Aim and Meaning��������������������������������������������������������������    3
1.2.2 Vision Transmission����������������������������������������������������������    4
1.2.3 Characteristics of an Effective Vision��������������������������������    5
1.2.4 Development of Leaders/Managers Toward the Creation
and Transmission of a Vision��������������������������������������������   5
1.3 Objective or Aim����������������������������������������������������������������������������    8
1.3.1 Different Approaches to Meanings������������������������������������    8
1.3.2 Categories of Aims������������������������������������������������������������    9
1.3.3 Strategy for Creating Aims������������������������������������������������   10
1.4 What Is Strategy?����������������������������������������������������������������������������   10
1.4.1 Aims and Meaning������������������������������������������������������������   10
1.4.2 But What Is Strategy?��������������������������������������������������������   11
1.4.3 Thus, a Question Arises: Why Is Strategy Planning
Important for Modern Organizations?������������������������������  12
1.4.4 Characteristics of an Effective Strategy����������������������������   12
1.4.5 Ways of Avoiding Bad Strategies��������������������������������������   13
1.4.6 What Should a Leading Manager Do to Avoid Defective
Strategies? ������������������������������������������������������������������������  13
1.5 Elements of Policy��������������������������������������������������������������������������   14
1.5.1 Meaning����������������������������������������������������������������������������   14
1.5.2 Approaches to the Term “Policy”��������������������������������������   15
1.5.3 Difficulties in Understanding the Term “Policy”��������������   15
1.5.4 Is “Strategy” Different from “Policy”?������������������������������   16
1.5.5 Policy Sources ������������������������������������������������������������������   17
1.5.6 Factors for Effective Policy Implementation��������������������   17
1.6 What Is a Program?������������������������������������������������������������������������   18
References��������������������������������������������������������������������������������������������������   19

xi
xii Contents

2 Environment and Health-Care Units ����������������������������������������������������   23


2.1 Environmental Dependency of Health-Care Units ������������������������   23
2.2 Studying Health-Care Units/Hospitals��������������������������������������������   25
2.2.1 What Is a Hospital? ����������������������������������������������������������   25
2.2.2 Hospital Aims��������������������������������������������������������������������   27
2.2.3 Hospital Functions������������������������������������������������������������   28
2.2.4 Conditions for Effective Hospital Performance����������������   29
2.3 Meaning and Content of the Environment��������������������������������������   31
2.4 The Internal Environment of Health-Care Organizations
(Hospitals)��������������������������������������������������������������������������������������   33
2.4.1 Structure����������������������������������������������������������������������������   33
2.4.2 The Location����������������������������������������������������������������������   35
2.4.3 An Organization’s Culture������������������������������������������������   35
2.4.4 Resources of a Health-Care Unit (Hospital)����������������������   44
2.5 Special Environment of Health-Care Units������������������������������������   45
2.5.1 Cooperation of the Health-Care Unit (Hospital)
with Other Units and with Agents of Local
Government����������������������������������������������������������������������  45
2.6 External Environment of a Health-Care Unit (Hospital)����������������   46
2.6.1 Environmental Powers of a Health-Care Unit
(Hospital)��������������������������������������������������������������������������  47
References��������������������������������������������������������������������������������������������������   48
3 Process of Strategic Management����������������������������������������������������������   53
3.1 Introduction������������������������������������������������������������������������������������   53
3.2 Analysis of an Organization’s Environment ����������������������������������   54
3.2.1 Investigation of the External Environment������������������������   54
3.2.2 Investigation of the Internal Environment ������������������������   55
3.2.3 SWOT: An Assessment of a Health-Care Unit������������������   56
3.2.4 Understanding the Current Circumstances
of a Health-­Care Unit��������������������������������������������������������  57
3.3 Process of Strategy Development ��������������������������������������������������   58
3.3.1 Provision of Health-Care Services������������������������������������   59
3.3.2 Administrative Function����������������������������������������������������   59
3.4 Strategy Implementation����������������������������������������������������������������   61
3.5 Strategy Assessment������������������������������������������������������������������������   63
3.5.1 Significance of Assessment ����������������������������������������������   63
3.5.2 The Process of Assessment������������������������������������������������   65
References��������������������������������������������������������������������������������������������������   66
4 Strategic Planning in the Health-Care Sector ��������������������������������������   69
4.1 Approaches to Strategic Planning ��������������������������������������������������   69
4.1.1 The Nature of Strategic Planning and Programming��������   69
4.1.2 The Process of Strategic Programming ����������������������������   71
4.2 Elements of Strategic Planning and Programming ������������������������   76
4.2.1 Process of Strategic Planning and Programming��������������   76
Contents xiii

4.2.2 Basic Types of Program����������������������������������������������������   77


4.3 Strategic Planning and Programming in the Field
of Health Care ��������������������������������������������������������������������������������   79
4.3.1 Development and Significance of Health-Care
Planning����������������������������������������������������������������������������  80
4.3.2 Applied Models of Strategic Planning in
Health Care�����������������������������������������������������������������������  82
4.4 Management by Objectives (MBO) and Health-Care
Sector����������������������������������������������������������������������������������������������   83
4.4.1 Meaning and Significance of MBO����������������������������������   83
4.4.2 The Process of MBO ��������������������������������������������������������   84
4.4.3 Advantages and Disadvantages of MBO��������������������������   85
4.4.4 Factors for the Effective Implementation of MBO������������   85
References��������������������������������������������������������������������������������������������������   86
5 Strategic Changes in the Health-Care Sector����������������������������������������   89
5.1 Introduction������������������������������������������������������������������������������������   89
5.2 What Is Change������������������������������������������������������������������������������   91
5.2.1 Definition of the Term “Change”��������������������������������������   91
5.2.2 Types of Change����������������������������������������������������������������   91
5.2.3 Is “Change” Different from “Innovation”?������������������������   93
5.3 Reasons for Change������������������������������������������������������������������������   94
5.3.1 Resistance to Change��������������������������������������������������������   95
5.3.2 Confrontation of Change ��������������������������������������������������   96
5.4 Process of Change��������������������������������������������������������������������������   97
5.5 Introduction to Models for Change������������������������������������������������   99
5.5.1 The Model of K. Lewin ����������������������������������������������������   99
5.5.2 The Eight Steps Model of J. Kotter ���������������������������������� 100
5.6 Why Changes Fail in Organizations ���������������������������������������������� 102
5.7 Basic Elements for the Successful Implementation of Change
in the Health-Care Sector���������������������������������������������������������������� 103
References�������������������������������������������������������������������������������������������������� 107
6 Total Quality Management and Health-­Care Sector���������������������������� 109
6.1 Introduction������������������������������������������������������������������������������������ 109
6.2 Understanding the Concepts of “Customer” and “Quality” ���������� 110
6.2.1 What Does “Customers” Mean ���������������������������������������� 110
6.2.2 Dimensions of the Term “Quality”������������������������������������ 111
6.3 Approach to Total Quality Management (TQM)���������������������������� 114
6.3.1 The Meaning and Importance of TQM
in Health Services ������������������������������������������������������������ 114
6.3.2 TQM Principles in Health-Care Services�������������������������� 116
6.4 TQM and Customer Satisfaction���������������������������������������������������� 119
6.5 Implementation of TQM in Health-Care Organizations ���������������� 121
6.6 TQM and Sustainability������������������������������������������������������������������ 123
References�������������������������������������������������������������������������������������������������� 125
xiv Contents

7 For-Profit Versus Not-For-Profit Hospitals and Public


Hospitals��������������������������������������������������������������������������������������������������� 129
7.1 Introduction������������������������������������������������������������������������������������ 130
7.2 Hospital Ownership������������������������������������������������������������������������ 132
7.3 What Makes a For-Profit Hospital: What the Theory Says������������ 135
7.4 What Makes a Non-profit Hospital: What the Theory Says ���������� 137
7.5 Public Hospitals: What the Theory Says���������������������������������������� 140
7.6 The Role of Government Toward Different Hospital Types ���������� 142
References�������������������������������������������������������������������������������������������������� 145
8 The Economics of Hospitals�������������������������������������������������������������������� 151
8.1 Introduction������������������������������������������������������������������������������������ 151
8.2 Which Are the Purposes of Hospitals �������������������������������������������� 153
8.3 Determinants of Hospital Behavior������������������������������������������������ 154
8.4 Which Are the Sources of Revenues and the Expenditures
of Hospitals ������������������������������������������������������������������������������������ 159
8.4.1 Hospital Revenues ������������������������������������������������������������ 159
8.4.2 Hospital Expenditures ������������������������������������������������������ 160
8.5 How Do the Hospitals Achieve Their Goals: A Theoretical
Explanation? ���������������������������������������������������������������������������������� 161
8.5.1 The Role of Physicians in Maximizing Hospitals’
Profits: The Model of Pauly and Redisch�������������������������� 163
8.5.2 Quantity/Revenues Maximizing Model of Hospitals�������� 166
8.5.3 Quality-Maximizing Model of Hospitals�������������������������� 168
8.5.4 Quantity- and Quality-Maximizing Models
of Hospitals ���������������������������������������������������������������������� 169
References�������������������������������������������������������������������������������������������������� 174
9 Hospitals as Suppliers of Healthcare Services�������������������������������������� 179
9.1 Introduction������������������������������������������������������������������������������������ 179
9.2 Short-Term and Long-Term Production Theory ���������������������������� 181
9.3 Short-Term Costs, Long-Term Costs, and Decision-­Making
in Health Services �������������������������������������������������������������������������� 187
9.3.1 Short and Long-Term Costs���������������������������������������������� 187
9.3.2 Decision-Making �������������������������������������������������������������� 190
9.4 How Hospitals Determine Optimal Price Levels for Their
Health Services Under Different Market Structures ���������������������� 191
References�������������������������������������������������������������������������������������������������� 202
10 Financing Hospitals �������������������������������������������������������������������������������� 207
10.1 Introduction������������������������������������������������������������������������������������ 207
10.2 Equity and Efficiency in Financing Hospitals�������������������������������� 209
10.3 Financing Versus Payment of Hospital Services���������������������������� 218
10.4 Traditional and Modern Hospital Payments
(DRGs and P4P)������������������������������������������������������������������������������ 222
References�������������������������������������������������������������������������������������������������� 228
Contents xv

11 Hospital Efficiency and Performance���������������������������������������������������� 233


11.1 Introduction������������������������������������������������������������������������������������ 233
11.2 Defining Efficiency (Technical and Allocative Efficiency)������������ 235
11.3 The Determinant Factors of Hospital Efficiency���������������������������� 239
11.3.1 The Size of a Health-Care Unit ���������������������������������������� 242
11.4 The Range of Health-Care Services������������������������������������������������ 244
11.5 Ownership �������������������������������������������������������������������������������������� 245
11.6 The Technological Infrastructure of Health Organizations������������ 245
11.7 The Building Infrastructure������������������������������������������������������������ 245
11.8 The Method of Payment for Health-Care Services������������������������ 246
11.9 Developmental Design�������������������������������������������������������������������� 249
11.10 The Hospital Management System ������������������������������������������������ 249
11.11 The System of Incentives���������������������������������������������������������������� 250
11.12 Financing and Efficiency���������������������������������������������������������������� 250
References�������������������������������������������������������������������������������������������������� 253

Index������������������������������������������������������������������������������������������������������������������ 257
Chapter 1
Basic Dimensions of Strategic Management

Key Chapter Concepts


• All organizations (and hospitals) survive because they have a perspective. Hence,
organizations should not be indifferent to the events happening in their broader
environment, but rather they should adopt a proactive approach which facilitates
a more direct confrontation of those events.
• Organizations need to plan and anticipate the future so as to establish a special
position in the environment. For this to happen, organizations need to have a mis-
sion and a vision. This means they need to see clearly “what they are doing,”
“where they are going,” and “what they want to become.” All these need to be
communicated in an efficient way to the organizational members.
• Environmental standards in the external environment of an organization are
changing rapidly. Therefore, organizations (hospitals included) need to formu-
late a strategy if they are to avoid any threats and risks and sustain a positive and
competitive position within the environment.
• Managers/leaders may align their organization to their strategy, while indeed the
strategy should be aligned with the organizational culture.
• Strategy is the basic prerequisite for anticipating the future, while policy pro-
vides the predefined framework and formulates actions for the organization’s
smooth operation. Both are needed for successful performance.

1.1 What Is Mission?

Whether an organization is private, nonprofit, or public (e.g., a hospital, an educa-


tional institution, or a firm), it has the ultimate purpose of surviving. To continue its
survival, it needs to address certain existential questions, namely, “what we are
doing?” and “what is our mission?” (Drucker, 1974, p. 61, cited by David & David,
2017, pp. 160–161). The mission is an organization’s reason for being. Therefore,
the mission of an organization indicates “a basic function or duty” and sets a basis

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M. Chletsos, A. Saiti, Strategic Management and Economics in Health Care,
https://doi.org/10.1007/978-3-030-35370-4_1
2 1 Basic Dimensions of Strategic Management

for the development of an organizational strategy as it clarifies the practical function


of the organization in order to achieve a superior performance (David & David,
2015; Koontz & Weihrich, 2010; Saitis & Saiti, 2018; Whitehead, 2002).
We may note that in this book, despite any distinction in the relevant literature,
we are going to use the terms “mission” and “purpose” interchangeably (Cady,
Wheeler, DeWolf, & Brodke, 2011; Hill, Jones, & Schilling, 2015; Mullins, 2010;
Papoulias, 2002; Sidhu, 2003; Zavlanos, 2003). Therefore, for example, the mission
(or the purpose) of a hospital unit also corresponds to the services it offers, which
must satisfy the needs of patients. Furthermore, the mission (or the purpose) of a
hospital is to provide effective care to the community.
The mission (or the purpose) of an organization should be carefully and clearly
formulated, indicating the true targets and the actual improvement of the organiza-
tion, be understood by all the organizational stakeholders concerning the chal-
lenges and the importance of the mission, include “a sense of strong vision,” and
focus on the “emotional involvement of staff members” (Campbell & Yeung, 1991,
pp. 17–18).
The mission should be communicated to organizational members directly, as
should the organizational strategy for achieving a superior organizational perfor-
mance. An organization’s mission is communicated through the formulation of a
mission statement which serves as a communication channel—a two-way process
of information flow regarding an organization’s strategic choices and directions
between managers and staff members. The mission statement should create a cli-
mate of mutual, real, motivating, inspirational, and clear understanding of the orga-
nization’s purpose and activities (Cady et al., 2011; Čuić, 2013; Falsey, 1989; Huff,
Floyd, Sherman, & Terjesen, 2009; Lynch, 2006; Stemler & Bebell, 1999; Verma,
2009). The mission statement is not just a simple transmission of information about
the organization but it is a process (depending on the content) that influences either
positively or negatively the thoughts, views, and behavior of an organization’s
members and consequently their performance.
Hence, managers should not write statements without considering and under-
standing the organization’s alignment, but they should focus on more meaningful
statements that contain two-way communication about the internal and external
organizational environment and strong motives for the development of the team
spirit among the organizational members (Cady et al., 2011). In other words, they
should distinguish “organizational effectiveness” from “organizational actions.”
Therefore, the mission of an organization is a general determination which is
very crucial. And this is because, through the mission, goals and activities are clari-
fied and the strategies and policies of the organization are outlined. Due to its great
importance, during the development of a mission’s declaration, the organization’s
management must take into consideration three basic elements (Fagiano, 1995; Hill,
Jones, and Schilling, 2015; Kanellopoulos, 1995; Kaplan & Norton, 1996; Rarick &
Vitton, 1995; Verma, 2009), namely, the history of the organization, the distin-
guished abilities of the organization (i.e., the things the organization performs well
at), and its environment, which we will address in the second chapter of this book.
1.2 What Is Vision? 3

1.2 What Is Vision?

1.2.1 Aim and Meaning

In the relevant literature, it is often mentioned that each social organization, regard-
less of its type of activity, must have vision, since vision expresses the expectations
and dreams of the organization’s members about its future. An organization’s vision
expresses its desired results, it should be in accordance with the organization’s val-
ues and culture, and it should be inspirational and go beyond the ordinary. It is the
basis for the expectations created regarding the organization’s future. Vision “is the
ability to see the bigger picture and to take the long term view” (Whitehead, 2002,
cited by Mullins, 2010, p. 392). The term “vision” is considered as “the description
of ideals and organizational goals” (Spanos, 1993, p. 57), “the dream of the future
we wish to create for our group. Vision is not what we are, but what we want to
become. Creating vision is the essential act of leadership” (David & David, 2015,
p. 171; Matejka, Kurke, & Gregory, 1993, p. 34), “the values that shapes its culture”
(Curran & Totten, 2010, p. 116), “ a picture of what the firm wants to be and, in
broad terms, what it wants to ultimately achieve” (Hitt, Ireland, & Hoskisson, 2017,
p. 18), and “an expectation, a hope, a dream about an ideal future, better than the
present and anticipated by the people” (Bouradas, 2005, p. 88). For example, the
vision of a hospital unit might be its future status as a “quality hospital,” striving for
excellence.
Based on the above definitions, we can see that vision moves an organization’s
mission forward, since “it is addressed to the mind and heart of the organization’s
people” (Bouradas, 2001, p. 53). In the case of a hospital unit, accepting a specific
vision has the potential to become a spiritual and sentimental challenge because the
members of the hospital community must answer to basic questions such as:
• Which ideals do we want to achieve?
• What would that mean about us?
• Do we have to make sacrifices during the year to make the vision a reality?
• Will we be able to respond if we have to act differently?
From the answers to the above questions, we can infer whether or not (a) a vision
is feasible, that is, whether it derives from a clear and rational perception of the
organization’s function, or if it is just a “chimera” or a good intention, and (b) the
majority of the team’s members are making additional sacrifices for a better future.
The vision should imply a united effort since it can lead to changes in behavior and
certainly influence performance. For this reason, the development of effort enhance-
ment, enthusiasm, and optimization should be integral elements of a vision (Matejka
et al., 1993; Ricci, 2011). Therefore, in order to improve an organization’s function-
ality, a feasible vision serves three basic purposes (Kotter, 2012):
First, to clarify the general direction of change (e.g., of working methods) since
most of the time the organization’s members disagree on new methods for conduct-
ing work. The weakness of taking decisions can be overcome when it is explained
4 1 Basic Dimensions of Strategic Management

that the suggested way of working is actually better than the current one. Moreover,
a clearer direction may lead to a simplification of procedures and, by extension, to
a reduction in human efforts and costs.
Second, to incite the members of the organization to take actions toward a defi-
nite direction, even if the initial steps are painful at a personal level. However, a
feasible vision acknowledges that sacrifices are necessary while making it clear that
these sacrifices will benefit and cause a level of personal satisfaction higher than the
present one.
Last but not least, to help coordinate different person’s actions in an efficient
way, since administrators and managers comprehend what they must do, without the
organizational members requesting any clarification which sometimes hinders
unanimous support or causes conflicts, and in a way they can work autonomously.
From the above analysis, we may conclude that a good and feasible vision is
crucial for the decisions and attitudes of a team’s members as it “attracts and incites
people to the implementation of ideal major breakthroughs, giving meaning to
everyday life” (Bouradas, 2001, p. 53).

1.2.2 Vision Transmission

The formulation and propagation of the vision to all members of the organization is
a basic duty of the senior management, since the specific goals and activities for
attaining these goals are formulated and coordinated according to the vision.
However, it is not sufficient just to formulate and propagate the vision because, as it
is argued (Bouradas, 2005), “the vision must be communicated to people in order to
understand and embrace it. To apprehend the distinctive image of a better future and
to see their own improved position in the better anticipated future of the business.
Needless to say, the communication of the vision cannot be done with frames on the
walls and luxurious bows. That must be accomplished through interpersonal com-
munication, so that the employees can be convinced about the honesty, commitment
and the passion of the senior management for this issue, except for the acknowl-
edgement of the vision” (p. 89). In other words, in order for a vision to be effective,
it must be simple, understandable, and transmitted convincingly, since these fea-
tures help an organization’s members’ actions to be addressed, aligned, and inspired.
Nonetheless, with an unclear vision, it is difficult to lead an organization’s members
to take correct and proper decisions, and the greatest, insignificant decisions may
create intense conflicts, consume energy, and destroy members’ moral. Or, as Kotter
(2012) put it distinctively, “You are going to confront problems when you cannot
describe within five minutes the vision that constitutes the motivation of an initia-
tive for changes, so as to get a reaction showing that you understand and care”
(p. 8). It is true, though, that the success or failure of the vision’s transmission
depends on many unknown factors such as how it will be transferred or how it will
be perceived by the recipient. However, four basic steps provide useful guidelines
for communicating the vision:
1.2 What Is Vision? 5

• Focus on both the qualitative and quantitative elements of a vision. The basic
elements for the effective transmission of a vision are clarity, inclusiveness, and
honesty.
• Consider the conditions under which the recipients (stakeholders) will receive
the vision’s message such as how, when, and where it will be transferred.
• Promote two-way communication. In order for the manager to be certain that the
vision is understood by the members, he should give them the opportunity to
freely express their views. Certainly, this action needs to be linked with “practi-
cal methods” for a climate of cooperation and mutual understanding to be
created.
• Have a good understanding of the role of informal communication. This means
that effective communication channels are established within an organization
when managers use the informal organizing so as to complete the communica-
tion channels of the formal organization. Hence, it is essential that the upper
hierarchical levels of an organization are in touch with the lower levels so as to
capture any misunderstanding in the vision’s transmission.

1.2.3 Characteristics of an Effective Vision

From the above, it becomes evident that the actual power of a vision is unleashed
when most implicated parties in the organization comprehend its goals and direc-
tion. To make this happen, a vision must be effective, i.e., it needs to incorporate all
the elements required for the goals to be achieved. According to Kotter (2012), an
effective vision has the following characteristics:
• It is understandable, clearly describing a future image of the organization.
• It is feasible, consisting of realistic goals.
• It is clear enough, indicating in an unambiguous way the direction of the deci-
sions that needs to be taken.
• It is flexible, leaving room for individual initiatives and future actions as circum-
stances change.
• It can be transmitted, i.e., easily explained, within short amount of time.

1.2.4  evelopment of Leaders/Managers Toward the Creation


D
and Transmission of a Vision

At first we have to notice that scientists’ views diverge regarding the nature of lead-
ership capability. The smooth and efficient function of an organization and hence a
hospital presupposes that harmonious cooperation between leaders and staff mem-
bers is assured. In order for this to happen, a leader should create effective commu-
nication channels with his/her staff members. Here, communication channels are
6 1 Basic Dimensions of Strategic Management

intended to mean that staff members should be kept informed of what is happening
in the organization (hospital) and about the plans and future actions of the organiza-
tion. On one hand, there are those who claim that leadership capability is acquired
(Skoulas, 1983, p. 83, Williams & Johnson, 2004)—you are not born a leader but
you become one. Consequently, this capability can be obtained. Also, the art of
leading is not static but dynamic. The leadership’s function is based on principals
and mechanistic standards that constantly change. A leader must adjust to, and be
familiar with, habits, cultural traditions, systems of values, and society’s expecta-
tions. On the other hand, there are researchers such as Professor Zaleznik who sup-
port the view that “leadership cannot be taught” (Zaleznik, 1977). This view can be
valid for persons who are qualified with leadership abilities and in conjunction with
interacting variables (such as followers’ goals, occasional activities) (Brown, 1981;
Kourtis, 1977). A failure in the communication within an organization (a hospital)
could lead to misunderstanding, agitation, and strong feelings of disappointment.
Consequently, the role of the leader in the communication flow is crucially important.
If we take into consideration (a) the theory that “leadership is much more than
technique” (Northouse, 2012; Zaleznik, 1977) that it is more than a combination of
talent and capabilities (insight, boldness, concern, persuasion, etc.) which someone
must have and (b) the fact that most people in leading positions are not born leaders,
we can accept the opinion that “skill and foresight that an efficient leader should
have, can be obtained through education and experience” (Williams & Johnson,
2004; Zavlanos, 1998, p. 294).
By applying the above thoughts to hospitals, we may claim that the development
of hospital leaders’ leadership capabilities is not accomplished after a seminar last-
ing just a few days or weeks or through the attendance of a bachelor or master’s
program in a health unit’s management. Indeed, more education could actually help
managers to a degree. The exploitation of the organization’s (hospital’s) workplace
is also required, since the workplace and its environment are fundamentally signifi-
cant factors in the ongoing development of leadership abilities (Kotter, 2012; Saitis
& Saiti, 2018).
But how can that happen in a hospital unit? A leader’s responsibility is not con-
fined to ensuring that the necessary conditions for the smooth operation of a hospital
are in place. A good leader must take care of the staff member’s development simul-
taneously as a trainer. He/she must transmit to his/her collaborators the required
knowledge and capabilities so that they can perform their work effectively.
For example, the doctor that starts practicing with a vast amount of knowledge
and some practical experience, it is certain that he will need management support
due to the complexity and frequent changes in the medical field, if they are to
respond to their duties in a successful and efficient way.
In reality, a hospital manager should, on a daily basis, support all staff members
through encouragement and guidance and by ensuring a working environment that
allows them to improve themselves, that is, behaving toward them as though they
are better at their work than they really are. This enhances the personnel’s confi-
dence and by extension increases the likelihood of reaching an exceptional
performance.
1.2 What Is Vision? 7

Since an individual does willingly what is really in their personal interest, a hos-
pital manager should stimulate his/her colleague’s interest in their duties. Or as
characteristically is said, “most people are satisfied and incited from their work,
when through it, evolve their knowledge, abilities and personality. Human develop-
ment boosts confidence and contributes essentially to professional evolvement and
progress, and it satisfies the needs of integration and self-esteem” (Bouradas, 2005,
p. 296).
Hence, a question arises: what are the basic points around which the education of
staff members must revolve? Even though development is a personal issue (depend-
ing on one’s learning ability, their motivations, and personality), the development of
employees in a hospital unit is strongly affected by the manager. This kind of devel-
opment program must include at least the following elements.

Developing a Sense of Responsibility

Taking as granted that people (hospital staff members included) (a) are responsible
for their actions, so awakening a sense of responsibility is a common feeling, which
can drive employees to greater achievements, and (b) are more interested in a duty,
as they feel more capable of completing it, then the manager must properly train his/
her subordinates about the way they practice their duties and how to encourage and
guide them so they discover on their own the best way to reach the most satisfying
outcome. In a sense, the manager provides a framework for freedom of initiative to
his/her staff members by creating the feeling that they can make a valuable contribu-
tion using their own set of abilities. In order for a manager to enhance the sense of
responsibility, he/she needs to assign responsibilities to the employees. Many man-
agers consider it difficult to assign responsibilities to trainers as they feel that they
are overburdening their personnel or that they are not sure that the work will be done
properly. Some may even agree with McGregor’s theory X, which assumes that
most employees are truants and do not want to take over responsibilities.
Undoubtedly, when we assign duties/responsibilities to inexperienced individuals
for the first time, we will definitely discover that they will need more than the usual
estimated time that we would have needed for those duties than if we had carried out
the task on our own. In line with what has been done, we can support that managers
should share responsibility with their staff members, since assignment contributes
to the development of skills and abilities.

Developing a Sense of Solidarity

The sense of solidarity among the members of a typical organization (and for a
hospital unit) is a basic characteristic of an efficient organization since actions do
not have consequences just for those who carried them out, but they have repercus-
sions for the entire organization. For this reason, as the sense of solidarity increases,
the degree of personnel’s responsibility increases as well. Based on this perception,
8 1 Basic Dimensions of Strategic Management

the manager should know how to develop the feeling of mutual support among his/
her staff members. Of course, it is not easy for a manager to achieve perfect har-
mony among the employees, because they are different persons with varying atti-
tudes, perceptions, aspirations, and behaviors in the working environment. Despite
the difficulties, a manager can confront unpleasant situations (jealousy, competi-
tion, creation of “cliques”), if he/she can preserve coordinated collaboration with all
hospital personnel. Moreover, we must not forget that each staff member easily
examines and judges everything from his point of view without taking into account
the group’s needs. An individual usually sees what bothers or impedes him/her from
carrying out their work. To conclude, the hospital manager’s duty is to give to his
staff members the potential to understand that the effective operation of the hospital
unit must lean on collective effort and all employees must harmoniously work for
the accomplishment of their hospital’s common goals.

Development of Work’s Excellence

The transmission of knowledge and experience to the correct use of available job
tools is a characteristic example in this direction.

Development of Work Execution Planning

The manager ought to teach his staff members that before starting a task, they must
consider the way of completing it. Through this technique, they will be in the posi-
tion to know what they want to do, and in what way, in a predetermined time frame.
Finally, we notice that the nontypical form of personnel’s education from the hospi-
tal unit’s manager is a voluntary activity, the success of which depends on the will
of both sides: managers and employees.

1.3 Objective or Aim1

1.3.1 Different Approaches to Meanings

After defining “mission” and “vision,” there follows an urgent need to design indi-
vidual objectives. Objectives are the horizon toward the collective activity of a
team’s efforts. An actual effective activity can exist when the organization’s

1
In the relevant literature (Cady et al., 2011; Georges, Efthimiadou, & Tsytos, 1998; Mullins,
2010; Sarsentis, 1996, p. 20; Zevgaridis, 1983, p. 20), there is a distinction between objective pur-
poses and aims. The objective purpose or general goal is perceived as a subjective prearranged
desired state that cannot be evaluated accurately by third parties. However, “objective” also has
a special quantitative or qualitative concept. It is about a countable description of a desired result
1.3 Objective or Aim 9

­ embers know what to do. We observe that the aim of an organization (and hence a
m
hospital) is not related to its objectives. The objective of a hospital should be stable
and could be to provide qualitative health-care services and medical care to all
social groups while advancing medical research so as to promote medical treat-
ments. On the contrary, aims are specific but changing expressions of purpose at
each moment, taking into consideration the existing changes (financial, social, tech-
nological) in the hospital’s environment.
Depending on the time horizon, aims are distinguished in the short term (1 year
long), the middle term (2–4 years), and the long term (5 years and over).
Irrespective of time length, aims aspire to create a situation as a result of a col-
laborative action. They pursue changes that take the organization closer to its desti-
nation—changes which, once achieved, can become stepping-stones to new aims.
These objectives are specific and changing expressions of the purpose at every
moment in time.

1.3.2 Categories of Aims

A hospital unit, as a structured organization, has aims which should be completed


through certain procedures. In other words, a hospital’s survival can be attributed to
the transformation of general pursuits and matters of health, which are institutional-
ized through specific and achievable goals. Of course, the aims of hospital organiza-
tions have been a point of reference for many researchers (such as Ginter, Duncan,
and Swayne (2018), Hoy and Miskel (1987), Longest and Darr (2014), Paisey
(1992), and Schulz and Johnson (1990)), and so far there is no commonly accepted
list of categories for these goals. For the purposes of this book, we may adopt Alan
Paisey’s view (1992), according to which three categories of aims must be taken
into account by the organizations (and thus by hospitals):
• Personal aims that are formulated by health personnel and patients. These goals
specify changes that people desire for themselves, working circumstances and
employment terms.
• Hospital aims, which refer to structural changes and which individuals aspire to
separately. There are changes in individuals’ behavior that contain changes in
knowledge, skills, and habits. Hospital aims are mainly to do with changes in the
provision of health-care services.
• Aims of resources that primarily refer to material resources which the employee
needs in order for their task to become feasible. However, if the word “resources”
is defined “as anything at the hospital’s disposal to achieve its goals,” then the

within a given time and certain financial constraints. Since (a) many writers such as Koontz,
O’Donnell, and Weihrich (1980) use these terms interchangeably and (b) in everyday life we do
not make the above distinction uniformly, the terms “objective purposes and aims” will be used
interchangeably in this book.
10 1 Basic Dimensions of Strategic Management

aim of resources can refer to structural changes in terms of human resources and
material resources that are or could be available to the hospital so as to satisfy
individual and hospital aims.
Given that a hospital’s goals are many and material resources are limited, the
hospital management should prioritize the kind of treatments that patients should
have taken as both inpatients and outpatients. As hospital goals need to be set in line
with the resources available, the pursuit of sensationalist performance statistics
should be avoided so as not to stretch the human resources to breaking point.

1.3.3 Strategy for Creating Aims

The way that aims are created has exceptional meaning. That is valid for the hospital
aims and the resource aims as well.
But who is responsible for forming these aims? According to Paisey (1992),
there are two strategies for an organization (and hence a hospital) to formulate
goals: the “downward” (top-down) strategy is imperative, because it is formulated
by a person or a small group collectively, and the “upward” (bottom-up) strategy,
where hospital goals are underlined by the needs of health system (i.e., its users—
the patients). This strategy considers each one’s interests and expresses goals in
coordination with the hospital members’ goals.
Even though both strategies have advantages and drawbacks, we think that in a
democratic society the hospital aims should follow the upward formulation method,
while resource aims must be defined by the central administration which funds the
system. However, the efficient flow of information depends on the formulation of an
organizational structure for the health-care system. In strictly centralized health-­care
systems, however, hospital aims are not formulated by the internal environment and
by the widely accepted views of society, but instead by the central authorities (admin-
istration). Regardless of the type of health-care system and management structure
(whether strictly hierarchical or flat), if the system follows an organization-­enabling
structure, the upward formulation method will be facilitated within hospitals and the
strategic intentions will be communicated to the organizational members in an effi-
cient and effective way that establishes the basis for improved performance.

1.4 What Is Strategy?

1.4.1 Aims and Meaning

Many researchers have converged on the conclusion that the term “strategy” has its
roots in the strictly hierarchical sector of the armed forces and consists of a strategic
plan devised to gain a competitive advantage by putting the enemy in a difficult
1.4 What Is Strategy? 11

position and thus weaken them so as to win the war (Bruce & Langdon, 2001;
Georgopoulos, 2006; Papadakis, 2007; Saitis & Saiti, 2018; Whipp, 1998).
Although “strategy” is sometimes used in the traditional military sense and now-
adays implies a kind of competition, it is used even more to reflect the broader
general ideas of an organization’s operation. In particular, a strategy establishes as
a rule a general program of action and resources’ apposition for the achievement of
certain aims. The formulation of a strategy involves organizational changes that give
value to the organization (Boyd, 1991; Hughes & Beatty, 2005; Kaplan & Norton,
1996; Koontz et al., 1980; Kukalis, 1991). It is related with long-term performance
since it is based on long-term targets and determines the position of an organization
within its environment.

1.4.2 But What Is Strategy?

According to Dubrin (1997), the word “strategy” is defined as the “organization’s


program or the apprehension program for the achievement of mission and aims in
its environment” (p. 133). The strategy is a collective program of what the organiza-
tion wants to be (Boyd, 1991; Silbiger, 1993); it is a guide that makes the actions of
an organization’s members more visible to managers and at the same time allows
managers to ensure the suitability of these actions (Boyd, 1991; Koontz & Weihrich,
2010; Salaman & Storey, 2005).
The term “strategy” (Anthony, 1965) is also viewed as a “procedure followed
to take decisions for the objective purposes of the organization, for changes on
these objective purposes, for the resources used in the achievement of objective
purposes and for the policies that will govern acquisition, use and disposal of these
resources” (p. 24).
There are writers who define this specific term as an action plan (which depicts
the direction of the organization in the competitive environment” (Zavlanos, 1998,
p. 126) and as a dynamic means which “contains the aims and plans of the organiza-
tion and an action program for the achievement of these goals and plans in this
competitive environment” (Kanellopoulos, 1995, p. 86). It examines not only the
organization’s aims but also the means of existence and the general direction of the
organization which is based on the examination and analysis of differences between
the organization’s position and its competitors (Goldstein & Pfeifer, 1993; Hill
et al., 2015; Hitt et al., 2017; Kaplan & Norton, 1996; Melcher & Kerzner, 1988).
Therefore, it is a process that, through operational activities (a sequence of steps),
an organization attempts to achieve its aims and objectives.
Based on the above definitions, it is evident that strategy is not just a group of
rules or programmed directions, but it is rather a full and integrated plan which an
organization should implement so as to respond to its mission and reach its vision.
It also determines the levels of targeted performance (Salaman & Storey, 2005,
p. 104). It is a declaration of intentions which determine what we want to become in
the future.
12 1 Basic Dimensions of Strategic Management

1.4.3  hus, a Question Arises: Why Is Strategy Planning


T
Important for Modern Organizations?

First, we should emphasize the fact that strategy is an important and integral part of
each organization regardless of the size or type of activity that develops within the
organizational environment. This is due to the fact that the environment in which an
organization finds itself is becoming ever more complicated and changeable.
Therefore, a strategy is a continuous process whereby an organization’s current data
is analyzed to determine its future direction. In other words, strategy helps toward
(and indeed enhances) an organization’s effective and superior performance. Among
the basic roles of strategy that contribute to the success of an organization are
(Papadakis, 2007, pp. 34–37):
• Gives an organization direction since strategy determines the long-term plans
and targets to be implemented.
• Supports homogenous decision-making since the decisions for the achievement
of targets lean toward a clear and acceptable strategy agreed by all stakeholders.
• Coordinates all the members’ activities, since the collective action is based on
programmed actions.
• Helps reduce the impact of uncertainties in the external environment since,
through a strategy, it is much easier for a manager to identify and distinguish an
opportunity from a threat. For this reason, a strategy is absolutely necessary in
times of intense changes.
• Gives a sustainable competitive advantage to the organization since it allows the
successful and harmonic connection between the external environment and the
organization’s internal capabilities.
Based on the above, we may support the view that a strategy ensures that the
daily decisions are in accordance with the long-term targets of an organization. On
the contrary, the lack of a strategy increases the likelihood that current decisions
will have a negative impact on the future outcomes of the organization. Furthermore,
a strategy is an important tool for an organization to interact with its environment,
but most of all, it harmonizes the direction of organizational members’ efforts as
they cooperate in order to achieve the organization’s goals (Bruce & Langdon,
2000; Georgopoulos, 2006; Hart, 1992; Kaplan & Norton, 1996). It should be noted
that strategy does not determine exactly how the targets will be achieved because
this can be clarified by the implementation of support programs.

1.4.4 Characteristics of an Effective Strategy

In the previous subsection, we mentioned that strategy can be a complete plan,


applied by the organization to correspond to its mission and to reach its vision. In
order for this plan to attribute to the success of an organization (a hospital), it must
consist of these elements:
1.4 What Is Strategy? 13

• Contain simple and long-term purposes


• For the competitive environment of the organization to have been fully
understood
• For an objective assessment of resources (human and material) of the organiza-
tion to have been carried out and the content, duration, adjustment process, and
changing conditions to have been clarified
• For a formulated strategy to be implemented efficiently and transparently through
a capable and steady management
• To ensure there is support for innovation through a proactive approach
• For members’ staff actions to be well coordinated since the implementation of
any strategic plan is based on a number of interrelated actions

1.4.5 Ways of Avoiding Bad Strategies

It is generally accepted that in times of financial crisis, such as the one we are going
through, every incorrect decision, every wrong choice made by the administration
of the public or private institutions may have dramatic repercussions, both for the
present and for the future of specific organizations. This acceptance leads us to the
following question.

1.4.6  hat Should a Leading Manager Do to Avoid Defective


W
Strategies?

In the daily and weekly press, we often read texts about wrong choices received by
skilled leading managers of large organizations. In particular, it mentions that dis-
tinguished leading managers of organizations (with enough experience and correct
information) succumb to terrible mistakes and make wrong choices that ultimately
lead to strategic mistakes. Of course, strategic mistakes derive from many factors
such as the precaution mechanisms, a leader’s specific character, and the procedure
by which a decision is received and implemented. However, in the case of a defec-
tive strategy, the issue should not be a fear of failure but how a leading manager can
learn from their mistakes. In close relation to this problem, this long-term research
showed that half of the organizational defaults could be avoided if in the entire strat-
egy development process a “Devil’s advocate” was present to evaluate things that
could be done differently (Damoulianou, 2011; Mullins, 2010; Olson & Simerson,
2015; Schermerhorn, Hunt, & Osborn, 2002). In an ideal world, there would be an
independent person (or a group of people) that is/are completely neutral, i.e., they
would not personally benefit in any way from the outcome and the strategy planning
process. The challenge would then be to compose a report for the leadership of the
organization, outlining what is missing from the strategy planning process. For this
14 1 Basic Dimensions of Strategic Management

reason, this specific person would have the right to pose questions to the manager
responsible for strategy design, such as:
• Is this strategy feasible?
• Have you taken into consideration all the dissenter’s requests?
• Have you objectively mapped out the strengths and weaknesses of the
organization?
In this way, it would help leading members to gain a fuller picture of members’
sentiments that incorporates all feedback (both positive and negative) through
upward communication (Saitis & Saiti, 2018). Or, as it was characteristically put by
Goleman (2001), “people who exhibit the Communication competence are effective
in the give-and-take of emotional information, deal with difficult issues straightfor-
wardly, listen well and welcome sharing information fully, and foster open com-
munication and stay receptive to bad news as well as good” (p. 37).
Finally, we notice that the role of the “Devil’s advocate” is not to investigate the
leading managers who are responsible for planning strategies. Instead, their role is
to investigate facts and not the feelings and intuitions that accompany them. Thus,
for this reason, persons who come to rushed conclusions should be avoided.

1.5 Elements of Policy

1.5.1 Meaning

For the objectives and purposes of an organization to become a reality, its adminis-
tration ought to take certain decisions that dictate a certain strategy and define ways
of implementing it. On one hand, these decisions must be compatible with the strat-
egy’s content and programs. On the other hand, they must be coordinated and have
cohesion. Meaningful policies can cover this necessity (Bouradas, 2001).
For Koontz et al. (1980), “policies were identified as guides to thinking in deci-
sion making. They assume that when decisions are made, these will fall within
certain boundaries. Policies do not require action, but are intended to guide manag-
ers in their decisions commitments when they do make decisions” (p. 274). It is
general declarations or perceptions guiding or defining the course of thoughts and
energies when taking decisions (Koontz et al., 1980, p. 164). Based on this percep-
tion, “policy” defines an area in which a decision is going to be taken and ensures
that the decision will be consistent with the organization’s goals. According to
another view (Dubrin, 1997), the term “policy” is considered as a general guideline
that must be followed for the organization’s decision-making and activities. Some
writers converged on the conclusion that the term “policy” in fact refers to “docu-
mented guidelines that make the company’s strategy specific” (Papoulias, 2002,
p. 135) and includes “guidelines, rules, and procedures established to support efforts
to achieve stated objectives and are guides to decision making and address repetitive
or recurring situations” (David & David, 2015, p. 46). For others, policies constitute
1.5 Elements of Policy 15

“general directions of activity in which objective purposes are joined” (Sarsentis,


1996, p. 21) and also “general and unstable directives that make it easier for manag-
ers to make decisions, allowing them to use their judgment in specific restrictions”
(Kanellopoulos, 1995, p. 82).
From the abovementioned definitions, it is evident that researchers in science
administration do not agree on a commonly accepted definition of the term “policy.”
However, we may perceive “policy” to be either “a general declaration” and “a gen-
eral guideline” or a “documented directive” and “general activity directive,” which
is nothing more than the administrative mechanism which sets the framework for
decision-making in relation to the objectives of the organization (hospital).

1.5.2 Approaches to the Term “Policy”

Even though policies are designed to be consistent with strategic plans, they do
leave room for interpretation by the competent single member or collective admin-
istrative body. There lies a critical point in the application of policies, since their
interpretation by managers may possibly lead to directives that take the organization
away from its goals. To illustrate the point, we will mention an example of policy
and how this can be interpreted.
Example of a policy: “When you choose the leading manager in the field of
health care, take into consideration only the candidates who are administratively
capable or promising to become administratively capable with good personal char-
acter and are distinct for their social offer.”
The members of the Selection Committee who will be called to apply the above
policy must answer the following questions:
• What do we mean by the term “administratively capable”?
• How can we evaluate the “administrative ability” of each candidate manager?
• What do we mean when we say that a candidate must have “good personal
character?”
• What does “promising to be administratively capable” mean?
• What can we include in the meaning “social offer of the candidate”?
The above example not only shows the degree of difficulty in the interpretation
of a policy but also proves why in many cases its implementation is administratively
rather difficult.

1.5.3 Difficulties in Understanding the Term “Policy”

According to what was previously mentioned, the term “policy” is most commonly
regarded as a predefined frame in which managers must take decisions for issues
concerning the organization’s operation. However, because the above term can be
16 1 Basic Dimensions of Strategic Management

an object of misunderstanding, we consider it appropriate to mention two examples


from a hospital environment in order to better comprehend the term “policy.”
Example 1 Employment of medical personnel.
“No doctor of secondary care is allowed to have a private practice while being a
hospital employee.”
Example 2 Granting permission to participate in a conference, postgraduate
course, or research study.
“Every manager (Clinic or Hospital) or Science Council can grant hospital staff
permission for participating in a Conference, Postgraduate course or Research study
as long as it suffices to meet scientific reasons and the proper functioning of the
hospital is not disturbed.”
By granting a hospital’s medical staff the permission to participate in a confer-
ence, master’s course, or research study, the scope of a manager’s personal judg-
ment remains fairly broad and that is why this case counts as a policy. On the
contrary, a doctor’s employment policy does not leave any freedom for a manager’s
personal judgment so it counts as a rule. By saying “rule,” we mean a certain course
of action that must be followed by all members of the organization. It is a certain
type of expression that is used to inform someone what they must or must not do.
For example, the phrase “the use of mobile phones during class is forbidden,” which
expresses a specific way of behavior, is a rule (Kanellopoulos, 1995). Therefore,
rules allow organizations to put their employees in positions of responsibility, so
they cannot act differently.
In conclusion, policies do not require action but do provide leading managers at
all administration levels with the right to act in accordance with their judgment.
Otherwise, if an instruction does not require a manager’s personal judgment during
the decision-making process, then it is a rule.

1.5.4 Is “Strategy” Different from “Policy”?

According to Koontz et al. (1980), “strategies and policies have a close relationship
with each other” (p. 274). The abovementioned researchers claim that strategies
express a general command of action and a development of effort and resources for
the achievement of essential objectives. A strategy concerns the direction toward
which human and material resources will be used in order to maximize the possibil-
ity of achieving a chosen goal. Policies, however, are thought’s guiders during
decision-­making. Hence, the essence of a policy allows an administrative manager
to act according to his/her judgment. Furthermore, while policies do not demand
action, their purpose is to guide administrative managers in their commitments
when they take decisions.
Some policies and strategies that give a consolidated direction to the entire orga-
nization can essentially be coextensive. However, we can make a logical distinction
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