Organizational configurations and strategies related to financial performance in medical group practices: A test of Porter's generic strategies

Abstract

Research in the field of organizational configurations (OC) involves the formation of groups of firms that are similar to each other on certain characteristics, and dissimilar from other groups, and explores organizational performance differences between the groups (Ketchen & Shook, 1996; Short, Payne, and Ketchen, 2008). However, OC is replete with literature lacking in common key terms, measurement methods, and specification of variables, and too few empirical articles with a strong theoretical basis have been published (Short, Payne, & Ketchen, 2008). Porter’s (1980, 1985) generic strategies are a specific typology within the field of OC that have been used extensively in the literature. Through a review of the major academic literature databases, however, only one empirical study (Payne, 2001) has been published that specifically uses Porter’s generic strategies with a sample of medical group practices. Therefore, following a call from Shortell and colleagues (2005) for theory-driven research regarding predictors of high-performing versus low-performing medical groups, this paper used data from the MGMA 2009 Cost Survey to explore the financial performance differences between medical practices that were classified into one of several strategy groups, based on Porter’s generic strategies. This study also used an inductive methodology, a cluster analysis, to divide the sample into six distinct groups, which were then compared with the features and performance of the groups created with deductive methodology, Porter’s generic strategies.

The findings of both the inductive and deductive methodologies suggest that medical group practices using a differentiated strategy were the best performers, with cost leaders, hybrids, and mixed strategy groups having similar performance levels. Specifically, medical group practices that provided a greater number of ancillary services, had at least one branch office, and spent more on advertising and furniture/equipment, were more likely to have higher profit ratios than other practices. However, the inductive technique indicated that having a low accounts receivable ratio, a cost leadership strategy, may also be related to a high profit ratio. Overall though, while this paper partially supports Porter’s generic strategies typology, the inductive methodology was relatively more efficient in explaining the variation in the dependent variable based on the eight strategy indicator measures developed within the study. The findings of this study provide additional support for Porter’s generic strategies, as well the overall field of organizational configuration research, and will advance the knowledge base within the field of health care regarding the strategy-performance links within medical group practices.