BME Luxury Care Home Case Study
Read the following case study and answer all the questions that follow.
As a manager of BME Luxury Care Home – a registered business operating in England, the directors have asked you to consider the viability of investing in a privately owned and managed nursing home. This is of course led by an ever-increasing demand for such services among an aging population in England. The mission statement is: “a commitment to excellence in long-term support and care”. The plan is to, expand over time, to a network of at least five luxury facilities in London.
The vision of the directors is to achieve the highest possible level of person-centred care in a home-like environment. Long-term care includes medical and non-medical care for individuals who need support with their activities of daily living. Many of the service users would be self-funding but some would be eligible for social care funding. Users may have a range of complex needs and/or disability that may challenge their ability to carry out certain activities of daily living.
The financial statements for the care home facility are summarised below:
|
BME Luxury Care Home
Balance Sheet Year Ended December 31, 2017 |
Assets
Current Assets: Cash and cash equivalents |
£105,737 |
Investments | £200,000 |
Net patient accounts receivable | £215,600 |
Supplies | £87,655 |
Total current assets | £608,992 |
Property and
equipment |
£2,250,000 |
Less accumulated depreciation | £356,000 |
Net property and equipment | £1,894,000 |
Total
assets |
£2,502,992 |
Liabilities and Shareholders’ Equity Current Liabilities: Accounts payable |
£72,250 |
Accrued expenses | £192,900 |
Notes payable | £100,000 |
Current portion of long-term debt | £80,000 |
Total current
liabilities |
£445,150 |
Long-term debt | £1,700,000 |
Shareholders’ Equity:
Shares, £10 par value |
£100,000 |
Retained earnings | £257,842 |
Total shareholders’ equity | £357,842 |
Total liabilities and shareholders’ equity | £2,502,992
|
Prepare a 1500-word internal memorandum for the directors of the care home, critically discussing the advantages and disadvantages of at least two strategic planning models appropriate to the care sector in England. The directors expect a recommendation as to which model you propose for business growth and why? (1500 words) (35 marks) (LO1)
Memorandum
To: The Directors, BME Luxury Care Home
From: Name of Student Senior Manager
Date: 17th May 2020
Subject: Proposed Strategic Planning Models
Following the request to assess the viability of a proposed investment in a private managed nursing home, this memo seeks to review a number of strategic planning models suitable to the healthcare sector in England. The vision is to accomplish the maximum possible person-centred healthcare within an ambient home-like setting. The provision of Long-term care consists of both non-medical and medical care for persons who require support with their daily living activities due to a wide array of complex needs and disabilities. In England, there is an ever-increasing demand for nursing home services due to the large ageing population. The organization plan is a steady expansion to a vast network that consists of a minimum of five luxury care facilities within London. The memorandum offers a critical discussion of the advantages and disadvantages of four main strategic planning models suitable to England’s health care sector. A recommendation as to the preferred model will be proposed to support the organizational expansion plan.
Strategic Planning
England’s healthcare industry is continuously changing and developing at a higher rate. In the last two decades, it has become increasingly important to focus on planning for the future to ensure a successful healthcare practice in the short term and long term. By planning for unknown factors, BME Luxury Care Home will be better equipped for attaining sustainable growth (Hamdan 2017). Strategic planning in healthcare involves the creation of objectives as well as setting goals for where the organization would like to be in the future, and building a sound plan to realize these objectives (Walston & Walston, 2018). In healthcare planning, there is a need to take into consideration the possible changes in the U.K government policy, advancements in medical technology, and economic trends, which can change the operations considerably.
Strategic Planning Models
Porters Five Forces
Porter’s Five Forces is a strategy execution model that was created in 1979 by Michael Porter around five significant forces, which can impact the overall profitability of the healthcare industry. The five forces examined by the model are the threats of entry, substitute services offered by other healthcare homes, customer bargaining power, suppliers’ bargaining power, and the competitive rivalry amongst existing firms within England’s healthcare industry. The extent of pressure on each of the five forces will help determine how future events could have a negative or positive impact on future organizational growth. The advantages of Porter’s model include simplicity but a robust model that can be used to gain an in-depth understanding of the competitiveness of the environment and to ascertain the potential profitability of the growth strategy. Using the model does not necessitate specialized training and technical skills. Primarily, teams with health knowledge and widespread familiarity over the care industry and robust research skills can use the analytical model.
Another advantage is usefulness in understanding the forces in the healthcare industry’s external environment that influence the profitability of BME Luxury Care Home, which in turn can be used in adjusting the growth strategy accordingly. But, the five forces analysis has a number of limitations, including the underlying assumptions of relatively static health care market structure. Another criticism is the composition of the static model since its applicability window is narrowed by fast-evolving external trends in healthcare, such as fast technological advances. The final problem model is the focus on the qualitative assessment of an organization’s strategic position, without quantifying the forces and factors affecting performance.
VRIO Framework
The VRIO framework is an essential analytical model used to evaluate the healthcare organization’s internal situation. The model explicitly determines if its existing resources and capabilities could be a viable source of sustainable competitive advantage in the long-run. The VRIO strategic model is an acronym that stands for value, rarity, imitability, organization of the strategic planning method that relates more to the vision statement than the overall corporate strategy. The eventual goal of implementing the VRIO strategic model is to create a competitive advantage within the market. The first component of the model is the value that reviews whether an organization can readily exploit opportunities such as the growth in the ageing population or neutralize external threats using specific resources. The second component rarity evaluates whether there exists intense competition in the England luxury nursing home market, or whether few nursing homes control resources in the healthcare market. Next, the imitability component of the model assesses if other nursing homes can easily imitate the organizational core products, or would it be hard for another nursing home to offer premium care services. Finally, the organization component assesses whether BME Luxury Care Home organized enough to exploit the products and resources readily.
There are numerous advantages of the VRIO model, including the easy application since one does not any form of specialist training. Besides, the strategic model can help identify unused competitive advantages that could be easily transformed into sustained competitive advantages.
But, one of the disadvantages of the model, it is hard to problematic to apply to small-sized firms and new companies. They do not have ample resources and capabilities to identify sustained competitive advantages. Also, the health care industry is continuously changing; hence it is difficult to conclude that the organization has achieved a permanent, sustainable competitive advantage. Finally, the VRIO model does not consider critical internal factors that affect revenues, such as shifting and fluctuating demand in the nursing home care markets.
Blue Ocean Strategy
This is a strategic model that aids health care organizations in developing within the uncontested market space (Blue Ocean) rather than developed and saturated markets (Red Ocean). BME Luxury Care Home could create a blue ocean within the luxury markets of the England health care industry to generate higher value for company, clients, and employees. The strategic model offers the synchronized pursuit of differentiation as well as low cost aimed at opening up a new market in the nursing home care while creating new demand for the health care services. The model will assist in moving from the barriers of competing in the existing healthcare industry and cost structures and gradually shift towards the constructive improvement of value. Notably, value innovations are the backbone of the Blue Ocean Strategy, which plays a pivotal role in the healthcare industry. Value innovation refers to the alliance of innovations with prices, cost, and utility positions, which ultimately creates new value and demand for the consumers and in that way, expands the probabilities of growth potential.
The Blue Oceans strategic model is advantageous as it creates and captures uncontested markets. Hence, this will allow BME Luxury Care’s competition irrelevant as it is based on the assumptions that the actions of industry players can remodel that market borders and structure of the industry. Besides, delving deeper into the blue ocean will shift the organization from market competing into the market, creating to tap into unripe growth. The drawbacks of the strategy include challenges in devising futuristic ideas and identifying massive and unexploited markets. Also, the Blue Ocean Strategy requires calculated and comprehensive research processes that are backed by extensive and technical analysis. Finally, venturing into markets in the early stage poses numerous risks to the organization.
SWOT Analysis
The SWOT matrix is a high-level strategic model used at the start of organizational strategic planning. The model aids in determining the strengths and weaknesses in the internal environment as well as key opportunities and threats in the external environment. The SWOT analysis aids organizations in various industries in the analysis of their business operations and has been implemented by hospitals and other health care organizations owing to its effective, simple and straightforward approach. Besides, the SWOT analysis has minimal cost and time implications in addressing complex situations. Finally, the SWOT analysis concentrates on the important internal and external factors affecting the business that will aid in developing goals and strategies. But, the principal drawback is that the SWOT analysis identifies and understands the important issues affecting an organization; however, it does not necessarily provide solutions. The SWOT analysis could be limited as it does not prioritize issues, does not offer alternative decisions, and produces a lot of information by generating many ideas but does not select the best ideas.
Recommendation
The directors should adopt the Blue Ocean Strategic model as it breaks free from the conventional strategic models and expands both demand and profitability in the long-run. The critical point is the satisfaction of clients’ needs through value addition, which is well-aligned with the target market. Currently, the U.K nursing home market is a well-known and developed market as most players fight for existing customers to attain leadership. The use of the Blue Ocean strategy will allow BME Luxury Care Home to focus more on the unknown market with few competitors and high demand. This will aid in supporting future growth and expansion plans using innovations and value addition in its narrow luxury segment within London.Task 2:
The word count for 2a and 2b should not exceed 1000 words in total.
1. Briefly discuss the usefulness of a Du Pont analysis to shareholders and then apply it to BME Luxury Care Home using the financial statements above as a basis for your calculations. You must discuss the purpose of each formula, and each step in your calculations to make sure you have not made any errors.
Discuss your findings in the context of the following industry averages:
Total margin 3.5%
Total asset turnover 1.5
Equity multiplier 2.5
Return on equity (ROE) 13.1% (10 marks)
1. Calculate and interpret the following ratios. You must explain the purpose of each formula, and each step in each calculation. Discuss your findings in the context of the following industry averages
Return on assets (ROA) 5.2%
Current ratio 2.0
Days cash on hand 22 days
Average collection period 19 days
Debt ratio 69%
Debt-to-equity ratio 2.5
Fixed asset turnover ratio 1.4 (10 marks)
(1000 words) (20 marks) (LOs 2 & 3)
Task 3:
Critically evaluate the use of non-financial and multidimensional models of performance management in preparation for a discussion with your management team. Choose the Balanced Scorecard or the Performance Pyramid as a basis for your discussion. (1500 words) (35 marks) (LO4 & GA)
NOTE: Your final submission must include all three questions (with calculations) in a SINGLE document in MS Word or as an Adobe Acrobat .pdf document.
Ten additional marks are allocated for presentation, referencing and academic writing.