How would one classify the strategic approach the managers chose, and to what types of services did it direct them? A hospital management company recently acquired a 150-bed general hospital in a medium-sized city in the southeastern United States. Although the company had little knowledge of the local market when it acquired the facility, its first thought was to continue to run the facility as a general hospital. However, given that the hospital had not been profitable in offering general care and that it faced competition from three large facilities that had access to almost unlimited resources, the new managers chose to perform a situational analysis to determine the most appropriate strategy.

The managers commissioned a study of the immediate market area—the five-mile radius surrounding the hospital. This market area was examined in the context of overall trends for the metropolitan area. The analysts reviewed demographic trends to determine the future size and composition of the population as well as trends in service utilization, and then developed projections of the future demand for health services in the urban area and the immediate market area. Particular attention was paid to the competitive situation to determine the services offered by other facilities, existing market shares for those services, and the nature of existing managed care contracts and other negotiated relationships.