Term Paper on "Strategic Management Process"

Term Paper 4 pages (1299 words) Sources: 5

[EXCERPT] . . . .

Strategic Management Process

Brookdale Senior Living competes in the Assisted Living industry. Brookdale's operations are national in scope in the United States, and they operate 548 senior living and retirement communities (BrookdaleLiving.com, 2009). The industry has been subject to strong growth in recent years, but the recent collapse of the American housing market is causing some stagnation in the industry.

One tool to analyze any industry is Porter's Five Forces. These forces are supplier power, buyer power, barriers to entry, threat of substitutes and degree of rivalry (QuickMBA.com, 2007). Put together, these forces indicate how favorable an industry is. This analysis will be taken in the context of Brookdale, currently the industry leader in the U.S.

Supplier power is medium-to-high; for Brookdale leaning more towards medium. Suppliers to the industry are large suppliers of institutional goods, for whom assisted living companies typically make up a small portion of business. Contracts generally reduce the ability to switch between suppliers. Brookdale is sufficiently large to win favorable nationwide negotiations, giving it a competitive advantage over smaller operators. There is low threat of forward or backward integration in this business. The difficulties that the major firms in the industry have had with regards to profitability in recent years, despite occupancy over 90% (Assisted Living Federation of America, 2009)

Buyer power is high. Brand strength in the industry is low. The industry is fragmented, only beginning in recent years to see consolidation, as evidence by the rapid growth of Brookfield and competitor Emeritus (MSN Moneycentral, 2009). Combined with high price sensitivity, buyers have choice with respect to their continuing care options. Firms compete on price, facilities, location, staff and several other variables. That there are a number of different types of assisted living facilities complicates the issue for most firms in the industry. There are a wide range of substitutes available as well.

There are low barriers to entry. Assisted living facilities have a moderate start-up cost. There is a relatively low learning curve. They must meet certain regulatory requirements, both at the federal and state levels, but these do not appear to be deterrents, in part because governments recognize the need for a proliferation of ALFs. There are certain economies of scale, which give advantage to larger operators. Indeed, there is the ongoing threat presented by major institutional operators such as Marriott and Hyatt moving into the industry, as they have most of the core competencies and ample cash (Ginn & Young, 2003).

There is a high threat of substitutes. In addition to the myriad of segments within the continuing care industry (assisted living, independent living, nursing homes), there is also a significant threat from seniors who wish to continue living at home. Indeed, the recent collapse of the housing market has compelled many seniors to delay selling their home, which in turn has caused a slump in the assisted living industry (Grimes, 2008). Complicating the issue is the high degree of turnover in some segments of assisted living. New customers must constantly be attracted as older ones either pass away or move on to other types of continuing care.

There is low intensity of rivalry at present in the assisted living industry. The industry is highly-fragmented (low concentration) and there are fairly low barriers to exit, primarily due to relatively low fixed costs. The industry has been growing rapidly as the baby boom generation begins to enter its senior years, fuelling demand within the industry. At present, there is some overcapacity, but well-run and well-located facilities operate at over 95% capacity (ALFA, 2009). There is some diversity of rivals, but the growing market and multitude of players means that firms seldom compete against each other, but are focused more on internal efforts to boost revenues and cut costs.

Overall, the assisted living industry is relatively favorable at present for Brookdale. Although the current challenges with respect to the economy have impacted… READ MORE

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