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New and continuing environmental demands and competitive forces require healthcare organizations to be increasingly careful in thinking about their strategies. They must do so in a highly unusual (multi-actor) marketplace where a variety of system interdependencies complicate decision-making. A good strategy requires an attempt to understand the real, as distinct from the perceived, environment, and is characterized by explicit tradeoffs along three dimensions: service or program variety, patient needs, and patient access. The quality of these tradeoffs can be assessed in terms of whether the strategy is (a) attuned to critical success factors in the organization's environment, (b) highly focused, (c) linked to the organization's capabilities, and (d) accompanied by an activity set that is difficult for competitors to imitate. An organization also must be capable of adapting appropriately to changes in its environment. Thus, even the best strategy must be reviewed constantly if it is to remain viable. A strategy's sustainability can be adversely affected by increased buyer or supplier power, lowered barriers to entry, growing rivalry, the threat of substitutes, and increased slack in resource usage. By thinking more creatively in the future than they have in the past, healthcare organizations can make tradeoffs and choose a focused strategic position. They then can design an activity set that is appropriate for that position, and that will assist them to achieve both financial viability and superior programmatic performance. A well-designed activity set also will assist them to sustain their performance in the face of changing environmental demands and competitive forces.