Hospitals experienced far-reaching changes over the past decades. A new market-driven economic environment leads to an intensified competition on the hospital market and challengesthe traditional understanding of the strategy formation process. Given that strategic decisions must meet economic and medical demands, strategic issues cannot longer be solely developed and processed by management professionals. Instead, successful strategy formation also depends on the development and processing of unintended strategic issues generated through the expertise of medical professionals. Consequently, manager’s competence and medical expertise have to be connected to capitalize on their mutually exclusive knowledge. In sum, the literature is unambiguous in that hospitals represent complex organizations in which the simultaneous processing of intended strategic issues from the board of executives and unintended strategic issues from medical professionals is of utmost importance. However, empirical evidence on strategy formation as a collaboration between management and medical professionals is scarce and theory of strategy formation in hospitals is poor. The aim of this doctoral thesis is to address these research gaps by developing a theory of strategy formation in hospitals, thereby understanding how and why strategic issues are processed and integrated into the strategic agenda.