Health & Medical Care and Accesibility Question

The current issue and full text archive of this journal is available at www.emeraldinsight.com/1755-425X.htm Healthcare strategic management and the resource based view Healthcare strategic management Bita Arbab Kash Department of Health Policy and Management, Texas A&M Health Science Center, College Station, Texas, USA Aaron Spaulding Department of Public Health, Brooks College of Health, University of North Florida, Jacksonville, Florida, USA Larry D. Gamm 251 Received 18 June 2013 Revised 19 November 2013 19 December 2013 Accepted 23 December 2013 Department of Health Policy and Management, Texas A&M Health Science Center, College Station, Texas, USA, and Christopher E. Johnson Department of Health Services, University of Washington, Seattle, Washington, USA Abstract Purpose – The purpose of this paper is to examine how two large health systems formulate and implement strategy with a specific focus on differences and similarities in the nature of strategic initiatives across systems. The aim is to gain a better understanding of the role of resource dependency theory (RDT) and resource based view (RBV) in healthcare strategic management. Design/methodology/approach – A comparative case study design is used to describe, categorize and compare strategic change initiatives within a children’s health and a multi-hospital system located in two competitive metropolitan markets. A total of 61 in-person semi-structured interviews with healthcare administrators were conducted during 2009. Summary statistics and qualitative content analysis were employed to examine strategic initiatives. Findings – The two health systems have as their top initiatives very similar pursuits, thus indicating that both utilize an externally oriented RDT method of strategy formulation. The relevance of the RBV becomes apparent during resource deployment for strategy implementation. The process of healthcare strategic decision-making incorporates RDT and RBV as separate and compatible activities that are sequential. Research limitations/implications – Results from this comparative case study are based on only two health systems. Further, the RBV perspective only takes managerial resources and time into consideration. Practical implications – Given that external resources are likely to become more constrained, it is important that hospitals leverage relevant internal resources, in the identification of competitive advantages and effective execution of strategic initiatives. Originality/value – The author propose a refined healthcare strategic management framework that takes both RDT and RBV into consideration by systematically linking strategy formulation with deployment of resources. Keywords Strategy implementation, Resource based view, Healthcare strategic planning, Strategic management framework Paper type Case study This study was funded by the National Science Foundation’s Center for Health Organization Transformation’s Grant No. IIP-0832439. Journal of Strategy and Management Vol. 7 No. 3, 2014 pp. 251-264 r Emerald Group Publishing Limited 1755-425X DOI 10.1108/JSMA-06-2013-0040 JSMA 7,3 252 Introduction Organizational strategy is dependent upon a defined mission or set of objectives that are intended to help direct an organization toward a desired outcome (Rangan, 2004). However, despite having overarching goals to accomplish, the manner that an organization chooses to fulfill its mission is often limited by resource availability (Froelich, 1999; Nimwegen et al., 2008; Rangan, 2004). Resources can be internal or external to the organization, and be further segmented into resources an organization acquires or resources an organization already owns. Health & Medical Care and Accesibility Question

 

How a healthcare organization views the state of its internal and external resources and coordinates the deployment of these resources dramatically affects strategic decision making and fulfillment of strategic goals. The purpose of this comparative case study is to examine the similarities and differences in strategic decision making across two large metropolitan health systems operating in two separate markets within the same state. Resource dependency theory (RDT) and the resource based view (RBV) theory are used to interpret responses to environmental factors and internal resource considerations in strategy development (Swayne et al., 2006; Barney and Clark, 2007; Hillman et al., 2009; Pfeffer and Salancik, 1978). Each theory (RDT and RBV) contributes to how healthcare managers can behave as they analyze their external and internal situation and resources. This comparative case study adds to our understanding about the nature of strategic decisions and initiatives, their differences and similarities, and how managers allocate resources during strategy implementation. Interpretation of results from this analysis will also assist in the development of a conceptual framework for healthcare strategic management. Internal and external resource considerations in healthcare strategic management The application of externally oriented RDT in strategic planning and management is closely tied to related and well-studied theories including: open systems theory, institutional theory and transaction cost economics. All explain how environmental forces influence organizational decisions (Pfeffer and Salancik, 1978; Jensen and Meckling, 1976; Williamson, 1975; Meyer and Rowan, 1977). RDT is focussed on how managers act strategically to reduce environmental uncertainty and dependence (Pfeffer and Salancik, 1978), and it has been proven to be relevant through years of empirical research (Hillman et al., 2009). RDT, together with transaction cost theory (Williamson, 1975) are often the primary perspectives strategists use to understand mergers and acquisitions, joint ventures, and vertical integration (Hillman et al., 2009; Meznar and Nigh, 1995; Pfeffer and Salancik, 1978). RDT has been closely aligned with healthcare strategic management over the last four decades of regulatory demands, payment structure changes and uncertainties about the external dependencies as reflected in the healthcare strategic planning literature (Shortell et al., 1990; Swayne et al., 2006). The resource dependency perspective and seemingly increasing external environmental pressures often results in a limited number of viable strategic options. This condition promotes a theory-based expectation of hospitals clustering into strategic groups resulting in a large group of “low-cost leader” hospitals and smaller group of “differentiation strategy” hospitals (Marlin et al., 2002). RBV on the other hand, although utilized parallel to RDT as part of the strategic planning process, is relatively a newer discipline within the strategic planning and management framework (Newbert, 2007; Priem and Butler, 2001), and is not wellestablished or tested within healthcare strategic planning. Nonetheless, the application of the RBV to strategic management has been rapidly growing and diffused into the strategy literature starting. The RBV’s focus is on competitive advantage based in internal resources an organization develops or hires in order to implement specific product market strategies (Priem and Butler, 2001; Wernerfelt, 1984), and more recently has been applied to healthcare settings in order to compare resources vs resource deployment capabilities during specialty surgeries (Huesch, 2013). With this perspective on unique internal resources needed to implement strategy, the RBV has been used in the fields of strategic management, human resources management and information technology strategic planning (Barney and Clark, 2007; Mahoney and Pandian, 1992; Noda and Bower, 1996; Wade and Hulland, 2004). Health & Medical Care and Accesibility Question

 

The problem Looking across the US healthcare sector, one can easily detect common strategic initiatives shared among hospitals, including process re-engineering, care coordination, horizontal integration, electronic medical records (EMR), culture change, quality improvement, and physician engagement, among others. All seem to be driven by the need to prepare for future environmental changes associated with healthcare reform, and are often embedded within an organization-wide strategic plan (Vest and Gamm, 2009). An external orientation predicts firm behavior based on external environmental changes, constraints, and benchmarks, which can result in similar strategic decisions and initiatives across healthcare organizations due to the common external forces experienced (Marlin et al., 2002). Intuitively, the hospital sector is expected to be highly externally oriented as it faces a rapidly changing and demanding environment of regulation and payment changes. However, it is clear that different organizations perform at different levels, thus prompting the question: do external or internal environmental considerations primarily drive strategy formulation? Further, if internal resource coordination and deployment does differ across hospitals, how does the allocation of certain internal productive resource capabilities play a role in defining the strategic management framework? This study of two large health systems is geared toward improving our understanding of the strategic decision process, strategic initiatives, and management behavior related to strategy implementation in hospitals. To do this, we rely upon healthcare leaders’ assessments of their organizations’ strategic initiatives. We seek to identify similarities and differences among strategic initiatives across the two health systems based on how the initiatives are identified and described. Further, this study allows for the evaluation of rankings of initiatives, managers’ time consumption, and number of key managers involved in each strategic initiative. We facilitate this analysis by grouping strategic initiatives, similar in nature and focus, and comparing results between the two very different systems. In addition, we try to understand the importance of the external vs internal environmental considerations in formulating strategy. To improve our understanding of the nature of strategic initiatives within health systems we focussed on the following three research questions: RQ1. Are the nature and focus of the strategic initiatives among the two health systems highly similar or different? RQ2. Was strategy driven by internal and/or external environmental forces? Healthcare strategic management 253 JSMA 7,3 RQ3. How do the two systems differ in allocating internal resources (time and key managers) to strategic initiatives and groups of similar initiatives? Results will provide an enhanced conceptual and empirical base for understanding the nature of strategic management in healthcare and the balance between external and internal resource considerations. 254 Methods This paper uses comparative case study design to describe, categorize and compare the strategic initiatives within two large, metropolitan healthcare systems (Yin, 2010; Anaf et al., 2007). In-person semi-structured interviews were conducted with top-level healthcare leaders and administrators within these two settings during 2009. Summary statistics and qualitative content analysis were employed to identify characteristics of the strategic change initiatives as identified and described by interviewees. To facilitate the cross-case comparative analysis the research team used content-analytic summary tables capturing information about strategic initiatives identified and described by interviewees (Miles and Huberman, 2010). Health & Medical Care and Accesibility Question

 

Setting The two health systems participating in this study are located in different urban markets within one state. Table I includes an organizational profile for both health systems. The Children’s Health System is located in a large metropolitan area that is highly concentrated with healthcare providers and competing hospital systems. The Children’s Health System Table I. Health system and interviewee profiles System integration Vertical Market area Large urban 1 Number of hospitals in the system 2 Number of beds (licensed) 612 Number of employees 5,540 Mean Census 2011 380 Study sample size 32 Male (% of total at each system) 50 Clinician (% of total at each system) 34 Average tenure at health system (years) 10 Average healthcare management experience (years) 16 Highest level of education – cumulative (% at each system) Associates degree 3 Bachelors 25 Masters 56 PhD/Doctor 16 Position level (% at each system) Executive Vice President/President 6 Senior Vice President 24 Vice President 19 Associate Vice President 3 Director/Chief/MD 45 Assistant Director 3 The Multi-Hospital System Horizontal Large urban 2 25 3,800 22,500 2,163 29 57 23 11 24 0 13 60 27 36 27 30 0 7 0 This health system is vertically integrated through a strong primary provider network and in the process of further vertical integration into women’s health services. Interview participants included executive leadership, vice presidents, and administrators. The second health system is a horizontally integrated multi-hospital system (25 acute-care hospitals) spread over a geographically large metropolitan and sub-urban market. The Multi-Hospital Health System’s market can also be characterized by intense competition among hospitals and healthcare providers. The study participants worked at the system’s corporate office and were responsible for the overall direction, operation, and financial health of the system. Data collection and participants The semi-structured interviews were conducted as focussed, open-ended discussions which prompted the participants to provide more structured discussion around elements concerning nature of strategic initiatives as well as rating and ranking of initiatives (Blumer, 1969; Bogdan and Biklen, 1992). Before interviews commenced, meetings with several top leaders of each organization were conducted in order to identify, name and define a set of current strategic initiatives. In the case of the Children’s Health System, a number of discrete projects were identified. In the case of the Multi-Hospital System, the leaders pointed to five major overarching initiatives associated with a broad organizational strategic plan. During these meetings, standardized open-ended questions were developed and agreed upon. These standardized questions help reduce biases associated with variance in interviews by different researchers as well as biases associated with leading or prompting (Patton, 1990). Study participants’ responses also generated answers to questions relating to: time and effort spent on each initiative and prioritization of strategic initiatives. Each participant was also allowed additional time to provide related information that the questions did not probe. In all, 61 interviews (32 interviews at the Children’s Health System and 29 interviews at the Multi-Hospital System) were conducted by four researchers, all of whom were involved in the interview development process. At both organizations, the research team used a combined positional and snowball sample approach which started with the senior executive team and progressed down the organizational hierarchy as interviewees identified other key participants with initiatives. When no new individuals were identified we concluded the interview process (Biernacki and Waldorf, 1981). Analytical approach For this study, we focussed on results from four interview questions: (1) identification and description of strategic initiatives (open ended question); (2) the number of key managers engaged in each strategic initiative; (3) percentage time spent on each strategic initiative (as self-reported by the interviewees); and (4) ranking of initiatives in terms of how mission critical they are to the system. Health & Medical Care and Accesibility Question

 

Although the classic view of RBV includes people, capabilities and financial resources, we did not focus on financial resources allocated to strategic initiatives identified in the two systems, assuming that financial resources have been made available by top Healthcare strategic management 255 JSMA 7,3 256 management to allow successful implementation. Further, the RBV perspective places increased attention on the development of “dynamic capabilities” and “productive resources” as potential sources of competitive advantage (Penrose, 1959). The research team focussed great attention on these aspects of the RBV perspective when analyzing descriptive statistics and qualitative data describing strategic initiatives. Results center around the qualitative, descriptive nature of the first question, assuring that the respondents agree on the number and nature of each initiative identified. We approached the results of the administrators’ interviews with the purpose of understanding the nature of each strategic initiative. Similarities and differences were identified based on how alike the assigned title, purpose and descriptions of the initiatives were across the two health systems using content-analytic summary tables. Coding of the interview transcripts was performed by teams of two researchers with the addition of a third independent coder who validated the coding and helped in situations when the first two coders disagreed. Findings The 61 interview participants in the two health systems had between 1 and 41 years of healthcare experience, had been at their current organization between six months to 39 years, and included 19 physicians (physician administrators and clinicians). The interviewees were split equally in terms of gender: 29 females and 32 males. At the Children’s Health System the majority of the interviewees held positions of Director/Chief/ MD, Vice President or Senior Vice President. The Multi-Hospital Health Systems interviewees mostly held positions of Executive Vice President/President, Senior Vice President, or Vice President. A complete profile of the interviewees and the two health systems is presented in Table I. Detailed discussion of key staff members and leaders as sources of “distinctive competencies” follows in the discussion of results linked to the implementation of strategic initiatives. In general, we considered organizational capabilities that are distinctive enough such that they might confer competitive advantage to the firm as “distinctive competencies” and explained them as such (Wernerfelt, 1984). Results by health system – the children’s health system This organization was pursuing eight strategic initiatives including: (1) an inpatient quality and patient safety program; (2) a medical education consolidation initiative which included the restructuring and formalization of the relationship with a medical school in order to ensure a continuing supply of medical providers; (3) implementation and integration of a new EMR (EPIC); (4) a culture of Cost Containment initiative to better manage utilization of resources; (5) a new clinical building to house an innovative program and a satellite hospital to support a new clinical program initiative; (6) various coordinated patient flow improvement initiatives across the system; (7) a research center involving large investments in research initiatives and a new research building; and (8) launching of a physician service organization to serve as a hospital-based billing and collecting service for contracted physicians’ professional fees. The multi-hospital health system At the time of the study, five initiatives designed to transform its 25 hospitals were being pursued as part of the system strategic plan, each associated with specific goals to meet over the next five to ten years. These initiatives included: (1) a quality and safety initiative, which focusses on reducing medical errors; (2) a culture change initiative, including application to the Malcolm Baldrige National Quality Award program; (3) a physician engagement initiative, through which the health…