Case Study: A System Approach

2 Current Organization Theory

Learning Objectives

After reading this chapter, you should be able to:

• Identify the principal forces in the evolution of modern health organizations.

• Apply the concepts of systems theory to health organizations.

• Articulate the contributions of structuralism to organization theory.

• Describe the use of futures research on health organizations.

• Relate contingency theory to strategic management in health organizations.

• Examine the use of resources and power in health organizations.

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Section 2.1Introduction: The Evolution of Modern Health Organizations

Midcentury Media Portrayals of Business Organizations and Health Care Providers

Sloan Wilson’s best-selling 1955 novel, The Man in the Gray Flannel Suit, depicts a man struggling to find mean- ing in a corporate world ruled by venal, conformist executives. In 1956 William H. Whyte, an editor at Fortune magazine, wrote The Organization Man, a thought- ful critique of the pernicious influence of large corporations on American society. Whyte considered all large organizations dangerous because they elevated the role of managers as opposed to leaders and dis- couraged individual initiative and innova- tion. Both books challenged the prevailing view of the good life in America—a secure white-collar job in a large corporation and a single-family home in the suburbs.

Two hospital-based 1960s television pro- grams illustrate the dramatic changes in the health industry at that time. Dr.

Kildare and Ben Casey both portrayed idealistic young physicians who practiced in large, high- tech medical centers featuring the latest medical technology of the era. Contrasting dramatic themes for the lead characters reflected dichotomous views of large, complex health care organiza- tions: Dr. Kildare was a highly conscientious intern, attentive to and concerned for the welfare of his patients, who deferred to his more experienced superiors; Dr. Ben Casey, meanwhile, was a brash young neurosurgeon who constantly clashed with senior clinicians and hospital administra- tors and rebelled against hospital rules and protocols.

Critical Thinking and Discussion Questions 1. Health care has been a big business for some time, and the health care industry sector is

projected to expand even more in the future. What are some of the advantages and disad- vantages of large health organizations for health care professionals and managers?

2. What can health care professionals learn from the behavioral types personified by Dr. Kildare and Dr. Casey?

2.1 Introduction: The Evolution of Modern Health Organizations

The post–World War II period was one of tremendous economic growth as people returned to civilian life and businesses returned to production. Organizations grew larger and more sophisticated; management was a recognized academic discipline and business a respect- able field of study. In the health care sector, the emphasis was on:

Walter Sanders/Time & Life Pictures/Getty Images

Workers commute by train to work in the 1950s, an era in which a secure white-collar job in a large cor- poration and a single-family home in the suburbs embodied the good life.

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Section 2.1Introduction: The Evolution of Modern Health Organizations

• Expanding the infrastructure: The Hill-Burton Act (the Hospital Survey and Con- struction Act of 1946) established federal grants and loans to build hospitals in underserved, primarily rural areas (Longest, 2010).

• Adapting to advances in medical science and technology (many derived from combat innovations): Following World War II, hospitals became the locus of health care technological innovation as clinical practice standards became more rigorous and the scope of scientific knowledge expanded exponentially.

• Increasing physician specialization: The percentage of specialist physicians increased from 23.5% of the total physician workforce in 1940 to 36.5% in 1950, reinforced by government policies that accorded board-certified physician special- ists higher rank and pay and by provisions of the GI Bill allowing veteran general practitioners to pursue specialty training (Donini-Lenhoff & Hedrick, 2000).

• Professionalization of nursing: Until the 1960s most nurses received training through 3-year hospital diploma programs, using an apprenticeship model. Since then 2-year community and vocational colleges have become the most common training sites for registered nurses (RNs). In addition, growing numbers of uni- versities offered bachelor of science in nursing (BSN) programs in response to the American Nurses Association’s 1965 position paper recommending the BSN as the entry-level degree for nursing positions (Scheckel, 2009).

• Growth of employer-sponsored health insurance: To keep inflation in check, the federal government instituted wage and price controls in the postwar era, forcing businesses unable to raise wages to compete for scarce labor by offering benefits. Concurrently, the labor union movement was expanding, and health insurance was first on workers’ list of demands. Organized labor’s success in obtaining compre- hensive health insurance coverage for union members created tremendous pres- sure on all businesses to offer similar benefits, and by the 1960s it was an expected benefit of employment for full-time workers in nearly all business sectors.

However, not everyone enjoyed the benefits of the booming postwar economy. The civil rights movement of the 1960s focused public attention on poverty and inequality, which led the government to expand the role it played in health and human services. The Medi- care and Medicaid health insurance programs, established in 1965 as Titles 18 and 19 of the Social Security Act Amendments, respectively, provided health insurance coverage to two of the most vulnerable segments of society: the elderly (and some disabled) and the poor.

All of these forces contributed to the growth and complexity of the U.S. health care sys- tem and health organizations. Health care became a big business, increasingly domi- nated by large, for-profit corporations. In 1980 the editor of the New England Journal of Medicine warned:

The most important health-care development of the day is the recent, rela- tively unheralded rise of a huge new industry that supplies health-care ser- vices for profit. Proprietary hospitals and nursing homes, diagnostic labora- tories, home-care and emergency-room services, hemodialysis, and a wide variety of other services produced a gross income to this industry last year of about $35 billion to +40 billion. This new “medical-industrial complex” [emphasis added] may be more efficient than its nonprofit competition, but it creates the problems of overuse and fragmentation of services, overemphasis

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Section 2.2Modern Organization Theory: Big-Picture Thinking

on technology, and “cream-skimming,” and it may also exercise undue influ- ence on national health policy. In this medical market, physicians must act as discerning purchasing agents for their patients and therefore should have no conflicting financial interests. Closer attention from the public and the profes- sion, and careful study, are necessary to ensure that the “medical-industrial complex” puts the interest of the public before those of its stockholders. (Rel- man, 1980, p. 963)

2.2 Modern Organization Theory: Big-Picture Thinking As organizations became recognized as an integral element of modern society, organization theorists began to study all societal institutions from an organizational perspective. Midcen- tury organization theorists incorporated new ideas from the social and biological sciences to develop their new conceptual models. Sociologists focused on who controlled organiza- tions and how, as well as the resulting effects on various segments of society. Management scholars, in contrast, were concerned with understanding how organizations functioned in order to make them more effective and efficient (Hinings & Greenwood, 2002). It was an exciting time for scholars in different fields to learn from and with each other.

Systems Theory

One such scholar was German biologist Ludwig von Bertalanffy, who proposed a general systems theory to describe physical, mechanical, biological, and social systems with inter- related components. Concerned with what he saw as the growing isolationism of scien- tists from different fields, von Bertalanffy sought to develop an interdisciplinary approach to science by proposing that the common focus of scientists, regardless of their disciplines, was systems. When his ideas were translated and published in the broader Western sci- entific community, they became the foundation for the systems approach to organization theory (Diana & Olden, 2009).

University of Michigan economist Kenneth Boulding applied the concepts of general systems theory to human behavior by developing a nine-level hierarchical systems typology based on complexity. More complex systems had the capacity to grow, change, and adapt through self-maintenance and renewal. Organizations, as social systems, are at the eighth level in Boulding’s classification scheme. The unit in organizational systems is the role, rather than the individual occupying it, with roles connected by channels of communication. Boulding urged attention to the fit between the role and the person, and he observed how the person- alities of the role’s previous occupants influence how the role is perceived (Boulding, 1956).

Mechanistic and Organic Systems Tom Burns and G. M. Stalker developed their theory of mechanistic and organic systems after studying technology changes in UK industries in the 1940s and 1950s. Although

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Section 2.2Modern Organization Theory: Big-Picture Thinking

either organizational form may be appropriate in particular situations, mechanistic orga- nizations are generally more suited to a stable environment, whereas dynamic conditions require an organic form (Burns & Stalker, 1961). In the health care industry, mechanis- tic organizations such as hospitals typically operated in a more stable environment than organic ones such as medical device firms. Table 2.1 displays the principal characteristics of each type of organization and its relationship to the environment.

Table 2.1: Characteristics of mechanistic and organic organizations

Organizational characteristic Mechanistic organization Organic organization

Environmental conditions Stable Dynamic

Structure Hierarchical Flexible

Communication patterns Vertical, formal Multidirectional, informal

Organizational climate Predictable, secure Innovative, uncertain

Source: Burns, T., & Stalker, G. M. (1961). The management of innovation. Oxford: Oxford University Press.

Open Systems Organizational psychologists Daniel Katz and Robert Kahn (1966) proposed the concept of organizations as open systems that both influence and are influenced by their environ- ments, both physical and social. As open systems, health organizations such as hospitals import people, materials, and values (inputs) and export products and values (outputs). As they grow and mature, they develop various subsystems for production, support, maintenance, adaptation or change, and management. All members of the organization are involved in several subsystems designed to foster individual contributions to achiev- ing the organizational purpose.

Learning Organizations Peter Senge, an engineer by training, presented a view of learning organizations as dynamic systems that are in a state of continuous adaptation and improvement. To reach this ideal state, organizations must be designed to achieve their goals and able to change direction when they fall short. For example, a group of executive teams from a regional hospital system developed a vision of a learning hospital by envisioning the opposite of such a hospital—a “teaching” hospital, typically the most prestigious type of hospital in any community. Through a series of brainstorming sessions comparing learning and teaching hospitals, the teams developed a plan to transition from being a teaching hospi- tal to a learning hospital (Senge, Roberts, Ross, Smith, & Kleiner, 1994).

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Section 2.2Modern Organization Theory: Big-Picture Thinking

Dr. Donald Berwick, a national expert on health care quality whom President Barack Obama attempted to appoint as the director of the Centers for Medicare & Medicaid Services (CMS), recommended the following precepts for hospitals to become learning organizations:

1. Ensure that the organization’s formal leadership understands the concept and actively supports the initiative.

2. Enable all staff to participate in improving the whole organization. 3. Encourage and follow curiosity. 4. Link the hospital to its community through collaborative partnerships with local

groups (Berwick, 1994).

The principal contribution of systems theory to organization theory was recognizing the importance of the relationship between the organization and its environment, and that organizations, like all systems, must adapt to environmental changes. Health organiza- tion professionals must therefore understand, monitor, and interact with other systems in the environment.

Structuralism

A fundamental issue in the study of organizations is their structure: What do they look like? What are their components, and how do these interact? Structuralism, also referred to as structuralist theory, developed from research addressing such questions as: How does orga- nizational structure relate to organizational performance—for example, what advantages do multihospital systems have over unaffiliated community facilities, and vice versa? What environmental factors determine or influence organizational structure—for example, could a religious health system form a publicly owned corporation?

Structural Types Henry Mintzberg (1979a, 1979b) of McGill University in Canada examined both the inter- nal and external structures of organizations, developing a typology of organizations by structure. He proposed that all organizations follow a similar basic pattern, displayed in Figure 2.1. At the center is a hierarchical core, with the governing body and executives at the top level or strategic apex, managers in the middle, and the operating core personnel at the bottom. The technostructure and support staff are at the sides of this core. This is a typical organizational structure for large health care organizations such as hospitals and health plans.

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Section 2.2Modern Organization Theory: Big-Picture Thinking

Figure 2.1: Mintzberg: The five basic parts of the organization

According to Henry Mintzberg, an organization has five basic parts. Within each one are workers with different types of responsibilities and functions.

Source: Mintzberg, Henry, Structuring Of Organizations, 1st © 1979. Printed and Electronically Reproduced by permission of Pearson Education, Inc., Upper Saddle River, New Jersey.

Within each of the basic organizational elements are workers with different types of responsibilities and functions. Table 2.2 defines the fundamental responsibilities of people in each element and provides examples of health organization personnel in each element.

Strategic Apex

Operating Core

Middle Line

Support Staff Technostructure

Legal Counsel

Public Relations

Industrial Relations

Research & Development

Payroll Pricing

Reception

Mailroom

Cafeteria

Controller

Strategic Planning

Personnel Training

Operations Research

Production Scheduling

Technocratic Clerical Staff

Work Study

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Section 2.2Modern Organization Theory: Big-Picture Thinking

Table 2.2: Mintzberg’s organizational elements and representative health organization personnel

Element Definition Health organization personnel

Operating core Employees who perform the basic work related to the production of products and services

• Hospital nurses and other clinicians

• Health plan sales, claims, and customer relations staff

Strategic apex Governing body and execu- tives who ensure that the organization fulfills its mis- sion effectively

• Board of directors/ trustees

• Chief executive officer and other C-level executives

Middle line Managers with delegated authority who link the strate- gic apex to the operating core

• Directors, managers, supervisors

Technostructure Analysts who serve the organization by affecting the work of others through research, planning, data col- lection, and analysis

• Health plan actuaries • Quality management

Support staff People who provide indirect services for the organization

• Information systems • Human resources • Facility management

Source: Mintzberg, Henry, Structuring Of Organizations, 1st © 1979. Printed and Electronically Reproduced by permission of Pearson Education, Inc., Upper Saddle River, New Jersey.

There are five generic organization structures that can be described according to Mintz- berg’s five-part elements theory (Managing Change Toolkit, n.d.):

1. Simple structure: Also known as the entrepreneurial organization, the simple structure is a hierarchy with vertical lines of authority, with minimal technostruc- ture and support staff. Its key characteristics are direct supervision of subordi- nates, organization according to functions, and a lack of formal support struc- tures. Most organizations begin as simple structures with just a strategic apex and an operating core. Authority tends to be concentrated at the strategic apex, often solely in the CEO. Smaller organizations often remain simple structures, especially when the CEO wants to avoid formal restrictions. Examples of health organizations with a simple structure would be a small physician practice, home health agency, or elder care residential facility.

2. Machine bureaucracy: These types of organizations are usually older and large enough to have a high volume of work. Standardized operating procedures make organizational units function together like the parts of a machine and allow employ- ees to carry out their work with brief training. For this reason the technostructure is a key part of the structure. Lines of authority are formal and decision making is cen- tralized, although some power also resides in the groups that develop the policies

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Section 2.2Modern Organization Theory: Big-Picture Thinking

and procedures that govern the company. A large insurance company would be an example of a mechanistic organization in the health industry.

3. Professional bureaucracy: Defining positions in terms of capabilities and mak- ing sure these mesh for efficient functioning, the professional bureaucracy is bureaucratic without being centralized. Highly qualified professionals constitute the operating core and carry out the work with a high degree of independence. Decision making is based on professional standards originating with the disci- pline rather than the organization. The organization coordinates its functions by standardizing the skills and qualifications required to carry out the work of a particular position. The technostructure in professional bureaucracies is mini- mal because little is needed. Health care–management consulting firms such as PricewaterhouseCoopers, KPMG, Bain & Company, and McKinsey & Company exemplify the professional bureaucracy organizational structure.

4. Divisionalized form: Composed of semiautonomous or independent business units joined together by a shared administrative body, this organizational struc- ture has a strong middle line, since division managers are accountable for the operations of their units and have the authority to make decisions for them. Divi- sions are based on market needs, grouped according to customers or purchasers. Depending on the size of the company, each division may have its own techno- structure and support element, or these elements may be part of the administra- tive body. The advantage of this structure is that the divisions have the expertise and a high degree of autonomy to run their business units, while the strategic apex concentrates on broader goals and corporate strategy. However, divisions often experience duplication of and inconsistency among essential functions such as human relations and finance. Examples of divisionalized health organizations would be multihospital systems such as Dignity Health in California or large public health agencies like New York City Health and Hospitals Corporation.

5. Adhocracy: Because of its complexity and lack of standardization, Mintzberg considers this type of organizational structure the most difficult to manage well. Adhocracy structures evolved in industries experiencing rapid change and in companies with many different activities that require more flexibility and rapid responses than formal organizations allow. Highly adaptive, adhocracy structural characteristics include shared authority and highly decentralized decision mak- ing. The adhocracy forms self-organizing teams of highly skilled professionals to carry out work. Matrix structures allow effective vertical and horizontal sharing of authority based on competence and the particular situation. Medical device and biotech companies with multiple new products in development would most likely be health care adhocracies.

Functional Versus Product/Service Line Structure Large organizations that produce multiple products or provide many different types of ser- vices have to decide whether to group activities and people by product or function. “Should all specialists in a given function be grouped under a common boss, regardless of the prod- ucts they are involved in, or should the various functional specialists working on a single product be grouped together under the same superior?” (Walker & Lorsch, 1968, p. 1). There are strong arguments for either choice, and there are trade-offs either way. Functional orga- nizations are better able to control costs and achieve efficiencies in marketing and produc- tion but are less successful coordinating among local sales and production units. The most appropriate organizational pattern depends on the organization’s goals and environment,

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Section 2.2Modern Organization Theory: Big-Picture Thinking

as well as the degree of interdependence among the specialists. Walker and Lorsch con- cluded that functionally structured organizations achieve better results in situations that require stable performance of a routine task, whereas product organizational structures are better suited to less predictable task situations that require innovative problem solving.

Most companies begin as functional organizations with departments and managers for finance, human resources, quality management, and production. As companies grow larger, they typically expand the range of products and services they offer, and very large corporations have product divisions that are relatively independently managed. Large health insurance companies typically have separate divisions for individually and employer-sponsored health plans and for commercial and government purchasers.

Many large hospitals adopted a service line management structure in the 1980s and 1990s, aligning health care services for a specific patient population (e.g., women, people with cancer) to improve outcomes and reduce costs. Service lines are strategic business units with profit and loss accountability. Each service line has a dedicated manager, usually with shared staff and operational resources from the larger organization. This arrange- ment is known as a matrix management structure, as illustrated in Figure 2.2.

Figure 2.2: Hospital service line management

Hospital service lines reflect a matrix management structure in which each line has a dedicated manager.

OrthopedicsHeart Health Women’s Services

Maternity Diagnostic

and Treatment Services

Spine Center

Rehabilitation

Service Line

Runner’s Clinic

Preventive Services • Mammograms • Osteoporosis screenings

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Section 2.2Modern Organization Theory: Big-Picture Thinking

The main advantages of service line management are focus and accountability. A dis- advantage of the matrix management structure is that service managers have no direct control over a lot of the operational staff that can make or break the service line. It can also be cumbersome if there are too many service lines and managers. Depending on the hospital’s size, the three service line managers as well as the directors of the functional areas would report to either the COO or the CEO. The service line managers would work with the various directors or their delegated staff for the functional expertise and services needed; in some organizations the estimated value of the staff time consumed would be charged against the service line’s budget.

Organization Structure and Performance in Health Organizations Health organizations have become increasingly concerned with performance as both pub- lic and private payers have implemented pay-for-performance (P4P) systems and publicly available rankings. For the past 20 years, Truven Health Analytics has published an annual list of 100 Top Hospitals in the United States, based on performance measures that include mortality, 30-day readmission rates, inpatient expense per discharge, and average length of stay. A secondary analysis of the 2012 data that examined hospital performance by orga- nizational structure found that:

• Not-for-profit hospitals rated highest on metrics of patient safety, mortality, and patient satisfaction; those with church affiliations scored highest on overall performance.

• For-profit hospitals scored highest on core measures of care for heart attack/failure, pneumonia, and surgical patients; cost control; and operational profits.

• Government hospitals were weakest on both core patient care measures and inpatient expenses (McKinney, 2013).

Research has shown a strong positive association between implementation of quality- improvement practices and hospital infrastructure. Four principal elements of hospital support and infrastructure were associated with quality-improvement implementation progress: integrated data systems, financial support, clinical integration, and information system capability. The research team included Stephen Shortell, one of the foremost orga- nization theorists in the health industry. These support system elements are now widely recognized as critical success factors for health care quality-improvement initiatives (Alex- ander, Weiner, Shortell, Baker, & Becker, 2006).

Established in 1994 by representatives of public, private, and academic public health organizations for the Centers for Disease Control and Prevention (CDC), the 10 Essential Public Health Services describe the public health activities that all communities should undertake. These are listed below and displayed in Figure 2.3.

1. Monitor health status to identify and solve community health problems. 2. Diagnose and investigate health problems and health hazards in the com-

munity. 3. Inform, educate, and empower people about health issues. 4. Mobilize community partnerships and action to identify and solve health

problems.

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Section 2.2Modern Organization Theory: Big-Picture Thinking

5. Develop policies and plans that support individual and community health efforts.

6. Enforce laws and regulations that protect health and ensure safety. 7. Link people to needed personal health services and assure the provision of

health care when otherwise unavailable. 8. Assure competent public and personal health care workforce. 9. Evaluate effectiveness, accessibility, and quality of personal and population-

based health services. 10. Research for new insights and innovative solutions to health problems.

(CDC, 2013)

Figure 2.3: The 10 Essential Public Health Services

The CDC outlines the 10 Essential Public Health Services that all communities should undertake.

Source: Centers for Disease Control and Prevention. (2013). The public health system and the 10 Essential Public Health Services. Retrieved July 15, 2013, from http://www.cdc.gov/nphpsp/essentialservices.html

A systematic literature review of public health agencies’ organizational structure found that stronger public health agency performance on the 10 Essential Public Health Services was positively associated with the following characteristics:

• larger (.50,000) population size of jurisdiction served; • decentralized and mixed authority structure; • higher per capita spending at the local level; • more partnerships with academic and provider organizations; and • stronger agency director leadership (Hyde & Shortell, 2012).

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Diagnose & Investigate

Inform, Educate, Empower

Mobilize Community Partnerships

Develop Policies

Enforce Laws

Link to / Provide Care

Assure Competent Workforce

Research

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Section 2.2Modern Organization Theory: Big-Picture Thinking

Technological Determinism Proponents of technological determinism study technology as a key driver of social change across a wide range of industries and populations. Few industries are as affected by tech- nology as health care, and nearly all health care organizational structures have changed dramatically in recent years as a result of technological advances. For example, consider how new developments in health information technology have fostered the widespread adoption of electronic medical records (EMRs) by health care providers. The diffusion of EMRs has enabled the formation of accountable care organizations (ACOs). An ACO is a new organizational structure authorized by the Patient Protection and Affordable Care Act of 2010 (ACA), defined below by Kaiser Health News:

An ACO is a network of doctors and hospitals that shares responsibility for providing care to patients.. . . ACOs make providers jointly account- able for the health of their patients, giving them financial incentives to cooperate and save money by avoiding unnecessary tests and proce- dures. For ACOs to work they have to seamlessly share information. Those that save money while also meeting quality targets would keep a portion of the savings. HHS [the U.S. Department of Health and Human Services] estimates that ACOs could save Medicare up to $940 million in the first four years.. . . ACOs . . . would create savings incentives by offering bonuses when providers keep costs down. Doctors and hospitals would have to meet specific quality benchmarks, focusing on prevention and carefully managing patients with chronic diseases. In other words, providers would get paid more for keeping their patients healthy and out of the hospital . . . and also may have to pay a penalty if they don’t meet performance and savings benchmark. Source: Reprinted by permission from Gold, J. (2011, October 21). FAQ on ACOs: Accountable care organizations, explained. Kaiser Health News. Retrieved July 14, 2013 from: http://www.kaiserhealthnews.org/Stories/2011 /January/13/ACO-accountable-care-organization-FAQ.aspx.

Hospitals, medical groups, and insurers across the United States are joining forces to form ACOs. Any organization can be the ACO lead partner, but hospitals and insurers have an advantage over physician organizations because they have easier access to the start-up capital required to launch a new ACO. Insurers tout their indispensability to ACOs because they have systems in place to track patient care outcomes (Gold, 2011). As of December 2013 the CMS has recognized approximately 360 ACOs established to serve more than 5.3 million Medicare beneficiaries (U.S. Department of Health and Human Services, 2013).

A recent study of how technology influences nonpublicly traded (that is, not-for-profit and privately owned) hospitals’ market value found that investments in information tech- nology significantly affected the organization’s market valuation as measured by records of sales transactions (Kohli, Devaraj, & Ow, 2012). These results suggest that informa- tion technology investments may encourage further consolidation in the health industry, since companies that have invested heavily in information technology are more attractive merger partners or acquisition targets due to their higher market valuation. A number of workplace studies of technologies in practice support the idea that different organiza- tional structures affect clinicians’ attitudes toward and interest in using new technologies. Electronic data systems, robotic surgical instruments, and other complex types of equip- ment profoundly impact organizational arrangements and professional work practices (Heath, Luff, & Sanchez Svensson, 2003).

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Section 2.2Modern Organization Theory: Big-Picture Thinking

Case Study: EMR Implementation at Kaiser Permanente: Lessons Learned

Kaiser Permanente is the nation’s largest not-for-profit health plan. It serves 9 million members in nine states and the District of Columbia and has approximately $50 billion in annual revenue. Kaiser Permanente is known for leadership in health information technology; its groundbreaking electronic health record (EHR), Kaiser Permanente HealthConnect (see: http:// share.kaiserpermanente.org/total-health/connectivity), is the largest private-sector EHR in the world. Implementation of Kaiser Permanente HealthConnect began in 2004 and was completed in 2010 for the plan’s 611 medical offices and 37 hospitals. Kaiser Permanente HealthConnect enables all of Kaiser Permanente’s more than 15,000 physicians to electronically access the medical records of all members nationwide (Kaiser Permanente, 2010).

Technological Determinism Kaiser Permanente’s experience illustrates how a new technology forced both operational and social changes throughout the organization. The EHR offered numerous opportunities to redeploy existing resources, with time-saving features benefiting both patients and clinicians: immediate remote access to clinical information; e-prescribing; clinical decision support with physician order entry; secure messaging for encrypted patient e-mail; online personal health records available to patients; and seamless integration with ancillary (labs, radiology, pharmacy), inpatient, and emergency department services. Reasons for using EHRs far outweighed the negatives, but there were some significant drawbacks. In addition to huge direct expenditures, there were substantial costs for disruption of existing work processes, lost productivity, and additional demands for information technology support. In addition, a surprising number of clinicians’ poor typing or computer skills impeded their ability to use the new system for collecting and recording patient data.

Potential Pitfalls The implementation team recognized that an EHR is a tool that must be used correctly to reap benefits and must not be used to fix existing problems: Poor office work flows on paper will become poor office work flows electronically, and bloated progress notes are difficult to incorporate. To address these issues, the team spent a lot of time up front talking about and studying practice work flows—what was working well and what was not.

Automated Patient Experience The new HealthConnect system automated not only medical records but nearly all other aspects of the appointment process:

• Appointments can be made online or by automated telephone system. • Patients check in via receptionist or automated kiosk—either way is paperless. • A medical assistant rooms and preps patient. • Every physician office and exam room has a wired desktop computer, usually on a cart. • Providers do real-time electronic clinical documentation and computerized physician

order entry, with prescriptions, lab, or radiology orders submitted electronically. • Patients receive after-visit summary printouts with a list of diagnoses, orders,

medications, and postvisit instructions.

Change Management—Lessons Learned Contrary to conventional wisdom, Kaiser found that fast change is easier than slow change because it prevents people from getting stuck in the old ways of doing things. However, implementing an EHR system is a huge up-front investment of staff time, if done correctly—for

(continued)

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Section 2.2Modern Organization Theory: Big-Picture Thinking

Case Study: EMR Implementation at Kaiser Permanente: Lessons Learned (continued)

team meetings, to really understand the work-flow process; and for training, which for some staff members included typing lessons. Clinical care providers received 24 hours of training that included a class on interacting with patients and a computer in the exam room. Work schedules were reduced for 5 weeks as the staff learned to use the system, but it took 6 to 12 months on average for the staff to regain its previous productivity. As shown in Figure 2.4, things got worse before they got better, which is typical with major systemic changes that hold employees accountable for learning new skills and work processes. Change is uncomfortable; people become discouraged and disgruntled, and morale declines. It takes time for performance to improve and morale to rise (Stark, 2010).

Figure 2.4: Organizational change process

In the organizational change process, things typically get worse before they get better.

As implementation proceeds, it is also important to keep asking questions about how the work-flow process is going, then use this input for further training and tweaking. To ensure there is always a resource person immediately available to answer user questions, at least three people in each Kaiser Permanente work unit were trained as EHR system resource specialists. Kaiser is currently testing an information exchange with the U.S. Department of Veterans Affairs health care system.

Morale Improves Over time, higher expectations

and accountability will lead to

improved results, driving even

higher levels of morale.

Morale Declines When accountability and expectations for improved

performance are increased, morale initially declines.

Current Performance Level

(continued)

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Section 2.2Modern Organization Theory: Big-Picture Thinking

Futures Research

Derived from systems theory, the principal purpose of futures research is to facilitate long-range planning beyond the typical 5-year business horizon so policy makers and executives can plan for the future in times of uncertainty. Rather than making predictions or forecasts, futures researchers attempt to consider what is likely to change in the future and how. Thus, the emphasis is on studying trends and identifying harbingers of possible future change.

Alternative Scenarios Futures researchers examine a range of possible outcomes through the development of alternative scenarios that typically include probable, preferable, and highly unlikely but possible (“wild card”) situations. Developing alternative scenarios is a powerful way to engage thought leaders in a collaborative effort to understand the driving forces of their business, identify significant events and emerging trends, assess the influence of social and technological changes, and consider how these elements together might impact the way their business will function in the future. Figure 2.5 depicts the alterna- tive scenario process.

Case Study: EMR Implementation at Kaiser Permanente: Lessons Learned (continued)

Reflection Questions: 1. What do you consider the principal pros and cons of EHRs? 2. What concerns would physicians in a small private practice likely have about transi-

tioning to an EHR? 3. Would it make any difference to you if your health providers used EHRs? Why or

why not?

Note: This case study is based on a 2011 presentation by John Yang, MD, and Dina Ovando- Brown, RN. Yang is the assistant director of Primary Care Services, and Ovando-Brown is an executive consultant; they are, respectively, the physician and administrative leads for the EHR system in implementation for more than 400,000 Kaiser Permanente members in the Orange County, California, service region.

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Section 2.2Modern Organization Theory: Big-Picture Thinking

Figure 2.5: Alternative scenario development process

Alternative scenarios examine a variety of possible outcomes that range from probably to preferable to highly unlikely but possible.

Interactive Gaming In a technology-enabled application of futures research to health care, the Institute for the Future used an interactive video game format to explore the future of hospitals. Through an online crowdsourcing platform, more than 600 players played the game, posting more than 4,500 responses to three challenges in a 24-hour period in January 2013. Themes emerging from responses to these challenges are summarized below:

1. Construct a high-quality emergency care service that is fair, financially viable, and serves all in need. Frequent recommendations included: a. Leverage big data for population health. b. Build out emergency preventions services. c. Train smart mobs in emergency room care. d. Prepare for community disasters. e. Move but maintain the safety net.

2. Reimagine the hospital as a center for community well-being. Many responses to this challenge echoed the following themes: a. Build community wellness villages. b. Restructure payment systems for wellness services. c. Streamline hospital care for high-acuity illness and serious medical

conditions.

Alternative

Futures

Alternative

Futures

Alternative

Futures

Alternative

Futures

Paths of

Change

Paths of

Change

Paths of

Change

Paths of

Change

Interactive and Creative Diversity of

Perspectives

Driving Forces

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Section 2.3Strategic Management

3. Reimagine the hospital as a means to link scientific discoveries with improved health outcomes. Responses to this challenge leveraged several strategies to close the gap between research and patient care: a. Cultivate a research culture. b. Make research more accessible and participatory.

• Operate social laboratories. • Gamify research design. • Partner with research organizations (Institute for the Future, 2013).

2.3 Strategic Management Since emerging in the 1960s as an academic field of research and a subject for best-selling books and widely discussed journal articles, strategic management theories have become quite diverse as interest in them has grown (Ronda-Pupo & Guerras-Martin, 2012). Peter Drucker (1954) offered the first clear statement of strategy as a function of management: Organizational leaders were responsible for creating a winning strategy to grow larger and increase revenues, profit margins, and market share.

Igor Ansoff presented a comprehen- sive model of strategic planning, with a series of detailed prescrip- tions and checklists to guide manag- ers through the process. Testing his theory by analyzing corporate acqui- sitions over a 20-year period, Ansoff found that those based on an explicit strategy performed better than those that occurred opportunistically. He further refined his conceptual model to address implementation and resis- tance to change (“Guru: Igor Ansoff,” 2008). Successful strategic manage- ment thus has strategic planning as a foundation but includes the critical success factors of converting plans into action and effectively managing resistance to change (Bhatia, n.d.).

Strategic Planning

The core purpose of strategic planning is to develop and implement strategies grounded in research and analysis to foster a firm’s growth and enhance its competitive position. In its early years strategic planning emphasized extending the traditional planning process beyond the annual budget cycle and within the organization to its various business units. In the 1980s and 1990s, strategic planning in health organizations emphasized targeted market planning—identifying market segments, analyzing which were most aligned with the organization’s capabilities, and developing strategies to penetrate and ultimately

Wavebreak Media/Thinkstock

Two professionals strategically plan how to complete their assigned tasks.

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Section 2.3Strategic Management

control those segments—as well as strategies to improve quality and productivity. More recently, strategic planning has emphasized competitive strategy and growth through carefully considered alliances, including mergers and acquisitions (Zuckerman, 2012) and planning as a constant process for health organizations (Greene, 2009).

The Strategic Planning Process Strategic planning involves articulating long-term organizational objectives, then formu- lating strategies to achieve them. An effective strategic plan helps the organization fulfill its mission and achieve business growth goals. While there is no standardized strategic planning approach, strategic plans typically feature some common elements:

• A mission statement that defines the purpose of the organization’s activities. • A set of objectives that reflect the organization’s future direction and are consistent

with the organization’s mission. These objectives must be measurable. • An action plan that specifies strategies for achieving the objectives—how and when

and by whom—with specific milestone events, deadlines, and accountabilities. • A description of resource requirements to achieve the objectives—human, techni-

cal, and financial—preferably expressed as a budget. • A means to monitor performance in order to track the progress of the action plan

toward achieving the objectives. • An evaluation system to assess the effectiveness of the plan in achieving the

stated objectives (Liebler & McConnell, 2004).

Strategic planning is a common and valued function in health organizations. In a 2005 sur- vey of leaders of 440 provider-based organizations, 80% engaged in a strategic planning process: Nearly 40% developed or updated their plans annually, and another 40% did so at least every 3 years (Zuckerman, 2012).

Strategic Thinking Today, in an era of rapid change and environmental turbulence, the emphasis in health organizations is on strategic thinking, defined as

an individual intellectual process, a mindset, or method of intellectual anal- ysis that asks people to position themselves as leaders and see the “big pic- ture.”. . . Strategic thinkers are constantly reinventing the future—creating windows on the world of tomorrow.. . . Strategic thinkers are always ques- tioning: “What are we doing now that we should stop doing?” “What are we not doing now, but should start doing?” What are we doing now that we should continue to do, but perhaps in a fundamentally different way?” (Swayne, Duncan, & Ginter, 2008, pp. 13–14)

Swayne, Duncan, and Ginter (2008) emphasize that strategic thinking is not the sole pur- view of top-tier executives; rather, successful strategic management depends on encour- aging everyone to think strategically and consider how to reinvent what they do.

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Section 2.3Strategic Management

Research indicates that few leaders and managers possess strategic thinking skills, and just 10% have undergone formal preparation in strategic thinking (Shirey, 2012). To develop strategic thinking skills, Shirey recommends that nursing leaders focus on the three A’s—acumen, allocation of resources, and action—and suggests techniques to reinforce them:

• Acumen, or the ability to delve below the surface of issues to uncover and deliver insights about them. Regularly investing time to synthesize these insights can produce valuable strategic outcomes.

• Allocation of resources to act on insights may be achieved by examining per- sonal productivity, such as tracking the amount of time spent on various types of activities to maintain alignment with the organization’s mission critical priorities.

• Action involves effectively executing strategy by focusing on high-priority efforts.

The constancy and rapidity of change has led health organizations to focus on reducing uncertainty as a strategy to minimize risk. Thus, a critical success factor for health care managers is the ability to develop positions and systems that operate effectively in an uncertain environment and to act decisively and confidently even when it is difficult to understand or accurately assess the risk involved in a given situation. Since it is impos- sible to eliminate uncertainty, effective health organization managers must be willing and able to respond flexibly and creatively to surprises, improvise collectively with colleagues, and integrate information from a variety of perspectives (McDaniel & Jordan, 2009).

Web Field Trip: Institute for the Future

The Institute for the Future created four alternative scenarios to consider what health and health care might be like in 2020, each with an accompanying short video: http://www.hc2020.org. Visit the website, view the videos for each scenario, and answer the following questions:

1. Briefly describe each scenario and its key elements. 2. Which scenario do you prefer and why? 3. Which scenario do you consider most likely and why?

Descriptions of Each Scenario Scenarios fall within the following categories:

• Growth: A future that manifests the results of current trends and conditions, extrapolated forward. This includes both positive and negative growth. Continued economic growth is the standard view of the future held by most governments and organizations.

• Discipline: A future in which a core guiding value or purpose is used to organize society and control behavior. China’s one-child policy is an example of a discipline solution to population growth.

• Collapse: A future in which major social systems are strained beyond the breaking point, causing system collapse and social disarray. Global environmental collapse due to extreme atmospheric and oceanic carbon dioxide levels is one example.

• Transformation: A fundamental reorganization of a society or system that signals a break from previous systems. Greater-than-human machine intelligence, and the revolution this would likely herald, is a popular transformation scenario. (Institute for the Future, n.d.)

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Section 2.3Strategic Management

Contingency Theory

Contingency theory posits that an organization’s structure depends on various aspects of its environment. These aspects, or contingency variables, include size, technology, geog- raphy, and degree of uncertainty (Diana & Olden, 2009). A closely related concept is the contingency relationship between strategy and structure, based on the idea that form fol- lows function: Structure follows strategy. A significant change in strategy will therefore require a company to change its structure in order to successfully implement the strategy (Tompkins, 2005).

Organizations adapt to environmental changes such as the adoption of a new technology, a change in market dynamics, or new regulatory policies by altering their strategies. Struc- tural changes therefore reflect changes in both the environment and organizational strat- egy. Managers must actively monitor the environment and be prepared to make changes in both strategy and structure. Mintzberg (1979a) argued that structure also influences strategy, especially in situations when the organization’s current form limits its ability to effect strategic changes. Rumelt (1974) observed that organizations were often highly imitative of market leaders, so that often structure followed fashion more than strategy, an idea that Mintzberg (1981) also echoed in his later writings.

Contingency theories of leadership evolved during the 1970s and 1980s as a means to understand what makes leadership effective in a group or organization. Its focus is on the relationships between leaders’ attributes and behaviors in various situations or the environmental context (Seyranian, 2009). As environmental uncertainty increases, orga- nizations employ strategies that may change their structural characteristics, such as the trend begun in the first decade of the 2000s for hospitals to employ physicians and health plans to purchase medical groups. Health organizations also cope with environmental uncertainty by strengthening their core technical functions and protecting their main revenue-generating processes. For example, the pharmaceutical industry was seriously threatened during the 2010 health reform debate by demands for mandatory Medi- care drug rebates similar to those imposed in Medicaid, as well as more liberal policies for reimporting drugs from other countries such as Canada. The drug manufacturing companies negotiated a deal for protection against such rebates and reimportation in exchange for an estimated $80 billion in reduced cost sharing for Medicare beneficiaries (“ObamaCare’s Secret History,” 2012). This deal helped convert the ACA from a threat to a bonanza for the pharmaceutical industry: A 2013 analysis of the drug industry pro- jected that its market value will increase by one third in 2020 and that profits will increase by between $10 billion and $35 billion by 2023 (Japsen, 2013).

Management by Objectives

Peter Drucker (1954) first outlined the concept of management by objectives (MBO) as a means to help managers focus on results and avoid the activity trap, in which they get so caught up in day-to-day activities that they lose sight of their goals. For Drucker, MBO was a model in which managers were accountable for achieving defined objec- tives but also had flexibility to work toward meeting them in ways best suited to their areas of responsibility. Senior managers should set general goals for their subordinates but allow subordinates to decide how best to reach these goals (Wooldridge, 2011). More

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Section 2.4Resources and Power

importantly, MBO dispersed responsibility for planning throughout the organization. Managers were responsible for setting objectives for their units and for establishing ways to track and measure performance and to involve people throughout the organization in setting attainable objectives (“Idea: Management by Objectives,” 2009). Thus, MBO also became a widely adopted tool for managerial performance appraisal.

The MBO approach is widely used in health organizations and is especially recommended for first-line supervisors and new managers for performance appraisals. MBO is a means to establish measurable and realistic agreements in a collaborative discussion between the supervisor and the employee. Scheduled reviews in which the employee reports on prog- ress and achievements allow supervisors to regularly and objectively monitor employee performance and avoid surprises at evaluation time (Dunn, 2010).

Hospital management consultant Bruce Hatfield cautions that without the support of the staff from the very beginning, MBO can become inoperable; many well-intentioned man- agers identify the objectives themselves rather than involve the staff in developing them. He urges first-line managers to adopt the “peak and peek” method:

Help your people accomplish those objectives which to you may seem insignificant yet to the employee seem almost out of reach. Help them to develop confidence so that as they reach one goal or peak, they can then begin to peek at or set the new goal or objectives. (Hatfield, 2010, p. 42)

2.4 Resources and Power As organization theory evolved in the later part of the 20th century, management schol- ars incorporated concepts from a broad range of disciplines to propose new ideas about organizations as social institutions, how they functioned, and how their internal elements meshed or clashed. These ideas were often generated by efforts to explain disparities in how organizations actually function and people in them behave versus what academics expected or thought they should do.

Resource Dependence Theory

Katz and Kahn (1966) emphasized that organizations, as open systems, must take in more resources from the environment than they emit to survive. Pfeffer and Salancik (1978) used the open systems model as the foundation for the theoretical framework they labeled the resource dependence theory. Like Katz and Kahn, they urged attention to the ecol- ogy of the organization; however, rather than stressing the organization’s dependence on the environment, Pfeffer and Salancik explored how organizations respond to external constraints in ways that enable them to adapt and survive. The key to organizational survival is the ability to acquire and maintain resources, which is made more difficult as the organization becomes increasingly interdependent with the environment and the environment becomes more unstable. In a later work Pfeffer (1993) recommended that managers need to use power to achieve constructional goals in order to prevent its misuse by people less benignly motivated.

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Section 2.4Resources and Power

Since the publication of Pfeffer and Salancik’s seminal work, resource dependence theory has become one of the most influential concepts in organization theory and strategic man- agement to explain how organizations reduce environmental dependence and uncertainty (Hillman, Withers, & Collins, 2009). Resource dependence theory is highly applicable to hospitals and other health organizations that are strongly interdependent with an unsta- ble environment. For example, many health plans participating in the new federal and state health insurance exchanges established by the ACA are offering narrow provider networks in order to lower premium prices. The plans deliberately exclude some of the nation’s most prestigious hospitals and medical groups, especially those with academic affiliations, because they charge more than other community providers. Excluded provid- ers would potentially suffer significant revenue losses if patients newly insured through the exchanges were unable to seek care from them. Regulatory and elected officials in at least half a dozen states are pushing back against the health plans as exchange consumers complain that their new ACA insurance does not allow them to continue seeing their reg- ular physicians and receive treatment at their preferred hospitals, and excluded providers protest the threat to their livelihood. While in some areas the officials and the plans have negotiated settlements, in others the fights have become bitterly political and generated lawsuits. The victors in this struggle will be the organizations with the most political clout or the resources to mount a successful legal challenge (Hancock, 2013).

Stakeholder Demands Organizational effectiveness in obtaining resources requires successful management of demands from its stakeholders or the interest groups on which the organization depends for its resources. The stakeholders competing for control of the organization’s resources also contribute to these resources and to the operation of the organization—as in the case of hospital medical staff physicians, who in most cases decide to which hospital a patient will be admitted. Each stakeholder controls some resources and will seek to maintain control of them, as well as to leverage those resources to best serve its interests—as when hospital nurses insist on minimum nurse-to-patient staffing ratios or medical residents in teaching hospitals call for limits on the number of hours they work each week. Table 2.3 displays the major stakeholders of a typical hospital, the resources they control, and their principal concerns about the organization.

Table 2.3: Hospital stakeholders, resources they control, and primary concerns

Interest group Resources controlled Concerns about the organization

Owners Capital Financial viability, capital base

Physicians

Patients, insurers

Patients

Revenue

Quality, continuity of care, access, and cost

Employees Labor Demand for labor, patient care demands, hospital image

(continued)

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Section 2.4Resources and Power

Interest group Resources controlled Concerns about the organization

Suppliers of goods and services

Supplies, equipment, services Cash flow, purchasing and payment patterns

Creditors Credit and capital Collateral, debt service, financial viability

Local community Volunteers, support, contri- butions (if nonprofit)

Hospital image, community service, access

Government Revenues, licenses, con- tracts, regulations

Policy and regulatory com- pliance

Access, cost, quality

Joint commission Accreditation Quality

Organizational-Environmental Interdependence Pfeffer and Salancik noted, “Virtually all organizational outcomes are based on interde- pendent causes or agents” (1978, p. 40). Organizations face uncertainty (defined as vari- ability and complexity) in acquiring the scarce and valued resources necessary to their survival. To reduce this uncertainty, they attempt to reduce their own dependence on other organizations or to increase the dependence of other organizations on themselves (Ulrich & Barney, 1984).

The components of interdependence—resource scarcity, stability, symmetry, discretion, and influence—determine the relative power of stakeholders and their demands. Sub- dimensions of resource scarcity are the magnitude, criticality, and substitutability of the resources the organization needs to function. When there are not enough resources for all participants, the organization must adopt new strategies to acquire and keep resources to survive. The magnitude of a particular resource is significant relative to the quantity of other resources on which the organization depends. The criticality of a resource is mea- sured by the organization’s ability to continue functioning without it. Another important factor affecting organizational function is substitutability—whether, and how quickly, the organization can secure alternative resources.

For most hospitals, the scarcest resource is affluent, well-insured patients. In a case study of Manhattan hospitals, Milner (1980) found that prestigious teaching hospitals depended on nearby low-status facilities to treat poor and medically ordinary patients so that the teach- ing hospitals could serve higher paying patients and indigents with unusual and interest- ing diseases. In areas with excess hospital bed capacity, the scarce resource is all patients.

Symmetry involves the balance of power between the participants in a resource exchange relationship. It is a rare hospital that does not need Medicare patients in order to survive, so the balance of power is almost entirely tipped toward the CMS. However, Medicare

Table 2.3: Hospital stakeholders, resources they control, and primary concerns (continued)

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Section 2.4Resources and Power

reimbursement is highly political, depending on the annual federal budget appropria- tion for the program. In addition, Medicare regulations are complex and often confusing. Many hospitals therefore seek to reduce dependence on Medicare by developing services that will attract more younger patients with better paying commercial insurance.

Organizational stability has often been studied as a variable that influences organizational structure and performance. The health policy environment is highly unstable, since what one legislature does can be undone by another, altered by the executive branch of gov- ernment, or voided by the judicial branch. After Republicans gained control of the U.S. House of Representatives in 2012, they repeatedly voted to repeal the ACA; the Demo- cratic majority in the Senate protects the ACA’s legitimacy. The Department of Health and Human Services pleased employers but dismayed insurers by delaying for a year imple- mentation of the ACA’s mandate for employers with 50 or more full-time employees to provide health insurance coverage. In addition, the U.S. Supreme Court struck down the ACA’s requirement for all states to expand Medicaid, instead making it voluntary.

Pfeffer and Salancik (1978) defined discretion over a resource as the organization’s capac- ity to determine its allocation and use. Hospitals have some unique discretionary con- straints on their ability to use resources. With the exception of investor-owned facilities, most hospitals are governed by community, charitable, or religious groups and have an explicit mission to serve all members of their defined community. While all hospitals are highly regulated by both federal and state government agencies, not-for-profit institu- tions must document the community benefits they provide to justify their exemption from corporate income and some property taxes.

Human Capital

Peter Drucker wrote about and influenced nearly every aspect of management theory until his death in 2005. Throughout his career, he emphasized the value of people and their brainpower as a productive asset for organizations (Wooldridge, 2011). This view is the foundation of the human resources management function: People are assets (human capital) whose value can be increased through investment. They require attentive mainte- nance through appropriate supervision, periodic inspections in the form of performance reviews, and regular upgrades through skills training and talent development activities.

The proliferation of new executive titles such as chief learning officer, chief people offi- cer, and director of strategic talent reflects this recognition of people as assets. Another is organizations’ willingness to make significant investments in talent development and leadership education. Novartis, a global life sciences company best known for its phar- maceutical and vaccine products, created China University in 2009 and Asia University in 2012 as business schools designed to develop local talent to meet the company’s current needs and to create a leadership pipeline for the future. For example, to help marketing staff better prepare budget proposals, China University developed a workshop focusing on profit and loss and key financial figures and another on marketing mix and execution with a focus on branding (Waltmann, 2013).

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Section 2.4Resources and Power

Informal Learning While formal learning programs remain a core element of corporate education and train- ing, employees often rely more on informal learning to solve problems and develop the skills they need to do their current jobs and prepare themselves for advancement. The widely quoted 70/20/10 rule states that 70% of learning occurs on the job, 20% occurs through relationships, and 10% occurs in formal training. “Most researchers define infor- mal learning as ‘organic,’ or naturally arising rather than externally imposed. Compared to formal learning, informal learning is less structured, on-the-spot learning from experi- ence” (Perrin & Marsick, 2012, p. 13). Current training approaches support formal training programs designed to help employees quickly and efficiently acquire core knowledge and specific skills with a broad range of informal learning activities so that formal training participants can continue learning as they perform their jobs. Figure 2.6 shows informal learning activities on a continuum ranging from more intentional and structured types to more spontaneous and peer-to-peer types.

Figure 2.6: Range of informal learning activities by degree of structure

and intentionality

Formal training incorporates a broad range of informal learning activities so participants can continue to learn as they perform their jobs.

Source: Perrin, C., & Marsick, V. (2012). The reinforcement revolution: How informal learning makes training real. AchieveGlobal. Retrieved June 1, 2013, from http://www.achieveglobal.com

Brain Science New developments in neuroscience offer valuable insights for training and leadership development by taking into account the physiology of the human brain and the factors that predispose people to cooperate with or resist management guidance and organiza- tional changes. For example, people vary greatly in their ability to handle stress: Molecu- lar biologists have discovered that people with a particular gene mutation are more likely

More structured and intentional

Less structured but still intentional

Spontaneous, peer-to-peer

Learning reviews

Coaching by peers or managers

On-the-job training programs

Knowledge sharing

Mentoring

Self-study

Job aids

Electronic performance support systems

Job shadowing

Job sharing

Role modeling

Reflection

Teaching

Networking

Water cooler learning

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Section 2.4Resources and Power

to become depressed under stress (Medina, 2008), which could result in a justifiable and expensive worker’s compensation or wrongful termination legal action by an employee unable to handle the demands of a high-pressure position. Research has shown that adults with chronically high stress levels did half as well on certain cognitive tests than those with low stress; other studies estimate the financial impact of lost productivity due to stress at more than $200 billion annually (Coutu, 2008).

Traditional change in management tactics in organizations are based more on animal training than on human psychology and neuroscience. Leaders promise bonuses and promotions (the carrot) for those who go along with the changes, and punish those (the stick) who don’t with less important jobs or even job loss. This kind of managerial behavior flies in the face of evidence that shows that people’s primary motivation in the workplace is neither money or advancement but rather a personal interest in their jobs, a good environment to work in and fulfilling relationships with their boss and colleagues. (Williams, 2009, p. 2)

Brain science also explains two of the most frustrating situations for managers—why peo- ple make decisions based on emotions rather than logic and why feedback is so often inef- fective. An emotional experience creates a strong record in the brain, and a similar set of circumstances activates the memory along with the associated emotions. These associat- ing emotions are often more powerful than logic; in fact, people will use analytical think- ing to validate emotional decisions they have already made (Jacobs, 2009). Furthermore, the human brain is wired to resist feedback, whether positive or negative; thus, when people encounter information that conflicts with their self-image, they tend to change their perception of the information rather than themselves. To counteract this tendency, Jacobs (2009) recommends that managers encourage employees to set their own goals and self-evaluate their performance. When people actively embrace new ideas, changes in thinking produce physiological changes in the brain (Williams, 2009).

Workforce Science An outgrowth of the increasing use of “big data” in management is based on new research that challenges some traditional beliefs about management through analyses of huge amounts of data from employee communications, including e-mails, phone conversa- tions, and computer keystrokes. For example:

• A study of telephone call center workers (where high turnover is a recurring prob- lem) found that supervisorial quality as measured by communication skills and personal warmth was more closely related to worker tenure and performance than workers’ experience and individual attributes.

• An applicant’s work history is not the best predictor of future performance, which may result in employers overlooking well-qualified job candidates with many job changes or periods of unemployment.

• Persistence is more important for success in sales than an outgoing personality. • Google found that the most innovative workers were not those with the highest

standardized college admission scores or grade point averages, but those who had a strong sense of mission about their work and a high degree of personal autonomy (Lohr, 2013).

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Section 2.5Summary and Resources

2.5 Summary and Resources

Chapter Summary When the United States emerged as the world’s dominant economic power in the mid-20th century, health care became a big business and organization theory became more compre- hensive, drawing on ideas from many disciplines. Many contributions came from the field of sociology, as sociologists explored the effects of organizations and their functioning on different segments of society. Management scholars focused on how to better understand the relationship between the organization as a social system and its environment and stud- ied how organizations functioned in different environments.

An outgrowth of the conceptualization of organizations as systems and their functioning in differing environments was an interest in organizational structure, how it reflected or influenced the environment, and its relationship to organization performance under dif- fering environmental conditions. Organizational structure is a long-standing and ongoing topic of interest to leaders of health care organizations. As large, complicated systems operating in a dynamic and often unpredictable environment, health care organizations are heavily influenced by public and payer policies and technological advances. They have made structural accommodations in response to major health industry changes such as the growth of third-party insurance payments, increased quality data collection and reporting requirements by payers and accrediting agencies, P4P systems, and the wide- spread adoption of electronic health records. These environmental changes have also changed the way people work in health organizations and the role of managers in them.

Strategic planning became a widespread organizational practice during the 1970s and remains so today in health organizations. Contingency theory is the underlying theoretical frame- work for strategic planning, and MBO is its most widespread application. More recently, the

Timeline: Leading Organization Theory Researchers and Scholars

The following timeline places the organization theorists mentioned in this book in chronological order, beginning with their first major publication.

Date Theorist 1700s Adam Smith 1910s Frederick Taylor, Henri Fayol 1920s Max Weber, Mary Parker Follett 1930s Elton Mayo, Luther Gulick, Chester Barnard 1940s Abraham Maslow, Herbert Simon, James March 1950s Frederick Herzberg, Peter Drucker, Kenneth Boulding 1960s Tom Burns and G. M. Stalker, Peter Blau and Richard Scott, Arthur Walker and Jay Lorsch 1970s Jeffrey Pfeffer and Gerald Salancik, Henry Mintzberg 1980s Arnold Relman 1990s Peter Senge, Jeffrey Pfeffer 2000s Stephen Shortell

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Section 2.5Summary and Resources

emphasis has shifted from strategic planning to strategic thinking, a more creative approach to long-term strategy development. Futures research methodologies such as alternative sce- nario development are useful tools to facilitate strategic thinking and planning.

Postmodern organization theory questioned the prevailing emphasis on organizational structure and operations and emphasized the constancy and rapidity of change, which has led health organizations to develop strategies to reduce uncertainty and minimize risk. A principal means by which organizations and people in them act to reduce uncer- tainty is to acquire and maintain control of resources by successfully managing demands from interest groups in their environment. Health organizations’ most vital resource is people, or the human capital of the organization.

Critical Thinking and Discussion Questions 1. In what ways can health organizations be considered either mechanistic or

organic systems? 2. Give an example of a specific health organization that exemplifies each of

Mintzberg’s five types and state your reasons for selecting each organization as an archetype.

3. How does futures research assist health professionals in developing and refining strategic thinking skills?

4. How would you implement an MBO system for your graduate studies? 5. What organizational resources are of primary concern to the interest groups of a

pharmaceutical company? a home health agency? a medical practice? a nursing home?

Key Terms

accountable care organizations (ACOs) An organizational structure authorized by the Patient Protection and Affordable Care Act of 2010 offering financial incentives to integrated provider groups that provide good-quality care to Medicare beneficiaries while keeping down costs.

adhocracy (Mintzberg) An organizational structure type characterized by complexity and lack of standardization; the source of control is in the support staff element.

alternative scenarios A futures research methodology in which participants pro- pose a different view of the future.

contingency theory A theory stating that elements in an organization’s environment determine its structure.

divisionalized form (Mintzberg) An organizational structure type composed of semiautonomous or independent business units connected by a shared administrative body; the source of control is in middle line management.

general systems theory (von Bertalanffy) A set of formulated principles of function- ing common to all systems that emphasize interaction between the system and its environment.

human capital A view of people in orga- nizations as valuable assets that require maintenance and merit continuing atten- tion and investment.

informal learning Learning that is less structured and is derived from experience and colleagues, rather than formal training programs.

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Section 2.5Summary and Resources

learning organization (Senge) A view of organizations as dynamic systems in a state of continuous adaptation and improvement.

machine bureaucracy (Mintzberg) An organizational structure type characterized by standardized operating procedures; technostructure is the source of control.

management by objectives (MBO) (Drucker) The concept that managers are accountable for achieving defined objectives with flexibility in how they obtain results.

matrix management An organizational structure arrangement typically used for service line management with a dedicated manager for the specific and shared staff and operational resources from larger organizational units.

mechanistic and organic systems (Burns and Stalker) A classification of organi- zation systems according to organiza- tional characteristics and environmental conditions.

medical-industrial complex (Relman) A description by the editor of the New Eng- land Journal of Medicine of the influence of large for-profit health organizations on the U.S. economy.

open systems (Katz and Kahn) A concept wherein organizations both influence and are influenced by their environments; to survive, they must take in more resources than they emit.

pay-for-performance (P4P) Financial incentives for providers to meet quality- performance targets.

professional bureaucracy (Mintzberg) An organizational structure type characterized by decentralization and reliance on formal rules; the source of control is in the operat- ing core.

resource dependence theory (Pfeffer and Salancik) A theory that proposes that orga- nizational survival depends on the ability to acquire and maintain resources and manage the demands of interest groups that control those resources.

service line An organizational structure in which health care managers have profit and loss accountability for services to a specific patient population.

simple structure (Mintzberg) Also known as the entrepreneurial location, this organi- zational structure type is hierarchical, with its source of control at the strategic apex or top executive level.

strategic management (Drucker) A type of management strategy in which creating a winning strategy for organizational growth and improved financial performance is a key responsibility of organizational leaders.

strategic planning A set of activities to develop and implement strategies derived from research and analysis that will enable a business to fulfill its mission, achieve growth goals, and improve its competitive market position.

strategic thinking Enhanced, more cre- ative strategic planning that emphasizes bold approaches to creating new visions of the future.

structuralism (Mintzberg) The idea that all organizations follow a certain pattern with common elements and that the source of control by element determined the orga- nizational form.

technological determinism The view that technology drives social change in society and social institutions, including organizations.

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