Designing Organizations

Reductive and Adaptive Organizational
Theories
Reductive Theory
Humanistic Theory as a Bridge
Adaptive Theories
Organizational Structures and Shared
Governance
Functional Structure
Service-line Structure
Matrix Structure
Parallel Structure
Shared Governance

• Learning Outcomes
  After completing this chapter, you will be able to:
  Healthcare Settings
  Primary Care
  Acute Care Hospitals
  Home Healthcare
  Long-term Care
  Ownership and Complex Healthcare
  Arrangements
  Ownership of Healthcare Organizations
  Healthcare Networks
  Interorganizational Relationships
  Diversification
  Managed Healthcare Organizations
  Accountable Care Organizations
  Redesigning Healthcare
  Organizational Environment and Culture

1. Differentiate between reductive and adaptive organizational theories.
2. Describe traditional and emerging structures in healthcare
   organizations.
3. Choose a practice setting based on a preferred professional practice
   model.
4. Explain how the ownership of and complex relationships among
   healthcare organizations impact nursing.
5. Discuss how the organizational environment and culture affect
   workplace conditions.
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   14 Chapter 2
   Key Terms
   accountable care organization (ACO)
   bureaucracy
   capitation
   chain of command
   diversification
   Hawthorne effect
   health home
   horizontal integration
   integrated healthcare networks
   line authority
   medical home
   mission
   organization
   Introduction
   organizational culture
   organizational environment
   philosophy
   redesign
   retail medicine
   service-line structures
   shared governance
   span of control
   staff authority
   throughput
   values
   vertical integration
   vision statement
   When individuals come together to fulfill a common aspiration, organizations are
   formed. Some organizations are as small as two individuals with simple structures
   guiding the business relationship. Others may be large and complex. In healthcare,
   individuals form organizations to care for the ill and infirm or to advance health and
   well-being, yet they use different approaches to achieve these aims. A home care organization
   may focus less on the use of diagnostic technologies in favor of delivering
   hands-on and psychosocial support services where the patient resides. Other organizations
   may prefer to focus on technology usage, such as outpatient imaging services
   where patients go for care. Still other organizations may combine the two and add
   other aims, such as teaching future health providers. For these reasons, individuals
   studying to be healthcare providers will benefit from realizing early on that they will
   choose not only an area of clinical interest for a career but also a practice setting that
   aligns with their beliefs about organizations.
   Organizations almost always begin small, with structures that are easy to navigate.
   A nurse practitioner with a rural independent practice may provide clinic services
   with one or two others, but most organizations tend to grow in size and
   complexity. If the clinic grows in volume and scope of services offered, the time comes
   when more care providers are needed. At some point, a business manager is needed to
   specialize in billing and collecting revenues to offset the cost of providing services.
   Leaders begin to differentiate organizations into functions, divisions, and service lines,
   among other ways of structuring work discussed later in this chapter.
   In the earliest stages, especially during in an era when a business plan is needed to
   establish an organization in order to gain needed capital, organizational partnerships
   have a defined mission, purpose, and goals. Leaders shape their organizational structure
   based on what they want the organization to achieve.
   The philosophy is a sometimes written statement that reflects the organizational
   values, vision, and mission (Conway-Marana, 2009). Values are the beliefs or attitudes
   one has about people, ideas, objects, or actions that form a basis for the behavior that
   will become the culture. Organizations use value statements to identify those beliefs or
   attitudes esteemed by the organization’s leaders.
   A vision statement is often written; it describes the future state of what the organization
   is to become through the aspirations of its leaders. The vision statement is
   designed to keep stakeholders intent on why they have come together and what they
   aspire to achieve. “Our vision is to be a regional integrated healthcare delivery system
   providing premier healthcare services, professional and community education, and
   healthcare research” is an example of a vision statement for a healthcare system.
   The mission of an organization is a broad, general statement of the organization’s
   reason for existence. Developing the mission is the necessary first step to forming an
   organization. “Our mission is to provide comprehensive emergency and acute care
   services to the people and communities within a 200-mile radius” is an example of a
   mission statement that guides decision making for the organization. Purchasing a
   medical equipment company, therefore, fails to meet the current mission, nor does it
   contribute to the vision of improving the community’s health.
   Reductive and Adaptive
   Organizational Theories
   The purpose of a theory-derived organization is to design work and optimize human
   talent in a manner that best accomplishes the aspirational goals of the organization.
   Most healthcare organizations have theoretical foundations stemming from the late
   1800s to the early to mid 1900s, an era during which family-based industries such as
   farming were replaced with manufacturing plants developed in urban settings to
   accommodate mass production. Building on management principles derived from
   Adam Smith in 1776, who studied how organizations specialize and divide labor into
   piecework, new theories emerged. On analysis, these theories began to address work
   design, individual and group motivation to improve performance outputs, and the
   hypothesis that different situations may require adaptive strategies for the organization
   to remain viable.
   Reductive Theory
   Reductive theory, or classical approaches to organizations, focuses heavily on (a) the
   nature of the work to be accomplished, (b) creating structures to achieve the work, and
   (c) dissecting the work into component parts. The premise is to enhance people’s efficiency
   through thoughtfully designed tasks. Leaders who use this model aim to subdivide
   work, specify tasks to be done, and fit people into the plan. Reductive theory has
   four elements: division and specialization of labor, organizational structure, chain of
   command, and span of control.
   DIVISION AND SPECIALIZATION OF LABOR Dividing work reduces the number
   of tasks that each person carries out, with the intent to increase efficiency by assigning
   repetitive tasks to dedicated workers and improve the organization’s product. This
   concept ties proficiency and specialization together such that the division of work and
   specialization economically benefit the owner. When work is designed in such a standardized
   manner, managers exert greater control over productivity expectations.
   Designing Organizations 15
   16 Chapter 2
   ORGANIZATIONAL STRUCTURE Organizational structures delineate work group
   arrangements based on the concept of departmentalization as a means to maintain
   command, reinforce authority, and provide a formal communication network.
   Stated earlier, structures evolve over time, especially as organizations grow in
   size. The term bureaucracy is defined as the ideal, intentionally rational, most efficient
   form of organization. Today this word has a negative connotation, suggesting long
   waits, inefficiency, and red tape, yet its tenets continue to serve a purpose.
   CHAIN OF COMMAND The chain of command is depicted on a table of organization
   (called the organizational chart) through job titles listed in magnitude of authority
   and responsibility. Those jobs that ascend to the top reflect increased authority and
   represent the right or power to direct the activities of those of lesser rank. Those
   depicted at the lower end of the chart have the obligation to perform certain functions
   or responsibilities and yield less authority and power.
   The organizational chart gives the appearance of orderliness and clarity around
   who is in charge. Positions with line authority are depicted in boxes on the organizational
   chart, with the person holding supervisory authority over other employees
   located at the top. In Figure 2-1, line authority is illustrated by the chief nurse executive
   holding supervisory authority over nurse managers and the acute care nurse practitioner.
   Another type of authority is known as staff authority, in which individuals
   yield considerable expertise to advise and influence others; they possess influence
   that, without supervisory power, provides important direction and persuasion, minus
   supervisory status. In Figure 2-1, the nurse managers and acute care nurse practitioner
   possess staff authority with one another. This means that no nurse is responsible for
   the work of the others, yet they respect and collaborate to improve the efficiency and
   productivity of the unit for which the nurse manager bears responsibility.
   Chief nurse executive
   Acute
   care nurse Nurse Nurse Nurse
   practitioner manager manager manager
   Staff nurse Staff nurse Staff nurse
   Figure 2-1 Chain of authority.
   SPAN OF CONTROL Span of control addresses the issue of effective supervision
   expressed by the number of direct reports to someone with line authority. Complex
   organizations have numerous highly specialized departments; centralized authority
   results in a tall organizational structure with small differentiated work groups. Less
   complex organizations have flat structures; authority is decentralized, with several
   managers supervising large work groups. Figure 2-2 depicts the differences.
   Reductionist theory uses the mission of the organization to structure and design
   work, which is then subdivided into parts. The traditional design of medicine is based
   on this model, where a primary care physician oversees the holistic concerns of the
   patient, but specialists are called in to detail each subcomponent part of medical
   Tall
   Flat
   Figure 2-2 Contrasting spans of control.
   From Longest, B. B., Rakich, J. S., & Darr, K. (2000). Managing health services organizations and systems (4th ed.).
   Baltimore: Health Professions Press, p. 124. Reprinted by permission.
   treatment. Similarly, most hospital organizations still orchestrate their clinical services
   and departments using this model. This classical view of organizations has strength,
   but also real limitations. The way clinical work is carried out is dependent upon
   bureaucratic work design, yet clinicians often create work-arounds when necessary to
   achieve patient care objectives.
   Humanistic Theory as a Bridge
   Between reductive and adaptive organizational theory development is a movement
   from the 1930s that addresses how people respond to working in large organizations
   brought on by the industrial revolution. A major premise of humanistic theory is that
   people desire social relationships, respond to group pressure, and search for personal
   fulfillment in work settings. A series of studies conducted by the Western Electric Company
   at its Hawthorne plant in Chicago unexpectedly advanced knowledge about
   human responses to the workplace. The first study coexamined the effect of illumination
   (improved or diminished) on productivity but failed to find any relationship between
   the two extremes. In most groups, productivity varied at random, and in one study productivity
   actually rose as illumination levels declined. These contradictory results led
   researchers to conclude that unforeseen psychological factors could be at play.
   Further studies of working conditions, such as varied positive and negative
   experiences linked to rest breaks and workweek length, similarly failed to impact
   Designing Organizations 17
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   productivity. The researchers concluded that the social attention and interactions
   created by the research itself-that is, the special human attention given to workers
   participating in the research-met a social need that enhanced productivity. This
   tendency for people to perform in an expected manner because of special attention
   and focused, unintentional interactions became known as the Hawthorne effect, a
   term now used most commonly in research but which emanated from organizational
   science.
   Although the findings are controversial, organizational theorists shifted focus to
   the social aspects of work and organizational design. One important assertion of this
   theory was that individuals cannot be coerced or bribed to do things they consider
   unreasonable; formal authority does not work without willing participants.
   Adaptive Theories
   During the great social changes that occurred following World War II and Vietnam,
   organizational theorists began to observe ways that organizations adapt to change.
   The interplay among structure, people, technology, and environment led to perceiving
   organizations as adaptive systems; consequently, rules developed about how organizations
   thrived or were challenged.
   SYSTEMS THEORY Concurrent thoughts about biologic and nursing science also led
   to breakthrough knowledge known as systems theory (Mensik, 2014).
   An open-system organization draws on resources-known as inputs-from outside
   its boundary. Inputs can include materials, money, and equipment as well as
   human capital with particular expertise. These resources are transformed when processes
   are designed, animated, and coordinated with the mission of the organization in
   mind-a process known as throughputs-to create the goods and services desired,
   which are called outputs. Each healthcare organization-whether a hospital, ambulatory
   surgical center, home care agency, or something else-requires human, financial,
   and material resources. Each also designs services to treat illness, restore function, provide
   rehabilitation, and protect or promote wellness, thereby influencing clinical and
   organizational outcomes.
   Throughput today is commonly associated with access to care and how patients
   enter and leave the healthcare system. Hospitals measure the throughput of patients,
   beginning with emergency department services and, if necessary, patients diverted
   away from the hospital based on resource availability; how long a patient has to wait
   for a bed; and the number of readmissions (Handel et al., 2010). Readmissions that
   occur within fewer than 120 days from discharge create financial penalties for
   hospitals as a measure of inadequate discharge planning. Using information technology,
   bed management systems are a tool to monitor patient throughput in real time
   (Gamble, 2009). The Joint Commission accreditation, a national accreditation program,
   requires hospitals to show data on throughput statistics Goosten, Bongers, &
   Janssen, 2009).
   CONTINGENCY THEORY Another adaptive theory is contingency theory, which
   was developed to explain that organizational performance is enhanced when leaders
   attend to and interact directly with the unique characteristics occurring in a changing
   environment. Through these interactions leaders match an organization’s human and
   material resources in creative ways to respond quickly to social and clinical needs. The
   environment defined here includes the people, objects, and ideas outside the
   organization that influence or threaten to destabilize the organization. Although some
   environmental factors are easily identified in healthcare organizations (regulators,
   competitors, suppliers of goods, and so on), the boundaries become blurred when a
   third-party payer or a physician controls a patient’s access to care. In these cases, the
   physician or payer appears to be the customer, or gatekeeper.
   CHAOS THEORY The final adaptive theory, known as chaos theory, is linked to the
   field of complexity science, inspired by quantum mechanics. Chaos theory challenges
   us to look at organizations through a lens that strips away notions of the command
   and control structures found in reductive theories. Complexity scientists
   observe in nature that nonlinear problems cannot be solved with the linear
   approaches tied to reductionism. The concept of cause and effect is rarely predictable
   in work settings where the stakes are high, multiple variables interact, and predictive
   outcomes are not feasible. Complexity science informs organizational leaders
   that all systems will self-regulate over time, that change is plausible from the bottom-
   up or through the organization, and that leadership aims to establish simple
   rules that promote adaptation in concert with environmental agents, rather than
   believing that the command and control methods found in reductionist models are
   sufficient (Ray, Turkel, Cohn, 2011).
   Chaos theory and complexity science refute permanent organizational structures
   as useful. Rather, principles that ensure flexibility, fluidity, speed of adaptability, and
   cultural sensitivity are emerging, such as those found in virtual organizations (Norton
   & Smith, 1997). In social media, Facebook is an example of a leaderless organization,
   created and managed by its communities of interests, serving its users through a broad
   set of principles that are self-monitored.