Designing Organizations

Reductive and Adaptive Organizational
Reductive Theory
Humanistic Theory as a Bridge
Adaptive Theories
Organizational Structures and Shared
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
    Ownership of Healthcare Organizations
    Healthcare Networks
    Interorganizational Relationships
    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
  3. Choose a practice setting based on a preferred professional practice
  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.
    14 Chapter 2
    Key Terms
    accountable care organization (ACO)
    chain of command
    Hawthorne effect
    health home
    horizontal integration
    integrated healthcare networks
    line authority
    medical home
    organizational culture
    organizational environment
    retail medicine
    service-line structures
    shared governance
    span of control
    staff authority
    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
    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
    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
    18 Chapter 2
    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
    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.