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Rinnakkaistallenteet Yhteiskuntatieteiden ja kauppatieteiden tiedekunta
2021
Doing Good, Being Bad? - Making
Sense of Private Healthcare Firm's Profitability
Holopainen, Riikka
Bloomsbury India
Artikkelit tieteellisissä kokoomateoksissa
© BIMTECH, 2021 All rights reserved
https://www.bloomsbury.com/uk/sustainable-entrepreneurship-9789354350559/
https://erepo.uef.fi/handle/123456789/25000
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Doing Good, Being Bad? – Making Sense of Private Healthcare Firm’s Profitability
Riikka Maarit Holopainen, Esa Hiltunen, Kang Li University of Eastern Finland, Finland
ABSTRACT
This article continues the discussion on the profitability and ethics of private healthcare companies from the perspective of one very successful Finnish private healthcare company.
The authors interviewed the company’s manager and owner and conducted a sensemaking narrative study based on the results. The article describes how private care companies experience doubts and have to justify their operations; in particular, it focuses on how companies’ profitability requirements seem to create disapproval from the surrounding environment. Many think that profitability and good quality cannot coexist. This article examines the material from the structured interview using a narrative framework, reporting on how one private healthcare company has worked overtime to prove that while the company is profitable, it provides its clients with excellent care. The article illustrates how one company has successfully constructed a plausible and trusted identity in its environment and for its stakeholders.
INTRODUCTION
In Finland, healthcare companies are located somewhere between a private and a public service provider – all customers of a private service provider are public entities, such as municipalities or cities. Thus, the customer base consists of a private individual whose costs are borne by a public entity. This produces challenges for private companies (e.g. through a demanding bidding process). A few smaller or one larger customer (e.g. municipality) increases the company’s risks. Previous studies have found that where customer concentration is connected to the performance, the major customer’s profitability increases, but the supplier firm’s profitability decreases (Hui, Liang and Yeung 2019). However, contrasting research results exist (Patatoukas 2012), at least regarding companies operating in the early stages of this relationship (Irvine, Park and Yildizhan 2016).
Private healthcare with public customer companies must meet the extensive quality requirements of the public subscriber, which are systematically monitored in order to maintain equal quality between public and private care. Previous studies have found that open treatment of public organisation quality has improved their quality of care (Schneider and Lieberman 2001). However, quality monitoring in both the private and public sectors is still evolving, and objective and widely used indicators are lacking (Government Communications Department 2017). This study produces more information about how quality, ethics and profitability is achieved in a private healthcare company. In this regard, the authors use an interview framework to learn more about one firm’s management practices.
The study is structured as follows. First, profitability and ethics in health care firms and sensemaking and contingency theory will be discussed in the section titled Theoretical framework. After introducing the qualitative research methodology used in this study, the narrative analysis will be presented in the section titled Analysis. The sections Discussion and Conclusion present the contributions of this work, limitations of this study and avenues for future studies.
THEORETICAL BACKGROUND
Gilmartin and Freeman (2002) argue that healthcare is a unique industry operating at a higher ethical standard than other service sectors in the economy because the output of its services
relates to life, death, health and wellness. Therefore, ethics (e.g. management ethics) should be more sensitive to profitability in healthcare firms due to these higher ethical standards and the significant role of ethics in this industry. Management ethics can guide firms toward ethical organisational environments. Treviño, Butterfield and McCabe (1998) reports that employees are more committed to their firm if they are working in a highly ethical and trustworthy environment that supports and rewards ethical behaviour. Chun et al. (2013) find that employees can translate ethical attitudes and behaviours into firm profitability. When employees feel that they are being treated in a respectful, fair and dignified way, they tend to respond actively and positively to firm and management ethics, which ultimately enhances firm profitability.
The theoretical framework of this study is based on the sensemaking theory that Karl E. Weick (1995) describes in ‘Sensemaking in Organisations’. Sensemaking theory identifies seven distinguishing characteristics of the sensemaking process. Another main theory used here is contingency theory, which calculates a firm’s profitability by considering six factors. Several of the factors in these two theories are the same or are parallel and are believed by the earlier literature to accurately describe the overall picture of a profitable care company.
Sensemaking as a complex phenomenon (Weick 1995, p. 17) provides a useful framework for studying how healthcare company managers make sense of challenging situations between public and private functions. To be successful, a company has to construct a plausible identity in the sensible environment. Weick’s (2015) sensemaking theory identifies seven distinguishing characteristics of the sensemaking process. Weick, Sutcliffe and Obstfeltd (2005, p. 409) define sensemaking as a process
. . . in which people concerned with identity in the social context of other actors engage ongoing circumstances from which they extract cues and make plausible sense retrospectively, while enacting more or less order into those ongoing circumstances.
Thus, healthcare companies operating in a complex environment with key contingencies must create a plausible story that makes sense in terms of the notion of ‘who they are’ as their identity.
While sensemaking theory concerns an organisation’s quality and development through seven stages, an organisation’s profitability formation has been explained by a combination of six contingency factors: size, strategy, organisational structure, environment, information technology and culture. Contingency theory refers to the idea that there is no one right way to derive a performance – instead, it is dependent upon environmental conditions based on the six factors (McGrandle 2017; Wadongo and Abdel-Kader 2014). Castlen et al. (2017) study the ethical quality a customer experiences, noting that the healthcare industry is undergoing rapid changes in cost and number of patients, and that increasing patient numbers may be compromising ethical quality (see also Singh, Chen, Del Giudice and El-Kassar 2019).
METHODOLOGY
The private healthcare company studied here was carefully selected from a database of the best- performing healthcare companies in the Northern Savo region of Finland. This family firm is the most profitable company in the area and was thus selected to explore which factors make it highly profitable. The company is a small private healthcare company established in 1996 that provides housing services for handicapped residents. It began as a family business; the interviewee’s (the CEO) family, spouse and daughter still work for the company. This private family-owned company offers healthcare services for municipalities (i.e. the service buyer).
A qualitative case study methodology was used to understand the company’s operations and profitability. The analysis and results of this study create a narrative informed by a semi- structured interview with the company’s CEO. Regarding ethical issues, the CEO was informed that the research was being conducted, and that the findings would be published in academic journals.
ANALYSIS
Over the course of the interview, the CEO makes sense of the company’s operations. The company operates in the space between private and public services; it provides high-quality social and healthcare services for the private patient paid by municipality. The sensemaking framework allows the authors to examine the power and identity struggle from the perspective of this private healthcare company. It also sheds light on how the company manages itself and gains firm profitability by successfully balancing the perspectives of the company’s stakeholders. Using sensemaking in the narrative, the authors focus on the company’s identity, previous experiences and its future (i.e. how to ‘play the game’ in a challenging environment).
In short, sensemaking is an ongoing social construction of identity in which actors have to make sense of the present and past and analyse clues about their future.
Identity
As a healthcare company, the firm operates in the service sector. The company has to be profitable in order to operate in the market and environment as a private firm. Its values are linked to providing good care to its residents; it uses an appreciative approach toward its stakeholders as handicapped residents:
Our motto is that [handicapped people] have the right to a normal life. Even if they have a disease, they still have the right to live a normal life. We have been trying to make their everyday lives as normal as anyone else’s, like yours or mine or anyone’s lives.
The CEO stresses the importance of doing a good job – part of this is ensured by the company’s quality management system. This system ensures that information about its caring practices is available to all of its employees. The system has increased efficiency, allowing more time to care for residents. It supports practical ethics in working and good care and prevents mistakes.
We have been pioneers in quality management and quality work. We have an IMS quality management system. It is a very important tool. All work instructions are in an electronic format. If a new employee comes in, it is easy for her or him to find work instructions there. [An employee] goes into the system and searches for a keyword.
The electronic system saves working time when working instructions are easy to find.
The company invests money to develop and maintain its operations as part of a positive cycle of profitability:
Yes, if you do your job well, yes, this is profitable. Otherwise, multinational companies wouldn’t enter the industry.
We don’t have to save, so we are able to buy what we need. We have acquired what we [need and want]. It awakens wonderment in others who [visit] our company. We are in a good position.
We would get a much better result if we were to save money on different things. But it would limit our activities. That’s why we don’t do that.
One part of the company’s identity is being extremely innovative and searching for better solutions to offer better quality with reasonable price. Innovation culture is important – even though the company is already profitable and has good operational and financial results, it constantly questions its operations and routines.
We tend to question aspects of our company.
I am constantly dreaming. I try to develop activities together with the personnel of the company.
If someone says you can’t do that, then I will show them that I can!
Although the CEO has a competitive personality, the company achieves its profitability by treating its employees very well – it has a good reputation. Treating its employees well also reflects the quality of the care it provides for its clients.
We are doing a lot of work to create a good working atmosphere in the company. [By doing this, our employees] can do their work better, and the residents and employees [feel] good.
The knowhow – it has accumulated here over the years. We have trained a lot of staff and trained ourselves. We have tried to be pioneers, and when a new law or system comes into play, we have tried to apply it immediately [instead of waiting for] when it has to be done.
Over the years, the company has gained a plausible identity as a healthcare actor and as a private healthcare company. With its knowledge and skills, it has managed to convince the authorities of the high level of care that it provides:
The attitude has changed, both for the residents and for our competences. Now, we are a really valued actor. If you ask the social sector representatives if we can care for the handicapped residents in our company, then you will certainly hear them say that
“yes, they know how to treat [their residents]”.
Previous Experiences and Future Indicators
Operating in the healthcare sector as a private firm is not easy. The majority of the challenges come from external forces, not from inside the company:
Entrepreneurship requires a huge amount of perseverance – this has not been easy.
Most of the difficulties have come from the outside.
The health and the social sector actors of municipalities were previously very
sceptical that because we are private, can we do things and care? Can we do anything at all? One employee [who] worked in a hospital was thought to be capable [of] doing everything. When she came to work for us, she was questioned in terms of whether she could provide the healthcare work here in our company. As [though her]
knowledge had gone somewhere – disappeared – when she began here.
Cooperating with municipalities on the basis of personal relationships in a political environment and constructing good relationships in this environment can be challenging. The CEO describes her experience constructing social relationships when collaboration does not work:
If cooperation with a municipal representative starts badly, it is extremely difficult to change it later. You just have to wait for [her or him to change jobs] or retire. We have had [such] experiences. Although you would like to collaborate, it doesn’t always work. On one occasion, we asked what our co-operation problems were so we could change our activities, but they wouldn’t tell us.
According to the CEO, the company has gained support from municipal representatives, but sometimes, public sector actors do not appreciate the company’s intensive, ongoing and high- quality work:
One of the municipal [representatives] visited us and suggested that we had passed our quality audits because of saving money. It almost hurt me. It is not at all who we are and where we aim be. They don’t appreciate it – our quality work. They may not understand how good [of a] tool it is.
Forecasting about the future is very difficult. The municipalities create competition via a multi- step process that requires a lot of paperwork, which the CEO finds frustrating. The high quality of operations is only one priority in this competition – the price of the services is truly the top priority.
. . . municipalities compete for services. It requires many things to know and to be able to forecast what will happen in the future. In a way, I should be [a] prophet, to know what’s happening [in] five years’ time. And you don’t know yet. You don’t know what the competitors are offering, or you would be offering that same price, which adds up. It is very demanding [in that] it usually takes a month [to fill] out the documents. Firstly, you have to fill out those documents and leave them, then you have to fill them out again and again (i.e. a multi-step process).
Communities compete [for] services. I don’t like bidding. It’s like using doping in sport. That’s why the service producer have to learn to play the game, and I don’t like games. It would be better not to have bidding. I pray for that for the residents’ sake.
According to the CEO, biddings are an unethical practice them being stressful for the service producer. To be successful and profitable, the company has learnt the rules of the game even though it does not fully accept how the game is played.
DISCUSSION
This study uses a sensemaking framework to examine a private healthcare firm and its profitability and ethics from the CEO’s perspective. In the Finnish business context, where public sector actors (the municipalities) are the main customers of private firms, making a profit is constantly questioned due to the use of tax money. The study shows that in order to be successful in this challenging environment, a managers’ sensemaking must be ongoing if they are to predict what will affect a company’s operations, how to be successful and how to be profitable. All problem solving, decision making, planning and implementation requires
sensemaking (Zhang and Soergel 2014); leveraging past experiences and familiar habits is part of the sensemaking process (Bingham and Kahl 2013). Managers communicate the significance of change to their employees whilst rationalising the significance of any changes to themselves (Balogun and Johnson 2004; Lüscher and Lewis 2008). The role of managers as recipients of change, through their own sensemaking process and common interpretation, contributes significantly to an organisation’s output (Maitlis and Christianson 2014; Weick 1995). In the small company studied here, the CEO is a highly innovative person who develops company processes and stresses good ethics in the company’s everyday practices. The size of the company is a key contingency that increases the agility of its operations.
Another key contingency is strategy. Generally, managers implement an organisational strategy so that they are the first-line recipients of the change, allowing them to communicate change to their subordinates (Balogun and Johnson 2004) and organisational stakeholders (Rouleau 2005). In the environment the healthcare company operates in, formulating a strategy is challenging. For private healthcare firms where the public sector are the customers and are part of the political system, political decisions and environment (i.e. its identity) affect the firm’s operations. Because the case company executes its caring operations extremely well, it is confident about its future.
In contingency theory, the underlying assumption is that the appropriate form of organising a company and its actions depends on the kind of task or environment it is dealing with – in other words, there are many ways to organise a company. However, a successful manager takes key contingencies into account. The case study shows that its environment exerts a great deal of pressure over the company’s daily activities and management. While the customers (municipalities and residents) are very satisfied with quality of the care, in the short term, this does not automatically ensure the company’s performance and profitability. Profitability also depends on personal relations between the company and the municipalities – its profitability is ongoing and is dependent upon social sensemaking about the plausibility of its actions and its reading of environmental cues.
This study illustrates how the manager of a private healthcare company makes sense of its challenging positioning between public and private functions – overall, the company has to construct a plausible identity. Further, this article outlines how a particular company develops its business, which it does both by improving its profitability and providing optimal care for
its clients. Contrary to preconceived notions, the company believes that its good profitability and financial success enable it to continuously improve its operations. By combining sensemaking and contingency theories, this case study provides a wide and interesting view of the management and performance of a private healthcare company.
CONCLUSION
This article contributes to the discussion on how contingencies and sensemaking are interrelated. This private healthcare company constructs and operates its identity in a complex environment of conflicting realities. Using sensemaking allows the authors to examine this power and identity struggle; it also illustrates how the company manages the struggle and gains profitability by successfully balancing different stakeholders’ perspectives.
The company’s ethical behaviour is constantly monitored by the manager owners. Over the years, it has developed its operations to function on a long-term basis improvements. Although the company has experienced many challenges, it has created a plausible and trustworthy image of its operations for its stakeholders, who include municipalities, residents and employees. Now that the business has been developed, the company must constantly receive and interpret clues from its environment on how to act now and in the future. Its operations are defined by key contingencies featuring both limitations and opportunities.
As with every study, this case study has its limitations. First, it includes a single interview.
Future studies should focus on specific municipalities as customers and the difference this type of customer makes for the company’s management operations. It would also be useful to interview municipal actors.
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