Profitability of SMEs in the private Healthcare sector in Finland

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DISSERTATIONS | RIIKKA HOLOPAINEN | PROFITABILITY OF SMES IN THE PRIVATE HEALTHCARE SECTOR IN FINLAND | No 2

Dissertations in Social Sciences and Business Studies

PUBLICATIONS OF

THE UNIVERSITY OF EASTERN FINLAND

uef.fi

PUBLICATIONS OF

THE UNIVERSITY OF EASTERN FINLAND Dissertations in Social Sciences and Business Studies

ISBN 978-952-61-3745-2

This dissertation examines the profitability of small and medium-sized enterprises (SMEs)

in the Finnish private healthcare sector. It addresses the profitability of healthcare SMEs from the perspective of three different

research questions regarding management accounting systems, customer concentration and digitalisation. These issues are addressed

in four different articles through both quantitative and qualitative analyses. Using both local and national business material this

dissertation provides new evidence of the formation of profitability.

RIIKKA HOLOPAINEN

Profitability of SMEs in the Private Healthcare

Sector in Finland

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Profitability of SMEs in the Private

Healthcare Sector in Finland

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Riikka Holopainen

Profitability of SMEs in the Private Healthcare Sector in Finland

Publications of the University of Eastern Finland Dissertations in Social Sciences and Business Studies

No 245

University of Eastern Finland Kuopio

2021

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Grano Oy Jyväskylä, 2021

Editor in-Chief: Markus Mättö Editor: Markus Mättö

Sales: University of Eastern Finland Library ISBN: 978-952-61-3745-2 (print)

ISBN: 978-952-61-3745-2 (PDF) ISSNL: 1798-5749

ISSN: 1798-5749 ISSN: 1798-5749 (PDF)

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Author’s address: Business school, Faculty of Social Sciences and Business Studies

University of Eastern Finland KUOPIO

FINLAND

Doctoral programme: Accounting and Finance

Supervisors: Professor Mervi Niskanen, Ph.D.

Business school

FINLAND

Professor Jyrki Niskanen, Ph.D.

Business school

FINLAND

Senior Lecturer Esa Hiltunen, D.Sc. (Econ.) Business school

FINLAND

Reviewers: Professor Marko Järvenpää, Ph.D.

School of Accounting and Finance University of Vaasa

VAASA FINLAND

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Research Director Anna-Mari Simunaniemi, Ph.D.

Kerttu Saalasti Institute / Microentrepreneurship Center of Excellence MicroENTRE

University of Oulu

OULU FINLAND

Opponent: Professor Marko Järvenpää, Ph.D.

School of Accounting and Finance University of Vaasa

VAASA FINLAND

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Holopainen, Riikka

Profitability of SMEs in the Private Healthcare Sector in Finland Kuopio: Itä-Suomen yliopisto, 2021

Publications of the University of Eastern Finland

Dissertation in Social Sciences and Business Studies; No 245 ISBN: 978-952-61-3745-2 (print)

ISSNL: 1798-5749 ISSN: 1798-5749

ISBN: 978-952-61-3745-2 (PDF) ISSN: 1798-5749 (PDF)

ABSTRACT

This dissertation examines the profitability of small and medium-sized enterprises (SMEs) in the Finnish private healthcare sector as well as the factors affecting that performance. The healthcare sector is exceptional as it operates at the crossroads of public funding and private business. The background theory of the dissertation is contingency theory which classifies firm profitability according to factors such as size, externalities, strategy, structure, culture and technology whereby our survey on private healthcare companies describes the performance and special features of one service business. The first three articles included in this dissertation relied on questionnaires and test different factors, including management accounting systems (MAS), customer focus and digitalisation variables. The fourth article is based on an interview conducted with the managing director of one high- performing private healthcare company, wherein the tested and investigated factors in the previous survey were discussed. All three explanatory variables show significant results in relation to the company’s profitability with the results being confirmed in the case study.

Keywords:profitability, management accounting systems (MAS), customer concentration, digitalisation, contingency theory, small and medium-sized enterprise (SME), healthcare business

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Holopainen, Riikka

Suomalaisten pk-yritysten kannattavuus terveydenhuoltoalalla Kuopio: Itä-Suomen yliopisto, 2021.

Publications of the University of Eastern Finland

Dissertation in Social Sciences and Business Studies; No 245 ISBN: 978-952-61-3745-2 (nid.)

ISSNL: 1798-5749 ISSN: 1798-5749

ISBN: 978-952-61-3745-2 (PDF) ISSN: 1798-5749 (PDF)

TIIVISTELMÄ

Tämä väitöskirja tutkii pienten ja keskisuurten yritysten (pk-yritysten) kannattavuutta ja siihen vaikuttavia tekijöitä suomalaisissa yksityisissä terveydenhuoltoalan yrityksissä. Ala on siltä osin erityinen, että se toimii julkisen rahoituksen ja yksityisen liiketoiminnan rajapinnassa. Työn taustateoriana on kontingenssiteoria, joka luokittelee yrityksen kannattavuuden tekijöiden, kuten koon, ulkoisvaikutusten, strategian, rakenteen, kulttuurin ja tekno- logian perusteella. Näiden avulla kyselymme kuvaa yhden merkittävän pal ve lu liiketoiminnan, yksityisten sosiaali- ja terveydenhuoltoyritysten suori tuskykyä ja erityispiirteitä. Väitöskirjan kolme ensimmäistä artikkelia tukeutuvat kyselylomakkeisiin, ja niissä testataan eri tekijöitä, kuten johdon laskentatoimenjärjestelmä-, asiakaskeskittyneisyys- ja digitalisaatiomuuttujia.

Neljäs artikkeli perustuu yhden hyvin menestyneen yksityisen sosiaali- ja tervey denhuoltoyrityksen toimitusjohtajan haastatteluun, jossa käsiteltiin aiemmissa määrällisissä tutkimuksissa niin ikään testattuja ja tutkittuja tekijöitä. Kaikki kolme selittävää muuttujaa osoittavat merkitseviä tuloksia suhteessa yrityksen kannattavuuteen, ja nämä tulokset vahvistetaan myös viimeisessä tapaustutkimusartikkelissa.

Avainsanat: kannattavuus, johdon laskentatoimen järjestelmät, asiakaskeskittyneisyys, digitalisaatio, kontingenssiteoria, pk-yritys, terveydenhuoltoalan

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Acknowledgement

Now that this interesting piece of work on the profitability of healthcare businesses is coming to an end, I want to express my gratitude to the people who contributed to it. Firstly, many thanks to my dissertation supervisors, Professor Mervi Niskanen, the late Professor Jyrki Niskanen and Lecturer Esa Hiltunen, for your kind attitudes and encouragement. I appreciate your punctual help. I would like to thank the pre-examiners, Professor Marko Järvenpää and Research Director Anna-Mari Simunaniemi, for their valuable comments on improving this dissertation. My gratitude also goes to the accounting and finance team, including Kari Kinnunen, Markus Mättö, Kang Li, Hannu Ojala and Henri Teittinen, for their support and help over the years.

Many thanks to the entire business department for providing a warm and invigorating work community.

In addition, I would like to thank those who have given me a new perspective along the way and helped move my papers forward. This includes the participants and organisers of the Copenhagen Nordic Accounting Conference (2014), the Tallinn 5th International Conference on Accounting, Auditing and Taxation (2016), the Nice Conference on performance measurement and management control (2015, 2017) and the Indian International Conference on Management Cases, Birla Institute of Management Technology (2018, 2020).

My thanks also go to reviewers Lili-Anne Kihn, Ileana Steccolini, Arthur Posch, Margus Tinits and Antti Fredriksson, who have commented on my research papers at conferences and tutorials and thus made important contributions to my research.

My deepest gratitude goes to my friends and siblings, for endlessly listening to my dissertation concerns and offering other thoughts when necessary.

Thank you to my mother Eila for encouraging me in my studies and my late husband Risto for his support and faith in everything that I do. Thank you, Joni, for all the background support that allowed me to focus on my studies.

My warmest thanks to my grandchildren Eetu and Augusti for brightening my

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days and my dear children and their spouses Petri, Xijun, Katri, Ismo, Karoliina and Waltteri, for your faith, care and encouragement. Lastly, dear thanks for your support Pekka.

Lapinlahdella, 8.3.2021 Riikka Holopainen

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1 Introduction

This section opens the different dimensions of this dissertation and discusses the importance of the research on the healthcare business having a big effect on public resources. It introduces the concept of performance and its components including size, externalities, strategy, structure, culture and technology. Further it presents the main objectives and research questions and finally the structure of the dissertation.

1.1 Background

Small and medium-sized enterprises (SMEs) represent a large proportion of all companies worldwide. SME is a company which has less than 250 employees, has less than € 50 m turnover or has less than € 43 m balance sheet total (European Commission 2020). The most significant company growth, as measured by total sales and employment numbers, is also found in relation to SMEs (Wilkinson 1999). Further, SMEs are recognised to be stronger and more adaptable in turbulent business environments (Schreyer 1996). The perspective of profitability research has changed somewhat. The competition and the importance of customers have changed the costing logic of the organisational engineering upside by highlighting quality in addition to cost minimisation (Cugini, Caru, and Zerbinie 2007; Lebas 1995; Hiromoto 1988). At the same time, the importance of customers has repositioned the value-adding processes at the centre of business as they form one strategic dimension of the firm (Lebas 1995).

However, knowledge concerning the growth and profitability processes of SMEs remains limited (Varum and Rocha 2013). Although private healthcare companies have many goals, including the delivery of efficient and reliable care processes, customer satisfaction and employee retention, their ultimate and common goal is profitability. In 2017 in Europe, annual expenditure in the healthcare sector was €1,286 billion, of which 28.5% was generated by government schemes and 50.0% by compulsory insurance or saving accounts.

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Of these 99% were SMEs and they employ 100 million people (European Commission 2020). In 2017, there were 286,934 companies registered in Finland, of which 99.8% were SMEs (i.e. having fewer than 250 employees), which employed a total of 931,146 people. This figure represents 65% of all employed people in Finland (Statistics Finland 2017). Among 18,500 Finnish healthcare (social and healthcare) companies, some 4.8% are SMEs, whereas 94.8% of them are micro-companies (with fewer than 10 employees;

only 0.23% are large companies). In Finnish private social and healthcare companies, the median earnings before interest and tax (EBIT) was 14%, while their median net profit on sales was 5% in 2017. When compared with the previous year, the profitability of micro-companies increased in 2017 (Finnish Ministry of Employment and the Economy 2018, pp. 19, 50). However, as healthcare companies provide services partly with public tax resources, their profitability requirement has been questioned (Peda and Vinnari 2018). ‘

This dissertation investigates three performance-related factors:

management accounting systems (MAS), customer concentration and digitalisation. All three were examined in relation to profitability, based on the results in the previous literature.

1.2 Performance

Firm profitability is a complex issue that depends on time, place and situation.

A firm’s management seeks to control and manage its profitability through the use of various management accounting systems (MAS). The construct of profitability measures internal results as an aspect of performance (Kagioglou, Cooper and Aouad 2001). The choice of the most appropriate measure of profitability depends on the occasion (Kinney and Wempe 2002; Lebas 1995).

Success can be assessed using a variety of measures, both financial and non- financial, although it has been reported that non-financial indicators better predict the future success of a firm (Baines and Langfield-Smith 2003; Banker, Potter and Srinivasan 2000; Ittner and Larker 1998; Kallunki, Laitinen and Silvola 2011). However, while financial measures principally reflect the financial statement data, they can also generate accurate information concerning the

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income statement of a company, such as its growth, operating profit and net profit (Bennett et al. 2017; Hendricks, Singhal and Stratman 2007; Bhimani 2003), or they can offer return-on-assets (ROA) data derived from balance sheet items (Frenandez, Triguero and Alfaro-Cortes 2019; Gonzalez-Benito, Muñoz-Gallego and García-Zamora 2016; Krishnan, Patatoukas and Wang 2019; Lian 2017; Youtie, Sharpira and Roper 2018).

Performance is a broader concept than profitability, and it is used widely in management accounting. Performance may also describe qualitative processes by non-monetary measures (Banker, Potter and Srinivasan 2000;

Garengo, Biazzo, and Bititci 2005; Hall 2008), while profitability is usually measured by a monetary measure and is commonly used in the financial literature (Fernández, Triguero and Alfaro-Cortés 2019; Gosman et al. 2009;

Irvine, Park and Yıldızhan 2016). Both measure a firm’s success. In this dissertation, profitability is used as a measure of success. More specifically, the EBIT per sale metrics are used rather than the more commonly used return on equity (ROE) or ROA because balance sheet figures are not available for all companies in both database.

1.3 Contingency theory and its components

As the profitability of a company is thought to depend on a wide variety of influences, contingency theory is considered to be a suitable tool for collecting the diverse components required to explain profitability. Indeed, it has previously been established that profitability can be studied on the basis of contingency theory (Huczynski and Buchanan 2001). In general, contingency theory assesses profitability in terms of six factors, size, strategy, externalities (or environment), organisational structure, information technology and culture. However, other factors may be also considered (Otley 2016; Lawrence and Lorch 1967).

Contingency theory was developed to explain the laws of organizational management. Since, in most cases, more and more organizational management, both for-profit and non-profit, is strongly connected with the management of an organization’s finances, we can conclude that contingency

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theory is a suitable basis for profitability research as well. It aims to take into account to the greatest degree possible the external and internal factors relevant to the company (Tienari and Meriläinen 2012, p. 80). The contingency theory model applies profitability factors relevant to firms, such as organisational size and structure, externalities, strategy, technology, culture and behaviour, if they affect performance (Clegg et al. 1986; Lawrence and Lorsch 1967). However, one problem associated with contingency theory concerns the fact that the contingency factors fail to take into account the role played by management or senior management as the interpreters of a company (Morelli and Lecci 2014; Chenhall 2003). The profitability research could be developed by improving existing practices or developing new ones.

In any case, it seem clear that more complex profitability structures should be explored and, further, that research should address the practical applications of performance (Malmi and Granlund 2009).

MAS and performance

Although some prior studies indicate the inconsistency between management accounting systems (MAS) and performance (Gerdin 2005; Ittner, Larcker and Randall 2003), more studies indicate how MAS positively influence firm success (Kallunki, Laitinen and Silvola 2011; Hendricks, Singhal and Stratman 2006; Bhimani 2003; Drazin and Van de Ven 1985). Yet, some researchers have found that the use of MAS is rather onerous when weighed against the perceived benefits of using them (Hussain, Gunassekaran and Laitinen 1998).

It is certainly possible that overly modest MAS may slow down company operations. However, MAS are closely linked to customer relationship and innovation management in modern companies, and their effects have also been found to be positive in relation to firm profitability (Gonzalez- Benito, Munoz-Galleogo and Garcia-Zamora 2016; Bhaskaran 2006). More contingency studies and cross-sectional material are needed to achieve a more precise understanding of the factors relevant to MAS and the reasons for their importance (Huczynski and Buchanan 2007; Hartmann 2005; Luft and Shields 2003; Donaldson 2001; Clegg et al. 1986).

Initially, the research in this area was based on quantitative methods (Chenhall 2006; Hopper and Bui 2016; Nitzl 2016) that investigated a

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company’s performance and cost relation while subsequent studies in the field of management accounting research also used qualitative methods (Hopper and Bui 2016; Scapens 2006). The understanding of management accounting and the development of MAS have become clearer and more focused as a result of review studies (Bromwich and Scapens 2016; Otley 2016; Scapens 2006; Garengo, Biazzo and Bititci 2005; Chenhall 2003; Luft and Shields 2003; Chapman 1997) although more precise information concerning the connection between the theory and practice of management accounting is still required (Bititci, Firat and Garengo 2010; Berry et al. 2009; Malmi and Granlund 2009).

Alongside the MAS research, there exists a rich and more specific branch of research concerning management control systems (MCS) (Ahrens and Chapman 2007; Granlund and Taipaleenmäki 2005; Laitinen 2001), which the present dissertation considers to be part of the MAS concept. In the existing literature, the terms MAS and MCS (management control systems) are used interchangeably and almost synonymously (Abernethy and Lillis, 1995; Chenhall, 2003; Fisher, 1998; Flamholtz 1996; Langfeld-Smith, 1997;

Merchant and Van der Stede, 2007; Otley 1980; Simons, 1990). However, they concern a slightly different whole. These differences in the scope of the concepts are considered in a later theoretical section two. But in summary, when MAS refers to the use of MA in decision-making to achieve an objective, then MCS includes, in addition to these, a wider range of other accounting systems related to personnel control (Chenhall 2003). Overall, the difference between the concepts of MAS and MCS is in how much control there is in the function: in MAS, we address management decision-making systems, while in MCS we treat control management systems (Malmi and Brown 2008). This dissertation uses the term MAS, and the control element is not addressed.

However, the term MCS also appears when referring to previous studies employing that concept.

Customer concentration and profitability

Customer concentration measures total revenue distribution across customers; a company with many small customers has a smaller customer base and vice versa. Customer concentration can be detrimental to a

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company’s operations if it increases costs and uncertainty (Krolikowski and Yuan 2017). Similarly, it has been noted that customer concentration is bad for a company’s loan terms (Campello and Gao 2017). While it is certainly easier to work with just a few clients, doing so may increase the level of risk for a firm. As a result, customer decentralisation can serve to reduce the risk of lowering prices, buying irregularly or delaying payments (Campello and Gao 2017; Dhaliwal et al. 2016; Kelly and Gosman 2000; Balakrishnan, Linsmeier and Venkatachalam 1996). In larger companies, customer concentration has been found to affect the extent of corporate disclosure policies. as close supplier relationship information is easily transferred internally and does not require frequent disclosure (Crawford et al. 2019). Yet, the large size of one customer relative to a supplier increases the supplier’s dependence on that customer. Therefore, it has been noted that the customer’s financial problems or likelihood of bankruptcy are also reflected in the supplier’s performance (Lian 2017). Additionally, a tight subscriber–supplier relationship has also been observed to weaken a company’s innovation performance (Krolikowski and Yuan 2016).

A high customer concentration is widespread among Finnish social and healthcare companies. The large customer is often a municipality or city, which means that the billing risk is very low although contract processes are complex and need to be renewed frequently. The price risk will also increase accordingly (Finnish Ministry of Employment and the Economy 2018, p. 54;

Tynkkynen, Lehto and Keskimäki 2012; Rissanen and Sinkkonen 2004). In 2010, among the North Savo social and healthcare companies, the largest individual customers accounted for 60.2% of all customer relationships, with this customer typically being a municipality. To date, there has been relatively little research concerning business customer concentration (Holm, Kumar and Plenborg 2016; Krishnan, Patatoukas and Wang 2019). Although the topic is very important, collecting customer data has proved difficult because businesses do not want to share their customer information (Dhaliwal et al.

2016; Mulhern 1999).

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Digitalisation and profitability

Digitalisation is rapidly becoming widespread, including in the healthcare sector, and the success of its implementation depends on an in-depth understanding of the opportunities and threats associated with it (Nazneen 2017; Neumeier, Wolf and Oesterle 2017; Nagarajan 1995). To date, digitalisation research has been conducted in a number of sectors, including the banking, music and retail sectors (Hagberg, Sundstrom and Egels-Zandén 2016; Islam and Nishiyama 2016). Digitalisation is believed to bring about savings through the introduction of new technology (Nazneen 2017), and, therefore, it is expected to improve corporate profitability (Bhatnagar 2017;

Biggiero 2006; Nagarajan 1995). The benefits of digitalisation with regards to profitability have been found in relation to, for example, corporate costing, investment and strategies (Nazneen 2017; Aral and Weill 2007; Barua et al.

2004). In addition, digitalisation and networking outside the company have been found to benefit the performance of customers and suppliers, as well as being cost-effective, although companies generally want to minimise the level of information sharing with outside parties (Ellis, Fee and Thomas 2012; Barua et al. 2004). Digitization refers to the processing of information through technology (Parviainen, Tihinen, Kääriäinen and Teppola 2017). The technology used for digitization in this study is the internet. The question in the third article study concerned the use of the Internet in the company’s innovation process in the context of a care company.

1.4 Research objectives and questions

The aim of this dissertation is to examine the determinants of firm profitability among SMEs in the private healthcare environment. The performance of a company stems from a number of complex internal and external entities.

This dissertation considers a few factors associated with performance that we have explored in the included research articles and publications. The first key concept investigated in this dissertation is that of MAS, the second is customer concentration and the third is digitalisation. All these concepts are investigated in relation to firm profitability. The investigation, therefore,

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extends both our understanding of contingency theory and the findings of previous research.

This study involves variables that prior studies have found to impact firm profitability, with the choice of research questions being based on a contingency analysis (Clegg et al. 1986; Donaldson 2001; Granlund 2001;

Hartmann 2005; Huczynski and Buchanan 2007; Hyvönen et al. 2009;

Lawrence and Lorsch 1967; Luft and Shields 2003;). The variables were used in a regression analysis in three of the dissertation’s four articles, and the same three concepts were applied as the framework for the interviews conducted for qualitative content analysis. Ultimately, this doctoral dissertation examines the underlying determinants of profitability. To do so, it uses diverse variables and privately collected panel data.

Based on the prior literature, the following research questions were formulated:

Q1: Is there a connection between MAS and profitability in private healthcare SMEs?

Q2: Is there a connection between profitability and customer concentration in private healthcare SMEs?

Q3: Is there a connection between profitability and level of digitalisation in private healthcare SMEs?

1.5 Scope of the research

Figure 1 illustrates the relationships between the key terms used in this dissertation. Nowadays, almost all business functions rely on digital management systems, which help companies to improve processes and enhance the customer experience, thereby increasing profitability. It is important to note that this effect works in both directions. That is, increased profitability improves MAS, increases digitalisation and improves both the quality of the process and the quality of the customer experience, as shown in Figure 1. When a company has one or a few large customers, it has a high customer concentration and it benefits more from digitalisation and the use of MAS in communicating with its customers and sharing common

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information systems (Patatuokas 2012). MAS relates to all business operations.

Thus, the MAS concept is intertwined with two other important topics of this dissertation, as both customer relationship management and digitalisation process management require MAS.

Figure 1. The scope of the research.

Figure 1 shows the relationship between the research questions and the four publications. The first three publications were conducted as surveys. The first publication addresses the topics of the first research question, profitability and company MAS. The second publication concerns the profitability and customer concentration of a company according to the second research question, and the third publication examines the relationship between profitability and digitalisation. The final fourth publication examines all three research questions in a case study.

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1.6 Structure of the dissertation

This dissertation consists of two parts, namely the summary and the publications themselves. The first part of the dissertation is structured as follows. Chapter 2 describes the concepts of performance and it sets out special features of the healthcare industry sector as well as other key themes, such as MAS, customer concentration and digitalisation in theory. Chapters 3 and 4 presents the range of data, methods and results drawn upon in this dissertation. Additionally, in concluding the first part of the dissertation, Chapter 4 presents the final findings, and chapter 5 evaluates the research and suggests some directions for further research.

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2 Literature review

This section reviews the previous literature on the healthcare business and explores the field of healthcare. Further, it examines the current theory on the field’s profitability and gives an overview of the literature from the past few decades to contemporary articles on the factors of profitability. Finally, a research gap based on the literature review is formulated.

2.1 Performance and profitability

In general, a company’s financial success can be measured in monetary terms in three different areas, profitability, solvency, and liquidity, of which a profitability analysis has been selected for this study. Profitability measures a company’s ability to make a profit and is generally considered the company’s most important operating condition because in the long run, an unprofitable company is not viable. Profitability can be measured by both income statement-based figures such as EBIT (operating profit) and net profit for the financial year. The aim is for the company to make the maximum possible profit from the sale after the cost of the financial year. These figures, which depend on the company’s financial structure, should only be used to compare companies in the same industry. In addition, profitability is also generally measured by figures connecting the income statement and balance sheet, such as return on assets (ROA), return on investments (ROI) and return on equity (ROE). The starting point in these figures is that the capital invested in the company is maximized.

Firm success is a broad concept that covers both the performance and the profitability of a company. Success and performance can be assessed using a variety of measures, such as non-financial measures (Kallunki, Laitinen and Silvola 2011; Baines and Langfield-Smith 2003; Banker, Potter and Srinivasan 2000; Ittner and Larker 1998). Success has a broad meaning. It can describe, for example, capital growth (Signori and Vismara 2018), improved operational coordination (Kallunki, Laitinen and Silvola 2011), the implementation of a

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computer system (Bhimani 2003) or stock market appreciation (Hendricks, Singhal and Stratman 2007). However, it can also refer to profitability, as has been the case in several prior studies (Kallunki, Laitinen and Silvola 2011; Hendricks, Singhal and Stratman 2006; Bhimani 2003). Profitability is a sub-concept that measures a particular aspect of business success. More specifically, it measures the operational success of a company. Further, profitability can also be measured using a variety of metrics, including the ROE (González-Benito, Muñoz-Gallego and García-Zamora 2016; Krishnan, Patatoukas and Wang 2019), the ROA (Kinney and Wempe 2002; Lian 2017), the net profit margin (Frenandez, Triguero and Alfaro-Cortes 2019; González- Benito, Muñoz-Gallego and García-Zamora 2016; Youtie, Sharpira and Roper 2018) or the operating margin within the EBIT-to-sale ratio (Bennett et al.

2017; Vrettos 2013; Flamholtz and Hua 2002; Wang 2002).

Performance can be both an internal and an external measure. As Neely, Gregory and Platts (1995) state, performance measurement refers to the process whereby the measurement is the action of quantification, and that action leads to the performance. According to the marketing perspective, organisations achieve their goals through performance by satisfying their customers with greater efficiency and effectiveness than their competitors.

Hence, the idea of effectiveness represents an external measurement, such as customer satisfaction, while the concept of efficiency is an internal indicator for measuring production costs or economic growth. This internal performance can refer to the quantified financial performance or to manufacture-related factors such as quality, time, cost or flexibility (Kagioglou, Cooper and Aouad 2001). Folan and Browne (2005) refer to the importance of inter-organisational relations in addition to intra-organisational performance management. Thus, performance can be seen within many frameworks, and it can be measured in several ways. It is a widely used indicator in the management and engineering fields, where it is often employed to measure efficiency or effectiveness (Kagioglou, Cooper and Aouad 2001; Neely et al. 1995. The various verifiers of financial performance, such as sales per employee or profit per unit, result in a figure that indicates the past situation of a firm but may also be able to predict future situations (Kagioglou, Cooper and Aouad 2001). In earlier research, the comprehensive concept of performance and its various

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strategic linkages are highlighted as accounting (managerial or financial) is an indirect a value-adding process (Lebas 1995).

2.2 Healthcare industry

2.2.1 Finnish private healthcare and the SME framework

In Finnish literature, the more precise term social and healthcare company is used when referring to health business companies. The social and health care business is mainly a service provided by Finnish municipalities and almost half of municipal sector expenditure is incurred in these tasks (Finnish Ministry of Employment and the Economy 2018). In the international literature, however, the terms both social enterprise and social entrepreneurship differ from this meaning. A social enterprise is seen as a company that seeks to make a positive impact on its social community or environment, often through charity. The social entrepreneur, on the other hand, seeks to make a positive contribution to social and environmental problems by developing new innovative solutions. Further, as international research in this area commonly employs the concept of healthcare companies, that term is adopted here in this dissertation to locate the present study in an international context, even though the case companies are Finnish.

The healthcare industry is a labour-intensive and, generally speaking, female-oriented business. Private healthcare companies have traditionally been small enterprises although over the last few decades many big national and international companies have become involved in healthcare (Finnish Ministry of Employment and the Economy 2018, p. 24). In Finland, private healthcare companies typically have just a few big customers, such as municipal organisations. Due to these features, the healthcare industry has faced a number of challenges when it comes to increasing growth and profitability (Rissanen and Sinkkonen 2004). Another major feature of the healthcare industry is the value-added tax (VAT) exemption, which means that private healthcare companies do not have a statutory obligation to formulate financial statements on a monthly basis.

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Collaboration between public and private organisations is typical in the healthcare industry and is believed to create social value and increase cost- effectiveness (Caldwell, Roehrich and George 2017). However, maximising the profitability of private actors and the return requirement of owners has also been questioned in the Finnish context in a previous study because the private healthcare sector receives funding from tax money (Peda and Vinnari 2019). The interface between public and private activities has been studied using the public–private producer model (Barr 2007; Caldwell, Roehrich and George 2017; Peda and Vinnari 2019).

The Finnish version of the public–private partnership (PPP) is known as the provider–purchaser model, whereby a private party participates in public projects as a service provider (Tynkkynen, Lehto and Keskimäki 2012). This kind of partial privatisation, which was implemented in the 2000s, was believed to foster cost-consciousness and cost-effectiveness in the municipal sector, and, further, it was intended to develop the holistic persistence and practices of organisations (Barr 2007; Piekkola 2003; Robinson 1998). This model has been widely applied in Finnish municipalities in recent decades (Majamaa et al. 2008; Barr 2007). Nowadays, the provider–purchaser model appears to be very much an experiment from an earlier era that remains one step ahead in the fight to limit the cost of healthcare and to achieve better customer experiences. However, the disadvantages of the model have been highlighted in international reports, including the complications associated with competition systems, the limited competence of the subscriber, the need for wider national decision making and the need to integrate social and healthcare organisations. Due to these issues, the objectives of the provider–

purchaser model have not been fully achieved, and it has proven to be overly complicated and bureaucratic in practice (Jonsson et al. 2016).

The combined social and healthcare sector will soon face further major reform. In the near future, increased efforts will be needed to reduce institutional care, to increase the opportunities for private care companies and to increase the numbers of trained nurses and doctors (Finnish Ministry of Employment and the Economy 2018, p. 35). The most significant recent change in the field has been the planned healthcare reform, which should

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represent a great leap forward in the desired direction although the reform process is still taking place. The decline in institutional care has opened up new opportunities to develop a profitable business involving home services for elderly people. At the same, the desire for more rehabilitative health and social care services and technologies has increased. New cross-border industry services are being created for use in rural areas. The aim is for elderly people to require less institutional care and to receive an increasing amount of non-institutional services, such as home care and support for informal care (Finnish Ministry of Employment and the Economy 2018, p. 54).

The total output of the social and healthcare sector in 2017 was approximately €7.3 billion, of which private service providers accounted for 27%. In Finland, there were 18,500 social and healthcare sector companies in 2017, amounting to 5.2% of all Finnish companies. Usually, these companies are privately owned Finnish companies (some 18,232 of them) although the number of foreign-owned companies had increased to 177 in 2016. While only 0.96% of all social and healthcare enterprises were foreign owned in 2016, their number has been growing rapidly, increasing by 97% between 2014 and 2016. In 2016, there were 14 municipally owned companies in the social and health services sector. As of 2016, social and healthcare employed 387,212 people (386,000 in 2014), of whom 285,000 worked in the public sector and 98,000 (71,000 in 2014) in the private sector (Finnish Institute for Health and Welfare 2014; Finnish Ministry of Employment and the Economy 2018, pp.

18–19). Some 5% of social and healthcare companies were SMEs in 2017, while 95% (17,532) were micro-enterprises employing fewer than 10 people.

In certain sectors, the market centralisation is significant. For example, in the case of dentistry, laboratory and emergency firms, a few of the biggest companies offer 30% of all services (Finnish Ministry of Employment and the Economy 2018, pp. 18–19).

Actions intended to enhance the environmental stability and predictability are essential to the industry’s development. Municipality restructuring as well as social and health service reform are ongoing, which is currently bringing uncertainty to the environment. It is now particularly important to ensure that an unfair competitive situation does not arise between public and private service providers. The public sector, businesses and associations should

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collectively be seen as a resource. All their efforts will be required to cope with future challenges (Finnish Ministry of Employment and the Economy 2018, p. 45).

The most important external environmental factors currently affecting the industry are the ageing population, rising education levels and increasing employee retirement. Additionally, medical and healthcare technology development and, at the same time, cost pressure on the municipal sector are affecting the industry (Finnish Ministry of Employment and the Economy 2018, p. 2).

2.2.2 The healthcare sector: The service industry

One way to classify businesses is to divide them into production technology firms and service firms. Sometimes it can prove problematic to follow this breakdown as many businesses have also adopted the service dimension, and many products have a service aspect. The social and healthcare sector is a typical service industry regarding to offering mostly intangible things (creation), having inputs that cannot be stored and having customers as part of the product. All this renders the industry a labour-intensive business, which causes the labour costs to account for roughly one-third of all costs in the sector.

The service industry is constantly expanding. New healthcare services are always being invented and introduced. Additionally, older products are often reintroduced with new service elements. For these reasons, the service sector is considered to be quite fresh and prosperous. At the same time, research has shown that the service sector does not always systematically apply technology and systems (Bhatnagar 2017; Biggiero 2006; Denner, Püschel and Röglinger 2018; Hussain, Gunassekaran and Laitinen 1998; Nazneen 2017;

Parviainen et al. 2017). Yet, it would now be easier and cheaper than ever to effectively utilize new technology. As the competition has hardened, and performance has remained the main measurement of a company’s success, modern information systems should be able to address the critical success issues. Eventually, both the customers and the business environment gain benefits from cost savings (Berger et al. 1993). In order to take full advantage of a company’s information systems, the systems should be easy and fast to

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use. In addition to money, the problem of data confidentiality in the field and new restrictions on data collection make it even more difficult to maintain a comprehensive and effective patient record.

2.3 Theoretical perspective

2.3.1 Contingency theory

Contingency theory has long been popular for use when studying a company’s profitability. Its application began when it became apparent that earlier theories could not provide an adequate picture of a company’s profitability process (Lawrence and Lorsch 1967). Later, although it was determined that there is no ideal way to organise a business, organisational theories such as contingency theory were found to be capable of producing models thought to describe the basics of profitability relatively well (Donaldson 2001;

Hartmann 2005; Huczynski and Buchanan 2001). Contingency theory seeks to take environmental issues into account to the greatest extent possible as such conditions determine an organisation’s internal structure and ability to act, depending on whether the conditions are volatile or persistent (Tienari ja Meriläinen 2012, p. 80; Burns and Stalker 1971). Thus, an organisation is seen as an automatically and gradually evolving concept (Lawrence and Lorch 1967).

One problem concerning contingency theory is that the list of potential contingencies could be endless (Granlund and Lukka 2017). However, as an indicator of the performance characteristics of a company, the theory has been applied successfully although in some cases the relationship between the variables and the direction of the effect is difficult to determine (Granlund and Lukka 2017; Hall 2016; Otley 2016; Jänkälä 2007; Silvola 2007; Gerdin 2003; Williams and Seaman 2001; Fisher 1995; Drazin and Van de Ven 1985).

Another criticism of contingency theory is partly based on the perspective that the contingency factors overlook the importance of management or top management teams as an interpreter of the company’s performance. The contingency paradigm should, therefore, be modified to take into account these new dimensions. For instance, Morelli and Lecci (2014) highlighted the

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importance of the leadership and heterogeneity of top management teams in relation to a hospital change process (Chenhall 2003; Clegg et al. 1986;

Lawrence and Lorsch 1967).

Institutional theory is also widely applied to the study of profitability. This theory explains that a company must comply with certain understandings concerning its environment and, further, that its efficiency is impacted by such obligations. Thus, it emphasises the importance of corporate legitimacy when compared to efficiency and performance (Abdel-Kader and Luther 2008; Granlund and Lukka 2017; Järvenpää 2007; Järvenpää 2009; Ribeiro and Scapens 2006; Scapens 2006; Modell 2002; Burns and Scapens 2000).

Institutional theory is also seen as a suitable tool for illustrating the relationship between an organisation and its environment (DiMaggio and Powell 2012, p. 337). There are two currents to this theory, namely the old institutional economics (OIE) theory and the new institutional sociology (NIS) system.

The NIS system is more sophisticated when it comes to forming an overall picture of many companies, while the OIE theory is applied to the monitoring of a single organisation (Lukka 2007; Scapens 2006). The shortcomings of institutional theory are the same as those of contingency theory, that is, they relate to the best way to limit or name the factors that affect performance.

It can be said that both the institutional and contingency theories only partly explain the profitability of a company (Granlund and Lukka 2017; Hyvönen et al. 2009; Granlund 2001).

When applied together, the contingency and institutional theories can define the field of performance (Chenhall 2003; Clegg et al. 1986; Lawrence and Lorsch 1967). Yet, there remains a gap between these two theories, which should include all the variables that can exert an effect on the management functions of an individual company, such as the management’s individual characteristics. Thus, the strategic or operational demands from outside the company are supplemented by internal functions. The way in which this adaptation is (successfully) implemented depends on the management’s characteristics, including age, tenure, education, background, competence, leadership activities and power (Morelli and Lecci 2014).

Malmi and Granlund (2009) outline the following three major opportunities to develop research in this regard: (i) developing the traditional approaches,

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(ii) developing existing theory and practices, such as activity-based costing (ABC) and balanced scorecard (BSC), and (iii) gaining access to existing theory.

In any case, it seems clear that more complex performance structures should be explored and the impacts of different practices on performance addressed. The researchers also state that all three of these proposed lines of research would help the research community to better assist organisations and practitioners.

Baines and Langfield-Smith (2003) indicate that, in an increasingly competitive environment, an organisation’s differentiation strategy has a positive influence on a company’s performance. These connections were revealed by the applied structural equation modelling (SEM) analysis but not by the simpler regression analysis. As the SEM method uses a diverse path of effect connections, the researchers also state that a stronger customer focus on a differentiation strategy emphasises more advanced management accounting technique. In their analyses, they apply factors such as strategy, structure, technology and management accounting practices, and they prove that none of those individual factors influences a firm’s performance. Further, they find that approaches such as a differentiation strategy have a significant effect on the increased use of management accounting practices and, at the same time, that practices such as quality improvement programmes and benchmarking have an influence on performance. Baines and Langfield- Smith’s (2003) results indicate that firms prioritising the customer service and product innovation orientations in their strategies are more successful.

They also show that, via a stronger customer focus, the differentiation strategy emphasises more advanced management accounting techniques.

Furthermore, non-financial management accounting information seems to be an important factor in relation to achieving better organisation performance (Baines and Langfield-Smith 2003).

While some performance researchers, including Zimmerman (2001) and Watts and Zimmerman (1990), have focused on positive accounting theories, others have utilised social theories such as actor network theory (Mouritsen, Hansen and Hansen 2001) and constructive case studies (Lukka 2007). In contrast, Malmi and Granlund (2009) approached the problem by exploring how changing relationships define the phenomenon and associated

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circumstances. They found that while theory is needed to determine what is unique and useful about processes in practice, economic theories can rarely do so, as they cannot explain which systems should be used or under what circumstances. The present study employs contingency theory, which is widely used in the organisational sciences and has proved applicable to profitability research.

The use here of contingency theory as a theory of organisation is supported in two ways. First, contingency theory can justifiably be used to explain company finances and associated factors because, in practice, financial management is the foundation for company management. Secondly, as an organisation’s operations typically involve several distinct disciplines, any expla§nation of its activities should take account of all such disciplines.

(Tienari and Meriläinen 2012, pp. 7-10). According to contingency theory, there is no single correct way to organise a company in terms of its structure, management, decision making and so on (Huczynski and Buchanan 2001, p. 506), as different environmental factors affect the organisation’s internal conditions (Huczynski and Buchanan 2001, p. 506; Lawrence and Lorsch 1967).

2.3.2 The role of MAS

Management accounting (MA) refers to the components that inform management decision making and company control, based on MAS and MCS.

These are distinct branches of research; while MAS research focuses on firm decision-making and associated systems (Chong and Chong 1997; Granlund 2001; Hussain, Gunassekaran and Laitinen 1998; Mia and Clarke 1999; Sim and Killough 1998; Williams and Seaman 2001), MCS research addresses broader issues of corporate control (Abernethy and Lillis 1995; Chenhall 2003; Davila 2000; Fisher 1995; Fisher 1998; Jänkälä 2007; Kallunki, Laitinen and Silvola 2011; Langfield-Smith 1997; Morelli, and Lecci 2014; Otley 1999).

To some extent, these terms have been used almost synonymously when discussing management assistance systems, and both employ tools such as activity-based costing, the balanced scorecard, and budgeting. Beyond this, MCS also offers tools for personnel and organisational management (Chenhall 2003). As management accounting is examined here in terms of

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budgeting and cost management, the term MAS is generally employed in the Summary section. However, as the management accounting literature includes both MAS and MCS studies, the concept of MCS is also referred to when appropriate.

The need for continuous system development poses major challenges for companies, including issues related to management accounting. In this regard, companies must produce information that is both sufficiently accurate and sufficiently extensive. To present detailed information and forecasts, companies rely on MAS. At the same time, they must proceed strategically, and this is seen as the strength of MCS. Indeed, many companies’ systems are undersized, and their development often lags behind immediate need.

Granlund and Taipaleenmäki (2005) investigate new economy firms, and they show that a company in the early stages of its lifecycle rarely has a proper MCS in place, even if it has introduced many separate and sophisticated methods for cost allocation and performance measurement.

Additionally, they find that, among new economy firms, the most commonly used systems are rolling budgeting, reporting activities, R&D project control and other project-related private placement funding. In contrast, the rarest management control tasks represent the core of financial control. It is also assumed that the reasons for the lack of management systems include untypical business responsibilities, new revenue models, high environmental uncertainty, a poor relation between costs and benefits and a general lack of resources for accounting system development (Williams 2001).

A MAS is defined as a system designed to help a manager to automatically gather and use all the information required to achieve organisational goals.

It aids and coordinates planning and control decisions throughout an organisation’s departments, and it guides the behaviour of the organisation’s managers and other employees (Gerdin 2005; Otley 1980). In some studies, MAS have been replaced by management accounting control (MAC), which has focused wider on profitability control (Morelli and Lecci 2014; Kallunki, Laitinen and Silvola 2011; Berry et al. 2009; Malmi and Brown 2008; Granlund and Taipaleenmäki 2005; Chenhall 2003; Davila 2000; Langfield-Smith 1997;

Abernethy and Lillis 1995; Fisher 1995). Furthermore, the diagnostic control

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system of MCS makes it possible to process measures such as the ROI, EBIT, customer satisfaction and employee satisfaction diagnostics, and the performance of the company, which all help the manager to achieve their goals. It is an MCS concept that allows for more control over personnel and clans (Malmi and Brown 2008). The use of accounting information varies significantly between companies. Even in companies of the same size or in the same industry, the difference in the use of management accounting information can be significant (Hussain, Gunassekaran and Laitinen 1998).

Previous studies have shown that it is not easy for small firms to change their MAS (Laitinen 2001). Additionally, MAS are used by large companies to explore future actions (for instance, short-term budgeting), which can prove ineffective in the SME environment (Kallunki, Laitinen and Silvola 2011; Otley 1999). Moreover, the decision to settle for a moderate level of MAC can stem from the manager’s own needs or skills when it comes to handling the MAC changeover (Bititci et al. 2011; Ahrens and Chapman 2007). Furthermore, Lukka (2007) proves the existence of informal routines as a kind of shield against change within the organisation. Still, the lack of an appropriate MAS may prove problematic in the long run due to acting as a barrier to the natural development of a company (Lukka 2007).

Actually, the most critical step and the true cost of any MAS are concerned with its implementation (Hendricks et al. 2007). The results of Hussain, Gunassekaran and Laitinen (1998) show that the majority of the researched firms experienced difficulties, particularly with regards to the need for personnel to change their working practices when new MAS were implemented. Research conducted in the Finnish hospital sector reveals that old institutional practices such as framing the budget, conservative revenue estimation and budgetary discipline prove to be effective obstacles to the full implementation of new MAS (Hyvönen and Järvinen 2006). Morelli and Lecci (2014) find that the top management team and its relationship with employees exert an influence on the change process. When implementing a new system, it is important to re-evaluate all the practices connected to that system. Usually, a significant change in those practices is required (Kasperskaya 2008); otherwise, the change may well remain illusory (Kasperskaya 2008; Hyvönen and Järvinen 2006). Such a re-evaluation can

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be seen as the most important part of the entire implementation process because, if the implementation only partly occurs, the whole process may prove to be a waste of both time and resources. As Lukka (2007) noted, MAS change can be invalidated, if the links between formal rules and informal routines are too loose. He suggests that informal routines can ease change by legitimising it. Lukka (2007) highlights how greater research attention should be paid to informal routines in the management accounting field.

When change is successful a new MAS can also lead, for example, to the achievement of budgetary balance, cost efficiency and transparency (Hyvönen and Järvinen 2006). Also, many researchers find that changes in MCS result improvements in companies’ performance (Morelli and Lecci 2014; Baines and Langfield-Smith 2003) and some found that especially non-financial measuring and monitoring, which is included in MCS, positively impacts firm performance (Baines and Langfield-Smith 2003; Davila 2000; Mia and Clarke 1999; Scott and Tiessen 1999; Sim and Killough 1998; Atkinson et al. 1997;

Chong and Chong 1997; Abernethy and Lillis 1995). Further, non-financial information is able to predict future performance better than current financial information according earlier literature (Baines and Langfield-Smith 2003;

Banker, Potter and Srinivasan 2000; Ittner and Larker 1998).

In the literature, MCS has traditionally been divided into formal and informal systems while MAS includes formal systems only (Simon 1995).

Recent research suggested that MCS informal systems are important and effective tools in a changing and unstable operating environment (Chenhall, Kallunki and Jänkälä 2011) In addition, broader concepts related to company management, such as organizational control concerning issues such as strategic direction and learning processes (Otley 1999) are beyond the scope of this study. Through this we return to the idea that MAS introduces us to the study of management accounting while the broader concept of MCS could lead us towards a broader study of organizational behavior (Chenhall 2003).

In addition, already in early previous studies suggest that value adding, as a strategic process, should be at the center of management accounting concerns (Lebas 1995; Kaplan and Norton 1992; Minzberg and Westley 1992; Brignall et al. 1991; Hiromoto 1988; Hopwood 1972. This is why more

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attention should be paid to the strategic control systems provided by top management than to the daily short-term management accounting routines (Chenhall and Moers 2015). Digitalisation affects every aspect of a company.

It forms the backbone of the company, and it is also strongly involved in the development of a company’s MAS functions (Nazneen 2017; Chenhall and Moers 2015; Aral and Weill 2007; Barua et al. 2004).

MAS can be used as a tool for measuring performance, performing strategic planning or analysing internal financing (Granlund and Taipaleenmäki 2005).

According to contingency theory, the design and effectiveness of MCS depend on contextual factors. The contingency paradigm of management accounting states that a better match between a firm’s factors and its MCS leads to better decision making and, further, to improved performance (Chenhall 2003; Chapman 1997; Fisher 1995, 1998).

2.3.3 Customer concentration

The customer is vital for most businesses. It is, therefore, unsurprising that the importance of the customer in the unstable contemporary business environment is being increasingly emphasised (Lam et al. 2004; Parasuraman 1997; Woodruff 1997). Customer relationships are seen as invisible capital as well as an important competitive factor for any company. Recent studies show that the introduction of customer operations increases the profitability of a company (Holm, Kumar and Plenborg 2016). However, in the case of one or a few key customers, customer relationship management is easier, and so a specific customer system is not needed (Krishnan, Patatoukas and Wang 2019).

Irvine, Park and Yıldızhan (2016) find that a high customer concentration improves profitability. Additional financial benefits stemming from the customer concentration are identified in other studies. In the recent study by Krishnan, Patatuokas and Wang (2019), a customer focus is seen to be associated with lower audit fees. Their study also shows that a high customer concentration improves the quality of auditing, which is believed to be due to more efficient supply chain utilisation (Krishnan, Patatoukas and Wang 2019). This presumably improves profitability by reducing audit costs and by making the audit process easier because it involves fewer clients. Additionally,

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other researchers note higher efficiency in operating functions involving fewer customers (Campello and Gao 2017). However, opposing findings have also been presented (Dhaliwal et al. 2016; Ellis, Fee and Thomas 2012;

Balakrishnan, Linsmeier and Venkatachalam 1996).

However, a high customer concentration may hinder a company’s operations by increasing both costs and uncertainty (Krolikowski and Yuan 2017). Similarly, a customer-orientation is bad for a company’s loan terms (Campello and Gao 2017). Although it is certainly easier to work with a few customers, doing so increases the level of risk. Consequently, the decentralisation of the customer base may reduce the risk of lower prices, purchase irregularities or delayed payments (Campello and Gao 2017;

Dhaliwal et al. 2016; Kelly and Gosman 2000; Balakrishnan, Linsmeier and Venkatachalam 1996). In larger companies, customer concentration has been found to influence the frequency of corporate public disclosure because close supplier–customer relationship information is easily transferred internally, and so there is no need for such regular public disclosure (Crawford et al.

2019). Yet, the large size of one customer in relation to the supplier increases the supplier’s dependence on that customer. Therefore, it has been noted that the customer’s financial problems or likelihood of bankruptcy also impact the supplier (Lian 2017).

The study by Jarrow and Yu (2001) finds that the risk of corporate indebtedness is not only a result of exposure to general risk factors but also to corporate-specific counterparty risk, which implies that a firm’s financial difficulties are reflected in its supplier (Lian 2017). However, the main client of a Finnish social and healthcare company is usually a public operator, a municipality or a city (Tynkkynen, Lehto and Keskimäki 2012).

Such organisations have a statutory obligation to obtain a specific supply of care for citizens, which means that for this group of Finnish businesses, the risk associated with the indebtedness of the customer can be assumed to be low (Finnish Ministry of Employment and the Economy 2018, p. 54; Jonsson et al. 2016).

However, the bidding requirement associated with the subscriber–

producer model forces both the supplier and the customer into a continuous tendering process, with the uncertainty of renewing the entire contract forcing

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the supplier to engage in constant price competition because continuing or breaking the contract could be a life or death issue for the company (Rissanen and Sinkkonen 2004). Further, too tight a subscriber–supplier relationship can serve to weaken a company’s innovation (Krolikowski and Yuan 2016).

A high customer concentration is a common and important issue among Finnish social and healthcare companies. It could be assumed that the less the customer base is distributed, the easier it would be to manage, and the less resources would be required for customer acquisition. However, relatively little research exists concerning business–customer relationships.

Although the subject is highly important, collecting customer information has proved difficult because businesses are reluctant to share their customer information (Dhaliwal et al. 2016; Mulhern 1999).

2.3.4 Digitalisation within the innovation process

The digitalisation discussed in this study is closely related to both the innovation process and the Internet, because the variable used in this study and in the third article is based on a survey question about the use of the Internet in a company’s innovation process. Although the use of the Internet is one narrow part of digitalisation, it may be the most widely applied digitization tool in companies.

The determinants of digitalisation vary slightly according to the context in which it is discussed although, generally speaking, it refers to the transfer of a task from an individual to a form of technology. Today, many such technologies are available, including artificial intelligence, cloud services and social media. Usually, the digitalisation process will be standardised.

Further, the introduction of digitalisation typically requires the reorganisation of the company (Denner, Püschel and Röglinger 2018; Parviainen et al.

2017). Digitalisation involves everyday tasks such as paying bills or selling or purchasing products on the Internet. Although digitalisation is topical, research in the field is still in its infancy. In addition, a company does not often fully understand the threats and/or benefits digitalisation can bring (Nazneen 2017; Neumeier, Wolf and Oesterle 2017; Nagarajan 1995). Earlier digitalisation research has been conducted in, for example, the banking,

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music and retail sectors (Hagberg, Sundstrom and Egels-Zandén 2016; Islam and Nishiyama 2016).

Digitalisation is perceived to have great promise. It has already fostered economic growth in the form of new supply and consumption, and it is expected to bring about savings through the use of new technologies for business ventures (Nazneen 2017). Thus, digitalisation can also be expected to improve company profitability (Bhatnagar 2017; Biggiero 2006; Nagarajan 1995). Before the benefits of digitalisation can be quantified, its value must be determined (Neumeier, Wolf and Oesterle 2017), and the definition of that value is only now being attempted in the research literature. The impact of digitalisation has been measured as cost savings, information technology (IT) investments and strategy processes (Nazneen 2017; Aral and Weill 2007;

Barua et al. 2004). Additionally, studies have considered how expanding the digital network outside the company, that is, to its customers and suppliers, increases the company’s profitability (Barua et al. 2004). However, companies generally want to minimise data sharing because they fear that competitors will benefit from their data (Ellis, Fee and Thomas 2012).

In the healthcare field in particular, digitalisation is expected to deliver significant benefits. On the public side, cost savings are required (Hillestad et al. 2005). At the same time, the demand for the entire sector is growing rapidly, and new digital practices are needed for both systems and devices. People are increasingly interested in their own health, and they are often willing to spend money on it. Quality and safety must be ensured (Agarwal et al. 2010), and a common indicator of quality is necessary when public healthcare functions are performed privately (McGlynn et al. 2003). Healthcare information systems are gradually being harmonised, which means that common registers will eventually be used by all organisations. Through the process of digitalisation, data transfer becomes faster and more secure although at the same time concerns are raised regarding privacy and security (Murdoch and Allan 2013;

Angst and Agarwal 2009).

Profitability of SMEs in the private Healthcare sector in Finland

Dissertations in Social Sciences and Business Studies

uef.fi

RIIKKA HOLOPAINEN

RIIKKA HOLOPAINEN

Profitability of SMEs in the Private Healthcare

Sector in Finland

Profitability of SMEs in the Private

Healthcare Sector in Finland

Profitability of SMEs in the Private Healthcare Sector in Finland

Acknowledgement

Table of contents

1 Introduction

2 Literature review