Leadership, Culture, and Organizational ...

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Leadership, Culture, and Organizational Technologies as Absorptive Capacity for Innovation and Transformation in the Healthcare Sector A Framework for Research BITA A. KASH, AARON SPAULDING, LARRY D. GAMM, AND CHRISTOPHER JOHNSON

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Leadership, Culture, and Organizational Technologies as Absorptive Capacity for Innovation and Transformation in the Healthcare Sector: A Framework for Research Bita A. Kash, Texas A&M Health Science Center, USA Aaron Spaulding, University of North Florida, USA Larry D. Gamm, Texas A&M Health Science Center, USA Christopher Johnson, University of Washington, USA Abstract: Organizational transformation, in brief, is the profound reshaping of the organization’s and its people’s performance. The same transformational initiative might prove effective in one health system yet not another. Variations in success also exist across facilities, departments, or other units within a healthcare organization. Such variations remain relatively unexplored in the literature. We propose that some of these variations might be due to levels of absorptive capacity (ACAP), the ability to discover and exploit innovation, across and within healthcare organizations. The purpose of this article is to provide a research framework and recommend a measurement model for the study of ACAP for transformations in the healthcare setting. To develop a framework for ACAP for transformation, we reviewed 118 peer-reviewed journal articles, 36 books or book sections and two websites related to transformation and ACAP. We also reviewed literature covering related topics, including ACAP measurement models, organizational learning, organizational change, innovation, complex adaptive systems, strategy execution, organizational technologies, leadership, and culture. This comprehensive review of literature covered fields of sociology, organizational theory, management science, and systems theory. The approach sought a parsimonious framework sufficient to capture the significant complexities of ACAP for transformation in healthcare. Our proposed framework of measuring ACAP in healthcare organizations encompasses three dimensions: leadership (L), culture (C), and organizational technologies (OT) that are relevant to transformative change. By applying this LCOT framework in measuring ACAP levels associated with transformation issues, barriers, and outcomes, we propose that constraints can be identified and addressed, and successful implementation of transformational initiatives can be realized. Capturing and tracking the level of ACAP will help healthcare leaders with improving transformation implementation and success, making informed decisions about timing and selection of initiatives, and decisions about continuation or contraction of specific transformations within specific departments, teams or their healthcare system. Keywords: Transformation, Organizational Capacity, Innovation, Culture, Leadership, Absorptive Capacity

Introduction

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oday the field of healthcare management is increasingly the target of transformational interventions—“planned change designed to significantly improve overall organizational performance by changing the behavior of a majority of people in the organization” (King, 1997, 63). Other descriptors of transformation include: multidimensional, multi-level change; radical, profound, fundamental change or modification of patterned behavior (Levy and Merry 1986; Nutt and Backoff 1997; Van Tonder 2004). Among transformational programs endorsed in the industry are LEAN, Six Sigma, process re-engineering, electronic medical records, and Studer’s Hardwiring Excellence; all aim to significantly change the way work is conducted. There is frequently, however, perceived and observed variation within and across systems in transformation success (Armutlu et al. 2008; Hosler and Nadle, 2000; Manzo et al. 2005; SilowCarroll Alteras and Meyer, 2007).

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Despite the multilevel, multifaceted impact of transformation, research on these strategies in healthcare has primarily focused on outcomes that measure only one dimension of success at one level of the organization (Vest and Gamm 2009). For example, implementation of LEAN principles in an Emergency Department resulted in average length of stay reductions (Weinstock 2007). A 2008 study of blood-product utilization and costs in a multihospital system, found that six sigma was successful in promoting correct usage and reducing cost (Neri Mason and Demko 2008). Neither of these studies specifically examine or control for variations in the organization’s internal environment, such as readiness to absorb change and engage in a new transformational initiative (Begun Zimmerman and Dooley 2003). Generally, evaluations of transformational efforts have been found to fall short of standards increasingly expected within health services research (Begun et al. 2003; Vest and Gamm 2009). Ensuring and evaluating the level of success associated with transformation efforts across multiple sites can be challenging since effectiveness is often dependent on inter-related individual, team, departmental, leadership, and cultural factors. Therefore, organizational change researchers stress the need for a more comprehensive evaluation framework to assess transformational efforts in health systems (Begun et al. 2003). In this paper we propose that a major portion of the variation in transformation success may be due to levels of absorptive capacity (ACAP) at different levels of the organization.

Defining Absorptive Capacity (ACAP) One widely cited definition of absorptive capacity (ACAP) describes the ability of individuals and groups of increasing scale within an organization to change and self-organize in order to make use of their changing environments (Holland 1995). Other more traditional conceptualizations of ACAP have included dimensions related to the ability to value, assimilate and apply new knowledge (Cohen and Levinthal 1990), the overall level of human capital as reflected in skill level and R&D spending (Mowery and Oxley 1995), and prior knowledge levels and problem solving skills (Kim 1998). A recent review of ACAP focuses on defining major dimensions of ACAP based on past theory and illustrative studies (Zahra and George 2002). This review offers a more comprehensive definition of ACAP as “a set of organizational routines and processes by which firms acquire, assimilate, internalize, and exploit knowledge to produce a dynamic organizational capability” (Zahra and George 2002, 186).

Table 1. Dimensions of ACAP: Components and Corresponding Roles

Realized ACAP

Potential ACAP

Dimensions/Capabilities

Acquiring

Assimilating

Internalizing Exploiting

Components Prior Investment Prior Knowledge Intensity Speed Direction

Scope of search Perceptual schema New connections Speed of learning Quality of learning

Understanding

Interpretation Comprehension Learning

Assessing Adoption

Synergy

Conversion

Recodification

Use

Core competencies

Implementation and outcome Adapted and Modified from Zahara and George 2002, p. 189.

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Role and Importance

Harvesting resources

KASH ET AL.: LEADERSHIP, CULTURE, & ORGANIZATIONAL TECHNOLOGIES AS ABSORPTIVE CAPACITY

For the purposes of understanding the role of ACAP in transformation, we are particularly interested in the “organizational routines and processes” which support the four ACAP dimensions related to acquisition (prior knowledge and investments), assimilation (understanding and perceiving potential opportunities), internalization (implementing which might include changing or adopting a new mental map), and exploitation (implementation and use that implies full adoption) of transformative knowledge. As presented in Table 1, this expanded definition captures two general concepts of ACAP: potential and realized ACAP. Potential ACAP is related to knowledge acquisition and understanding (assimilation), while realized ACAP is achieved through knowledge internalization and exploitation. Therefore, ACAP is the capability of acquiring/assimilating an innovation (potential ACAP) and internalizing/exploiting that innovation (realized ACAP) to attain specified goals and leverage future innovation. Some level of organizational learning, moreover, must take place in order to move the organization from potential ACAP to realized ACAP (Zahra and George 2002). In this paper we present a comprehensive framework that captures both potential and realized ACAP. Potential ACAP is considered most applicable leading up to a transformative initiative while realized ACAP is pertinent to the full implementation and exploitation of the transformative initiative. Accordingly, transformation in this paper is defined as “radical and profound change” in an organization’s and its people’s performance that is often best described using the stages of transformative change and organizational development (Levy and Merry 1986; Nutt and Backoff 1997; Rogers 2003; Smith and Kaluzny 1986; Van Tonder 2004). Our proposed research framework will help facilitate the study of the complex, multi-level, and temporal nature of ACAP in transformational initiatives in the healthcare sector. We propose that some of the variations in transformational success are related to the level of ACAP within the organization. In order to understand the variations in transformative success within and across health systems we need to measure the level of ACAP at many levels of the organization over time. This analytical approach will add to previous studies by addressing conditions that are relevant to transformation success, including leadership, culture and organizational elements. Additionally, complex adaptive systems (CAS) theory is relied upon as the broader conceptual lens for studying ACAP and transformation. That is, the analytical framework acknowledges healthcare organizations as complex systems, where ACAP has to be captured through multiple dimensions at many levels of the organization to better understand variations in transformational success.

Conceptual Framework and Approach The study of ACAP for transformational changes in health systems through the lens of CAS theory (Hazy 2008; McDaniel and Driebe 2001), assists in identifying key factors, those ranging from major institution-wide change to simple individual-level behaviors that facilitate positive change and desired transformations. Success of a transformative initiative is dependent on the nature and attributes of the innovation itself (Scott et al. 2008) as well as various mediating factors such as number of innovations and other organizational characteristics, including communication, decision rights, motivators and structure (Neilson Martin and Powers 2008). In Figure 1 we present an analytical framework illustrating the role of ACAP in transformation success within a healthcare organization. Transformation interventions have some direct effect on level of success and, ACAP plays a critical role in both acquiring transformation interventions and determining level of success. As illustrated in Figure 1, the level of transformation success can be mediated by at least three internal factors. These include the number of different transformation efforts an organization is undertaking, the location or setting of the intervention, and other organizational characteristics, which may have either a positive or negative effect on the success of the intervention. ACAP can have a basic mediating effect on the success of a transformation, be positively or negatively

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affected by the transformation itself, change over time due to the nature of the implementation of the transformational innovation, and finally affect the success of the transformation through this indirect and more complex multi-level path. For example, the introduction and implementation of a new transformative initiative might initially be taken up by only a few in the organization and may initially be viewed as a potential distraction by others; but once it has been “vetted” by “early adopters” in the organization it may “tap into” other dimensions of ACAP and produce the familiar “S-curve” of “market adoption” within the organization (Christensen 1992). However, once the implementation stage is complete and the transformation effort is institutionalized, the organization may augment ACAP that can be marshaled in support of future transformations.

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Research Agenda and Relevant Research Questions We assume that variations in success with specific transformations are contingent upon variations and changes in the level of ACAP among individuals and the healthcare organization at many levels. These contingencies include transformation-related perceptions of the individuals related to culture, leadership state, and organizational processes (technologies) before, during and after the transformation process. The existence of such contingencies raises the need for measuring the level of ACAP at various levels within an organization and at different time. Measurement tools for level of ACAP have been proposed and tested in sectors other than healthcare in recent years (Flatten et al. 2011; Noblet Simon and Parent 2011). Learning from these previous efforts in scale development, we focused on the healthcare environment as a CAS and four basic research questions that can be addressed by applying the proposed research framework: What is the level of ACAP at various levels of the healthcare organization? Is there sufficient ACAP to support a transformation effort? How is ACAP at various levels of the organization changing (before, during, and after the transformational effort)? How does one transformational effort increase/decrease ACAP before the next transformational effort is planned and implemented? The above perspective allows researchers and evaluators to look beyond effectiveness or outcomes as the only metrics linked to each specific initiative. The framework encompasses organizational conditions that might foster and support transformation interventions; conditions that might register change as a consequence of specific transformations. Successful transformation processes prepare the way for more transformation via ACAP enhancement. At the same time, it is possible that failed transformations can significantly reduce ACAP.

Measuring ACAP in Transformational Studies In Figure 1 we presented a detailed look at the conceptual framework (and research questions). Figure 1 also demonstrates how aspects of each transformation lend themselves toward the ACAP for the next transformation. The internalization and exploitation dimensions of ACAP occur when an organization enters the institutionalization and outcomes stage of a transformation, which in turn directly impacts the dimensions of acquiring and assimilating knowledge for the definition and implementation of the next transformation (Rogers 2003; Smith and Kaluzny 1986; Zahra and George 2002). Likewise, the more efficient an organization becomes at acquiring and assimilating knowledge at all levels, the better able it will internalize and exploit that knowledge, thus ACAP grows over time. We also propose that important elements of ACAP relevant to transformation success should include dimensions of leadership (L), culture (C), and organizational technologies (OT) as defined by the proposed LCOT Model which measures level of ACAP. To help connect the proposed dimensions of ACAP using the LCOT Model with other conceptualizations of ACAP, we link the LCOT Model dimensions with the four dimensions of ACAP as defined by Zahra and George (2002). We propose that ACAP that leads to organizational change requires certain leadership and cultural dimensions within the organization as well as instrumental organizational processes (technologies) therein to facilitate the successful identification, implementation, and institutionalization of transformative initiatives. One could also argue that acquiring success for

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one transformation will support ACAP’s acquisition dimension for the next transformation as illustrated in Figure 1. Recent efforts in the area of management science have focused on identifying and assessing how well an organization is prepared to carry out its strategic goals and identified certain intangible assets that are very similar to the LCOT dimensions of leadership, culture and organizational technologies to be critical to successful strategy execution (Kaplan and Norton 2004). Kaplan and Norton (2004) specifically identified concepts such as employee skills, information technology systems, and organizational culture and leadership to be important factors in determining “strategic readiness” for the achievement of strategic goals. In order for the LCOT Model to capture both potential and realized ACAP (Zahra and George 2002), we have to focus on the interplay of the following conditions within a healthcare organization: Leadership that empowers all to seek insights and improvements in processes and overall organizational functioning. Culture that supports norms and values that promote individual and collective learning and application of new knowledge. Organizational technologies (administrative, clinical, social, and information processes) that optimize and sustain essential processes, structures, and goals.

Therefore, we propose that ACAP as a construct supporting transformative change in a health systems can be measured through the LCOT Model capturing these three dimensions. As presented in Figure 2, the proposed LCOT Model of measuring ACAP considers concepts and measures used in prior studies (Flatten et al. 2011; Noblet Simon and Parent 2011), the fact that we are dealing with the healthcare services sector, as well as new conceptualizations of ACAP in terms of potential and realized ACAP (Gamm Kash and Bolin 2007; Hazy 2008; Stock McFadden and Gowen III 2007; Zahra and George 2002). Figure 2 presents factors that fall under each of the three dimensions of the proposed ACAP measurement model.

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The LCOT Model: A Proposed Measurement Model to Capture ACAP The following describes the three dimensions of ACAP in detail, justifying our ACAP measurement approach, and grounding the proposed LCOT Model in theory and prior studies aimed at capturing the effects of ACAP on transformational success.

The Role of Leadership in Transformation Researchers who have studied leadership behaviors and styles have distinguished between two fundamental states of leadership: transactional and transformational. The first state is characterized as authoritative while the second is active. This second state of leadership is also associated with change, facilitating transformations in processes and behaviors. A transformational leader, in contrast to a transactional leader, is able to communicate a collective vision and inspire people to look beyond self-interests in order to collectively work toward the good of the entire group while building on the necessary transactions (Avolio and Bass 1995). Furthermore, effective leaders learn from their environment, recognize when change is needed, invite feedback, watch for new opportunities, and learn and grow continually (Quinn 2005). The complex adaptive systems (CAS) point of view also acknowledges this dual nature of leadership behavior and considers more specific leadership qualities that facilitate change and allow transformative initiatives to emerge at any level of an organization. Leadership is defined as an “emergent systemic phenomenon” that influences how individuals interact independently and collectively in a CAS (McDaniel and Driebe 2001), an idea with roots in earlier views of leadership (Katz and Kahn 1978). Since the CAS definition of leadership is not restricted to the behaviors and qualities embodied in a select group of individuals (the leaders), leadership state as an organizational phenomenon needs to be captured at many levels of the system. In a healthcare system, for example, the leadership state might be more transformative or fundamental in nature when studying one specific research or clinical team, while the leadership state of the emergency department’s clinical team might be more “transactional.” This multi-level approach to leadership allows for a better understanding of the true leadership state of a healthcare organization regardless of the qualities and behaviors of the few executives studied in traditional research on leadership behavior. Hazy (2008) defines leadership in terms of three distinct mechanisms: 1) Convergent Leadership (promoting cooperative effectiveness), 2) Generative Leadership (creates potential for change by increasing alternatives), and 3) Unifying Leadership (balancing centralized control versus distributed control). The unifying leadership mechanism in Hazy’s model is similar to and includes aspects of transactional leadership behaviors as discussed in the previous models. The transformational state of leadership is captured by the convergent and generative leadership mechanisms in Hazy’s model. This approach allows for a more detailed and focused study of transformational leadership and is the preferred model of capturing leadership in the proposed LCOT Model for capturing ACAP.

Role of Organizational Culture in Transformations A historical overview of research practices has identified several research methods that can be used to study organizational culture (French Bell and Zawachi 2005). Culture, viewed as a property of groups and individuals in an organization, is often measured by questionnaires, descriptive approaches that identify relevant organizational stories and rituals, ethnographic approaches resulting in rich descriptive data, and the historical approach used to capture particular events and organizational interpretations that may continue to be reflected within an organization. All of these approaches imply a range of “observations” that inform our understanding of organizational culture but may not be equally useful in the study of ACAP and transformation. More recently, there has been a growing use of the “clinical descriptive”

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approach to the examination of organization culture, which is widely used in many successful and large companies and health systems today (Schein 2005). Using this approach, the researcher will watch an organizational phenomenon emerge or change as a byproduct of an intervention that is implemented. The approach allows researchers to study the attitudes, values and behaviors of individuals and groups as they support or react to a transformation and track cultural profiles before, during and after a transformational program. The clinical approach is well suited for transformation research in a healthcare system since it offers the ability to measure relevant cultural dimensions at many levels over time. A recent review and analysis of quantitative measurement tools capturing organizational culture concluded that a variety of instruments are available to researchers but that all have their limitations (Scott et al. 2003). The authors concluded that the choice or development of an instrument should be guided by how the research team conceptualizes culture as a construct, the purpose of the study, and the intended use of the results of the study (Scott et al. 2003). We found that the latest work by Stock and colleagues (2007) offer good insight into dimensions of culture that are related and relevant to ACAP for transformational success in the healthcare setting. Stock and colleagues (2007) applied the competing values framework (CVF) of studying organizational culture related to organizational performance within the healthcare setting. The CVF conceptualization of culture has been used and tested in quality management research since it’s development in the early 1980s (Cameron and Quinn 1999; Quinn and Rohrbaugh 1983). Applying the CVF, Stock and colleagues (2007) conceptualize organizational culture as being differentiated according to two dimensions: first, the organization’s relative emphasis on change or (flexibility) versus stability (control) and, second, the organizations relative degree of focus on factors internal to the organization versus external. Thus, they identify four types of organizational cultures, viewed as four quadrants placed on a flexibility-control axis intersected by an axis that extends from an internal organization focus to an external focus. The resultant four types are termed group culture (e.g. teamwork and commitment), developmental culture (e.g. innovation and risk-taking), rational culture (e.g. results-oriented and aggressiveness), and hierarchical culture (e.g. stability and coordination) culture. We believe that Stock’s research focus is well suited for studying the impact of culture on transformational success in the healthcare sector (Stock et al. 2007). Capturing culture in the LCOT Model therefore would include items from Stock’s validity and reliability tested survey which is based on the CVF.

The Role of Organizational Technologies in Transformations Organizational technologies are means and processes for converting resources (e.g. supplies, knowledge, and skills) into products and services of value to recipients and/or purchasers. Four organizational technologies - administrative, information, clinical/work, and social - are defined and linked to transformational activities (Gamm et al. 2007): Administrative technologies address the proper administrative auspices, structures and processes for innovations including design, staffing, training, financial support and evaluation, and coordination with other units—build versus buy, costing, contracting, cost allocation, return on investment are illustrative issues; Clinical/work technologies target the use of proper diagnosis and treatment methods technologies, application of agreed upon standards of care, engaging patients in their treatment, and ensuring effective work process in support of effective care; Information technologies provide information entry, organization, access, exchange, and reporting activities for effective service and organizational support; and

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Social technologies ensure educational, support, interpersonal communications and other relationships that support care teams and the work of clinical and other staff and effective relationship with patients. These technologies are derived from and reflect theories of control (management and information-based control) (Hage 1974) and socio-technical processes (work processes and social dynamics) (Cherns 1976; Clegg 2000) of organizations. Current routines (processes) associated with key organizational technologies may differentially enable features of a transformational effort to be taken up, adopted, diffused, and sustained. For example, inadequate human resources recruitment or retention (administrative technology) or work processes (clinical/work technology) may produce unresolved conflict, low morale and high turnover unaddressed by needed education, training, or feedback (social technology) that may make it impossible to gain uptake of a new transformation. A coordinated effort to apply all of these four organizational technologies to a transformational initiative is necessary for the transformation to be effective and successful. For example, electronic medical records as a transformation primarily target IT in the organization, but also impact work technologies in the delivery of care. Lean and Six Sigma target work technologies primarily, but also may be used to target administrative technologies. These four key organizational technologies identified by Gamm and colleagues (2000; 2005; 2007) in the healthcare sector, parallel findings from a large scale study of companies and their level of successful strategy execution in other sectors (Neilson et al. 2008). References to similar organizational technologies are embedded in or are otherwise implied within key building blocks of strategy execution among these leading management science researchers. Neilson’s research (based on a 19-question survey referred to as the “DNA Profiler”) showed that the fundamentals for good strategy execution (often linked to new initiatives and transformations) were the following four building blocks: designing effective information flows, clarifying decision rights, aligning motivators, and making necessary changes to organizational structures; referred to by the authors as “Information, Decision Rights, Motivators, and Structure” (Neilson and Pasternack 2005). These building blocks relate well to the conceptually derived organizational technologies of Gamm and colleagues (2007). After evaluating the “building blocks” presented by Neilson and colleagues (2008) we find that “Information” relates to Information Technologies, “Decision Rights” relates to Administrative Technologies, “Motivators” associate to Social Technologies and “Structure” relates to Clinical Technologies. Therefore, this study by Neilson and colleagues lends credibility to the proposed organizational technologies by Gamm and colleagues, which we shall use as the third dimension of the ACAP measurement model.

Implications for Future Research A comprehensive review of literature on ACAP, organizational learning, and transformation in CASs, including the healthcare sector, was conducted to develop a new analytical framework for research. We propose that transformational readiness, implementation success and outcomes are all dependent on the level of ACAP at many levels of a healthcare organization. The framework for studying organizational transformation and its relationship to ACAP within a healthcare system led us to a proposed measurement model for ACAP that is relevant to transformation and appropriate for the healthcare setting. We propose to capture ACAP in healthcare organizations by measuring relevant dimensions of leadership, culture, and organizational technologies as defined in the LCOT Model. By applying the LCOT Model to transformations in healthcare over time and at various levels within the organization, it is possible to assess variations in emphasis on acquisition and assimilation elements in ACAP, readiness for or progress toward particular transformation efforts, or impacts of prior transformation successes or failures. The LCOT Model offers a survey tool currently in the development and testing phase, which will capture ACAP over time via three profiles: 9


Leadership (Hazy 2008), Culture (Stock et al. 2007), and Organizational Technologies (Gamm et al. 2007). Capturing and tracking these profiles will assist researchers and healthcare leaders to develop strategies that improve transformation implementation and success, make informed decisions about the timing and selection of initiatives, and decide whether or not to pursue or expand specific transformations within specific programs, teams or entire healthcare systems.

Acknowledgement This study was funded by the National Science Foundation’s Center for Health Organization Transformation’s grant IIP-0832439.

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ABOUT THE AUTHORS Bita A. Kash, PhD, MBA: Dr. Kash is an assistant professor in the Department of Health Policy and Management at Texas A&M Health Science Center. Her research background is primarily in organizational change and performance, nursing home staffing and turnover and healthcare strategic planning. Prior to her academic career she worked as a healthcare management consultant engaging clients in strategic, business and personnel planning projects. Aaron Spaulding, PhD, MHA: Dr. Spaulding is an assistant professor in the undergraduate and graduate Health Administration (MHA) programs at the University of North Florida. His research focuses on organization theory, organization behavior, and human resources—with a focus on how organizational processes affect individuals as vice versa. Larry D. Gamm, PhD: Dr. Gamm is Regents Professor in the Department of Health Policy and Management, and Director of the NSF-supported Center for Health Organization Transformation at the Texas A&M Health Science Center. His research focus is on management of organizational innovation and health information technology across health systems and populations. Christopher Johnson, PhD: Dr. Johnson is an associate professor, Austin Ross chair in health administration, and Director, Health Administration Program in the Department of Health Services at the University of Washington School of Public Health. His research focus is in applying organization theory to understanding how to improve access to health services and quality of care for patients across a variety of organizational forms and populations.

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Change Management: An International Journal is one of four thematically focused journals in the family of journals that support The Organization knowledge community—its journals, book series, conference and online community. The journal investigates the dynamics of negotiating organizational change, and organizational responses to social, stakeholder and market change. As well as papers of a traditional scholarly type, this journal invites case studies that take the form of presentations of management practice—including documentation of organizational practices and exegeses analyzing the effects of those practices. Change Management: An International Journal is a peer-reviewed scholarly journal.

ISSN 2327-798X