The operations management role in hospital strategic planning

JOURNALOF OPERATIONS MANAGEMENT

ELSEVIER

Journal of Operations Management 14 (1996) 137-156

Conceptual note

The operations management role in hospital strategic planning Timothy W. Butler a,*, G. Keong Leong b, Linda N. Everett c a Wayne State University, School of Business Administration, Detroit, M148202. USA The Ohio State University, Fisher College of Business, Columbus, OH 43210-1389, USA c Patient Care Services, Grace Hospital, Detroit, M148235, USA

Received 12 June 1994; accepted 5 September 1995

Abstract

Although there is a wealth of research on operations management and strategic planning in hospitals, there has been little if any research on the integration of these two issues. Hospital administrators are being pressured to improve the quality of services and to curb costs - two primary themes within the field of operations management. This leads us to wonder to what extent operations are considered within the strategic planning process and what impact it may have. By surveying the literature, we identify a pattern in hospital management research, and identify articles which address the operations capabilities of quality, flexibility, delivery and cost control. These articles can serve as a springboard for research in hospital operations strategy, an area that is largely neglected in the literature. We also provide examples of how hospitals are addressing operations capabilities, and conclude with implications for hospital administrators and a research agenda for re searchers. Keywords: Service operations; Operation strategy

1. Introduction

The health care industry continues to be under tremendous pressure to reduce costs and provide exceptional service. During the 1980s, however, the success of the hospital sector in containing costs was disappointing (Siler and Peterson, 1990; Herzlinger, 1989), promoting a political agenda that seeks to curb national expenditures on health care. Both academics and practitioners have struggled to develop the theory and practice of hospital management. Although research exists on hospital strategic planning (Topping and Hernandez, 1991; Shortell et al., 1985; Kimberly and Zajac, 1985) and on operational * Corresponding author. Tel.: (313) 577-4802.

issues of hospitals (Smith-Daniels et al., 1988; Pierskalla and Wilson, 1989; Siferd and Benton, 1992), operational issues have yet to be linked to the broader issues of business strategy. Most of the operations oriented articles focus narrowly on issues of hospital and health care operations such as cost containment, capacity planning or personnel scheduling. We argue, however, that operations encompass a much broader range of decisions than those currently found in the literature, and are a significant factor in health care strategic planning and management. Research on operations strategy in the service sector is relatively new (McLaughlin et al., 1991; Roth and van der Velde, 1991), and it has yet to greatly influence hospital strategic planning. In one notable exception, Roth (1993) discussed her re-

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search in operations strategy in manufacturing, banking and health care to propose a service delivery system strategy to attain world class management for hospitals. The objective of this article is to promote the consistent and coherent integration of operations issues in the hospital's strategic plan. We believe that coherent policies, consistent with the resources, mission and business strategies, will contribute toward exceptional performance. Furthermore, the inclusion of nursing administration, pharmacy leaders, physician leaders and other operational leaders within the hospital is imperative for coherent strategy development. We begin with two examples of ongoing projects at Grace Hospital, a 500-plus bed hospital located in metropolitan Detroit, to show how administrators initiated operational programs to promote the business and corporate level strategy. Grace is a member of the Detroit Medical Center (DMC), which is a multi-hospital, vertically integrated health care system providing services for approximately 750,000 people in the metropolitan Detroit area. These examples demonstrate how hospitals are addressing the issues of cost containment, flexibility and delivery. The first example coordinates cost containment and flexibility, while the second coordinates flexibility with delivery. The mission of Grace Hospital is to provide a broad range of high quality, cost effective services to meet community needs. Because of demands on and changes within the health care system, Grace must maintain a competent and flexible registered nurse (RN) work force. The "Grace Contingent Staffing Model" promotes this flexible, cost effective strategy. This initiative is designed to reduce the expenses associated with fixed staffing costs. The hospital currently has an In-House Contingent Nurse Pool (IHP) of approximately 30 RNs. These RNs work on an as-needed basis without benefits, but at a higher rate of pay than a full or regular part-time RN. Financial analysis reveals that only half of these IHP nurses routinely contribute to the staffing needs of the hospital, yet the estimated annual savings of this project is $216,000. A recent tactic commonly employed by hospitals to decrease length of stay (and, in turn, increase throughput) is "critical pathways". At Grace Hospi-

tal, this approach is being implemented to reduce inpatient length of stay for chemotherapy patients from 3.7 average days to 3.0. A collaborative effort by physicians, nurses, dietitians, pharmacists and others was determined to be vital for the success of the effort. Four components were identified as necessary to achieve the goal: (1) a standard set of physician orders; (2) a multi-disciplinary plan of care outlined in daily increments; (3) specifically identified clinical and patient/family teaching outcomes to be achieved by time of discharge; and (4) detailed descriptions defining the specific standard of care and related clinical rationale (Everett et al., 1994). The operational objectives of this plan are to increase throughput (delivery) and reduce inpatient costs. Critical pathways are also an integral part of the quality program due to the focus on reduced variability. The success of this program at Grace Hospital has led to the introduction of critical pathways to address eleven other patient diagnoses. These examples are part of a consistent operations plan on the part of Grace Hospital to provide high quality patient care delivery at reasonable cost. Consistency is the theme that this paper seeks to promote. Unlike the Grace Hospital management approach, research in health care operations is mostly disjointed and autonomous, where operations issues are developed and examined without considering how they relate to a hospital's strategy, mission or other operational programs. This article seeks to encourage coherence in operational issues through strategic planning.

2. An integrative strategic model for hospitals Fig. 1 presents a model demonstrating the integration and feedback of strategic levels of the hospital. This model is a synthesis of previous research efforts, but it has yet to be tested empirically. Feedback from two senior hospital executives provided support for this integrated strategic model. Ken Fisher, Chief Financial Officer at Grace Hospital, agreed with the need to promote the development and utilization of performance measures for feedback in the strategic planning process. Jeff Dawkins, Senior Vice President, affirmed the necessity to coordinate functional strategies. In fact, Grace Hospital has

T. W. Butler et al. / Journal of Operations Management 14 (1996) 137-156 3,4,5,6,7

BUSINESS STRATEGY

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8,9

FUNCTIONAL (OPERATING) STRATEGY

ORGANIZATIONAL PERFORMANCE

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Shortell, MOITISOn,and Fl~iedman (1990) Zelman and Parham (1990) Heskett (1986) Pegels and Sekar (1989) Klmberly and Evanlsko [1981) Meyerand Goes (1988) Shortell, MOlTISOn,and Robblns (1985} Fotfler (1987) DesHarnais et al. (1988)

Fig. 1. Strategy level linkages.

a "Medical, Administrative, Leadership Group" whose mission includes the coordination of finance, operations and human resource planning within the hospital. Marketing is handled at the corporate level which is why it is not on the Group's agenda. However, there is a movement to integrate the marketing and operations functions. Finally, discussions on the integrative nature of strategies have been credibly made in the manufacturing literature, which further supports this integrative model for hospitals (Leong et al., 1990). On the left of Fig. 1, business strategy issues are presented with two key citations on that work. The functional (operating) strategies are presented in the center. Heskett (1986) presented a lucid discussion on service strategies, which influenced our development of this model. Pegels and Sekar (1989), Kimberly and Evanisko (1981), Meyer and Goes (1988) and Shortell et al. (1985) addressed these issues in hospital context. Finally, Fottler (1987) and DesHarnais et al. (1988) examined performance measures

and how they relate to the hospital's strategy. These articles are discussed in more detail below. Hospital strategic planning can be performed at the corporate level by examining the hospital "system" which would include hospitals, HMOs, walk-in clinics and other health oriented businesses (Shortell et al., 1990). However, we are focusing our attention on the strategies of individual hospitals. Therefore, the top tier strategy will be the business strategy of the hospital. Based on the discussion of Shortell et al. (1985), we present the following definition of hospital business strategy: What services the organization (hospital) should provide, and how the hospital should compete with the selected services. We include the decision of what services to provide as business strategy to acknowledge that hospitals are heterogeneous operations. Decisions must be made regarding what types of inpatient and outpatient services to offer, as well as other community oriented activities such as wellness programs (Co-

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oper, 1993) and day care centers (Nichols, 1992). In addressing how the organization should compete, Shortell et al. (1985) recommended examining whether the hospital should "... penetrate existing markets, develop new markets, refine existing product-services, or develop new product-services" (p. 221).

3. Business strategies Fig. 1 presents the pattern which we identified in our review of hospital management research. We use this pattern as a framework for integrating the components of strategic planning and processing feedback. We tie these components to key literature citations in hospital strategic planning. On the left side of the figure, our framework of hospital business strategies presents the typologies of Shortell et al. (1990) and Zelman and Parham (1990). Shortell et al. (1990) is perhaps the most comprehensive work in hospital strategic planning. In their analysis of hospitals and health care systems, they categorized hospitals according to the typologies of Miles and Snow (1978): Prospectors, Analyzers, Defenders and Reactors. While Prospectors and Defenders are on opposite ends of the spectrum in terms of market aggressiveness, both require skill at cost-containment and service differentiation (Shortell et al., 1990, pp. 153 and 167). Shortell et al. demonstrated empirically that this typology proved useful in describing how hospitals sought out new services and responded to market changes. Zelman and Parham (1990) characterized four strategies for hospitals in defining what business they are in. The hospital can adopt a generalist strategy, or one of three specialist strategies: market specialist, where product lines provide a wide range of services to specific markets (for example, children, geriatrics, etc.); service specialist, where specific services are provided to a wide range of target groups (such as psychiatric or orthopedic); and super specialist, which provides a narrow range of services to a limited market (such as teenage drug treatment centers). Fig. 2 presents a hypothesized relationship between Zelman and Parham (1990) and Shortell et al. (1990). Generalists, Market Specialists, Service Spe-

i, GENERALIST

PACESETTER

MARKET SPECIALIST PACEMAKER

2. BUSINESS- PROSPECTOR E ANAL~R CLINICAL- PROSPECTOR

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BUSINESS- PROSPECTOR ANALYZER CLINICAL- ANALYZER

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PROVIDER

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I. Zelman and Parham (1990) 2. Shortell, Morrison, and Friedman (1990)

Fig. 2. Relationshipsamongbusiness strategies.

cialists and Super Specialists can each undertake a Prospector, Analyst or Defender strategic orientation in the business aspect or clinical aspect. By recognizing that the clinical and business endeavors of a hospital are related, but not identical in philosophy, we have synthesized the strategic groups proposed by Shortell et al. (1990) and Zelman and Parham (1990) into the hospital specific strategic orientations of Pacesetter, Pacemaker and Provider. While these groupings are intuitively discemible, research is necessary to confirm their existence and to identify strategic activity within each group. Since the reactor orientation is defined as no coherent strategy, that category is not included.

3.1. Pacesetter Pacesetter hospitals are at the forefront of medical knowledge, pushing back the frontiers of medical knowledge and technology. These are general or specialized hospitals in which every department is at the state of the art and at least some are extending the current state of the art, thereby giving them a prospector orientation on the clinical side. Medical research is a primary focus of these hospitals and they include many medical school university hospitals. Hospitals that fall into the Pacesetter group include the Mayo Clinic (Generalist) and St. Jude Children's Research Hospital (Service Specialist). The business side of Pacesetter hospitals are also run aggressively with a high level of skill and have the

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orientation of either prospector or analyzer. The state of the art philosophy that exists on the clinical side will influence similar attitudes on the management side. 3.2. P a c e m a k e r

Pacemaker hospitals are those at or n e a r the state of the art in every department offered. These hospitals are not the first to develop new treatments or technologies - they are not research hospitals. Typical among the Pacemaker group are urban medical center hospitals. Many regional psychiatric and rehabilitation hospitals would be considered Pacemaker service specialist or super specialist hospitals. Other examples of Pacemaker hospitals would be a privately owned hospital that specializes in orthopedic care or one that specializes in eye, ear, nose and throat treatment. These hospitals would target patients within a region. Pacemaker hospitals are equally adept in the business arena with Pacesetter hospitals by offering new services (e.g. home health care, personal fitness facilities) or management systems (such as pharmacy information systems), or by creative customer relations approaches such as physical fitness centers. 3.3. P r o v i d e r

Provider hospitals serve a community rather than a region. They can be found in smaller towns and urban neighborhoods. Specialist providers are typically rehabilitation units and psychiatric hospitals. These hospitals will not distinguish themselves by being widely recognized for their medical and surgical treatment. Yet, care should be taken not to conclude that these hospitals are " l o w cost providers". While operations management and cost control should be a key aspect of the competitive strategy for these hospitals, they do not necessarily provide lower cost than Pacesetters and Pacemakers. What distinguishes Provider hospitals from Pacesetters and Pacemakers are their convenient location and, usually, their smaller size. These hospitals have the opportunity to be more "people oriented". While location frequently makes them attractive health care providers for their clientele, location can be a detrimental feature - especially in these days of fixed

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payments and price competition. Hospitals located in less affluent communities and urban neighborhoods are struggling to survive because fixed payments either barely or simply do not meet variable costs, and volume is not sufficient to break even. Identifying survival strategies is imperative for many Provider hospitals. One form of action taken by management is to become a member of a system with a Pacesetter or Pacemaker hospital. This allows the smaller Provider hospital to gain economies of scale in purchasing, economies of scope in services, to become on line with advanced management information systems, and to acquire top tier management expertise.

4. Functional strategies The center portion of Fig. 1 depicts the development of functional strategies. The circular line represents the idea that these strategies should not be developed in isolation, but in a collaborative and integral fashion. The arrows between the functional strategy area and business strategy area demonstrate that information on strengths and limitations from the functional areas are required in developing business strategy just as functional strategies must be formulated within the context of business strategy. Heskett (1986), in his book on service sector management, described "operating strategy" as one of the basic elements of strategic service vision (p. 18). His domain of operating strategy components includes issues traditionally called functional strategies: operations, financing, marketing, organization and human resources. Heskett argued that service industries must select the elements in which to excel, based on the premise that an entity cannot do all things well. A number of researchers, including McLaughlin et al. (1991), have noted that in service industries, marketing and operations strategies must be considered concurrently. More specifically, the impact of integrating these functional strategies on hospital performance is an important research question yet to be answered. In the following section, we address the operations component of functional strategies. A discussion of the marketing, finance and human resources functions can be found in Shortell et ai. (1985).

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4.1. Operations

Research on operations strategy is progressing in the manufacturing field (Adam and Swamidass, 1989; Anderson et al., 1989; Leong et al., 1990; Miller and Roth, 1994), but for hospitals and health care, operations strategy research is in an infant stage. We define operations strategy for hospitals as follows: The procurement and allocation of resources for the development of operations capabilities such as low costs; superior quality; prompt, dependable and innovative service delivery; and flexibility. The objective of operations strategy is to support the hospital mission and business strategy, and to gain competitive advantage in the marketplace. Hospitals develop operational capabilities through investments made in structural and infrastructural decision categories. Structural decision categories include capacity, facilities, technology and vertical integration. Infrastructural decision categories include organizational structure, workforce management, quality programs and performance measurement systems (Hayes and Wheelwright, 1984). Obviously, hospitals should implement their operations strategy to complement and promote the mission, corporate strategy and business strategy. For example, hospitals that serve as feeders (provider generalists) will make decisions on technology acquisition, physician staffing, capacity and training programs based on that mission which will be different from tertiary (pacemaker generalists) hospitals which have the capability to regularly handle critical patient care needs. Within the operational strategy realm, strategic issues must be addressed from the clinical aspect as well as from the business aspect (see Fig. 1). Three key articles that addressed hospital operations from the business and clinical standpoint are Pegels and Sekar (1989), Kimberly and Evanisko (1981) and Meyer and Goes (1988). Pegels and Sekar (1989), by utilizing multidimensional scaling and physician surveys, categorized Millard Fillmore Hospital of Buffalo, New York and its competitor hospitals as either emphasizing medical care intensity, systems and service, or staff attitudes. Medical care intensity consists of the availability of intensive care and specialists. Systems and service consist of quality of nurs-

ing care, comprehensiveness of testing and diagnosis, and major equipment and facilities. Staff attitudes consist of pleasantness of the attitude of staff and relations with management. Administrators utilized this information to identify chief competitors and to find ways to increase physician affiliations and patient admissions. Kimberly and Evanisko (1981) discussed the line drawn between medical or production (clinical) operations and administration (business) operations in their examination of how hospitals adopt technological and administrative innovations. The interrelationship between clinical and business operations was highlighted by Meyer and Goes (1988) where they discuss in detail the dilemma faced by administrators as they buffer the friction between the medical ambitions of physicians and the business goals of the board of directors. These articles, and the real-world account given below, support our assertion in Fig. 1 about the dual nature of hospital operations. An example of the integration of the clinical and business aspects of operations management focuses on improving delivery and flexibility, while reducing costs at Harper Hospital in Detroit. Harper is also a member of the Detroit Medical Center. Harper implemented a "service line" organization that replaced the traditional "functional hierarchy". The service line organization is an extension of the continuous improvement principle that effective outcomes are the result of well-defined and managed processes. The aim of this approach is to allow for greater management accountability by focusing the measurement of success on a defined, more homogeneous and smaller population than the entire hospital. Responsible manager and clinician teams will be better able to calculate the costs and benefits of their actions and to accept specific accountability. The new service line organization consists of five responsibility centers: Cancer, Cardio-vascular, Neuroscience, Medicine and Surgery. The centers are fully accountable for the processes affecting specific physicians and types of patients. They define the expectations for the key processes of care, fully involve the representative physicians, managers and clinical staff in decision making. Leadership teams for each team drive budget, evaluation and marketing processes. Top management believes that this sets the stage for the resource trade-off decisions that are

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necessary for patient focused care implementation (Harper Hospital, 1995).

5. Organizational performance Organizational performance criteria are presented on the right side of Fig. 1, with arrows indicating that this provides feedback to the functional and business strategy components. Fottler (1987) described seven measures of organizational performance for hospitals: productivity, cost efficiency, clinical quality, patient satisfaction, employee attitudes and behavior, adaptability and survival, and financial outcomes. He reported on previous research findings regarding the impact of structural variables and organizational characteristics on performance, noting such limitations as reliance on small sample sizes and case studies. He correctly notes that while performance indicators will always be imperfect, management researchers have an obligation to refine measurements and relate them to controllable structure and process factors. Accreditation agencies, insurers, employer providers and the general public have a vital stake in hospital performance measurement. Only one measurement, mortality, has typically been used to compare hospitals. Administrators and physicians criticize this because some hospitals treat riskier patients than others. Risk-adjusted hospital outcome measurements are a way to fairly compare health delivery of different hospitals (DesHarnais et al., 1988, 1991; Blumberg, 1986). These measures provide feedback to administrators as they seek to achieve the hospital mission, promote patient and employee well being, facilitate daily hospital tasks, and contribute to gaining competitive advantage.

6. Operations capabilities Schroeder et al. (1986) classified four key dimensions of operations capabilities for manufacturing as cost, quality, delivery performance and flexibility. Table 1 presents articles and books on each of these issues as they relate to hospital management. It

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should be apparent from this table that these capabilities are interrelated. For example, in the quality literature, the impact on costs or profits is at the forefront. The intent of this section is to provide an overview of the health care literature as it relates to these operations capabilities. We believe that the best performers will employ operational policies consistent with their resources, mission, corporate strategy and business strategy. Currently lacking in health care research is empirical evidence on if, when, and how operations capabilities are consistently implemented. The section concludes with a discussion of how operations capabilities are linked to hospital market requirements using Hill's (Hill, 1994) concept of order winners and qualifiers. 6.1. Cost containment A major operational issue and research agenda item in hospital management is the broad topic of cost containment. This focus is a result of external pressures to hold down prices in order to improve profit margins or to price competitively. Smith et al. (1981) presented the initial comprehensive work on the issue of cost containment from a research and strategic perspective. They presented a framework which described external and internal environmental issues leading to cost containment pressures as well as institutional constraints, and inter-organizational and intra-organizational actions management can take to achieve cost containment. These management actions include a number of traditional operations management issues: internal information/control systems, work coordination and communication systems, manpower planning and scheduling, scheduling of patients and patient services, facility and services, organization structure and technology, incentive systems, contract management and mergers into multi-institutional systems. However, the conceptual model does not address current strategy, nor does it mention the people to include in the action process, nor how cost containment relates to quality or delivery - vital issues which we advocate in this paper. An important means of cost containment in most industries is inventory management. Pierskalla and

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W i l s o n ( 1 9 8 9 ) n o t e d t h a t h o s p i t a l i n v e n t o r i e s is a n e g l e c t e d topic a n d t h a t m o s t o f t h e i n v e n t o r y literature f o c u s e s o n s e r v i c e l e v e l s a n d i g n o r e s costs.

A t t r i b u t e s o f h o s p i t a l i n v e n t o r i e s are the h i g h stocko u t c o s t s a n d h o l d i n g costs, as well as the h e t e r o g e n e o u s n a t u r e o f the p h a r m a c e u t i c a l i n v e n t o r i e s a n d

Table 1 The domain of hospital operations strategy: categorization of research and discussion Operations capabilities Cost containment Berwick et al. (1990) Brider (1992) Brines (1982) Butler et al. (1992) Cassard et al. (1994) Cleverly and Harvey (1992) Cooper (1993) DesHarnais et al. (1988) DesHarnais et al. (1991) Dienemann (1992) Donabedian (1966) Eastaugh (1992) Esogbue and Singh (1976) Freudenheim (1991) Ginn (1990) Hartman and Mukamel (1989) Harkey and Vraciu (1992) Herzlinger (1989) Hudson (1993) Knaus et al. (1985) Leebov (1988) Leebov and Ersoz (1991) McLaughlin and Kaluzny (1994) Morey et al. (1992) Nichols (1992) Provan (1987) Rea (1986) Robinson (1991) Roth (1993) Roth and Van Dierdonck (1995) Roth and Van Dierdonck (1995) Sahney and Warden (1993) Schweikhart and Smith-Daniels (1994) Schweikhart et al. (1993) Shortell et al. (1987) Shortell et al. (1989) Shortell et al. (1990) Siler and Peterson (1990) Simpson and McLaughlin (1994) Sissouras and Moores (1976) Smith et al. (1981) Thakur et al. (1986) Weisman et al. (1993) Wright (1987) Wyszewianski (1988) Zajac and Shortell (1989)

*

*

* * * * *

* * *

* *

* *

Quality

Service delivery

Flexibility

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supplies. In order to contain costs and maintain service level, some hospitals are allowing suppliers more responsibility in delivery decisions. In the more advanced cases, hospitals and suppliers are using a "stockless" inventory system where exact units are delivered directly to nursing units and operating rooms. St. Luke's Episcopal Hospital and Hermann Hospital of Houston, Texas have established such a system with Baxter International, a major hospital supplier (Freudenheim, 1991). Provan (1987) surveyed hospitals to determine predictors of cost containment policies. He found that time spent dealing with certificate of need and rate review programs, cooperative interorganizational involvement, number of beds and occupancy rate were among the chief factors positively associated with adoption of cost containment policies. Brines (1982) discussed risks and benefits of cost containment policies and proposed such activities as utilization review, front-end deductibles, health education programs, limiting the quality a n d / o r intensity of care, utilization of group purchasing, materials management methodologies, and staff reductions. Rea (1986) addressed the combined issues of cost and quality. To reduce costs, it is recommended that variability be eliminated in providing care to patients. Eastaugh (1992) utilized an empirical study to conclude that specialized hospitals are more cost efficient and provide a higher level of care than general hospitals. Hartman and Mukamel (1989) described a case study of an experimental payments program where hospital revenues were capped in the aggregate, thus providing hospitals with a predictable revenue stream and freedom for hospital administrators and physicians in allocating resources. These papers, while meaningful contributions, do not sufficiently integrate strategic planning issues. As an exception, Thakur et al. (1986) argued that effective cost containment mandates an emphasis on direction setting and deliberate product and market mix selections. Cost containment has been a critical issue for administrators over several decades - yet is still perplexing due to the necessity of improved quality, delivery and flexibility. These issues pose a seemingly paradoxical predicament. While administrators and researchers have addressed the issues of quality and cost containment, coherent implementation of

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cost containment within the entire realm of operations capabilities has not been adequately addressed. 6.2. Quality programs The impact of the quality movement on health care cannot be overstated. In fact, recent health care organization accreditation changes essentially require a " T Q M " approach to quality management (Joint Commission on Accreditation of Healthcare Organizations, 1994). The Detroit Medical Center recently hired a consulting firm to train employees on the methods and philosophy of W.E. Deming. Some recent books on hospital quality management are Berwick et al. (1990), Leebov and Ersoz (1991), Dienemann (1992) and McLaughlin and Kaluzny (1994) which discussed implementation of quality programs in hospitals. Deming (1986) adapted his well known fourteen points for management to medical services in his book Out of the Crisis (p. 199). A book published by the Joint Commission on Accreditation of Healthcare Organizations (1992) provided case studies of quality improvement programs. While the public pressures administrators to improve quality, there is equal pressure to reduce costs. Consequently, a stream of literature exists which studies the relationship between these two variables. Morey et al. (1992) empirically examined the connection between hospital cost and quality of care. Using a narrow definition of quality (risk-adjusted mortality), they found that costs increase as quality is emphasized. Harkey and Vraciu (1992) found a positive relation between quality and profitability in that hospitals with higher quality services hold greater market share, operate more efficiently, or both. Quality was measured as perceptions by patients, community residents and hospital employees responding to surveys. Empirical studies on the relationship between cost and quality are inconclusive (Fleming, 1990). The lack of consistency in defining which costs and what aspect of quality is being examined contributes to the lack of conclusive results in the empirical literature (Scott and Flood, 1984). A key question in health care assessment is how quality can be measured and reported. The publishing of data on hospital quality is controversial be-

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cause of the reliance on mortality results. Mortality data does not give the complete picture because of the hospital's mission, patient care market and because other issues such as patient comfort, responsiveness and amenities contribute to quality. In (Morey et al., 1992), the predicted number of mortalities was forecasted using the Risk Adjusted Mortality Index (RAMI) developed by DesHamais et al. (1988). The index is based upon a logistic model designed to differentiate among admissions on the basis of patient characteristics that increase or decrease the risk of dying in the hospital. The model provided a correlation of 0.98 between actual and predicted deaths. APACHE II (Knaus et al., 1985), was also a successful index for predicting deaths based on physiologic measurement, age and previous health status. Since hospital quality has many more dimensions than "mortality", these indexes should be confined to conclusions specifically about mortality, and not quality in general. Wyszewianski (1988) wrote a descriptive article relating past achievements to the needs of quality of care in the future (pp. 13-22). Among the key historical works discussed was that of Donabedian (1966) where quality of care studies were classified by outcome, process and structure. Donabedian stated that "the validity of outcome as a dimension of quality is seldom questioned. Nor does any doubt exist as to the stability and validity of the values of recovery, restoration, and survival ..." (p. 168). However, outcome may not be a relevant measure of quality. If a patient dies in the hospital, that alone does not indicate the quality of care was poor, nor if a patient's life is sustained necessarily indicate good quality. Donabedian described quality of "process" as the determination of "... whether what is now known to be good medical care has been applied. Judgments are based on considerations such as appropriateness, completeness and redundancy of information obtained through clinical history, physical examination and diagnostic tests; justification of diagnosis and therapy; technical competence in the performance of diagnostic and therapeutic procedures, including surgery; evidence of preventive management in health and illness; coordination and continuity of care; acceptability of care to the recipient and so on" (Donabedian, 1966, p. 168). Structure relates to the setting in which the process of care

"takes place and the instrumentalities of which it is the product", including the "administrative and related processes that support and direct the provision of care" (Donabedian, 1966, p. 168). Wyszewianski (1988) was among the first to identify quality as a competitive weapon for hospitals. He described this competition in three dimensions: the interpersonal component, which refers to how responsive and attentive the health care professional is in interacting with the patient; the amenities, which refer to how appealing, comfortable and private the facilities are where care is provided; and the technical aspect, which examine how well medical science and knowledge are applied to diagnosis and treatment. Schweikhart et al. (1993) built a framework for "service recovery", that is, the part of a quality program that seeks to alter negative perceptions of dissatisfied customers. They considered preventive (such as a guarantee), concurrent (apology) and post hoc (letter from CEO) activities using methods classified as psychological (apologies) and tangible (fruit basket or refund). Also discussed is a framework for a service recovery program. The linkage of quality programs in the strategic planning process has been discussed by Sahney and Warden (1993), Simpson and McLaughlin (1994) and Roth (1993). Simpson and McLaughlin noted the importance of quality goals and objectives being included in the strategic plan, not only for symbolic purposes, but to facilitate the movement of the hospital's organizational culture toward a customer perspective. Roth (1993) discussed the importance of delivery systems and technology in providing quality care to target patients. These articles can serve as a foundation for research linking strategic planning to operations capabilities. Much effort is being directed toward quality programs in health care (see Table 1), yet opportunities abound in areas such as quality improvement programs. There is still no consensus on the relationship between quality and costs/profits based on empirical research (Fleming, 1990). While more prescriptive articles are necessary on quality implementation and integration with strategy, initial efforts are needed in empirical research for theory development. Research on the psychology and other human aspects of quality programs is needed to promote and sustain enthu-

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siastic cooperation of personnel, particularly physicians.

6.3. Delivery performance A tremendous effort has been made toward understanding the availability and promptness of services in hospitals. This is synonymous to the critical feature of "speed" in the manufacturing strategy literature. Health care administrators must balance costs and customer expectations concerning the availability of patient rooms upon arrival; patients waiting for x-ray, physical therapy; and emergency room facilities; and the availability of operating room facilities and recovery room facilities for inpatients and outpatients (Fries, 1976, 1979; Pierskalla and Wilson, 1989; Smith-Daniels et al., 1988). Researchers frequently use management science techniques to address these issues and there are many examples in the literature. Esogbue and Singh (1976), for example, developed a queuing model to maximize occupancy while minimizing overflows. Sissouras and Moores (1976) used simulation to determine the proper number of beds in a coronary care unit. The objective was to minimize the number of patients required to leave early in order to make room for new arrivals, that is, to maximize utilization while satisfying all of the demand. Wright (1987) developed a simulation model to test the effects of bed reductions in specialty areas. Butler et al. (1992) applied optimization and simulation models to demonstrate the hierarchical nature of decision making in hospitals. Roth and Van Dierdonck (1995) employed the concept of manufacturing resources planning for a hospital operations planning and control system. While an abundance of research literature exists in modeling and computer methods, they have not been widely implemented by practitioners. One relatively new approach to health care delivery is "patient-focused care" (Brider, 1992; Robinson, 1991; Schweikhart and Smith-Daniels, 1994), where small teams of cross-trained care givers are empowered to deliver clinical and administrative services. Robinson (1991) identified four elements contributing to this "reengineering" of health care delivery: (1) a shortage of registered nurses, (2) the prospective payment system, (3) consumer expectations, and (4) tougher review and accreditation stan-

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dards. Grace Hospital (1995) in Detroit is currently implementing a patient-focused care program. Unit based Professional Practice Models (PPM) are self-managed nursing units. The PPM is an agreement between a unit RN staff and the administration where the nurses "agree to provide 24-hour nursing coverage to the unit for a period of one year in exchange for self-management, salaried (as opposed to hourly) compensation, and gainsharing based on unit labor cost savings" (Cassard et al., 1994, p. 416). Research has shown that PPMs improve work satisfaction (Weisman et al., 1993) and has no adverse effects on patient outcomes (Cassard et al., 1994). Becker-Reems (1994) has reported success in self managed work teams in housekeeping at Memorial Mission Hospital in Ashville, North Carolina. Since the implementation of the program, the average rating of quality (cleanliness) has improved from 72 to 90 percent. The nursing units and other departments that the teams serve give them high ratings for responsiveness, cleanliness and courtesy. Overall, the employees report a much higher degree of job satisfaction than in the past. Shortell et al. (1987) examined the factors that encourage service diversification of hospitals. Factors that positively impact diversification include Medicaid payment and eligibility levels, number of beds, central city location, severe case-mix and number of inpatient services. Their study found that prospectors, analyzers and reactors provided more services than defenders, but the difference was not statistically significant. Shortell et al. (1989) identified four factors contributing to successful diversification: physician cooperation, combined centralized-decentralized approach, careful assessment of clinical and managerial relatedness of new services, and understanding the circumstances and conditions under which experience curve effects could be realized. Research on service diversification is particularly pertinent because hospitals are seeking out additional services. Cooper (1993) reported in the Wall Street Journal that hospitals are redefining their business by providing "wellness" programs. Many hospitals are installing fitness centers, workout centers and jogging rooms. These programs "help bolster the hospital pool now through referrals; and they can help hospitals prepare for the future when they as-

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sume more of a role as a provider" (p. B1). Nichols (1992) interviewed Tom Chapman, CEO of an inner-city hospital in Washington DC, whose plan for economic survival includes taking a proactive role in reaching out to the community. Chapman's philosophy is that simply treating patients in the hospital is not addressing the true problem of the low income community. The hospital must reach out to the community with education and opportunities for preventive health care. The hospital has "renovated housing, started day-care programs for children and the elderly, developed stay-in-school programs, and created adult literacy programs" (p. 87). The hospital has maintained operating profits averaging $4.5 million each year for ten years (p. 92). These programs that expand the mission of hospitals have substantial operations management implications in terms of inventories, facility location and layout, customer/employee scheduling and so forth. These new programs should complement the hospital's delivery strategy and be consistent with business strategy. 6.4. Flexibility Flexibility has always been an inherent part of health care delivery due to the necessary responsiveness to each patient. Consequently, we can identify two distinct yet interrelated types of flexibility: clinical and competitive. We define clinical flexibility as making the necessary adjustments to achieve the best possible patient outcome. We define competitive flexibility as the quick response to competition changes, regulatory changes and competitive opportunities. Clearly, effective clinical flexibility will promote competitiveness, yet competitive flexibility focuses more on community satisfaction and gaining market share. In our opinion, this area of operations capability can be substantially advanced through operations management research. The primary focus of flexibility research for hospitals has been their response to the changing political and economic environment. Shortell et al. (1990), in their categorization of hospitals according to the typologies of Miles and Snow (1978), identified "Prospectors" as the most aggressive and flexible business strategy. Prospectors "make relatively frequent changes in and additions to its set of services

and markets. It consistently attempts to be the first to provide new services or develop new markets, even if some ultimately prove unsuccessful" (Shortell et al., 1990, p. 16). Shortell et al. (1990) described Prospector administrators as being "freewheeling", and needing the ability to identify business opportunities, analyze them, assess riskiness and make a decision. The "Analyzer" strategy relates to a finn that watches for successful initiatives while maintaining a stable base of services or products. The analyzer will quickly adopt a product or service that has been identified as well conceived. Shortell et al. described the Analyzer as taking advantage of opportunities but not creating them. Ginn (1990) also utilized the Miles and Snow typologies in discussing how hospitals initiate strategic change. Ginn concluded that operational issues are the key to strategic change. Changes in reimbursement policies, the emergence of new technologies, changes in consumer expectations and new sources of competition made the environment of hospitals more turbulent. Zajac and Shortell (1989), based on their survey of 570 hospitals, concluded that organizations tend to change strategies in response to environmental shifts, and their changes tended toward the Analyzer and Prospector strategies of Miles and Snow (1978). The environmental shift utilized in the study was the introduction of the Medicare Prospective Payment System. Hudson (1993) described how flexibility contributed to the successful merger between the Fallon Healthcare Organization and Saint Vincent's Healthcare System of Worcester, Massachusetts. The system defines flexibility as the accommodation of different constituencies and stakeholders. For example, they allow equal access of house staff, technology and hospital beds to non-employee physicians, and they offer a wide variety of contracts to physicians. Also, the hospital accommodates many insurers. While "quickness" as a feature of flexibility was mentioned by Shortell et al. (1990), it is addressed only briefly. Flexibility in general and, in particular, "quickness" in adjusting service mix and capacity, appears to be an area of opportunity for researchers in operations management, as is the measurement of flexibility in the health setting. In addition, flexibility in the scheduling and workload of nurses is an area receiving increasing attention (Cassard et al., 1994).

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As can be seen in Table 1, flexibility is the area receiving the least attention in the health care literature.

6.5. Linking operations capabilities to market requirements Hill (1994) bridged the subject of market requirements and operations capabilities with a compelling argument about how operations management, as well as other functional areas, contributes in the chase for competitive advantage. Hill argued that a key component of operations strategy is the assessment of how products qualify for consideration, and then win by being selected instead of the competition. Typical order qualifying and winning criteria in the manufacturing world are price, quality, delivery speed, delivery reliability, product range, design leadership and technical support. In order for a manufacturing operations strategy to be developed, Hill recommended that a determination should be made as to which criteria are order qualifiers and order winners. Then, Hill recommended that relative weights be assigned to the order winning criteria so that resources and energy can be directed appropriately. Because of the unique nature of hospitals, a modified version of Hill's framework is required (see Fig.

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3 for an example). Leebov (1988) identified five distinct customer groups for hospitals - patients, physicians, third party payers, employees and visitors. Each customer group differs in importance and in emphasis for each hospital, yet each must be treated with special care. While patients are an obvious customer group, their needs and expectations are quite different from other customer groups. Doctors and employees, for example, wear two hats: as care givers and customers. They are care givers in that they interact with the patients and provide care and treatment for them. They are customers in that they rely on one another to do their jobs properly. In addition, employees provide information about the hospital to the community. To that end, Leebov recommends that administrators sell the organization to the employees (p. 30). Physicians are rarely employed by the hospitals (this, however, may soon change), so if there is sufficient dissatisfaction with the hospital's performance, the physician can admit patients to another hospital. Visitors, like patients and employees, relay their experiences to the community. Visitors witness the hospital operations first hand and utilize the hospital's amenities. They also receive information from nurses and physicians about their loved ones. Third party payers, which are businesses, insurance companies, unions, etc., are looking for the best possible health care deal for their

II,E,'Y

COMPONENTS

YEAR

PATIENTS VISITORS

TECHNICAL C~*, CURRENT. 5 0 , 4 0 COMPETENCE

+2

ENVIRONMENT

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Q CURRENT.

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Q,Q

Q.Q

20,20

20.30

10,20

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........

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45.45

40,40

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10,10

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Q CURRENT. . . .

,I0

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"

PHYSICIANS

CC,FL

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PRODUCT D,FL CURRENT, Q Q , Q Q LINE +2 (ORTHOPEDICS)

QQ,QQ ........

QQ,QQ

Q,Q

*OPERATIONS CAPABILITIES: CC- COST CONTAINMENT; Q-QUALITY; D- SERVICE DELIVERY FL- FLEXIBILITY ** WITHIN THE CELLS. NUMBERS REPRESENT WEIGHTINGS OF ORDER WINNING CRITERIA FOR THE CURRENT YEAR AND TWO YEARS FORWARD. "Q" REPRESENTS ORDER QUALIFIERS. "QQ" REPRESENTS ORDER LOSING SENSITIVE QUALIFIER. --- REPRESENTS NO INFLUENCE. COMMA SEPARATES CURRENT ESTIMATE AND 2 YEAR FORECAST.

Fig. 3. County Memorial Hospital 1993: adult orthopedics department costumer groups.

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constituencies. They expect service, cost information, answers to questions and positive reports from their members about the quality of care that they received (Leebov, 1988, p. 30). Five components integral to hospital service excellence identified by Leebov are technical competence, environment, people skills, systems and amenities (Fig. 3). We add two more: price and product. These issues are highly operational in nature, but also involve marketing and human resources management. Technical competence includes the availability, training and competent utilization of health technology and management information systems as well as the performance of systems such as air conditioners, laundry and cooking equipment. Environment deals with the hospital's aesthetics and layout and with hospital location and capacity, which impact the physicians' admitting decision, the employee's employment choice and work attitude, the visitor's decision to visit patients in the hospital, as well as the patient's desire to be admitted to the hospital and his/her perception of the facility. People skills deal with the courtesy, care and concern that employees extend to patients and visitors. To assure that people skills are adequate, monitoring and training will be needed, as well as the maintenance of a pleasant and safe work environment. Systems support the technical competence and people skills attributes. This involves personnel and patient scheduling, inventory management, group purchasing arrangements, etc. Amenities are the characteristics with the least operational orientation. They include the availability of gift and flower shops at the hospital as well as offerings like cable TV in patient's rooms, valet parking and free coffee for visitors. Two additional issues critical in creating order winners at hospitals are price and products. Price is a primary consideration by third party payers, but may become less of an issue with expanded government regulation creating uniform pricing. In that case, price will become a qualifier. The other issue is products: the variety of products (services) offered by a hospital may be a critical consideration in the recruitment of physicians and in the negotiation with third parties. Product (or service) line management, which is receiving a lot of attention in the health care management arena (MacStravic, 1986; Fetter and

Freeman, 1986), involves dividing the hospital into independent units of homogeneous services. In this decentralized manner, each service group, or unit, makes independent decisions on human resources, marketing, equipment acquisition and other issues. We mentioned earlier the service line management approach being implemented at Harper Hospital. The determination of order-winners and qualifiers requires an understanding that takes adequate time and requires the perspectives of marketing and operations (Hill, 1994). The orientation toward order winners and qualifiers differs based on the hospital's mission and on the product line. We have already mentioned the impact on resource acquisition based on strategic mission (provider generalist, pacemaker generalist, etc.). However, within a particular strategic type, hospitals will seek market segments. For example, two hospitals within the Detroit Medical Center are categorized by the American Hospital Association as general medical/surgical. Yet one of those hospitals focuses on obstetrics, orthopedics and ophthalmology, while the other focuses on obstetrics, geriatrics and trauma. These strategic orientations will naturally impact infrastructural, structural and operations capability decisions, requiring different patterns of decisions. The business level strategic decision will, therefore, drive categorization of order winners and qualifiers. Once criteria have been separated into orderwinners and qualifiers, Hill (1994) recommends distinguishing the importance of each criterion. For order-winners, weightings are allotted to the categories on a one-hundred point scale. Hill promotes the interface between marketing and operations, and marketing should assign weights to order-winning criteria based on specific features of each product line and actual and forcasted volume. The criterion weights should be assigned for both current and relevant future time periods (1994, p. 37). In Fig. 3, the relevant competitive issues are listed in the column titled " K e y Components" with the associated operations capabilities also listed. Then, for the current year and two years forward, order winners (with weights), order qualifiers and order-losing sensitive qualifiers are listed for each customer type. Case studies demonstrating the order-winner, order-qualifier approach are provided by Hill (1994) and Berry et al. (1991).

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7. Research agenda and managerial implications This paper promotes consistent and coherent implementation of operational policies to advance the hospital's mission, corporate strategy and business strategy. In other industries, exceptional performance has been attained through the careful implementation of structural and infrastructural decisions and investment in operations capabilities. As new technologies, processes and philosophies are developed, administrators should assess how they fit into the mission, corporate strategy and business strategy of the hospital. This discussion appeals for further investigation through empirical research, case studies and interviews. In this section, a research agenda is presented followed by a discussion of the managerial implications of this paper. 7.1. Research agenda

The Health Care Management literature contains an abundance of research in both operations management and business strategy targeted at practitioners and researchers. However, there is a need for research that synthesizes these issues. In the previous pages, some gaps and opportunities in the literature have been noted. Below, we list several research questions and note the strategic area (Mission, Corporate, Business, Other Functional Areas) with which the operations strategy is primarily integrated. We also note where various operational areas or product lines (nursing, admissions, pharmaceutical, receiving) will be an important aspect of the research. 1. How do hospitals allocate resources among the operations capabilities and how does this affect their performance? How do hospitals integrate infrastructural and structural decisions and how do these relate to operations capabilities? (Business Strategy). Shortell et al. (1990) initiated this empirical research stream by examining different business strategies and tactics with systems hospitals. However, they did not consider alternative operations strategies and policies within the same business strategy grouping. There has also been little if any research on the cohesive integration of the operations issues of cost, quality and delivery within business strategy. 2. Do effective operations strategies differ in urban hospitals and rural hospitals? Specialized and non-

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specialized? Teaching and non-teaching? (Business Strategy and Hospital Mission). Cleverly and Harvey (1992) determined that cost control was the most important criterion to distinguish successful and unsuccessful rural hospitals. As diverse as hospitals are, an important research finding would be a common management link among them. Also in this paper, we have introduced the intuitively understandable business strategic groups of Pacesetter, Pacemaker and Provider. These strategic orientations should be validated empirically. 3. Will performance be superior for hospitals that link operations strategies to business strategy? What performance measures can be developed and used as feedback to strengthen strategic planning? (Business Strategy). As mentioned earlier in this article, quality assessment and measurement in hospitals is particularly complex because of its many facets. Furthermore, hospitals have widely differing philosophies on profit-making, thus making evaluation of management based solely on financial data highly imprecise. 4. What is the impact of competitive methods such as alliances, competitive pricing and innovative services in meeting the hospital strategy? (Other Functional Areas, Business Strategy). Alliances affect the allocation and concentration of health care resources within and between hospitals. Resource decisions due to alliances will influence the operations issues of quality, cost and delivery (Zuckerman and D'Aunno, 1990). Since alliances are becoming prevalent in the hospital and health care industry, knowledge about their impact is important for practitioners. 5. How plausible is the order winners/order qualifiers idea as a means of determining the market requirements placed on a hospital? Can administrators use this approach to define the required operations capabilities given market requirements and competitor capabilities? (Other Functional Areas, Business Strategy). As mentioned earlier, Hill (1994) and Berry et al. (1991) provide case studies of order winners/order qualifiers, lending evidence to their usefulness in manufacturing strategy. Similar case studies applied to health care will contribute to the dialog about this idea and its effectiveness in advancing operations strategy and performance.

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6. What is the impact of human resource activities such as empowerment programs, flex-time, cross training and professional development/training on hospital performance? (Other Functional Areas, Operational Areas). Etienne-Hamilton (1994) described training as vital in managing change because it builds craftsmanship in that employees can assume more responsibility and can cope with new technology, and it builds self esteem by improving employees marketability and instilling positive attitudes. As new ideas in human resources management arise, research is needed to assess effectiveness and how new procedures fit into the hospital's overall plan. 7. How do hospitals integrate strategic decisions about medical technology, capacity, inventory management, information systems, human resources and quality programs? How does this impact overall hospital operations and performance? (Other Functional Areas and Operational Areas). Miller and Roth (1994) addressed empirically how firms focus on different competitive capabilities to achieve an overall manufacturing strategy. Ward et al. (1994), in their survey research, found that the above-average financial performance was tied to the combination of technology oriented structural programs and either one or both of the following areas: infrastructural programs improving worker responsibility and skills in the factory, or the participation of manufacturing executives in the strategic planning process. These issues of how different aspects of management fit together should be an important part of hospital operations strategy research. 8. Can hospitals effectively implement different operations strategies among different patient care services? (Operational Areas). The diverse range of inpatient and outpatient services, such as obstetrics, pediatrics, orthopedics, etc., can be managed independently of one another in terms of service-lines. If marketing strategies vary for product lines within a hospital, operations strategies may differ also. Reducing, expanding, creating or eliminating a new service will affect all functional areas for that service and aspects of other services and products (MacStravic, 1986). Research on how hospitals cope with these issues will encourage more rational management by administrators and foster more effective management approaches.

9. How much do operational managers such as heads of nursing, pharmacy, admissions participate in effective strategic planning processes? What is the physician's role in a successful strategic planning process? (Operational Areas). Swamidass and Newell (1987) found that the manufacturing management's participation in strategic planning was positively correlated with firm performance. In hospital management, the importance of including operational managers in the strategic planning process is undetermined. 10. How are marketing strategies and operational strategies of successful hospitals related? How are operations strategies linked to other functional strategies? How is operations strategy integrated with corporate and business strategy? (Corporate Strategy, Business Strategy, Other Functional Strategies). Hill (1994) noted the importance of integrating marketing strategy with manufacturing strategy. The importance of cohesive strategies between those two areas can contribute to our understanding of hospital management and performance. Shortell et al. (1990) addressed corporate strategies and business strategies of systems hospitals, yet the integration of operations strategies into these higher level strategies has not yet been done. 11. How does quick introduction of new products and services affect hospital performance? How much does flexibility contribute to hospital performance? (Business Strategy). Table 1 indicates that little research has been directed at flexibility, indicating that opportunities exist in that area. As discussed in the Flexibility section, "quickness" in changing product focus and introducing innovations has not been examined in the research literature. There is also a need for investigation in internal (operations) innovativeness. 12. How does the increased competitive environment for hospitals affect operations strategy? How do not-for-profit institutions successfully compete with for-profit and vice versa? What importance does competitive advantage play in the development of innovative services and technology acquisitions? (Business Strategy). Few articles have addressed the issue of competitive advantage and technology and innovation. In addition, the expansion of for-profit institutions continues to put pressure on not-for-profits to reduce costs.

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Since costs and risks associated with these issues are great, insights gained from empirical research would be worthwhile. 13. How does government regulation affect operations strategy implementation and effectiveness? (Business Strategy). States and countries regulate hospitals differently. By comparing operations strategies and performance in different states a n d / o r countries (such as US and Canada), administrators can align their policies and procedures appropriately, and government policymakers can gain insight as to what regulations garner appropriate management responses. In embarking on an agenda for research in hospital operations strategy, a look toward the hospital business strategy literature and the manufacturing strategy literature is beneficial. Shortell et al. (1985) presented an agenda for hospital strategy research. In 1991, the state of hospital strategy research was evaluated by Topping and Hernandez (1991). Many of their conclusions correspond to that of Adam and Swamidass (1989), Anderson et al. (1989) and Leong et al. (1990), in their reviews of manufacturing strategy. Ideas from each of these works should be considered in developing an agenda for hospital operations strategy.

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3. The development of viable strategies and information systems requires the full faith and support of physicians. Physicians generally have been suspect of the Total Quality Management movement, which has hampered those efforts. While some operational programs can be employed without physician support, a coherent, consistent program requires the support and involvement of the physician leaders. 4. With inpatient care and surgical procedures becoming more cost competitive, we believe that hospitals will be focusing more on disease prevention and managing chronic illnesses (Goldsmith, 1989). Hospitals, in many cases, can become "health advancement institutions" instead of merely short term inpatient and outpatient entities. The development of economically viable means to succeed in these areas has significant operations implications. 5. The feasibility of worker empowerment programs requires leadership, commitment and training. These initiatives show evidence of high productivity, customer satisfaction and worker satisfaction. The stressful nature of health care, along with competition for high quality employees, makes innovations such as this a serious management consideration.

7.2. Managerial implications We offer the following insights based on the literature review and observations of practice. 1. First and foremost is the necessity for administrators to initiate operations programs and acquire technology consistent with the mission and business strategy of the hospital. With new ideas about cost containment, quality, delivery and flexibility arising frequently, administrators must decide if, when, and how those ideas should be employed. 2. The management and utilization of information is critical in health care just as in other industries. Information systems can be integrated vertically (from physician offices, clinics and suppliers) and horizontally (between departments) to provide feedback for clinical decision making. The advancement of information for forecasting, assessing flexibility and evaluating operational policy will promote competitive decision making.

8. Conclusion

These broad management issues have vast operational implications and top-level management must be made aware of this. Hill (1994) offered several recommendations for operations strategy in the manufacturing sector and many of these can be applied to the health care industry. One recommendation is to change the role of the operations manager from a reactive "can't say no" role to a pro-active, involved role in strategic decision making. In the past there has been a tendency for business strategy to be developed and then operations directed to comply. We suggest that hospital performance can be enhanced by integrating the development of operations strategies and policies with the hospital mission, business strategy and existing resources. Another Hill recommendation is to embrace a strategy of market/operations interface. "Only then can the

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degree of fit between the proposed marketing strategy and (operation's) ability to support it be known at the business level and objectively resolved within corporate perspectives and constraints (1994, p. 26)". Finally, there is a need for language in which operations managers can explain their function clearly and effectively to others. This can be achieved through a stream of high-level empirical and theoretical research. While we can make many positive comparisons between operational problems in hospitals and the manufacturing sector, there are key differences. One is the interaction between the care givers and the customers (patients). This has been identified in service sector literature as "front door operations" (McLaughlin et al., 1991). Another is the vast professional and (sometimes) philosophical gaps between the managers of the business operations (administrators) and the managers of clinical operations (physicians). These are critical issues for the operations manager and should be addressed by the hospital's strategic plan. From a research perspective, there is a need for well founded, high level research oriented toward practitioners. In this article, we have identified a number of high level empirical and theoretical research works. Researchers in operations management should build on these works in advancing the field of operations management strategy to the level it deserves within the hospital industry.

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