Title: Innovation as Routine: Reconciling the Ecology and Adaptation Perspectives on Change
1Innovation as Routine Reconciling the Ecology
and Adaptation Perspectives on Change
- Jacqueline Zinn, Ph.D.
- Vincent Mor, Ph.D.
- Zhanlian Feng, Ph.D.
- Orna Intrator, Ph.D.
Temple University School of Management Brown
University Medical School
2INNOVATION
- Adoption of an idea or behavior new to the
organization and to the organizations industry,
market or general environment (Daft 1982)
3Theoretical Perspectives on the Impact of Change
- Rational Adaptation (e.g., Contingency Theory)
- Innovation is a problem-driven, rational response
to environmental change or uncertainty - Fills a performance gap
- Prevents failure and promotes survival
- Organizational Ecology
- Innovation recreates the liability of newness
- Risky and disruptiveorganizations remain inert
unless forced to change - Places organizations at greater risk of failure
4Reconciling Divergent Perspectives on Change
- Boundary conditions separating adaptive and
disruptive change studied in diverse industries - Results indicate that theories are complementary,
suggesting a conceptual link - Organizational routines (Nelson and Winter 1982)
Repetitive patterns of activity by organizational
groups and individuals - The accumulated knowledge base of the
organization - Stable, reproducible routines are the foundation
of reliable performance
5Innovation as Organizational Routine
- Organizational ecology Innovation disrupts
routines (e.g., existing patterns of
intra-organizational relationships) - In a culture of innovation, innovation is a
normal routine - Curtailing innovation would be disruptive
- Whether innovation is adaptive or disruptive may
depend on degree of commitment
6Objective
- In the context of the nursing home industry
- test the hypothesis that in organizations where
innovation is a normal routine, it provides an
adaptive defense against failure - However
- When innovation is the exception rather than the
rule it is disruptive and contributes to failure
7Perilous Times in the Nursing Home Industry
- 2001 5 of 10 largest nursing home chains in
Chapter 11 (1 out of 10 nursing homes) - Why so failure prone?
- 1998 Medicares PPS for SNFs implemented
- 25 drop in average daily payments at Genesis
- Assisted living siphoning off private pay
- Ill-advised, debt-financed expansion
- Regulations increase operating costs
- Malpractice increases insurance rates
8Repositioning in the Market
- Heavy reliance on public financing emergence of
viable substitutes rising operating costs
increased threat of failure - Sub-acute care
- Increasing nursing home case mix acuity since DRG
implementation - Managed care
- Specialty care in dementia and Alzheimers care
- Whether innovation succeeds in facilitating
transition may depend on extent of commitment
9Methods
- Data
- On-line Survey Certification Reporting (OSCAR)
system, 1997-2002 - Area Resource File (ARF)
- Sample
- All urban freestanding facilities within a MSA
- N54,628 surveys from 10,201 facilities
10Measuring Organizational Failure
- Termination from Medicare/Medicaid Program
Participation - Most severe indicator of performance gap is loss
of certification - Reimburses care of 3 out of 4 nursing home
residents - Roughly 8 terminated from 1997-2002
11Innovation
- Technical innovations reflecting the resource
inputs needed for sub-acute and specialty care
12Measuring Innovation Relative to Diffusion in
Market (Goes Park 96)
- AI k,t Adjusted innovation score for NH k at
time t - I k,i,t Innovation rating (0 or 1) for NH k on
the ith innovation at time t - Pi,t Proportion of NHs in local market (MSA)
that had adopted the ith innovation at time t
13Levels of Innovation
- Minimal, low, moderate and high defined by
quartiles of the innovation score distribution - Omitted category no innovation (0 on innovation
score) - Moderate to high
- Innovation is routine and adaptive
- Minimal to low
- Innovation is infrequent and disruptive
14Change in Ownership
- Even good facilities acquired by a
debt-strapped chain may be under-capitalized and
at risk of failure - Ownership change in prior 36 months
15Performance
- All measured as dichotomous variables relative to
other facilities in MSA - Low Occupancy (bottom quartile)
- High Medicaid Census (upper quartile)
- Regulatory Compliance (upper quartile of
deficiency citations)
16Other Control Variables
- Organizational characteristics
- Size
- Chain affiliation
- Control status
- Stand-alone x for-profit indicator
- Market conditions
- Competition (Herfindahl Index)
- Excess capacity (ave. empty beds/facility)
- Per capita income
- Year dummy variables to control for secular
effects
17Methods
- Panel Data analysis using a cross-sectional, time
series model - Since dependent variable binary
- GEE logit model (XTGEE, Stata V8) with time
varying, 1-year lagged covariates - Within-facility correlation structure
- Robust variance estimator
18Description of Facilities (N10,201)
19Effect of Innovation on Termination
20Performance Predicting Termination
Controlling for Innovation, ownership, time and
ownership change
21Size and Market Characteristics
22Conclusions
- No evidence that innovation is disruptive and
contributes to organizational failure - Support for rational adaptation argument that
when innovation is routine, it buffers against
failure - Limited innovation may not hurt, but neither does
it help survival prospects - Change of ownership increases likelihood of
failure - Organizations that undergo major re-organization
become new again the liability of newness
23Conclusions
- Prior poor performance matters
- Inability to close a performance gap
- There may be a liability of smallness
- Monotonic relationship between size and failure
- Institutional linkages (chain status) may not
provide a buffer against failure - Inadequate environmental carrying capacity
promotes market exit, in this case, the
Medicare/Medicaid market -
24Conclusions
- A significant proportion of free-standing nursing
homes in the U.S. do not innovate - There do appear to be significant returns on
investment for facilities that embrace this type
of response to environmental change - Termination from Medicare/Medicaid is rare but
facilities embracing innovation as a strategy are
40 less likely to terminate, controlling for the
BENEFITS of performance as well as the stress
chaos of ownership change.
25Nursing Home Innovation
- Prior research found that facilities in
competitive markets those with higher MCO
penetration were more likely to establish special
care units - In response to BBA reimbursement changes,
facilities in competitive markets undertook
strategies to control therapy costs by employing
therapists rather than contracting - Current movement to establish quality improvement
collaboratives another mark of innovation - BUT, most think of nursing home innovation as
an oxymoron - We find that moderate to high Innovators tend to
be consistent early adopters relative to their
local peers they take the risks to innovate and
reap the benefits
26Limitations
- Our indicators of innovation were limited by data
availability and are known to have measurement
problems - Only looked at 1997-2002 since not all data were
available from 1993 forward - Unable to estimate the effect of assisted living
and home care in the markets - Did control for local competition
27Implications for Nursing Homes
- Having management capable of perceiving the need
for, devising, marketing and implementing
innovations in service lines and practice is VERY
important - Same principles apply across all markets, but not
likely that same innovations work equally well in
all markets - May need national, regional and local input in
devising a strategy for successful innovation
28Implications for Theory-Driven Health Services
Research
- Reinforces the notion that innovation can be a
successful strategy to cope with environmental
change and competition - Establishes the importance of studying all the
organizations in an industry longitudinally - Establishes the importance of defining innovation
and performance relative to local peers
29Areas of Needed Research
- Expand array of innovations being studied
- Explicitly test revenues (margin) profitability
as performance measures - Examine HOW good managers perceive the need to
innovate - Examine effects of innovative management strategy
on the quality of care experienced by patients,
controlling for performance level
30