INTRODUCTION

This chapter introduces and describes key influences on Australian health care organisations as they search for solutions to the challenge of change and adaptation. We aim to present an overview of the diverse pressures arising from both within and outside health care organisations as they respond and adapt to change at the level of health service managers and organisational environments. The chapter develops across several broad sections. Firstly, we discuss the way broader social, economic and policy changes are driving demands for significant change to Australia’s current health system. For example, the popularity of New Public Management (NPM) reforms has had a particular impact on our health care organisations. From there we examine theories and concepts that underpin current understandings of complex organisations such as health care systems. A consideration of differing theories enables us to clearly see the justification of past and proposed changes and to evaluate their effects. The next section discusses where the impulse for change is coming from, and the way in which these changes have contributed to key structural and process changes within Australia’s health care organisations are briefly discussed. Finally, we consider the pivotal role of health service managers in responding to and managing these changes, at both professional and personal levels. In our view, organisations, managers and the health care workforce are not passive objects on which change is patterned. Rather, as agents in an increasingly complex and turbulent health care system, they both shape and are shaped by the interaction of a constellation of environmental, social and political factors. Subsequent chapters in this book elaborate in greater detail many of the themes introduced in this overview of organisational change and adaptation in health care.

GLOBAL POLICY DRIVERS OF CHANGE

The Australian Productivity Commission has identified coordinated health sector reform as one of two national priorities (Leggat & Dwyer 2004). Specifically, deep-seated structural problems have been identified that require independent review. Fragmented health system governance between parallel public and private systems and commonwealth and state governments has resulted in a lack of coordinated care throughout the Australian health care system. The balance between public and private financing is currently being hotly debated as both an economic and social–political issue (Sundararajan et al 2004). Minor reforms over the last decade have been criticised for creating a system that favours private providers and those users with the capacity and willingness to pay while providing safety net support to low income households (Richardson & Segal 2004).

Health care services and policy have been subject to the effects of shifting political ideologies in western liberal democracies towards free-market economics that favour the introduction of economic rationalist and competitive reforms that challenge traditional managerial and professional cultures on which health services have been founded (Flynn 1998, Hancock 1999). Public health services, have been at the forefront of New Public Management (NPM) policy implementation and shrinking government outlays. New Public Management reforms apply a market-based philosophy to a traditionally bureaucratic environment in which private sector models of organisation, management and ‘enterprising’ conduct occupy a privileged position. It is believed that these market-based mechanisms produce value for public money, greater public choice, improved efficiency and increased responsiveness to customers (Walsh 1995). Whilst NPM has been a primary driver of reform at the organisational level, there are also implications for the types of managerial and professional conduct that are valued in the restructured organisation (Boyce & Shepherd 2000).

The other policy issue that is predicted to influence health care organisations is research into the effects of trade policy on the sovereignty rights of national governments over the structuring of their public sector domains. Pollock and Price (2000) suggest that new cycles of reform will emerge as the World Trade Organization (WTO) and General Agreement on Trade in Services (GATS) exert pressure on national governments to open public sector health services to least-trade-restrictive policies.

Taking the discussion presented in this section of the chapter in relation to the multiple levels of the health system, we see a constellation of policy-related drivers exerting influences in the following terms. At the macro level we see a policy shift toward the NPM doctrines of marketisation and managerialism (Ferlie et al 1996, Hood 1995). At the meso level of the health care organisation, we see a resource environment emphasising cost efficiency and reduction, and the implementation of internal market reforms (Brock et al 1999). At the micro level, professionals have to cope with the implications of policy, structural and funding changes in terms of their daily work practice (Broadbent et al 1997, Hunter 1996).

HEALTH CARE ORGANISATIONS IN TRANSITION

Fundamental changes in the type and delivery of health care necessitate a more radical view of organisational change in health care. Traditional paradigms of management include inherent assumptions that organisations can best be understood as deterministic and predictable and that the inherent goal of leading change is to achieve stability and order in a predictable and well-planned manner. In contrast, recent debate suggests that an alternative paradigm in which organisations need to relinquish obsessions with control and stability provides a more pragmatic guide for surviving change (McDaniel 1997).

At the same time, Bigelow and Arndt (2000) criticised the transfer of techniques such as business process engineering into hospitals, suggesting that these practices were based on untested beliefs in the inherent superiority of private sector approaches. Despite these criticisms, there are some lessons to be learned if the complex and unique contexts of health care environments and organisations are considered.

Health care organisations tend to have a high number of differences around professional, technological and task attributes, which usually occur together in predictably similar constellations. Like some other organisations, health care organisations are challenged to define and measure output, where the nature of work is highly variable, complex, exacting, reactive, urgent and non-deferrable. However, in health care there is little tolerance for ambiguity or error. In addition, health care is increasingly specialised and conducted by a diverse range of practitioners (Fottler et al 2002). Most of the health care workforce is highly professionalised and specialised.

Despite a strong emphasis on values, and a sophisticated organisational milieu, health care organisations are faced with a major challenge to coordinate the highly specialised and differentiated professionals, who, because of the increasing complexity of the medical care, are required to work interdependently with each other (Anderson & McDaniel 2000). These professionals regularly work within formal and informal matrix structures with clinical accountability to a unit director who may have a different disciplinary background. Professional allegiance to the individual’s disciplinary group can sit in uneasy juxtaposition with the clinical management architecture of the organisation with the potential for producing divided loyalties between professional groups, clinical service groups and the organisation.

Further, the patterns of political power exerted by professional groups are unique drivers in health care organisations. Professionals’ expertise and reputation influences their authority and expectation of greater autonomy and control. As a result, greater emphasis may be placed on clinical issues at the expense of managerial efficiency (Preston & Badrick 1998). Further, there may be limited managerial and organisational control over the medical professionals who primarily generate and direct patient care resource utilisation (Shortell & Kaluzny 1997).

There are also significant differences in the underlying values of health care organisations. Where many business organisations compete for financial survival, health care organisations are founded on humanistic beliefs around social responsibility. However, health care organisations are particularly sensitive to the specific political, legal and financial regulatory environments in which they function (Fottler et al 2002). Anderson and McDaniel (2000, p 84) proposed that health care organisations are best conceived of as complex adaptive systems.

If we recognise that health care organisations are complex adaptive systems operating in a professional milieu then we focus on different things and arrive at different conclusions than if we believe that they are professional bureaucracies begging to be run more effectively and efficiently according to traditional rules of administrative behaviour.

HEALTH CARE SYSTEMS

Given that there are many ways of perceiving health care organisations, this section will clarify some of the traditional and more recent theoretical approaches. Systems theory offers a range of insights into the ways in which organisations function. Generally, systems theory suggests that specialised components work together interdependently, within an overall balancing conceptual framework (Sampson & Marthas 1990). Commonly, there are two major perspectives; that of closed and open systems. Closed systems assume that the organisation can function independently of the external environment and that it needs to be designed to maximise internal efficiency. In contrast, open systems emphasise the links between organisations and their external environment, thereby highlighting the need for organisations to be open, adaptable and innovative (Shortell & Kaluzny 1997).

Health care systems experience an inherent tension between the need for predictability, order and efficiency of their internal systems, and the need to be responsive, flexible and strategic with respect to their external environment. To fully understand health care organisations, a familiarity with some of the major open and closed system theoretical approaches is required. At the same time, traditional management theories emphasise linear, rational and goal-oriented activities within organisations (Lloyd & Boyce 1998). In contrast, more recent non-linear systems emphasise the way in which adaptation and change ensure survival.

The following section summarises a selection of approaches that span both traditional and recent system perspectives on organisations. While each theoretical approach offers a particular view of health care organisations, analysis of operating institutions usually shows that more than one approach guides practice. Component areas of an organisation often adopt different theoretical approaches in order to manage the complexity of health services. Critical evaluation of these theoretical perspectives contributes to our ability to understand and enlighten current practice. Six theoretical perspectives are briefly described below and their potential advantages and limitations are emphasised in Table 4.1.

Table 4.1 Strengths and weaknesses of the focus of theoretical approaches to organisations

THEORETICAL APPROACH	STRENGTHS	WEAKNESSES
Bureaucratic theory	Technical efficiency under stable conditions	Inertia and rigidity. Non-responsive to individuals. Limits entrepreneurial activity.
Human resource theory	Individual employee empowerment. Enhances commitment to quality. Focuses attention on human capital.	Focus on management and control of individuals. Encourages conformity.
Institutional theory	Conformity to environmental norms, rules, regulations. Maximises legitimacy with external stakeholders. Explains how diffusion occurs within industry sectors.	Copy-the-leader mentality may adversely affect performance. Conformity may be symbolic rather than real, thus limiting potential gains.
Resource dependency theory	Networks of organisations secure key external resources. Focus on acquiring access to critical organisational resources.	Competition for limited resources. Trade-off autonomy through relationships with other organisations.
Strategic management theory	Flexible and adaptable to environment and organisation. Identifi es key organisational vision and goals. Incorporates innovation.	Hierarchical process model that has many implementation alternatives. Diffi culty in realistically summarising and differentiating organisational purpose.
Complex adaptive theory	Patterns emerge of key connections and relationships. Structures and patterns evolve synergistically Flexible to accommodate diversity.	Limited capacity for managerial prediction and control. Limited ability for managers to determine roles and structures and to maintain order.

Bureaucratic theory

Traditionally, health care organisations were often perceived as professional bureaucracies (Anderson & McDaniel 2000). Bureaucratic theory emphasises an internal hierarchy, within which lines of responsibility and authority are clearly established, and activities are formally distributed. Individuals are allocated their positions according to their technical competence, and their power and status are determined by their position in the hierarchy. Adherence to procedures is generally of paramount importance. Therefore a sense of stability and predictability is generated through careful management and decision-making that is consistent with individual’s skills and positioning in the hierarchy.

In professional bureaucracies, professionals seek to control their own work through controlling the administrative frameworks of their organisation (Preston & Badrick 1998). Professional bureaucratic management strategies have traditionally dominated health care organisations through a range of parallel professional and administrative multi-layered hierarchies, which clarified specific lines of responsibility and operating procedures. Generally, the dominant medical professional group have used a range of informal and formalised peer group systems to define and rank many other positions in the hierarchy. However, because of its closed system perspective and its inherent internal focus, there is an assumption of a static external environment. This assumption cannot be validated given the plethora of external influences on the provision of health care. Therefore, the use of bureaucratic theory on its own is problematic within current health care organisations.

Human resource/relations theory

Human resource theory also adopts a closed system perspective on empowering individuals to be responsible for maintaining and improving their work. Derived from the human relations school of management, this theory highlights the way in which individuals can contribute their full creative potential towards an organisation, when there are appropriate and supportive structures and management processes. Individual motivation and involvement are recognised as important features that ultimately enhance the organisation. To encourage and support harmonious social relations and foster the development of human capital, organisations usually institutionalise appropriate structures for the type of workforce employed in the organisation. Performance management systems are commonly used to motivate and manage employees. At a more personal level, managers often emphasise the importance of developing interpersonal communication and collaboration skills to maximise individuals’ motivation and contributions. Given sufficient training and autonomy, employees can identify and solve their own problems, using strategies such as participatory decision-making and continuous quality improvement (Lloyd & Boyce 1998, Shortell & Kaluzny 1997).

Human resource theory continues to have a pervasive impact on the highly professionalised and specialised health care workforce. High levels of entry-level education and continuing professional development are emphasised for all professional groups. Health care organisations also empower and motivate individuals to provide quality patient care, through supporting continuing personal development. However, these patterns are predicated upon a static environment and structures organised around the professional disciplines. Therefore, this theoretical framework cannot be sufficient on its own in describing complex health care organisational structures, nor can it be adequate in understanding and managing change.

Institutional theory

Institutional theory is an open system perspective that explains how organisations succeed and prosper through obtaining a good fit between the organisation and its external environment (DiMaggio & Powell 1983, Powell & DiMaggio 1991). The institutional perspective argues that organisations gain legitimacy from key external stakeholders by adopting norms, rules and values that reflect the stakeholder’s beliefs about desirable forms of organisation and behaviour. The central role of legitimacy is concerned:

with the set of intangible norms and values that shape behaviour as opposed to the tangible elements of technology and structure . . . Organisations adapt to the environment by signalling their congruence with the demands and expectations stemming from cultural norms, standards set by professional bodies, funding agencies, and customers.

(Daft 1998, p 540)

Health services are a type of organisation, where the community, government and professional workers have relatively fixed ideas about behaviours and standards that should operate. The process through which the structures of organisations in a particular industry field, subject to a similar environment, tend to converge around a common type has been labelled institutional isomorphism. Three drivers of isomorphism have been identified. Firstly, mimetic isomorphism which results from organisations imitating the approach of field leaders, secondly, coercive isomorphism which is generally attributed to political, legal and regulatory processes or directives and, finally, normative isomorphism in which socialisation pressures and expectations from professional bodies or expert referents (for example, management consultants) argue that some technique or way of doing business is better (DiMaggio & Powell 1983). Bigelow and Arndt’s (2000) study of the penetration of new management techniques and processes in American hospitals suggests that the health care system has been subject to at least four decades of sustained (and often unproven) normative isomorphism to obtain symbolic legitimacy with stakeholders.

Resource dependency theory

Resource dependence approaches recognise the dependence of the organisation on the environment for critical resources that affect survival (Pfeffer & Salancik 1978). Internal power and influence is related to access to key external resources. Organisations respond to this situation by managing their dependence through maintaining and extending their control of the key resources they need to operate, in order to reduce their vulnerability to resource uncertainty. Depending on their analysis of uncertainty in the environment, organisations might compete to increase their territorial claims or they might respond by joining with other organisations to pool resources. Internal and external competition may arise over access to, influence over, and control of scarce resources. Adverse environmental conditions such as high degrees of complexity, instability and declining resources will dictate the formality of relationships with other organisations, which may range from informal information-sharing partnerships to fully operational mergers. Managers pursuing this type of strategy have to balance the potential reduction of autonomy with the benefits of cooperation and resource sharing with another organisation. However, they can influence their choice of networks and linkages to reduce unwanted dependencies.

There are increasing environmental influences promoting organisational uncertainty in health care. There is competition for decreasing financial resources and consumers are demanding more of health care providers, in line with increasing technological capabilities (PricewaterhouseCoopers 1999). Further, government policy is changing the funding criteria for health care services (Foley 2000). Therefore, this theory can be used to account for management decisions to compete with and to cooperate with other like-minded health care organisations. Case Study 14.1 in the chapter by Harris and Walker illustrates how resource dependency theory operates in a medical specialist–GP referral network setting.