An Examination of Factors for the Strategic Use of Information Systems in the Healthcare Industry Author(s): K.

Kyu Kim and Jeffrey E. Michelman Source: MIS Quarterly, Vol. 14, No. 2 (Jun., 1990), pp. 201-215 Published by: Management Information Systems Research Center, University of Minnesota Stable URL: http://www.jstor.org/stable/248778 . Accessed: 22/03/2013 12:11
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Use of Hospital Information Systems Strategic

An

Examination of for the Factors Use of Strategic Information Systems in the Healthcare

Introduction
Organizations have increasingly been turning forachievingcomtheirattention to opportunities petitiveadvantagesthroughinformation systems technology (IST).The new phenomena can be attributed to several factors such as the changing economicconditions,whichincludelong-term high inflation,high interest rates, and low real growth (Benjamin, et al., 1984); structural changes in the economy caused by global competition (Ives and Learmonth,1984); and new information technology economics such as telecommunications and cost percost performance formanceof circuitry and mass storage(Benjamin and Scott Morton,1988). exist for healthcareorganizations Opportunities in particular to gain an edge over theircompetitors throughthe use of IST.The need to use hospitalinformation systems (HIS)as a competitive weapon has been further heightenedbythe competitive pressures that pervade the healthcare industry.2The change from cost-based reimbursement to fixed fee payment structures has forced the healthcare industryto put more emphasis than ever before on the efficiency of the 1986; patientcare deliveryprocess (Havinghurst, Reynolds, 1986). Under the cost-based reimbursement type of incentive structure that characterized the industry prior to the early 1980s, there was no need for the strategic use of HISbecause "a bed builtbecame a bed filled" (Roemer and Shain, 1959).3 As the contemporaryenvironmenttakes shape and hospitals became healthcareorganizations et al., 1988), throughverticalintegration (Conrad, the need to develop institution-wide information systems for decision makinghas become paramount. The increasinglycompetitivepressures
2 Altmanand Rodwin(1988) describe this as regulatedcom-

Industry1
By: K. Kyu Kim Accounting and MIS In-ha University Inchon 160, Korea Jeffrey E. Michelman College of Business Administration University of North Florida 4567 St. Johns Bluff Road Jacksonville, Florida 32216-6699

Abstract
The potential use of information systems technology (IST)as a competitive weapon has been of enormous interest to many academic scholars and practitioners.However,the importance of identifyingfactors that organizations must deal with in the process of achieving IST competitive advantageshas receivedinadequate research attention.Thisarticleattemptsto idenfactors for the strategic use tify these important of ISTby examiningthe multifacetedrole of IST in the healthcarecontext. Threepropositionsare a varietyof sucdeveloped from(1) re-examining cessful ISTapplicationsboth withinand outside healthcare organizations, (2) re-applying the and (3)exconcept fromthe literature, integration amining field experiences in the healthcare industry. These propositions should serve as a basis forfutureempiricalinvestigationsinto IST strategic applications. Keywords:Strategicinformation systems, hospital informationsystems, integrated systems, politicalboundaries ACMCategories: H.4.0, H.4.2, K.6, K.6.0
Earlier versionsof this paperwere presentedat the April 1988 ORSA/TIMS meeting and at the 1988 Academy of Management NationalMeeting.Anyerrorsor omissions remain the fault of the authors.

whichhas fosteredthe need forhealthcare providers petition, to marketnew productsthatdiffergreatlyfromthe traditional of this competitive acute care services.The intensity inpatient influence was depicted in a recent Wall Street Journal thatNeed PatientsPay Bounheadlinethatstated:"Hospitals ties for DoctorsReferrals" (Boganich,W. and Waldholz,M., 27, 1989). February 3 Inthe past, hospitals cost" on a "reasonable were reimbursed facilitated boththe rapidconbasis. This paymentstructure to keepthese of excess beds and effortsby hospitals struction beds occupied.The paymentmechanismsthat characterize rewardhospitalsforefficienthe contemporary environment cy (Eastaugh, 1987).

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Systems Strategic Use of HospitalInformation

have fosterednew incentivesforthe development of organizational strategiesthat reachfarbeyond the traditionalmission statement that hospitals have long relied upon (Enthoven, 1988; Harrell and Fors, 1986). As hospitalsattemptto develop innovative programs and make strategic decisions abouttheirfuturedirection,the qualityand has of information fordecision-making availability The rapidly continuedto gain greaterimportance. influencesthat have acchanging environmental of assorted companiedthe abundantintroduction IST make the healthcare sector an important arena forexaminingthe strategicuse of information systems. This articlehas three primary purposes. First,it that healthcareorgafactors to attempts identify nizationsmust deal withbeforethey can achieve competitiveadvantages throughthe use of IST. Second, in orderto expedite empiricalinvestigations into the strategic use of HIS, propositions of successare developed froma re-examination ful IST applications, a re-applicationof the integration concept in the literature, and field experiences in the healthcare industry.Third,a model is developed that adapts the works of Porter(1979; 1980; 1985) by examiningthe role of IST in the competitivehealthcarearena. Furthe plausibilither,hospitalexamplesthatsupport ty of the propositions are provided from field experiences.

1986). Forexample, Porter(1979) identifiesfive major competitive forces that firms wishing to advantagesshouldconsider:(1) gain competitive the threatof new entrants,(2)the bargaining power of customers, (3)the bargaining powerof suppliers, (4) the threat of substitute products or services, and (5)the maneuvering amongcurrent ISTcan be contestants.Withthis understanding, used to implementone of the three generic competitive strategies as defined by Porter(overall
cost leadership, product differentiation, and spe-

cial marketfocus). Anotherexample can be found in the customer resource lifecycle, drawnfromthe workof Burnstine (1980)and modifiedby Ives and Learmonth maintainthat a cus(1984). Ives and Learmonth tomer's resource acquisitionactivitiesconsist of four major phases-requirements, acquisition, stewardship,and retirement. They also maintain that possibilitiesfor using ISTto enhance customer service exist withineach stage of the customer's resource life cycle. Cash and Konsynski (1985) examine the various forms of inter-organizational systems (IOS)and develop the three-levelclassificationscheme: (1) information entryand receipt,(2) softwaredevelopment and maintenance, and (3) networkand processing management.At the firstlevel is the firm that merely acts as an information entryat level 2 receipt node. Companies participating softwareused by otherIOS develop and maintain 3 participant serves as a The level participants. owns or and utility usually manages all the networkfacilitiesas well as the computerprocessing resources. As the level of involvement cost commitment,and increases, responsibility, and technical complexityalso inorganizational crease. The classification scheme serves as a useful tool for understandingthe multitudeof lOSs. Manyrelatedframeworkshave been proposed by researcherssuch as Bakos and Treacy and Konsynski(1982), Benjamin, (1986), Barrett et al. (1984), Johnston and Vitale (1988), and McFarlan and McKenney(1983), among others. The existence of various frameworksis useful forthe because managersmayfindopportunities strategic use of IST by using these frameworks as a guide. However,there is still a markedlack of specificfactorsthatorganizaof understanding tions must deal with in the process of achieving competitiveadvantages throughthe use of their IST.Also, the processes that allow a smooth in-

IST as a Competitive Weapon: The Literature

The potentialuse of ISTas a competitive weapon has been of enormousinterestto manyacademic since Porter's(1979) scholars and practitioners of workon industryanalysis and the formulation competitive strategies appeared. Bakos and Treacy (1986) reportthat more than 200 papers were publishedinthe area of ISTas a competitive shares weapon duringthe 1980s. This literature of two common characteristics:(1) proliferation and categorizing foridentifying "frameworks" opforthe strategicuse of IST(Bakosand portunities Ives and Learmonth, 1986; 1984) and (2) Treacy, descriptions of success stories using IST as a competitive weapon (Treacy, 1986). In the first characteristic,as is typical of a new abounds witha numfield of study, this literature and for identifying ber of descriptiveframeworks categorizing opportunities(Bakos and Treacy,

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Information Use of Hospital Systems Strategic

tegrationof technology into organizationsneed scrutiny. The extant frameworkswill be useful only after organizationssuccessfully deal with factors and thereby make their these important information systems readyto be used as a competitive weapon. The second chacteristicof the existing literature of successful ISTapplications is thatdescriptions to strategic areas have appeared as supporting The now evidence forthe proposedframeworks. classic examples of ISTas a competitiveweapon includethe computerizedreservationsystems of and UnitedAirlines-Sabre andApollo, American respectively-the orderentrysystem of American system of McKesHospital Supply,the distribution son, andthe Cash ManagementAccount?of MerrillLynch(Barrett,1986-87). examples, usefulinsightintothe By using real-life ISTtogain competitive of managing complexities researchersfreAlthough advantagesis provided. quently attempt to generalize their findings by developing frameworkson the basis of specific areoftenassailed anecdotes,such generalizations on the groundsthatmanysite-specificfactorsmay to the success of each case (Caleand contribute Curley,1987). Thus, more systematic investigations should be undertaken. Inshort,the extant literature attemptsto provide useful frameworks-supported by some anecto competitive dotes of successful ISTapplications poadvantages-that mayhelpmanagersidentify tentialareaswheretheycan use their lSTas a competitiveweapon. However,the issue of identificafactors that organizationsmust tion of important deal with in the process of achieving IST competitiveadvantages has received inadequateresearch attention. This article addresses these factors inthe context of the healthcare industry. Inorderto move beyond descriptiveframeworks models of the underlying and towardexplanatory phenomena (Bakos and Treacy, 1986), more facsystematic investigationslookingintocritical calledfor. torsforthe strategicuse of ISTareclearly

the use advantagesthrough achievingcompetitive of IST. Propositionsare then presented to encourage empiricalresearchthatexamines the efof the fect of these factors.The overallframework followingdiscussion is presented in Figure1. thatmanyof in Figure1 illustrates The framework the successful ISTapplicationshad theirorigins not in sophisticated decision support systems process(DSS),butinalreadyexistingtransaction reportingsysing systems (TPS) or information tems (IRS). As the figure shows, three factors influencethe developmentof HISas a competitive isweapon. Factor1 involvesovercomingpolitical sues to achieve integration. Political barriers issues as isolatedsystems that become significant the organizaoperate independentlythroughout the contion are broughttogether. In particular, flictbetweenthe inherentvalues of cliniciansand administratorsis a well-knownproblem in the healthcare context (Malvey,1981; Starr, 1982). The process of negotiationbetween the two primaryconstituencies-administrators and physicians-involved in healthcaredecision makingis inherentin this factor. Factor2 involvesan organization'sattemptto integrate independentTPS and IRS.The integration leads to significant structural change in processes, functions, and organizations. As these systems are developed, integrationof into ISTsucdependent TPS becomes important cess (Benjaminand Scott Morton,1988). Factor 3 depicts the importance of strategic use. Strategicapplicationand use of ISTshould take place after politicalbarriersbetween clinicians have been mitigatedand inand administrators Similarproblems have occurred. has tegration also been observed in other industriessuch as the conflict between manufacturingand engiet al., CAD/CAM (Benjamin, neeringin integrated 1984; Benjaminand Scott Morton,1988). Only after organizations successfully achieve the desired level of integration,and thereby make theirISTreadyto be used as a strategicweapon, can they take advantage of the existing framethe sequencing of the three facworks.Although tors may vary, the discussion that follows illusof the sequential natureof trates the importance these relationships. As productsof the factors identifiedin Figure 1, three propositionsare presented and then discussed specifically in the next three sections. Case examples are also presented to empirical-

ImportantFactors for the Strategic Use of IST

of successful ISTapBased on a re-examination this thathave appearedinthe literature, plications factorsthathealthcare section identifies important organizationsshould consider in the process of

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Information Use of Hospital Systems Strategic

Current Systems

Factor 1

Factor 2

Factor 3

Isolated TPS/IRS

Administrative Systems Clinical Systems Pharmacy System Medical Record System Materials Management System Patient Classification System Financial Management System Billing General Ledger Payroll

Administrators

--

Political Barriers in Achieving HIS Integration

IntegratioR of

I\

Strategic Use of Integrated TPS/IRS

Physicians

Competitive Advantages Increased Market Share Enhanced Customer Satisfaction High Entry Barriers Better Bargaining Position with Suppliers and Group Patients

Figure 1. Important Factors in the Development of Hospital Information Systems as a Competitive Weapon the political ly enhance the theoreticaldevelopmentof these complexitiesof the integrated system factorforthe strategic propositions. is, therefore,an important use of HIS.

Political barriers in achieving HIS integration

of the existing isolated systems may Integration not be an easy task because it cuts across politicalboundaries(Malvey,1981; Markusand Bj6rn-Andersen, 1987). The integration may lead to significant organizational changes inwork-flow, communication patterns,reporting relationships, and internalcontrol processes (Cash and Konthe integrated synski, 1985). Further, system may the balance of change poweramong unitswithin the organization. Inthe healthcareindustry, the political barrier between administrators and physiciansis particularbecause of the autonomous role of ly important physicians. It is only the physicianwho has the right to admit patients to the hospital and to choose and take responsibility fortheirmodes of treatment (Friedson, 1985). Furthermore,they have directaccess to the policy-making governing board, ratherthan having to go throughthe chief executive officer. Thus, physicians are in a strong economic bargaining position in the hospital, and the resulting politicalbarriermay be much largerin the healthcaresetting than in other industries(Malvey,1981). Understanding

In addressing politicalissues in the healthcare setting, Malvey(1981) argues that the development and use of integratedHISis troubledfrom the outset, particularly by the conflictbetweenthe inherentvalues of cliniciansand administrators. The changes made by hospitals in adjustingto the myriadof environmentalinfluences in the 1980s have been accompaniedby increasedtension between administrators and physicians (Starr,1982). As managementattemptsto usurp physicians' power and integrate them into the organizationaldecision-makingprocess, physicians have adamantlymaintainedthat much of and the information they collect is proprietary thereforeunavailable for inclusionin the development of institution-wideinformationsystems (McFarlanand McKenney,1983). Further,the development of IST in the contemposes a directthreat poraryhospitalenvironment to the physician's gatekeeper role.4Information technologyis a resourcemanypeople value, and
4

The term gatekeeper is used to define the physician's role whereby he/she is the one who determines the patient's eligibility for services and intensity of services as well as the patient's ability to leave the system without incurring financial penalties (Friedson, 1985; Starr, 1982; Stone, 1979).

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Information Use of Hospital Systems Strategic

it seems likelythatthe gatekeepers of ISTwould be able to extractrewardsfromthose individuals who depend on it (Pettigrew, 1972). Given the high involvementof MISdepartments in an organization'sworkflowand dependence on computing operations, the theory of strategic contingencies suggests that MIS departments are likelyto be powerful playersin organizational politics (Markus and Bj6rn-Anderson,1987). Thus, the physician and information specialist may become locked in a struggle for controlof the organization'sfuture. Although it appears that physicians have temperedtheirbeliefs in recent years as a result of the changing economic realitiesof healthcare delivery,a considerable amountof goal conflict continuesto persistin manyhealthcare organizations. As physicians attemptto understandthe changing environment,many of them see informationsystems as "control systems" whose sole and report on theirbehavior purposeis to monitor (McFarlanand McKenney,1983). This perception by physicians is contrary to Mintzberg's (1979)depictionof the professionalbureaucracy. over his own workmeans that the pro"Control fessional works relativelyindependentlyof his colleagues, butcloselywiththe clientshe serves" (p. 349). Thus, a dialogue should be established that fobetween physicians and administrators cuses on the differences between the sharingof and the use of ininformation (i.e., coordination) formation as a controldevice. An example of the forinformation systems to become a tool potential for reducing the political barrierbetween adand physicians is illustratedin the ministrators case example. following

privileges at the hospital. The growth of this strategy has forced the organizationto begin to the "outdevelop an integratedHIS. Currently, post" physicians are linked by computerto the main hospital/clinic,but can only process minor administrative details such as patientscheduling in the mainclinic.The hospitalhas begun to put medical records on computeras it begins to inbut tegrate different types of patientinformation, is somewhat constrainedby the cost of this process and the available hardwareto supportthis activity. The informationneeds of this rapidly growingorganizationas well as the pivotalrole of the medical staff in this particular setting present great potentialfor both the strategic use of the integratedHISand the reductionof the political barrier.This IST application offers great potential for reduction of the political barrier because the resultingsystem willattemptto infor decision makingthat tegrate the information is criticalfor physicians who are geographically separated from the hospital/clinic.Further,the communicationlinkage will allow the organizamore strategicallyas a tion to use information means to compete withother hospitalsthat continue to rely on traditionalphysician affiliations ratherthan this concept of employingphysicians in distant locations. ofthe Oneadministrator suggested the importance process bystating,"Thereisn'ta decision political in this organization that is made withoutthe supThe information of the medical staff. integraport tionandmarketing conceptshavea chancetowork hereonlyifthe medicalstaffcan see howitwillhelp them to deliverbetterpatientcare. There willbe some reluctanceto using computerizedmedical records,butwhenthe physicianssee the benefits it will work. In this environment,we have to be competitive." The importance of the medical staff in the development and applicationof the HIS is proposed as follows: Proposition 1: Forthe integration of HISto be successful, the conflict between physicians and administrators is an importantfactor that a hospital must effectively deal with. The use of this case is important because it sugsystem applicationis gests that an information plausible for reducing the political barrierbetween administrators and physicians.The system serves as a starting point for IST integration.

Case 1 This hospital is a 600-bed tertiarycare center locatedin a rural settinginthe East and is directly clinic. linkedwitha 400-physicianmulti-specialty In 1983 the clinic began a strategy of purchasing smallerphysicianpractices aroundthe state as a means of guaranteeing the strength of the networkand improving the hospital'socreferral cupancy rate,whichhad fallenbelow75 percent. Because the hospital is not located near an urban area, the strength of the referralnetworkis critical to organizational success. The physicians in each of these "outpost" clinics become full membersof the clinicand maintain fulladmitting

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Systems Strategic Use of HospitalInformation

Integrationof isolated TPS/IRS

Integrationof isolated TPS/IRS has been suggested in the management information systems (MIS)literatureas a criticalfactor for MISsuccess (Davis and Olson, 1985; Martin, 1983). and Scott Morton Amongothers, Benjamin (1988) list fourdifferentformsof integration: integration of multipleclasses of transactiondata, integration of multipleforms of data representation,inof group tegrationof knowledge,and integration communications. Differentforms of integration realized through improvedcommunicationand larger, more complete databases are often the bases for deriving strategic advantages (Benjamin and Scott Morton,1988). evidence in supportof the importance Empirical of integration can be foundin successful applications of ISTto strategicopportunities. Forexample, the MerrillLynch Cash Management Achas shatteredthe traditional bouncount? (CMA) daries between the banking and securities industries because it is a combinationof various financial services all rolled into one product. It would not have been feasible to implementthe withoutintegrating the charge cardsystem, CMA the insuredsavings account system, the money marketaccount system, and the brokerageservice system into an integrated information system. In other words, the integrationof multiple transaction processing systems makes it possible for users to access very large and rich databases. Anotherexample can be foundby examining the AmericanAirlinesreservationsystem, Sabre. Sabre, one of the most widelyknown examples of the strategic use of IST, is an integrated TPS/IRScoveringvariousairlinereservationsystems. Sabre has continually expanded, offeringtravel agents and corporatecustomers more integrated services that cover theater tickets,limousines,insurance,and a host of other travel-related services (Dock and Wetherbe, 1988). As a result, the airlines that initially developed online reservation systems shiftedthe balance of competition in their favor. In these cases, integrationof the firms'services was accompanied by integrationof the supportingIST (Keen, 1981). In the meantime, the current state of hospital information systems (HIS)is far from being the integratedsystem that has a full range of functionalityacross all applicationareas. Healthcare executives are becoming increasinglyfrustrated

withthe overwhelming of isolatedapproliferation plicationsystems and the independent departmentalpurchases of microcomputers throughout their organizations(Lemonand Crudele, 1987). This frustration intensifieswhen theirpersonnel from data varioussystems and attemptto gather turn the data into information that is useful for a numberof end-user information needs in the and patientcare areas, financial,administrative, as well as changes in governmentregulation and competitiveforces. As a result, users in healthcare organizationshave become accustomed to hearing,"Youcan'tget therefromhere";or "Yes we have the information in the organizationbut we cannot access it on this system"; or "I can get it for you but that would require me to downloadto hard copy and then manuallyreinput the data."5 The lack of integrationamong systems in the healthcareorganizationsis partlya resultof the way information systems managementand technology have evolved in the healthcare industry most sup(Lemonand Meier,1987). Historically, in of HIS the have been small pliers marketplace vendors who have gained a competitiveposition in the marketby selling only one type of application or system. Withvendors providing limitedofhad little choice but ferings,hospitaldepartments to concentrateon meeting theirown needs without regardto integratingother systems (Lemon and Crudele, 1987). As a result,the typicalhospitaltoday has fromthree to six differentsystem withvery limitedintegration configurations (Hoffman, 1986; Lemon and Crudele, 1987). Althoughthe development of an integratedHIS is the desired goal of many hospitalstoday, very few hospitals have reached this stage. The integrated system with a full range of functionality across all application areas is stillinthe veryearly developmentstages.6 One attemptto use an informationsystem to link different parts of the and integratedifferent databases is organization illustratedin the followingcase:

5 Thiscommentis reflective of descriptions of the state-of-the-

art of HIS by the ClOs of two majorteaching hospitals. of HIS is consistent with what Cook, et al. 6The integration level response to (1983)describeas an effectivemanagerial on hospitaldecison making.Furthe influenceof regulation foundation of the HISbecomes an important ther, integration on whichto base the integration of the hospital structure (Conrad, et al., 1988).

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Strategic Use of HospitalInformation Systems

Case 2 This organizationis a 500-bed teaching hospital located in the Midwest. The hospitalrecentlypurchased an organization-widecost accounting/ informationsystem. Priorto this decision, the hospitalbegan a six year process of tryingto integrate different aspects of theirinformation systems thatwere fragmentedthroughout the organization. The process began with the development of online patient registrationin 1982. During this period,moduleswere integrated together one by one and system interfaceswere acquired. The majorinterfacethat remainedwas the ability to easily merge clinicaland financialinformation across applicationareas. This activitywas originated by the hospital'sfiscalaffairsstaff.The system was purchased primarilybecause the market in which the hospital operates is very competitive, due in large part to a very high percentage of HMOenrollees in the local community. In this institution,cost containment is because of issue, primarily clearly an important competitive pressures. The organizationis attemptingto more accuratelypricetheirservices in the marketplaceand decide whetherto drop some services and add new ones. This organization is depicted witha strong politicalbarrier between physiciansand administrators to the extent that physicianswere not activelyconsultedin the system evaluation and selection processes. The director of informationsystems for the hospitaloffered his insightabout the whole process when he stated, "Eventhoughwe willhave the system in place in the near future,strategic informationis still not our goal, it is only a We need to continueto bringdata tobyproduct. getherand makethe databases moreuser friendly. Althoughthe medical staff is not completely behindus at this point,this is not surprising; they are interested in research. We need to improve communicationswiththe medical staff, and this will help to make the system more useable. At that pointwe can worrymore aboutthe strategic applications." This case is therefore indicativeof the need to first combine existing TPS/IRS before embarking upon strategic applications. Further, the almost eight-yearprocess of system implementationsuggested the need for a systems applicationplanthatbuildsuponthe integration process. the medicalstaffwas notified about IST Although decisions and the schedule for implementation,

many membersof the medicalstaff stillview IST as another way for the administration to both monitorthem and controltheir behavior.Inthis organization, developmentof the information system was viewed by administrators as a critical issue in makingthe organizationmore competitive. Unfortunately,this strategy has led to a strengtheningof the politicalbarrierin the short run as physicians await IST benefits. This case lends supportto the argumentthatthe of HISfactorshelps to build sequentialadaptation a foundation for eventualsystem success. Inthis of TPS/IRSinterrelationprocess, the foundation ships throughoutthe organizationhelps to form this base. The developmentof these linkageshas been importantfor system development in the morerecentphase. The importance of integrating the isolatedTPS/IRSintoa strategicHISapplication is proposed as follows: Proposition 2: Integrationof isolated TPS/IRS throughout the organization is an important factor in the strategic use of healthcare information systems. Case 2 offers important insightintothe development of this proposition,because unlikeCase 1, this hospital has begun to integratetheir many databases in bothformand substance. The size and type of organizationas well as the competitive natureof its marketplace are contributing factors in the orientation behindthe strategicdevelopment of information technology in this organization. Case 2 is particularly because important it illustrateshow one hospitalhas taken existing TPS and attemptedto integratethem throughthe acquisition of a focal system. Yet it should be pointedout that this process took place in large partaroundthe politicalbarrier,and hence, the ability to use the system strategically is still uncertain.

Strategic use of integrated TPS/IRS

Inthe last few years, much emphasis has been put on DSS, whichsupportsthe process of making decisions (Davis and Olson, 1985). Further, the phrase, "strategic use of IST," which has been used to describethe ISTsuccess in achieving advantagesovercompetitors (e.g., see Bakos and Treacy(1986), Benjamin,et al. (1984), Senn connotationthat firms (1987))carriesthe implicit mighthave achieved competitiveadvantages by

MIS Quarterly/June 1990

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Information Use of Hospital Systems Strategic

fromtheirDSS to receivingstrategic information supportlong-rangestrategicplanning.However, a strategy is the way in which an organization endeavors to differentiate itself from its competitors,using its relativecorporatestrengths to better meet customer needs (Ohmae, 1982). A is strategicif itchanges the system or application forces inthe firm with a competitive operates way environment (Senn, 1987).Thus, it is conceivable thatsimpleTPS or IRScan change the way a firm competes if the firmapplies its TPS/IRSto capture strategic opportunities. The distinctionbetween DSS and TPS/IRS has significantimplicationsfor practicingmanagers because DSS is fundamentallydifferent from TPS/IRSin many aspects; system development vs. system develprocedures(iterative/adaptive opment life cycle), system contents (decision focus vs. data focus), system management (deaccision-making supportvs. routineoperational etc. tivities), A close examinationof the successful applicareveals that tions frequently cited in the literature those firmsthat successfully gained competitive advantages did not accomplish this through sophisticated decision support systems (DSS), but ratherthroughthe applicationof their TPS/ IRS to areas that cope with competitiveforces. For example, American HospitalSupply (AHS) developed a transactionprocessing system, i.e., an order-entry distribution system, that directly links the majority of its customers to AHS computers. As well as providing the customerwithdirect access to the AHS order-distribution process, the system allows customers to performfunctions,such as inventory control,for themselves... [The system] simplifies ordering processes, reduces costs for both AHS and the customer, and allows AHS to develop and manage pricing incentives to the customer across all productlines. As a result, customer loyalty is high and AHS' market share has been increasing (Benjamin, et al. 1984, p. 5). McKesson's order-entry distribution system, called Economost,is similarin natureto the AHS system, which automaticallytakes orders from customers, processes them at a data center and dispatches the orders to McKesson's 50 warehouses. Another example can be found in the Cash ManagementAccount? (CMA)of Merrill

of charge Lynch&Co. The CMAis a combination card, money marketaccount,insuredsavings account, and brokerage service, all of which are examples of TPS/IRS.As a resultof majorreguthe CMA latorychanges in the bankingindustry, became the most significantfinancialproductin of integrated finanmanyyears. The introduction cial services by brokeragefirmschanged financial institutions and at the same time permanently immediatelypropelled Merrill Lynch & Co. into a leadershippositionin an industry they had been unable to enter (Senn, 1987). The above applicationsindicatethat those firms who gained competitive advantages did so throughthe applicationof their TPS/IRS.

Case 3 This organizationis a 900-bed teaching hospital area in the South, locatedin a majormetropolitan which has been characterizedas very competitive. Duringthe late 1970s and early 1980s, hospital admissions continued to decline. In 1987, the organization system developed an integrated linkingthe clinicalfacultyand communityphysicians. The hospitalloaned IBMPC compatibles to selected witha harddrive,modem,and printer the state. around The located system physicians contains a menu of services that the hospitalofon facultycredentialsand fers, plus information specialty areas, continuingeducation, and clinical trials.Inaddition,the communityphysicians can communicatewithboththe hospitaland the faculty throughthe use of electronic mail. The system was develpedby usinga TPS/IRSto build an application-initiated departby the marketing ment-to make the hospital more competitive. forthe developThissystem offersgreatpotential the state thatwould mentof a network throughout allowcommunityphysicians to check the conditions of patients they have referredelsewhere consultationthat can later and obtaininteractive be documented. This system was initiatedas a means to both address the issue of competition in the marketplace-by increasingpatientreferrals from communityphysicians-and improve the quality of informationfor medical decison making. This system was feasible in large part because the physicians (on the clinical faculty) were activelyinvolvedin its developmentand cooperated by providingand updatingthe necesthe system was accepted by sary data. Further,

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Information Use of Hospital Systems Strategic

the medical staff because of their involvement, and hence, the politicalbarrierwas reduced as the organizationbegan to improverelationships withoutlyingphysicians and contemplatedintegrating other types of information systems together. The directorof marketingoffered interestinginsight into the effect of the system development on hospitaldecision makingby stating, "Theadwas pretty leery about supporting ministration another programthat the medical staff wanted to spend money on, but the acceptance of the that it has received has system and the publicity to reduce the barrier between the adminhelped istrationand the medical staff." As a result, both the marketingorientationand inthis organization allowed physiciancooperation developmentto startwithFactor2 and then progress to Factor 3 (see Figure 1). The importance of understanding the role of TPS/IRS in achieving a competitiveadvantage is proposed as follows: Proposition 3: Healthcare organizations can achieve competitive advantages through the successful application of TPS/IRSto strategic areas. This propositionrepresents the productof HIS success. It is developed in orderto help understand why Propositions 1 and 2 are important. area for drawFurther,Proposition3 is a fruitful of the other industriesas upon experiences ing healthcare applicationsremain in their infancy.

forces in the Competitive healthcareindustry

Porter (1979) identifies five competitive forces that the natureand degree of competitionin an industry hinge upon:suppliers,customers,threat of new entrants,substituteproductsor services, and competitionamong currentcontestants. Apto the healthcare inplying Porter'sframework dustry,a model that depicts these relationships is developed. Inthis model, presented in Figure 2, five competitiveforces are identified.

Figure 2. Competitive Forces in the Healthcare Industry The five competitiveforces in the healthcareindustry are the bargaining power of group patients, the bargaining power of suppliers, the threatof substituteservices for hospitalmedical comcare, thirdpartypayers, and intra-industry petitorssuch as other hospitals and community physicians. Inthe healthcareindustry,a patientgroup such as a preferredproviderorganization(PPO)7can exert bargainingpower on hospitals by forcing down prices, demanding higherqualityor more service, and playing competitors against each other-all at the expense of the hospital'sfinan7A PPO is usuallya healthcarepurchaser,such as a union or large organization,who negotiates with a hosoital and medicalstaff for a lower price of services.

The Application of HIS to Strategic Initiatives

This section attempts to illustrate additional discussed above possibilitiesforthe propositions by showing how hospitals can achieve competitive advantages through the use of integrated TPS/IRS.Since a strategyis the way in whichan organizationcopes with competitiveforces, the identification of competitive forces in the heathcare industryshould precede the discussion of the strategic application of integrated TPS/IRS. Porter's (1979) frameworkis used to these competitiveforces and to examine identify the applicationof the integrated HIS.

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Information Use of Hospital Systems Strategic

Material cial viability. supplierssuch as American HospitalSupply(AHS)and McKessoncan exercise bargainingpower over hospitals by raising of purchasedgoods pricesor reducingthe quality and services. Powerful suppliers can thereby out of a hospital unable to squeeze profitabilty recover cost increases in its own prices due to the changing power of healthcare purchasers (Havinghurst,1986). Hospitals increasinglyfind themselves in competitionwith substitute services and regulation and Zajac,1985). (Shortell,et al., 1985; Kimberly Because governmentagencies often place ceilings on prices that a hospital can charge, substitute services such as nursing homes and home care the visitingnurses association's(VNA) programlimitthe potentialof a hospital.A more recentcompetitivephenomenonhas been the introductionof for-profit surgicenters (Kaluzny,et al., 1987; Shortell,1988), whichallowphysicians to offer services at a lowercost. the opportunity The lower cost structure results because the surgicenterdoes not have to subsidize the costly and complex proceduresthattake place in the hospital setting. Unless it can upgrade the qualityof the service it somehow, the hospitalwillconor differentiate tinue to show decreases in its occupancy level. It is manifest that the more attractivethe priceperformancetrade-offoffered by substitute services, the firmerthe lid placed on the industry's profitpotential(Porter, 1979). IST can be used as a means for mediating the conflicting demands of regulationand competition. Third-party payers such as Medicare,Medicaid, Blue Cross, and other privateinsurers can siginfluencethe hospital'sfinancialsituanificantly rateper episode (e.g., tion by enforcinga uniform diagnosis-relatedgroups), by puttinga cost ceiling per service, or by simplydelaying payments (Cook, et al., 1983; Eastaugh, 1987). Intraindustry competitors such as other hospitals, and health community physicians,8 maintenance organizations (HMOs)9can take formof maneuveringforposition:usthe familiar like tactics pricecompetition,new service ining troduction,and advertisement.
8 Although physiciansplaya pivotalrolein healthcaredelivery withinthe hospital,they have begun to play an active role in facilities. surgeryand treatment openingtheirown outpatient 9An HMO that negotiates a fixed pricewith is an organization the hospitaland physicianon a per-capitabasis.

Competitive advantagesthrough the use of integratedTPS/IRS

Having identifiedthe competitive forces in the healthcare industry,this section examines how an integratedHIScan be used to cope withthese competitiveforces. Amongothers, the most dramaticand potentially powerfuluse of ISTis intersystems (IOS)thattranscendcomorganizational pany boundaries (Cash and Konsynski, 1985; Johnstonand Vitale,1988).The potential impacts inof an IOSon inter-organizational relationships clude the change inthe balanceof powerbeween buyers and suppliers, exit and entry barriersto and the shiftin the competitiveposithe industry, tions of intra-industry Thus,this seccompetitors. tion utilizesan illustration of IOSthat involvesan integratedTPS/IRS as a component part. This case is adaptedfroman information systems plan for a universityhospital.The universityhospital its HIS. is in the earlydesign stage of integrating Case 4 This case involvesthe systems planof a 350-bed teachinghospitalin the East;the hospitalcurrently has an occupancy rate of about 85 percent. The hospital is particularlyinterested in IST developmentas it willbe increasing its capacity to approximately500 beds sometime during 1990. The currentsystem has two subsystems: centralized applicationsystems and individual departmentalsystems. Centralizedapplication systems consist of a patientdatabase (e.g., medical records, patientaccounting, clinicvisit information,etc.) and a hospitaloperationdatabase (e.g., third-partypayer information, referring information, etc.). physicians, payroll/personnel Departmental subsystems include radiology, pharmacy, pathology, materials management, laboratorymedicine, and clinical care systems. Inorderto maintain of individual departflexibility mental operations, each departmentis allowed to operateits own system. However,it is required that each departmentalsystem interface with centralizedapplication systems to achieve the integrityof the complete system. In other words, subsystems should be able to exchange information with each other withoutmakingany significant modifications such as writing major programs,re-inputting large volumes of data, or amounts of information. down-loadinglarge The schematic diagramof the integratedHIS is presented in Figure 3.

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Strategic Use of Hospital Information Systems

RADIOLOGY PHARMACY PATHOLOGY MANAGEMENT I MATERIALS rLABORATORY MEDICINE

CRITICAL CARE INTEGRATED HOSPITAL INFORMATION SYSTEM
UH MEDICAL STAFFDATA REFERRING PHYSICIANS NURSING CARE PLANS ACUITY
PHYSICIAN MICROCOMPUTERS

THIRD-PARTY PAYER INFORMATION

HOSPITAL PROFILE INFORMATION

PATIENT DATABASE
ORDER

INFORMATION ORDER INFORMATION PATENT DEMOGRAPHIt INFORMATION (SUBSET) RESULTS INFORMATION RESULTS INFORMATION PATIENT MEDICAL ACCOUNTING RECORDS PROFESSIONAL INFORMATION BILLING PAYROLL/ PERSONNEL INFORMATION PATIENT | CARE AND VISIT DOCUMENTATIONCLINIC NFORMATION ADIICENSUS UDGETD GENERAL ACCTG. ACCTG

AND PLANNING
, MARKETING MICROCOMPUTERS

CLINICAL DATABASE

DEPARTMENTAL MICROCOMPUTERS

SURGERY AND RESURCE SCHEDULES

RISK QAIUR MANAGEMENT INFDRMATIDN INFDRMATION

CASE MIX INFDRMATION

EIS/DSS MICROCOMPUTERS

f _ _
I EXTERNAL EXTERNAL I DATA BASES I *I I

f __
i

_ f --_
I I SEVERITY I

I I

COST AND COSTAND

QUALITY I DATA I

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ILLNESS

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Figure 3. An Integrated Hospital Information System While the system described above is a typical, but integrated,TPS/IRS,the system can be effectively used to cope withcompetitiveforces in Forexample,the system the healthcareindustry. could linkcommunityphysicians' computers to the hospital's computers. If community physicians do not have theirown computers,the hospital can providethem with its terminalsas the hospitaldid in Case 3. Using this networkor the terminalsprovidedby the hospital,the community physicianscan have access to the information that resides in the integratedHIS.Forexampte, admittheir the community physicianscan directly patients from their offices by checking the avail.abilityof beds, lab schedules, and physicians in the hospital.The communityphysicians might also receive the laboratorytest results faster,whichleads to moretimelydiagnoses and better patientcare. These transactionsbecome feasible only throughthe integrationof administrativesystems (e.g., admission/dischargesystem and billing system)and clinicalsystems (e.g., laboratorysystem, physician schedule system, and medical recordsystem). As a result, if communityphysiciansrefermore patientsto the hospital, the hospital's marketshare will increase. As multi-institutional hospitals become more commonplace, this applicationcan be pivotalto survivalas the dominance of the organizational independent,single-facility hospitalcontinuesto be eroded rapidly (Conrad,et al., 1988; Shortell, 1988). Forthe hospital,the expected strategic benefits of this system include: (1) high switching costs incurred by community physicianswhen they refer their patients to other hospitals;(2) an effective barrierto entry because of capital requirements to invest in computer systems; (3) enhanced patientsatisfaction because better services are providedin admissionand clinicalcare; and (4) healthcare service differentiation as a defensive weapon against substitute services. An extension of the HIS described in case 4 is to connect the hospital'scomputerto third-party payers' computers.10The incentives for the force third-party payers(an important competitive in the healthcareindustry) to connect theircomputersto the hospital'scomputerwouldbe to cut
10Medicare has already implemented a trial system to facilitate and monitor beneficiary drug use from pharmacies (e.g., see Tolchin, M., "System to Track Medicare Drugs," The New York Times, Wednesday, July 13, 1988, p. 1).

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Information Use of Hospital Systems Strategic

down their own staff level by reducingthe data entrywork,to reduce errorrates in data entryby eliminatingcertainsteps in inputprocedures,to the patientthroughout the stay constantlymonitor to see if a cost ceiling on the stay is reached, to flow, and most imporspeed up the information tantlyto put themselves in a favorable position when negotiating with the hospital. In order to providethese incentivesto third-party payers, all the charges related to the patient's stay in the hospital should be integrated as they occur, which requiresthe integration of varioustransaction processing systems withinthe HIS. Networkingwith third-party payers' computers provides enormous strategic benefits for the hospital. Firstof all, the hospital can speed up the paymentprocess by receivingprogress payments (i.e., payments of costs incurredto date before the patient is discharged) fromthe thirdits financialsituapartypayer,therebyimproving tion. Also, the hospital can effectively handle a when pre-admissionreview process. Currently, a patient is admitted, the hospital admission clerks determine if the admission diagnosis is covered in the patient'spolicy,in orderto ensure that third-party payers will pay.11This could be done throughthe use of the hospital'scomputer networked withthe third-party payer'scomputers. The networksystem connecting the hospital's computer to community physicians' and thirdpartypayers' computers is not a highlysophisticated decision supportsystem, butsimplyan apof TPS/IRSthatallowscompatibility with plication a competitive force (Proposition3). In order to achieve the strategic benefits fromthe system, however, it would be necessary for the hospital to integratemedicalrecords,patientbilling, thirdand referring partypayers,laboratory, physicians' subsystems (Proposition2). Meanwhile,this integration is feasible only when the hospital medical staff cooperates by participating in the the necessary system development,by providing data, and by using the system (Proposition1).

The precedingdiscussion identifiedmanyof the successful ISTapplicationsas having had their origins not in sophisticated DSS, but in already existing tactical systems. As these systems are developed, integrationbecomes a criticalfactor in IST success. Althoughthe hospital industryhas made rapid progress in IST development, the systems currentlyavailabletend to be quite isolated and independent. HISdevelopmenthas been drivenin large part by environmental influences, and hence, there has been no coherentpolicyfor IST applicationin most organizations.The problems of isolationare exacerbated in the healthcareindustry due to the politicalconflict inherent beand clinicians. Integration tween administrators of independentHISmust encompass morethan a mere merger of the myriadof administrative of the systems, due to the uniquecharacteristics shared governance structurein hospitals. Manyof the argumentsdeveloped in this article in general, are also appropriate fororganizations since the propositionsare developed from the analysis of fieldexperiences in the healthcareindustry as well as other industryexamples that have appeared in the literature. Further, political conflictamong variousgroups is not uncommon in other organizations. for future research can be derived Implications from the above arguments. First, empiricalinvestigations that examine the propositions developed in this articleare needed. Whileempiricalevidence in supportof the propositionsis sought fromwidelycited cases of successful IST applications, more systematic investigations-which include both cross sectional study and detailed field examinations-are also clearly needed. Second, futureresearch is necessary in strategy to investigate the role of information in the adaptation developmentand organizational healthcaresector. Althoughthe research in this of physicians area has recognizedthe importance in the developmentof organizational strategies, it has ignored the role of physicians in helping to developthe integrated HISnecessary to operationalize these plans. Third, this article has between physicians arguedthat politicalbarriers and administrators may be a significantproblem hindering the integration of existing isolated systems. Several research questions can be raised to address this issue: (1) Howcan healthcare organizationshandle the conflict between

Implications and Conclusions

This article has examined the issue of IST as a competitiveweapon in the healthcare industry.
11Atthe presenttimethis process is bothcostly and time consuming to payers and providersalike.

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Use of Hospital Information Systems Strategic

to achieve HISinphysiciansand administrators in any wayto mitiHIS be used Can tegration?(2) gate the conflict between the two parties? and (3) What implicationsdoes the politicalbarrier have on organizational powerstructuresand ininto the HIS? tegrating physician information Some implicationsfor practicingmanagers can also be derived fromthe above analyses. First, the complexityof the technical and politicalenaroundthe integratedinformation vironment systems suggests that planningis vitalto success. Ininformation systems planning,it is considered that the organization'sstrategic plan important be the basis forthe MISstrategicplan(Davisand Olson, 1985). Second, this articlepointsout that integrationof the existing isolated systems may not be an easy task because it cuts across political boundaries. The integrated system may change the balance of power among business units as its shape is influenced largely by organizational politics.Oftenthese problemscan be solved only when top management shows clear supportforthe overallinformation systems plan(Martin, 1983).Thus, top managementmust provide sufficient support to arbitratepolitical issues surrounding the integration of the independent systems. Third,user participation, including physicians, in the developmentand applications of ISTforstrategicadvantagesis vitalto success. Ives and Olson (1984) summarize that user involvement in MIS improves the chance of MIS success by providingmore accurate user informationneeds, by improving user understanding of the system, by leading to system ownership users to the system. by users, and by committing Thus, practicingmanagers should tryto include end users in MISprojectsto enhance the chance of MISsuccess.

References
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Acknowledgements
The authorswouldliketo thankboththe Department of Accounting & MIS and the College of Business Administration at Penn State forfinancial supportof this projectwhile they were both on the faculty at Penn State. Criticalinsight for this paper was received from BarryCushing, MarkDirsmith,Uma Umanath,members of the Penn State Healthcare Roundtable, and participants in the MISresearch seminar series at Penn State.

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Use of Hospital Information Systems Strategic

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Use of Hospital Information Strategic Systems

About the Authors

K. Kyu Kim is an assistant professor of MISat In-haUniversity in Inchon,Korea.He receivedhis B.A. in business administration from Seoul National Universityand both an M.B.A.and Ph.D. degree fromthe Universityof Utah. His current researchinterestsare in MISorganizational strucMISeffectiveness,and ture, MISimplementation, strategicuse of MIS.He has publishedin TheAcand Management, countingReview, Information and Journal of Information Systems. Jeffrey E. Michelman is an assistant professor

of accounting at the Universityof NorthFlorida in Jacksonville, Florida. He received his B.S. degree from the Universityof Delaware in accountingand economics, his M.H.A. degree from in St. Louis,and both an WashingtonUniversity M.B.A.and Ph.D. degree in business from the Universityof Wisconsin-Madison.He has publishedseveral articleson end stage renaldisease in the AmericanJournalof KidneyDiseases. His currentresearch interests includethe roleof accounting information in healthcare decisionmakingprocesses and the strategic use of information systems in the healthcare setting.

MIS Quarterly/June1990 215

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