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DIGITIZATION SCOPE AND EXPERIENCE: THE IMPACTS OF IT ON PERFORMANCE IN HEALTHCARE ORGANIZATION

Pankaj Setia (setia@bus.msu.edu) Information Technology Management Eli Broad College of Management Michigan State University And Monika Setia, Ranjani Krishnan and V. Sambamurthy

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ABSTRACT Advances in the use of information technologies (IT) have led to the creation of digitized activity systems in organizations. Though previous research has assessed the value impacts of specific technologies or overall IT investments, we propose to examine how patterns in the use of technologies impact performance outcomes. Specifically, we examine how the degree to which information technologies is used within key activity systems creates value in the clinical and business systems in the healthcare industry. We offer two constructs to capture the degree of IT use: digitization scope, which refers to the number of technologies applied toward the digitization of activity systems, and digitization experience, which refers to the amount of experience with using information technologies within the activity systems. We propose and test hypotheses about the impacts of digitization scope and experience on performance across the clinical and business activity systems in hospitals. Utilizing archival data on 292 hospitals in California, our results demonstrate how the use of IT can have significantly distinct effects on performance in the clinical and business activities in hospitals. More importantly, our research points to how constructs related to the use of IT can explain distinct pathways in the impacts of IT on firm performance, particularly in the healthcare sector.

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

INTRODUCTION Though prior research suggests that information technology (IT) can enhance operational and financial performance in firms, the dynamics of these impacts is more complex than was initially perceived (Barua and Mukhopadhayay, 2000; Tanriverdi, 2006). Recent research has utilized the theoretical lens of complementarities as way of explaining how and why firms could utilize information technologies in shaping superior performance (Sambamurthy et al., 2003; Barua and Mukhopadhyay, 2000). Many empirical studies have examined complementary effects as the integration of IT applications with specific organizational processes (Pavlou and Sawy, 2006, Rai et al., 2006, Banker et al., 2006, Ray et al., 2004). Other research has studied complementarities at the level of the enterprise (Aral and Weill, 2007). However,

complementarities could also be viewed in terms of the integration of information technologies within a cumulative set of business processes, which are referred to as activity systems (Porter, 2001). Most contemporary firms seek to digitize entire activity systems, spanning customer relationships, operations, financial management, and human resource management (Kalakota and Robinson, 2003) through a portfolio of information technologies. Therefore, the performance effects of IT should also be evaluated not just within specific business processes, but also in the context of entire activity systems. In their seminal analysis, studying the shift from mass

manufacturing to flexible manufacturing systems, Milgrom and Roberts (1990) argue that complementarities are also generated in firms due to numerous interactions between multiple factors. They state, we use the term complements not only in traditional sense of a relation between pairs of inputs, but also in a broader sense as a relation among groups of activities. The defining characteristic of these groups of complements is that if the levels of any subset of the activities are increased, then the marginal return to increases in any or all of the remaining activities rises (p. 514).

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Consistent with their line of analysis, our research examines the performance impacts of complementarities between portfolios of information technologies (i.e., a group of inter-related digitized business processes) in firms. Researchers also acknowledge that the nature and level of use of information technologies plays a key role in the extent to which their impacts on performance are captured (Devaraj and Kohli, 2003). The digitization of activity systems refers to the level of use of information technologies within the activity system. Firms encounter two challenges in digitizing their activity systems. First, a wide range of information technologies are available for digitization and firms must explore which of these technologies are appropriate for their digitization efforts. Digitization scope is defined as the variety of information technologies used in the digitization of activity systems. Second, firms must also develop deep experience with the specific

technologies so that they can implement the needed complementary systems (e.g., business process adaptations, rewards and incentives) and assimilate the technologies into their activity systems. Digitization experience is defined as the amount of experience with using information technologies within the activity systems. Our research examines the extent to which digitization scope and experience influence the performance benefits gained from the use of information technologies. Our research is specifically conducted in the context of the healthcare sector. As a dominant sector of the economy, the healthcare industry faces major institutional and regulatory pressures, such as managed care, increasing numbers of uninsured patients, and continual pressures to reduce costs and enhance the safety and quality of care. Information technologies are viewed as one of the levers through which hospitals could enhance their financial and operational viability. In fact, on April 27, 2004, President Bush signed an Executive Order establishing the position of

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

National Coordinator for Health Information Technology, charged with the responsibility for development, maintenance, and oversight of a strategic plan for nationwide adoption of health information technologies. Research has found that investments in information technology are associated with increased financial performance (Menon, Lee, and Eldenburg, 2000) and that hospitals are investing considerably on business IT systems such as patient billing and credit and collection systems to help enhance their revenues (Eldenburg and Krishnan, 2007). Other

research has focused on the impacts of two different types of information technologies in hospitals: business and clinical technologies (Cezar, Menon, Yaylacicegi, 2007). Clinical IT systems such as cardiology information systems, pharmacy management systems, and laboratory information systems are valuable tools that assist physicians in patient treatment. Physicians view clinical IT systems as critical factors that drive better quality health outcomes (Robinson and Luft, 1988). Business IT systems such as costing systems, patient billing, nursing staff scheduling, and credit collections are critical tools that are used by hospital managers to ensure smooth administration and drive down costs, while enhancing customer satisfaction with services. Thus, clinical and business activities represent two distinct activity systems in

healthcare organizations. Our research examines the impacts of digitization scope and experience within the business and clinical activity systems on the performance of hospitals. We use data from 292 California hospitals to reveal that digitization scope alone is not sufficient to increase hospital performance in their business and clinical activity systems. However, digitization experience shows

significant positive performance effects for business activity systems, whereas both digitization scope and experience together impact the performance of clinical activity systems.

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

The rest of the paper is organized as follows. The next section discusses the theoretical development and research hypotheses. Next, we describe our data, research methods, and analyses. Finally, we present our results and discuss their implications.

THEORETICAL BACKGROUND AND RESEARCH MODEL Organization theory conceptualizes the firm as a set of adaptive routines that evolve with the exploration of new possibilities and exploitation of old certainties (Schumpeter, 1934; March, 1991; Eisenhardt and Martin, 2000). According to March (1991), organizational exploration is associated with experimentation and variation, whereas exploitation is related with refinement, production, efficiency, implementation, and execution. Although they have very different impacts on performance, exploration and exploitation are viewed as complementary, i.e., in the absence of one, the other has no effect (or might even have adverse effects). For example, exclusive emphasis on exploitation, due to inherent short-term improvements and the self-reinforcing nature of involved learning, often leads the organization to ignore newer innovations (Leonard-Burton, 1995; March, 1991). As a consequence, the firm is trapped in a sub-optimal local maximization strategy and loses its ability to find, evaluate, adopt, and implement newer innovations (Rosenkopf and Nerkar, 2001). This hurts the firms ability to thrive in a changing business and technological environment which offers opportunities for newer adaptations and also threatens the basis for past performance (DAveni, 1994). Further, a limited and exclusive focus on the exploitation of existing technologies creates an organizational myopia that limits competencies (Levitt and March, 1988). The concept of exploration and exploitation has been widely tested in the fields of organizational theory (Holmqvist, 2004; He

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

and Wong, 2004), strategy (Winter and Szulanski, 2001), and managerial economics (Ghemawat and Ricart i Costa, 1993).

Digitization of Activity Systems As defined earlier, digitization is the level of use of information technologies within the activity system. We focus on two dimensions of digitization, viz., digitization scope and

experience. Digitization scope refers to the exploration and adoption of a variety of information technology solutions for the processes within an activity system. Digitization scope varies according to the ongoing organizational actions in exploring the type of information technology solutions that might be appropriate for digitizing activity systems, examining their potential relevance and value, and adopting them for use within the activity systems. Information

technology solutions are developed both by the information systems departments as well as vendors. As healthcare firms look for information technologies to enhance their performance, a wide range of information technology solutions are becoming available for digitizing specific processes and activity systems. Digitization scope is the number of information technology solutions adopted within an activity system. The second dimension of digitization is digitization experience. Prior research establishes that the mere adoption of information systems is not enough (Fichman and Kemerer, 1999). The adopting organizations must muster knowledge about which specific features of the technological solution are appropriate (DeSanctis and Poole, 1994), how to mutually adapt the technological solution and the activity system (Leonard-Barton, 1995), and how to trigger the needed institutional efforts to routinize the use of the technological solution within the activity system (Jasperson, Carter, and Zmud, 2005). All of these organizational efforts to exploit the

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

capabilities of the technological solution require time and experience. Therefore, digitization experience is defined as the amount of experience after the adoption of technology solutions within the activity system. The Effects of Digitization Scope Two countervailing arguments are evident about how digitization scope could impact performance. On one hand, the classical arguments about the benefits of information

technologies suggest that the exploration and adoption of a larger number of information technology solutions will enhance performance because of their positive impacts on transaction processing efficiency, decision-making speed and accuracy and organizational intelligence (Huber, 1990). The ability of IT to enhance the reach and range of firms processes helps organizations coordinate work across organizational boundaries at a much lower cost (Keen, 1991). Further, information technologies are associated with lower internal and external

coordination costs, and hence digitization should lead to overall lower costs of operations (Gurbaxani and Whang, 1991). Within the clinical activity systems, greater digitization scope implies that the hospital has adopted a larger number of clinical applications that cumulatively would enhance the ability to gather, store, and disseminate clinical information across doctors and treatment facilities. In addition, the adoption of more clinical applications could also

improve decision-making support by doctors (e.g., adverse medical interactions, prior treatment history, etc.). Within the business activity system, greater digitization scope implies that

technological solutions to support a wide administrative and patient relationship management activities (e.g., patient registration, billing, insurance claims) are available. They would benefit improved efficiency and speed of business activity systems.

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

However, the countervailing argument is that digitization scope simply captures the initial adoption of a large number of information technology solutions. Regardless of the potential benefits of the technological solutions, their benefits and impacts are not automatic. Prior research on the assimilation gap demonstrates that there is a significant time lag between the initial adoption and eventual use of information technologies in the firms activities (Cooper and Zmud, 1990; Fichman and Kemerer, 1999). Thus, while firms are likely to gain from the adoption of information technologies, mere adoption does not lead to the realization of their superior capabilities. Exploration, due to its experimental nature, is known to be uncertain, unless it is followed with an elongated period of exploitation. Emphasizing the opinion, March (1991) points out returns from exploration are systematically less certain, more remote in time, and organizationally more distant from the locus of action and adaptation (p. 73). In addition, the introduction of new innovations is often disruptive and changes existing work practices. In the case of a failure to assimilate the innovation, the organization is usually worse off as it might lose its existing set of successful routines (Mitchell and Singh, 1993). Previously, this has been documented in the health care organizations for the implementation of enterprise resource planning (ERP) systems (Dryden, 1998). Therefore, greater experimentation and

exploration with new information systems in healthcare organizations may not be sufficient to warrant performance improvements. Taking these arguments into perspective, we propose that digitization scope within the business or clinical activity systems will not have a significant link with hospital performance. Therefore, we do not offer an explicit hypothesis.

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

The Effects of Digitization Experience Digitization experience captures the amount of time that a firm has been using any information technology solution within its activity systems. Prior research has demonstrated that at least three enabling factors are required in order to enhance the assimilation and use of any information technology. First, depending upon the nature of the technological solution, users must make sense of its features and how to apply it in the context of their work (DeSanctis and Poole, 1994). Users experience significant knowledge barriers in making sense of the

technology and learning how to apply it effectively. With time and experience, they are able to learn about the features and the effective ways of using them. Second, organizations should enable assimilation by providing resources in the form of training, management support, or rewards and incentives. Though these resources are vital, they do not guarantee high levels of assimilation and use (Orlikowski, et al., 1995). In fact, they motivate users to invest their time and attention toward making sense of the technology and discovering how to use it effectively. Therefore, even in the presence of the enabling resources, users need time to develop the needed experience and competence with the technology solutions. Finally, the effective use of the technology requires mutual adaptations to the technology features and the work processes to which it is being applied (Leonard-Barton, 1995). Through a recursive process, organizations and users discover how to fit the features of the technology to the adapted tasks and activities so that the technology features are being effectively used. As more time elapses, there is a higher probability for the mutual adaptation to occur. Purvis, Sambamurthy, and Zmud (1999) found that greater time since adoption enhances the organizational assimilation and use of information technologies. Devaraj and Kohli (2003) demonstrated that higher levels of

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

assimilation and use are key to the performance impacts of information technologies. Thus, digitization experience should exhibit significant effects on performance and we propose that: H1a: Higher levels of digitization experience in the business activity systems will be significantly associated with the financial performance of hospitals. H1b: Higher levels of digitization experience in the clinical activity systems will be significantly associated with the financial performance of hospitals. Further, we expect that the impacts of digitization experience on performance would vary between the clinical and business activity systems in hospitals. The nature of clinical and business activity systems is widely different. Business activity systems tend to be less complex and more routinized than clinical activity systems. Clinical activity systems refer to the activities of doctors and nurses in the delivery of medical care. Depending on the nature of the patient care, different tasks and processes might be invoked in each instance. Many of the activities might be time sensitive and require quick improvisations, or decisions by the doctors and nurses. The various sub-processes related to these activities are often interdependent. The complex clinical activity systems involve coordination across a wider range of processes and hence there might be limits as to how much digitization experience alone can assist in realizing superior performance. A well coordinated set of digitized processes would be sine-quo-non for the realizing performance effects for these complex tasks. In contrast, business activity systems involve well defined routines that are invoked most of the time in the same way for task performance (e.g., patient registration, billing, insurance claims, etc.). Thus, digitization experience alone can enhance the speed, efficiency and cost effectiveness of the performance of business activities far more than the performance of clinical activities which require inputs from a wide range of processes.

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Complementary Effects of Digitization Scope and Experience Exploration and exploitation are interactive in nature, with one supporting the other (March, 1991). While exploration helps firms to enhance the range of options available, exploitation helps them to develop the deep expertise and experience in leveraging the performance benefits of each option. In the healthcare system, exploration enhances the scope of technologies being used and experience enhances their assimilation and coordination across a set of processes in the activity system. Extended digitization scope (in the absence of digitization experience) leads to the adoption of disjoint technologies with little assimilation in work processes. On the other hand, digitization experience (in the absence of wide digitization scope) reinforces a set of past behaviors even when they may not be apt in the current environment. As previously found, such lock in through learning leads the firm to be caught in a competency trap whereby all its efforts are constrained by the focus on the existing process (Levitt and March, 1988; Arthur, 1989). Thus, due to focus on exploitation or exploration alone, the hospitals existing processes may become old, expensive, and unfit to react to newer opportunities and challenges. Together, however, exploration and exploitation are synergistic and mutually reinforcing. As new information technology solutions emerge, exploration enhances the adoption of a wider range of promising solutions. However, since the processes within an activity system are

interlinked, digitization efforts must go beyond the individual process. The development of a digitized activity system with well coordinated processes requires both a wide range of technologies and an extended period to assimilate these technologies into work processes, and synchronize them with each other. This well coordinated activity system is essential to facilitate development of superior work routines that enhance the performance of healthcare professionals. As a result, we argue that digitization scope and digitization experience together complement

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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

each other in enhancing firm performance, and propose that these complementarities within the business and clinical activity systems will enhance hospital performance: H2a: Complementarities between digitization scope and experience within business activity systems will be associated with a positive effect on financial performance of hospitals. H2b: Complementarities between digitization scope and experience within clinical activity systems will be associated with a positive effect on the financial performance of hospitals. However, we also expect that the strength of the links between complementarities and performance will be different between the clinical and business activity systems. Since they are more complex, clinical activity systems are composed of a larger number of specific and interdependent tasks and processes (for e.g., intensive care, radiology, medication management, operating room, and laboratory). The greater interdependence is compounded by the fact that the clinical professionals often work in compressed time frames. Therefore, coordination among the digitized processes is vital. In other words, extended digitization scope will be a more vital complement to experience in the case of clinical systems compared with business systems. If a hospital develops digitization experience with a limited number of technology solutions, then the other processes within the clinical activity system that are not well digitized could impair the effectiveness of the digitized processes, because of the high levels of interdependence (Thompson 1967). For example, if laboratory and radiology processes are not as well digitized and assimilated with the operating room, the effectiveness of digitizing the operating room could be impaired. The simpler activities in the business systems call for lesser coordination. Thus, complementarities between digitization scope and digitization experience will have an ever greater effect in case of clinical activity systems. Beyond our hypothesized effects (H2a and H2b), we propose that links between complementarities and performance will be stronger in the case of clinical activity systems than business activity systems.

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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

DATA AND METHODS The data for the research was collected from two different sources HIMSS Analytics and the Healthcare Quality and Analysis Division of California Office of Statewide Health Planning and Development (OSHPD). HIMSS collects data on information technology usage via a survey of hospitals and maintains the data for 27,000 care delivery organizations (CDOs) including 3,989 hospitals through the U.S (Housman et al., 2007; Angst et al., 2007). They group data into two categories of technologies according to the activity system to which they are applied. Forty technologies are categorized as business technologies, and forty eight applications are characterized as belonging to clinical activities (see table 1 for the details of these technologies). -------------------------------------------Insert Table 1 about here -------------------------------------------To avoid common method bias, data on financial performance of hospitals is obtained from a different source - Healthcare Quality and Analysis Division of California Office of Statewide Health Planning and Development (OSHPD). All acute care hospitals licensed by the State of California are required to submit their annual financial reports to the OSHPD. These reports are audited before generating the annual dataset. Besides financial information, OSHPD also reports other data including information on ownership, size, and type of facility that is used in this research. Hospital Medicare id was used to merge the two databases together. Our final merged sample consists of 292 observations for the year 2004.

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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Operationalization Dependent Variable. The hospital performance measure used in this research is net income per patient day in hospitals. Due to the unique characteristic of healthcare, sales growth and market share variables might not be appropriate for the study due to the geographic location and a lack of profit focus that is a characteristic of a large number of hospital organizations. Further, these variables only capture top line performance. Net income (NI) includes both the top line and bottom line performance and hence was used to assess the overall value (Vh) for the hospital. Further, the ratio of net income to patient days is used to remove any bias due to the number of patients being managed by the hospital. Independent Variables. Digitization scope and digitization experience were operationalized through HIMSS data on the number of technological solutions adopted and used by each hospital and number of years of experience with each of these solutions. The HIMSS database lists a variety of tasks and processes within the business and clinical activity systems and details a list of technological solutions for each process within those activity systems (see Table 1). Further, for each of the hospitals, the database lists the specific technology solutions that they were using and the year when that solution was initially adopted. We used the count of these technology solutions as a measure of digitization scope within each activity system. Further, on the basis of the year of adoption, we computed digitization experience as the number of years of use of each solution till 2004. Computation of Digitization Scope: If kih (0,1) indicates whether the information

technology i was adopted by the activity system in the hospital h, then digitization scope is measured as the ratio:

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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Exh =

i =1

kih

( 1/N . (
N M h =1 i =1

kih )

) where N represents the total number of

hospitals in the sample, and M represents the total population of information technologies available for the activity system . Since the information technologies include a wide range of features and functionalities coded into them, Exh measures the extent to which a particular hospital has explored its technology options to digitize work processes, relative to other hospitals. Computation of Digitization Experience: Digitization experience is defined as
M

Eph =

i =1

Yih. kih

( 1/N . (
N M h =1 i =1

Yih.kih)

Where Yih represents the experience, or the number of years that a hospital h has used the information technology i in its activity system . Eph measures the overall experience of the activity system compared to the average years of experience of an activity system across all hospitals. Complementarities (h) Computation: Complementarities are measured as the interaction of Exh and Ep i.e.

i =1

kih. Yih.kih
i =1

) ( 1/ N .(
N M
2

Yih.kih)

) ( (
N M h =1 i =1

kih)

).

h =1

i =1

The alternate specification involves the assessment of an inverted U-curve (Gupta et al. 2006). However, that requires digitization scope and digitization experience to be the two ends of a continuum. Since the two are proposed to be orthogonal (and not continuous) dimensions, interaction is the valid operationalization to assess the complementarities between them (Gupta et al. 2006).

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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Eighty percent of the hospitals in our sample have more than one year of experience, 50% have more than 4 years of experience, and around 20% of the hospitals have more than 8 years of experience with business information systems. For the clinical information systems, more than half of the hospitals have between 1-1/2 years and 3 years of digitization experience. The average size of the hospital measured as the mean number of beds staffed is 196. A majority of hospitals (91%) are general hospitals with the remaining 9% being childrens, psychiatric, or other specialty types. Sixty one percent of the hospitals are non-governmental not-for-profit and the rest 39% are either owned by investors, city/county, or district. The descriptive statistics of all variables used in the study are reported in table 2. -------------------------------------------Insert Table 2 about here -------------------------------------------Control Variables Since our focus in this research is to analyze the financial performance of hospitals, we control for other healthcare related factors that might impact performance. Past research has found that a hospitals financial performance is likely to be influenced by size, type, and ownership. The number of staffed beds was thus used as measure to control for the size. A dummy variable was used to control for the type of hospital, which took the value of 1 if the hospital was a specialty hospital and zero otherwise. We used three dummy variables to control for the three ownership types - government, non-profit and for profit. The government dummy took the value of 1 if the hospital was a government hospital and zero otherwise. The nonprofit and for-profit dummies were coded in a similar manner. We dropped the government dummy from the empirical modes to prevent singularity problems. In addition, we also controlled for product mix by including the proportion of revenue from Medicare patients and Medicaid patients. We controlled for asset intensity by including the ratio of patient revenue to total assets

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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

as a control. Because the regulatory and competitive environment faced by hospitals differs across states, our sample consists of hospitals only from the state of California. Empirical Model We use the hospital as the unit of analysis. After ensuring that the data did not violate the regression assumptions, we estimated the following regression model using net income per patient as the dependent variable:
Vh = b0h + bxbh Exbh + bpbhEpbh + bxch Exch + bpch Epch + bbh bh + bch ch + b7h Zh + h

(1)

Where: Vh (NetIncPt)_ = Net income per patient for hospital (h).


Exb (Expr_BusIT)= Ratio of the number of business information technology applications installed in a hospital (h) to average installed for all sample hospitals (digitization scope in business activity systems) Exc (Expr_ClnIT)= Ratio of the number of clinical information technology applications installed in a hospital (h) to average installed for all sample hospitals (digitization scope in clinical activity systems) Epb (Explt_BusIT)= Ratio of the number of years of experience of hospital (h) with business IT applications to average experience across all hospitals in sample (digitization experience in business activity systems). Epc (Explt_ClnIT)= Ratio of the number of years of experience of hospital (h) with clinical IT applications to average experience across all hospitals in sample (digitization experience in clinical activity systems).

b (ComBnBe)= Complementarities in business activity systems, defined as the multiplicative product of Exb and Epb c (ComCnCe)= Complementarities in clinical activity systems, defined as the multiplicative product of Exc and Epc Zh = Vector of other factors related to income of a hospital including bed staffing level, ownership type and type of care provided by the hospital, proportion of traditional and managed care Medicare revenues, and assets per patient for each hospital (h). Coefficients bxbh, bpbh, bxch, bpch, bbh, and bch represent estimated effects of the explanatory variables and h is the random error term.

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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Complementarities Estimation To compare the relative impacts of complementarities vis--vis the effects of digitization scope and digitization experience, we formulated two ratios - Relative Synergistic Impact Ratio
(RSIR), and Cross System Synergistic Ratio (CSSR). These ratios are assessed to interpret

synergistic effects that have not been explored before in the context of healthcare IT. Let Exh , Eph represent the extent of digitization scope and experience, respectively, by a hospital h in its activity system , and h represents the degree of interaction between the two for the activity system where (b,c), where b represents business activity system, and c stands for clinical activity system. Thus, using the standard notation the value for hospital h, Vh= f (Exbh, Epbh, Exch, Epch, bh, ch) is a function of two pairs of independent variables Exh and Eph, and their joint synergistic effect h which is often conceptualized as the relative impact of
2 one variable in the presence of the other, or V

E x E p

(Milgrom and Roberts 1990, 1995,

Siggelkow 2002). Recently, this formulation of synergies as second order cross partial derivative has been emphasized to be an important conceptualization that distinguishes complementarities effect from alignment, fit and other interaction effects (Tanriverdi and Lee 2008). Our treatment of synergies follows this notation throughout the rest of the paper. In this research, we conduct several empirical tests to assess and compare the impact on value of synergies in business and clinical activity systems. These empirical evaluations related
2 to V

E x E p

are important to improve organizational decision making which relies on the

knowledge of these interactions. Faulty managerial decisions are often a result of the misinterpretations of these interactions effects (Siggelkow 2002). Three types of empirical assessments of these synergistic effects are presented to interpret the results.

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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

The first assessment is to determine the nature of the synergy between the two independent
2 variables i.e. to assess the type of interaction effect, V

E x E p

(where, (b,c)). According

to Siggelkow (2002), the interaction determines if there are any synergies between the two
2 independent variables (Ex , and Ep). If V

E x E p

= 0 then Ex, and Ep are said to have

2 independent impact on value, however the two are said to interact if V

E x E p

0 implying

that the marginal benefit of one is dependent on the other. Further, the impact is complementary
2 in nature if V

E x E p

2 >0 while Ex, and Ep are said to be substitutes if V

E x E p

<0

(Siggelkow 2002). Thus, we evaluate these three plausible empirical alternatives;


2 whether V

E xb E pb

2 , and V

E xc E pc

are >, =, or < zero to assess the nature of interaction

between digitization scope and experience. This test also helps to assess the criticality of the interaction for firm performance. For example, it has been found that the adverse impact of ignoring the interaction is greater if the interaction being ignored is a complement, than if it is a substitute (Siggelkow 2002). The second comparative assessment is of the relative impacts on value of digitization scope (Exh) and digitization experience (Eph) and the interaction of the two (h). Based on this notation, the relative comparison of direct and synergistic impact is done through the Relative
Synergistic Impact Ratio (RSIR) which is the ratio of the synergistic interaction (second order

cross partial derivative), to the direct effects (the first order derivative of value with respect to digitization scope and experience i.e. V
E x and V

E p

respectively). A value greater than

1 for the Relative Synergistic Impact Ratios (RSIR) implies that synergistic interaction has a

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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

greater impact on value than the direct impact of digitization scope and experience. Two types of RSIR ratios are pertinent to each of this activity system - RSIRx and RSIRp, while the former are related to the effects of digitization scope, the latter pertain to the effects of digitization experience. As an illustration, the test of relative impacts in the case of business activity systems, involves the evaluation:

i. whether RSIRxb =

( (

2V

E xb E pb

) ( ) (

E xb

) 1, and ) 1.

ii. whether RSIRpb =

2V

E xbEpb

Epb

A similar evaluation is done in the case of clinical activity systems. Combined with the first assessment, test of RSIR offers valuable managerial information
2 related to interactive effects. For example, V

E x E p

>0, and RSIRj >1, j (x, p), and

(b, c), imply that the nature of interaction is complementary, and necessitates a greater managerial attention because the incremental returns to direct effects are limited and less than the
2 synergistic effects. V

E x E p

<0, and RSIRj >1, on the other hand, implies that though the

interaction effect is still stronger than the direct effect due to the substitutive nature of the interaction the impacts on performance is not as much in case the interaction effects are not recognized by managers (Siggelkow 2002). Similarly, other combinations offer unique insights that can be leveraged for optimal management of organizational complements. Finally, the last empirical assessment is related to the comparison of synergies between digitization scope and experience effects across the two activity systems. This relative assessment of the synergies impacts is done by evaluating the Cross System Synergistic Ratio

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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

(CSSRij) defined as the ratio of synergies across the two activity systems i and j, i j. In this study, the ratio measures the relative impact of synergies in the clinical activity systems as compared with those in the business activity systems, and is given as CSSRbc
=

2V

E xb E pb

) (

2V

E xcEpc

) . A value greater than 1 for the ratio will imply that

the clinical synergies between digitization scope and experience have greater impact than corresponding synergies in the business systems, whereas a value less than 1 will imply the greater impact of synergies between digitization scope and experience of clinical activity systems.

RESULTS
Table 3 contains the results of estimating equation 1. The adjusted R2 of the regression is 14%. The results for business technology systems indicate that digitization scope (Ex), with the business IT systems does not lead to superior performance. Similarly, higher digitization scope of clinical IT (Exc) is not associated with performance. hypotheses about the effects of digitization scope. A different pattern of results emerges for digitization experience. The results in Table 3 indicate a positive and significant coefficient on digitization experience within business activity systems. This result is consistent with H1a and indicates that experience with business IT (Epb) yields a positive payoff to the hospital. H2b predicted that greater digitization experience within clinical systems (Epc) will be associated with a significant positive effect on the financial performance of hospitals. However, the results in Table 3 indicate that digitization experience with clinical IT is negatively associated with performance. hypothesis H2b. These results do not support Recall that we had not offered

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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Next we did the three empirical tests proposed for complementarities. The first test was
2 related to the assessment whether V

E x E p

is greater than, equal to, or less than zero.

2V

E xb E pb

is found to be insignificantly different from zero (Table 3) and hence H2a, which

predicted that complementarities between digitization scope and experience exploitation within business systems will be associated with a positive effect on financial performance of hospitals, is not supported. This result suggests that for business activity systems, digitization experience
2 itself is sufficient. The results for clinical activity systems however indicate that V

E xc E pc

>0 i.e. it is positive and significant. This indicates that synergies between digitization scope and experience within clinical systems are associated with a positive effect on the financial performance of hospitals, as predicted by H2b. The net overall effects of digitization experience (the total of direct and complementary effects with digitization scope) are positive, suggesting that joint exploration and exploitation are essential to realize superior performance from more complex clinical information systems. To summarize, the first assessment of complementarities establishes positive interaction between digitization scope and digitization experience effects within clinical systems, but finds these to be independent in the case of business systems. The results of the hypotheses tests are summarized in Table 4. -------------------------------------------Insert Tables 3 and 4 about here --------------------------------------------

The second empirical test of complementarities was focused at the assessment of Relative Synergistic Impact Ratios - RSIRx and RSIRp. In the case of business activity systems, RSIRpb is less than one indicating that returns from joint synergistic interaction are greater than

21

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

digitization experience alone (see Table 5). RSIRxb, on the other hand is undefined and hence this study is not able to accomplish the relative assessment of complementarities with the digitization scope of business IT applications since the digitization scope and complementary effects are both found to be insignificant. Both RSIRxc and RSIRpc are found to be greater than 1 (Table 5) thus indicating that returns from joint synergistic interaction are greater compared to the direct impact of digitization scope and experience within the clinical activity systems. These results indicate that the effects are different across the two activity systems. More complex clinical activity systems have greater synergistic impacts as compared to the independent impact of digitization scope (Exc) and experience (Epc) effects, whereas for the business activity systems, digitization experience (Epb) effects are greater than the synergistic impacts. Finally, we assessed the cross system complementarities effects using the ratio CSSRbc which is found to be less than 1 (see Table 5). This indicates that the between the two activity systems, the comparative impacts of synergistic interaction is greater for clinical systems as compared with that for the business systems. -------------------------------------------Insert Tables 5 about here -------------------------------------------Sensitivity and Robustness analysis We tested the various assumptions for regression analysis and statistical testing before doing the analysis. The data was found to be normal and Breusch-Pagan test for heteroskedasticity and the Linktest for specification errors ruled out any threat to our results due to violation of these regression assumptions. Further, we tested the robustness of the results to the violation of distributional assumptions by estimating a non-linear regression. In this regression, the dependent variable was transformed by taking the square root of the dependent variable (net

22

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

income per patient) in the original parametric model in equation 1. Because the dependent variable had negative values for some of the observations, the largest negative value was added to the DV before taking the square root. In addition, the number 1 was added over and above the addition of the biggest negative value because square roots behave differently for numbers between 0 and 0.99 (the square root of the number decreases as the number itself increases) as compared with the numbers that are greater than or equal to 1 (the square root of the number increases as the number itself increases). The addition of number 1 makes all observations greater than or equal to 1. Results are robust to the transformation of the dependent variable and are reported in table 6. -------------------------------------------Insert Table 6 about here --------------------------------------------

We also re-estimated the results using absolute definitions for digitization scope and experience. That is, digitization scope was defined as the number of information systems adopted, while experience was defined as the sum of years of experience with information systems. The results were qualitatively unchanged. Test for Endogeniety. It is possible that firms which have more resources because of better financial performance are also more likely to invest in clinical and business IT. That is, net income and digitization scope of business and clinical activity systems may be simultaneously determined. To rule out this possibility, we tested the robustness of our results using the twostage least squares (2SLS) technique and compared our OLS results to 2SLS (Greene 2000). In the first stage of the 2SLS, we used the likely endogenous variable (number of business or clinical IT) as the dependent variable and all the other exogenous variables as independent variables. We extracted the predicted values of the endogenous variables (number of business or

23

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

clinical IT) and used these predicted values as instrumental variables in equation 1, in the second stage. The results from the 2SLS were similar to those reported in Table 3, which indicates that our results are not likely to be influenced by endogeneity concerns. Finally, although we had included the proportion of revenue from Medicare and Medicaid to control for the patient mix, we also examined the robustness of our results to the inclusion of the case method index as an additional control variable. The case mix index is a measure of the average severity of illness of patients treated in the hospital. There was no change in the results after the inclusion of the case-mix index.

DISCUSSION
Organizations face relatively long periods of incremental change punctuated by changes driven by technology, competitors, regulatory events, or other significant changes in political and economic conditions (Tushman and OReilly, 1996). Newer information technology solutions are developed with functionality to monitor, manage, and incorporate these changes. This research studies the dynamics of introducing these information technology solutions into a firms digital activity system. To the best of our knowledge, the research is the first to empirically test the performance effects of exploration and exploitation of information technologies and their synergistic effects at the level of an activity system. Further, there is a paucity of research that examines the role of IT in adding value in healthcare organizations. This research, answers the calls from the national health IT leadership panel to bring in the theories and concepts from other disciplines to study the role of IT on hospital performance. (Lewin Group, 2005) Our empirical analyses use data from 292 California hospitals to examine the effect of digitization scope and experience and their synergies in clinical and business activity systems. Our results indicate that in the case of business activity systems, digitization scope does not

24

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

impact performance, but digitization experience has a significant positive impact on performance. In addition, the interaction between digitization scope and experience does not yield positive effects, contrary to the proposed argument in the current literature that exploration and exploitation are always complementary. However, a different pattern of results emerge when we examine the effects of digitizing clinical activity systems. Digitization scope does not yield positive benefits and digitization experience results in a negative impact on profits. Thus, our results indicate that in the case of clinical activity systems, digitization experience alone is not sufficient and in fact has negative impacts. This suggests that limited digitization of the parts of the clinical activity system hampers the performance of the doctors and nursing staff as they have to coordinate work across manual and digital systems. However, the interaction between the two has positive effects on profits indicating that digitization scope and experience are both needed for performance improvements in the clinical systems. These results are consistent with those of Cezar et al. (2007), who use data from Washington hospitals and find that expenditures on clinical IT (similar to our scope variable) do not have either an immediate or a lagged positive impact on organizational performance. The research is not without limitations. While we use the exploration and exploitation paradigm to assess the complementarities within the activity system, it cannot be claimed that our measures fully capture the complete diversity of the two constructs. Many other organizational dynamics may influence exploration and exploitation effects within the organization. Researchers in the field of organizational theory (Holmqvist, 2004; He and Wong, 2004), strategy (Winter and Szulanski, 2001) and managerial economics (Ghemawat and Ricart i Costa, 1993) have highlighted the differences in the firms structure, processes, strategies, and

25

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

culture that are associated with exploration and exploitation. While exploration is usually characterized by loosely coupled organic structures, and autonomy and chaos, exploitation often involves tightly coupled mechanistic structures, and controlled and rigid routines (Eisenhardt and Martin, 1998; Burns and Stalker, 1961). Indeed exploration and exploitation are complex constructs with multiple dimensions and their definition and connotation has been a subject of wide debate (Gupta et al. 2006). We use proxies because of the nature of our secondary data. While secondary data offers objectivity in measurement, it does so at the expense of the richness that can be captured in more detailed inquiry using survey instrument. We believe that our method of using digitization scope as a proxy to measure exploration and experience as a proxy to measure exploitation is appropriate in the case of digitization of activity systems, and has been extensively used in prior research (for example, Rothaermel and Deeds, 2004; Katila and Ahuja, 2002). In spite of these limitations, our results shed interesting insights on the digitization of two important activity systems, clinical and business, and suggest that future research is warranted in this setting. Our research also makes important contributions to the literature on complementary effects of IT. While synergistic interactions are often proposed to be essential for realizing performance impacts of IT systems, our empirical findings indicate that the significance of these impacts is contingent to the context of the study. Our results suggest that synergistic interactions between exploration and exploitation of IT are more likely to materialize in the case of complex activities such as clinical activities. On the other hand, in the case of relatively simpler business IT systems, exploitation is sufficient to produce higher returns. To provide better control, we restricted our study to the hospital industry. Future research could examine whether these results hold in other industries.

26

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Empirical estimation of complementarities has added to the complementarities estimation in three ways. The first test has established a test for differentiation of synergistic interaction to be substitutive, complementary or independent in the independent variables. Second, test has developed the concept of Relative Synergistic Impact Ratios (RSIR), which helps determine the impact of synergistic interaction relative to the direct impacts. Finally, the relative impact of synergies across business units can be assessed using the proposed Cross System Synergistic Ratio (CSSR). This three pronged approach for the assessment of complementarities offers first structured way for empirical assessment which have gained increased traction from researchers. Our systematic testing of these effects will help establish a framework that will guide future empirical assessment of complementarities. Our research has focused on interactions within the business and clinical information systems. Hospitals are currently exploring IT systems that integrate both clinical and business modules to provide support to clinical as well as business functions (Vernon, 2005, Serb, 2006). Future research could examine more complex interactions such as those across business and clinical systems and explore the pattern of results that emerge when these systems are integrated.

References
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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

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Holmqvist, M. 2004. Experiential learning processes of exploration and exploitation within and between organizations: An empirical study of product development. Organ. Sci. 15(1) 70-81. Housman, M. G., L. M. Hitt, K. Elo, N. Beard. 2006. The effect of IT capital on hospital efficiency. Paper presented at the Workshop on Information Systems Economics (WISE), Northwestern University, Evanston, Il. Huber, G. 1990. A theory of the effects of advanced information technologies on organizational design, intelligence and decision making. Acad. Management Rev. 15(1) 47-71. Jasperson, J., P. E. Carter, R. W. Zmud. 2005. A comprehensive conceptualization of postadoptive behaviors associated with Information technology enabled work systems. MIS Quart. 29(3) 525-557. Kalakota, R., M. Robinson. 2003. Services blueprint: Roadmap for execution: Addison-Wesley. Katila, R., G. Ahuja. 2002. Something old, something new: A longitudinal study of search behavior and new product introduction. Acad. Management J. 45, 11831194. Keen, P. G. W. 1991. Shaping the future: Business design through information technology: Harvard Business School Press. Leonard-Barton, D. 1995. Wellsprings of Knowledge. Boston, MA.: Harvard Business School Press. Lewin Group. 2005. Health IT Leadership Panel Report (http://www.os.dhhs.gov/healthit/HITFinalReport.pdf). Levitt, B., J. G. March. 1988. Organizational learning. Ann. Rev. Sociology. 14(1) 319-340. March, J. G. 1991. Exploration and exploitation in organizational learning. Organ. Sci. 2(1) 7187. Markus, M. R., D. Robey. 1988. Information technology and organizational change: Causal structure in theory and research. Management Sci. 34(5) 583-598. Menon, N. M., B. Lee, L. Eldenburg. 2000. Productivity of information systems in the healthcare industry. Inform. Sys. Res. 11(1) 8392. Milgrom, P., J. Roberts. 1990. The economics of modern manufacturing: Technology, strategy, and organization. American Econ. Rev. 80(3) 511-528. Milgrom, P., J. Roberts. 1995. Complementarities and fit strategy, structure, and organizational change in manufacturing. J. Accounting Econ. 2(3) 179-208.

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Mitchell, W., K. Singh.1993. Death of the lethargic: Effects of expansion into new technical subfields on performance in a firms base business. Organ. Sc. 4 152-180. Orlikowski, W. J., J. Yates, K.Okamura, M. Fujimoto. 1995. Shaping electronic communication: The metastructuring of technologyin the context of use. Organ. Sci. 6(4) 423-443. Pavlou, P. A., O. A. El Sawy. 2006. From IT leveraging competence to competitive advantage in turbulent environments: The case of new product development Inform. Sys. Res. 17 198227. Porter, M. E. 2001. Strategy and the internet. Harvard Bus. Rev. March, 63-78. Purvis, R. L., V. Sambamurthy, R.W. Zmud. 2001. The assimilation of knowledge platforms in organizations: An empirical study. Organ. Sci. 12(2) 117-135. Rai, A., R.,Patnayakuni, N. Patnayakuni. 2006. Firm performance impacts of digitally enabled supply chain integration capabilities. MIS Quart. 30(2) 225-246. Ray, G., A. M. Waleed, J. B.Barney, 2005. Information technology and the performance of the customer service process: A resource-based analysis. MIS Quart. 29(4) 625-652. Robinson, J., Luft, H. 1988. Competition, regulation and hospital costs 1982-86. J. American Medical Assoc. 269, 2676-2681. Rosenkopf, L., A. Nerkar. 2001. Beyond local search: Boundary-spanning, exploration, and impact in the optical disk industry. Strategic Management J. 22(4 ) 287-306. Rothaermel, F. T., D. L. Deeds. 2004. Exploration and exploitation alliances in biotechnology: A system of new product development. Strategic Management J. 25(3) 201-221. Sambamurthy, V., A. Bharadwaj, V. Grover. 2003. Shaping agility through digital options: Reconceptualizing the role of IT in contemporary firms. MIS Quart. 27(2) 237-263. Schumpeter, J. (1934). The Theory of Economic Development. Oxford: Oxford University Press. Serb, C. 2006. From basement to boardroom. Hospitals Health Networks. 5(2) 38-41. Siggelkow, N. 2002. Misperceiving interactions among complements and substitutes: Organizational consequences. Management Sci. 48(7) 900-916. Tanriverdi, H. 2006. Performance effects of information technology synergies in multibusiness firms. MIS Quart. 30(1) 57-77. Tanriverdi, H., & Lee, C.-H. 2008. Within-industry diversification and firm performance in the presence of network externalities: Evidence from the software industry Academy Management J. (Forthcoming).

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Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Thompson, J.D. 1967.Organizations in Action. McGraw Hill: NY. Tushman, M. L., C. OReilly. 1996. Ambidextrous organizations: Managing evolutionary and revolutionary change. California Management Rev. 38(4) 8-29. Vernon, M. 2005. Understanding technology and healthcare: Financial Times. Jun 24 p. 6. Health service with a smile.

Winter, S. G., G. Szulanski. 2001. Replication as strategy. Organ. Sci. 12(6) 730-743.

Table 1: Clinical and Business Technologies included in the Analyses Clinical Software Applications Category Application Intensive Ambulatory Clinical Care Business Software Applications Category Application Accounts
Accounts Payable

31

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Ambulatory EMR Ambulatory Laboratory Ambulatory PACS Ambulatory Pharmacy Ambulatory Radiology Cardiology - Cath Lab Cardiology CT (Computerized Tomography) Cardiology - Echocardiology Cardiology - Intravascular Ultrasound Cardiology Nuclear Cardiology Cardiology Information System Home Health Clinical Intensive Care/Critical Care (ICU) Intensive Care/Medical Surgical Anatomical Pathology Laboratory Information Systems Microbiology Electronic Medication Administration Record Outpatient Pharmacy Pharmacy Management System Operating Room (Surgery) Peri-Operative Operating Room (Surgery) Post-Operative Operating Room (Surgery) Pre-Operative

Cost Accounting General Ledger

Cardiology

Billing/Insurance Contract Management Credit/Collections Eligibility Encoder


Patient Billing Premium/Insurance Billing Data Warehousing/Mining Financial Financial Modeling & Document Management Business Office Document Management HIM Document Management Human Resources Electronic Forms - Business Office Electronic Forms HIM Electronic Forms Human Resources Home Health Administrative ADT/Registration Abstracting Case Mix Management Patient Scheduling

Financing

Forms Documents

Home Health Intensive Care

Laboratory

Medication Management

Home Health Patient Information

Operating Room

Operations Scheduling

Blood Bank Medical Staff Credentialing

32

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Table 1 (continued): Clinical and Business Technologies included in the Analyses Patient Medical Information

Computerized Practitioner Order Entry (CPOE) Data Warehousing/Mining Clinical Dictation Dictation with Speech Recognition Enterprise EMR Enterprise Master Person Index (EMPI) In-house Transcription Nursing Documentation Outsourced Transcription Physician Documentation

Nurse Staffing/Scheduling OR Scheduling Staff Scheduling Employee Information Personnel Management Time and Attendance Benefits Administration Hospital Supplies RFID - Supply Tracking Materials Management Clinical Data Repository Enterprise Resource Planning Executive Information Systems Interface Engine Practice Management Order Entry (Includes Order communications) Outcomes and Quality Management Budgeting Business Intelligence Electronic Data Interchange (EDI) - Clearing House Vendor Payroll

Other

Patient Surveillance

Chart Deficiency Chart Tracking/Locator Clinical Decision Support RFID - Patient Tracking Radiology - Angiography Radiology - CR (Computed Radiography) Radiology - CT (Computerized Tomography) Radiology - DF (Digital Fluoroscopy) Radiology Digital Mammography Radiology - DR (Digital Radiography) Radiology - MRI (Magnetic Resonance Imaging) Radiology - Nuclear Medicine Radiology US (Ultrasound) Radiology Information System Telemedicine - Radiology Emergency Department Information Systems (EDIS) Medical Terminology/Controlled Medical Vocabulary Nurse Acuity Obstetrical Systems (Labor & Delivery) Respiratory Care Information Systems

Radiology

Others

33

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Table 2 : Descriptive Statistics for Selected Variables (n=292) Variable Description Relative exploration of a hospital with business Information Systems Relative exploitation of business Information Systems by the hospital Relative exploration of a hospital with clinical Information Systems Relative exploitation of clinical Information Systems by the hospital
Number of information systems in business domain Number of information systems in clinical domain Experience (In years) with business information systems Experience (in years) with clinical information systems

Mean

Std. Dev.

Min

Max

Expr_BusIT (Exb) Explt_BusIT(Epb) Expr_ClnIT(Exc) Explt_ClnIT(Epc)


No of Business IT No of Clinical IT Experience with Business IT Experience with Clinical IT

1 1 1 1
16.28 15.93 54.30 14.18

0.25 0.34 0.75 0.66


4.04 5.39 40.64 9.30

.25 .13 0 0
4.00 2.00 0.00 0.00

2.46 3.02 2.66 2.77


40.00 48.00 144.33 39.25

Bed_Stf AsstCtrl McrtCntr McltCntr

Number of staffed beds Total Assets Per Patient Days Net Patient Revenue from Medicare Net Patient Revenue from Medicaid

196.74 2957.71 2.65 1.96

139.14 2458.20 2.76 5.05

2.00 136.65 -0.49 -2.07

875.00 23242.50 23.63 57.78

34

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Table 3: Regression Results for dependent variable Net income per patient Standardized Coefficient

Variable

Description

Standard Error

t-statistics

Expr_BusIT(Exb) Explt_BusIT(Epb) ComBnBe (b)

Business Information Systems Digitization scope of the hospital within the business activity system. 0.13 Digitization experience of the hospital within the business activity system. 0.73 Complementarities measured as interaction between Expr_BusIT and Explt_BusIT -0.68

2275.24

0.90

1926.35

2.00*

1573.30

-1.74

Expr_ClnIT(Exc) Explt_ClnIT(Epc) ComCnCe(c)

Clinical Information Systems Digitization scope of the hospital within the clinical activity system. -0.21 Digitization experience of the hospital within the clinical activity system. -0.52 Complementarities measured as interaction between Expr_ClnIT and Explt_ClnIT 0.58 Control Variables Number of Staffed beds -0.23 Total Assets Per Patient Days 0.07 Net Patient Revenue from 0.22 Medicare Net Patient Revenue from 0.35 Medicaid Dummy Variable for non-profit hospitals -0.21 Dummy Variable for for-profit hospitals -0.13 Type of Care Provided by Hospital 0.11 2 Adjusted R of the Regression 0.15 (F=4.94, p<0.001) model (F value, and P-value in N=292

1902.92

-1.23

1543.47

-2.02*

1573.30

1.98*

Bed_Stf AsstCtrl McrtCntr McltCntr NPProfit_Dum FPProfit_Dum Type_Care

2.83 0.09 129.92 57.17 760.52 853.54 356.10

-2.33* 1.18 2.41* 4.75** -2.23* -1.39 1.94

35

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

parentheses) * Coefficients significant at p<0.05 level. ** Coefficients significant at p<0.01 level. A constant term was added, to capture the intercept, in the regression.

Table 4: Summary of Results Relation Digitization scope within business systems Financial performance activity

Result Supported

Hypothesis Not Hypothesized

Digitization experience within clinical activity systems Financial performance H1a: Digitization experience within business activity systems Financial performance H1b: Digitization experience within clinical activity systems Financial performance H2a: Digitization scope and experience complementarities within business activity systems Financial performance

Supported

Not Hypothesized

Supported

Hypothesized

Not Supported

Hypothesized

Not Supported

Hypothesized

H2b: Digitization scope and experience complementarities within clinical activity systems Financial performance

Supported

Hypothesized

36

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

TABLE 5: Results of Complementary Estimation Estimated Statistic Synergistic Business Interaction Synergistic Clinical Interaction Measure Value Not significantly different from Zero Test Result Inference Digitization scope and experience effects of business technologies are independent. Digitization scope and experience effects of clinical technologies are complementary. Relative impacts of digitization scope and synergistic interaction for the business activity system can not be compared in this study. For business activity system digitization experience effects are stronger than the complementary impacts. Complementary impacts for clinical systems are stronger than the digitization scope effects. Complementary impacts for clinical systems are stronger than the digitization experience effects. Clinical complementarities have a greater impact on financial performance of a hospital than business complementarities.

2V

E xb E pb

=0

2V

E xc E pc

0.58

>0

(
RSIRxb

2V

E xb E pb

) ( ) ( ) ( ) ( ) (

E xb

)
Un Defined Inconclusive

(
RSIRpb

2V

E xbEpb

Epb

)
0 <1

(
RSIRxc

2V

E xc E pc

E xc

)
>1

(
RSIRpc

2V

EcbE pc

Epc

)
1.12 >1

(
CSSRbc

2V

E xb E pb

2V

E xcEpc

)
0 <1

37

Digitization Scope and Experience: Performance impacts in Healthcare Organizations

Table 6: Regression Results for Transformed DV Variable Description Standardized Coefficient Standard Error t-statistics

Expr_BusIT (Exb) Explt_BusIT (Epb) ComBnBe (b)

Business Information Systems Digitization scope of the hospital within the business activity system. 0.13 Digitization experience of the hospital within the business activity system. 0.73 Complementarities measured as interaction between Expr_BusIT and Explt_BusIT -0.70 Clinical Information Systems

8.79

0.92

7.44

1.97*

7.40

-1.75

Expr_ClnIT (Exc) Explt_ClnIT (Epc) ComCnCe (c)

Digitization scope of the hospital within the clinical activity system. Digitization experience of the hospital within the clinical activity system. Complementarities measured as interaction between Expr_ClnIT and Explt_ClnIT

-0.20

7.35

-1.22

-0.59

5.96

-2.24*

0.65

6.08

2.16*

Control Variables Bed_Stf AsstCtrl McrtCntr McltCntr NPProfit_Dum FPProfit_Dum Type_Care Number of Staffed Beds -0.20 Total Assets Per Patient Days 0.06 Net Patient Revenue from 0.22 Medicare Net Patient Revenue from Medicaid 0.29 Dummy Variable for nonprofit hospitals -0.18 Dummy Variable for for-profit hospitals -0.11 Type of Care Provided by Hospital 0.10 Adjusted R2 of the Regression model (F value, and P-value 0.10 (F=3.61, p<0.001) in parentheses) N=292 0.01 0.01 0.50 0.22 2.94 3.30 1.37 -1.99* 0.94 2.38* 3.86** -1.93 -1.17 1.57

** Coefficients significant at p<0.05 level. *** Coefficients significant at p<0.01 level. DV transformed by adding a constant value to make all the values positive and then computing the square root of the number A constant term was added in the regression.

38