3. Effects of size and IT on hospital efficiency
3.1. Size effect on hospital efficiency
Size effect on hospital efficiency has been addressed using different approaches. One approach to
explain size effect is contingency theory (Zinn & Mor, 1998). According to this theory, organizational
outcomes are determined by the fit between its choice of mechanisms for communication, coordination,
and integration of effort across the organization and its operating context. These three elements can be
described in terms of formalization, specialization, standardization, complexity, and centralization.
Formalization is the amount of written documentation in the organization, including procedures, job
descriptions, regulations, and policy manuals. Specialization refers to the degree to which tasks are
subdivided into jobs, while standardization is the extent to which similar work is performed in a uniform
manner. Complexity is the number of discrete units and their arrangement in the organization.
Organizations that array units in a descending hierarchy are vertically complex, while organizations
with many units operating at the same level are horizontally complex. Further, centralization refers to the
hierarchical level with the authority to make decisions. An organization in which all decisions are made
by top management is highly centralized.
As a hospital increases in size, its organizational structure becomes more complex. Consequently, as
the number of employees increases, there is a tendency to formalize and standardize work processes as
well as increase the levels of management control (Mills, 1986). The larger hospital also tends to have
more specialized staff and units that develop their specialized managerial roles to make communication
and coordination between staff and units more effective and efficient (Munson & Zuckerman, 1983).
These effects can cause changes in the mechanism of communication, coordination, and integration, thus
affecting the hospital’s efficiency. When the increase in size can both support the unique nature of the
hospital’s production process and complement its operating environment, such increase can positively
contribute to hospital efficiency.
Another explanation of size effect is addressed by economies of scale (Feldstein, 1983). With
economies of scale, the larger the firm (or those firms that increase their output), the lower its
average cost will be. Beyond the cost dimension, economies of scale can also be applied to resource
utilization to explain size effect on efficiency improvements (Conway, 1988). From this perspective,
larger organizations can afford greater specialization of labor, equipment, and facilities and delegate
these operational capacities to their fullest extent. In addition to the advantages from an increase in
size, Feldstein (1983) points out that as an organization grows in size, it will experience not only
the advantages from economies of scale but also the increasing management challenges due to a
more complex organizational structure. Taking into consideration these two points of view, for a
hospital, efficiency tends to increase with size if the advantages accruing from economies of scale
are greater than the proportion of time and effort required to coordinate and control work in the
larger hospital.