PURCHASING DECISIONS AT PRIVATE HOSPITALS
IN THE FRAMEWORK OF RESOURCE DEPENDENCY THEORY
Meltem Uygun
Gazi University &Yıldırım Beyazıt University, Turkey
E-mail: mel.uygun@gmail.com
Submission: 16/02/2017
Revision: 11/05/2017
Accept: 17/05/2017
ABSTRACT
The environment influencing hospitals in the health
industry is quite complicated, and despite the high volume of inputs, the
functions that occur at purchasing level are very intricate. The reason that
the feedback mechanism of health services is not organized completely, and thus
another reason that the health system is quite complicated, is diversification
of inputs and the consequent rising volume of inputs from the environment, and
high dependency on the environment.
Governing the demands and pressures of the environmental actors and
reorganizing them for its own benefit are only possible for the business,
depending on how much power it has in the interdependent relationship.
Therefore, it is necessary to clarify the role of power as a concept when
analyzing these environmental relationships in order to elucidate the behaviors
of organizations. This study addresses power relations in the framework of
resource dependency theory. The "power and dependency relationship"
of the actors that are influential in purchasing decisions regarding clinics at
a private hospital where physicians, who are experts in their field work, is
the proposal of this research. The matter of which actors (hospital upper
management, purchasing department, relevant expert physicians) have an
influence on purchasing decisions and mutual relations are discussed in the
context of power.
Keywords:
Resource
dependency theory, power, dependence, decision making
*
This paper presented (in Turkish) at the 2nd organizational congress
held by University of Meliksah Kayseri Turkey in 6-8 November 2014.
1. INTRODUCTION
Hospitals
are the businesses that are highly dependent on the environment with a large
volume of input into the system, a complex structure, and a unique health
system. Development of strategies and policies to procure resources are more
important for hospitals compared to organizations in other sectors due to the
unique structure of the health system.
This
study attempts to assess the power and dependence relations of actors that have
an influence on purchasing decisions concerning clinics of a private hospital
where expert physicians work, drawing upon the basic assumptions of resource
dependency theory, organization-environment relationships, and power-dependence
relations.
Power does not always originate from
dependence and asymmetry of power between the parties; sometimes actors may
obtain the advantage of seeming more powerful than they are by implementing
various strategies. The power relationships of organizations include not only
the relationships with external actors, but also the relationships with
internal actors.
The matter is not as simple as
determining interests of the business, deciding what is best for the business,
and implementing this decision. The departments and their sub-divisions also
have their own priorities and interests. These sub-divisions also strive to
protect their own priorities and interests with whatever power they have. Power
is not only defined as equivalent to dependence in the organization literature.
The power relationship is closely related to the degree of influence of one
actor on another as a conclusion of this research proposal.
2. RESEARCH
METHODOLOGY
This research proposal examines how the
power that expert physicians possess as a result of having authority over
purchasing decisions is dependent on the administrative power of the physicians
at the relevant hospital, how powerful their work-flow relationships and how
central an actor they are in the network they create as a conclusion of this
research proposal.
The suitability of the medical
materials at private hospitals is often determined by the physicians, and
therefore it can be said the power that physicians have is the most prominent
at this point in the process. In some cases, bids that are cheaper are not
found suitable by the examination committee or the physician that has requested
the material, and more expensive materials are chosen for purchase. This
situation demonstrates that physicians, who are experts in their fields, play
an effective role in the context of "power and dependency".
3. BASIC
ASSUMPTIONS OF THE RESOURCE DEPENDENCY THEORY
Organizations
have a presence, an entity complete with economic, social and political
aspects, and more importantly, they must strive to sustain this entity. Despite
being dependent on their environments for their resources, organizations want
predictable access to their own resources.
Organizations
undertake the management of their relations with the environment in order to
grant access to the resources. Fundamentally, resource dependency theory aims
to answer the question of how organizations can continue to exist as an entity,
i.e. sustain their presence. Resource Dependency Theory is based on three
theoretical ideas.
The
first one is the open system theory explained by Katz and Kahn in their book
"The Social Psychology of Organization" in 1978. Closed systems do
not interact with their environments; on the other hand, open systems have a
dynamic relationship with their environments. Katz and Kahn (1978) state that
organizations perform their activities in an open system.
The
second idea is inter organizational relations involving social exchange,
suggested by Levine and White's (1961) studies. According to Levine and White
(1961:587), exchange refers to "any voluntary activities between two
organizations which have consequences for the realization of their respective
goals or objectives."
The
third idea, based on Emerson (1962) and then later Blau's (1964) research on
dependency and power relations stemming from transactions in social
environments, constitutes a more theoretical pivot point for resource
dependency approach.
Emerson
(1962) explains the relative power of a social actor as a result of its
dependence on another, and this approach, which emphasizes resource dependency
have also been utilized in intra- and inter-organizational power analysis by
Salancik and Pfeffer (1977). This conceptual backdrop is complemented by
Crozier (1964) and Perrow's (1970) ideas on power differences in the various
departments within the organizations, and their financial foundations.
Today,
the fundamental framework of the resource dependency theory is drawn up by
Pfeffer and Salancik's work The External
Control of Organizations, published for the first time in 1978.
Power and dependence relations within the framework of resource
dependency theory constitute the main focus of this study.
The
key to organizations sustaining the existence of their entities lay in their
ability to procure and protect their resources. However, in the open system
approach, organizations are not completely self-sufficient (PFEFFER; SALANCIK,
2003:2).
Levine
and White (1961) demonstrate that social actors only agree to make an exchange
with the organization depending on how much they value the organization and
their relationship with them. Organized federations (unions) are connected to
their environments through institutions, customer-supplier relations,
competitive relationships, and the governing social-legal order (PFEFFER;
SALANCIK, 2003:2).
However,
it is also important, in terms of the resource dependency approach, if the
relationships are not fairly balanced and the consequences of this imbalance.
Resource dependency theory has
construed a unique identity for itself because it explains the behaviors of
organizations around the concepts of power and dependency. According to Davis
and Cobb (2009:3), the theory strives to explain "sources and consequences
of power in inter organizational relations: where power and dependence
originate from, and how those that run organizations use their power and manage
their dependency".
In this context, the resource
dependency theory is based on the two key ideas; that organizations can only
survive as long as they are effective, and the level of their effectiveness
depends on environmental conditions.
4. ORGANIZATION-ENVIRONMENT RELATIONS IN RESOURCE
DEPENDENCY THEORY
Organizations are not
self-sufficient and do not have total control over their activities. Dependency
status is defined as an outcome of the open system idea, also a foundation of the
resource dependency theory (USDIKEN, 2007:85). Usdiken (2007:79) highlights two
claims that differ from the conditional dependency approach of the resource
dependency theory:
“One
of these is that, what organizations generally do, meaning what behaviors they
exhibit, are dependent upon not only their goals and administrators, but also
pressures from and the limitations of their environment. The other one is that
power has an important role in the organization’s own structure, and therefore,
their decision-making process has a political quality to it.”
Resource dependency theory claims
that actors can also influence environmental conditions contrary to the claims
of conditional dependency theory and organizational ecology theory. Figure 1
depicts Pfeffer and Salancik's (2003:229) layout model of how organizational
environments can have an influence on organizations. In this model,
organizational environment (source of uncertainty, constraint and probability)
influences distribution of power and control of the organization.
Distribution of power and control of
the organization affect choice and removal of administrators, and thus affect
organizational behaviors and structures. And subsequently, organizational
behaviors and structures affect the environment of the organization through
sources of uncertainty, constraint and probability.
Figure 1: A layout model of how
organizational environments can have an influence on organizations
Source: Pfeffer and
Salancik, (2003:229).
What happens and how in an
organization is not solely an outcome of the structure, leadership, procedures,
directives, or the goals of the organization. What happens in the world of a
business is shaped by the environment it operates in, and conditions and
constraints stemming from that environment (PFEFFER; SALANCIK, 2003:2).
The ability to understand a behavior
of the organizations requires understanding the environment in which the
behavior occurs. According to resource dependency theory, it is not possible to
think of organizations isolated from their environmental conditions, because
businesses are not self-sufficient and are required to trade resources with
external actors that have an influence on them.
These actors can be customers,
suppliers, or investors. The resource dependency theory, as does the
conditional dependency theory, accepts the idea of environment as the context
from which the organization procures the necessary inputs to sustain its
entity.
The organizations compete for the
scarce resources that supply inputs such as capital, raw materials,
ingredients, intermediate products, energy, labor, information that they need
to sustain themselves. This competitive struggle makes them dependent on their
environments, and forms the foundation of the power relationship they have with
the environmental actors they are dependent on.
5. POWER-DEPENDENCY RELATIONS IN ORGANIZATIONS
ACCORDING TO RESOURCE DEPENDENCY THEORY
Between
two organizations, there needs to be asymmetry in exchange relationships where
one organization has more power over the other, according to Pfeffer and
Salancik (2003:53). Therefore, to know that A has power B, the criterion is B's
dependency on A as well as A's lack of dependency on B. Power is a relative
concept. If B is more dependent on A than A is on B, then A has power over B (LAWLER;
YOON, 1996).
Pfeffer and Salancik (2003:52) explain the mechanism in which power and
parties with different interests come together in an organized manner as
depending on how much one party needs another to protect its interests or
achieve its goals and there is going to be a concentration of power in the
relationship.
However, this
interdependency relationship does not constitute the only basis of the power
relationship. Asymmetry between parties, i.e. one party being more dependent on
the other creates the real basis of the power relationship between the
organizations.
According to Pfeffer
and Salancik (2003:52-54), there are three reasons that sub-divisions in a
business possess power. These reasons are; the ability of the division to deal
with uncertainty, this ability being unique to that division, and the
prevalence of environmental uncertainty. If a sub-division within a business,
for example the department of marketing, manufacture, purchasing or finance,
has the potential to influence and manipulate business decisions in favor of
the department's interests or goals, this means that the department possesses
power.
Pfeffer and Salancik
(2003:54) specify that the department that has a critical importance under some
conditions "is determined by environmental conditions that the business is
in, for example the market conditions with which the business is
competing."
The influential power
that an organization has on others varies with its level of autonomy over
control of resources, the dependency level of the other organization, and its
potential to counteract the power in question. The fact that different people,
groups, and organizations assess the entity and activities of a business
according to different criteria also is the origin of an important problem.
According to Pfeffer
and Salancik (2003:56), the fundamental problem at this point "stems from
the fact that different sets of criteria are irreconcilable with one another or
cannot be fulfilled concurrently. These conflicting and competing demands from
the relevant parties force organizations to respond to some demands and ignore
some others".
Fulfillment of one
party's expectations may cause another party to be not satisfied or even
harmed. Defining a power relationship as a whole (for example with its weak and
powerful actors) allow for the power relationship’s reasons, its meaning,
timeframe and costs etc. to be analyzed in a detailed manner. However, an
analysis of power relations with their maximum characteristics prevent a
thorough examination of the details of the relations (BALDWIN, 1980:497).
Willer et al.
(1997:580) has defined power in resource dependency theory as "the
potential that is determined structurally in order to achieve advantageous
results in relationships based on mutual interests. Power is determined in a
structural manner through understanding of the nature of the mutual relations."
The questions of who is dependent on whom, and who has how much power reveal
the character of the relations, and in this research proposal, the problem is
addressed in this context.
6. RESOURCE DEPENDENCY IN THE CONTEXT OF HOSPITAL
MANAGEMENT
This
study addresses power relations in the framework of resource dependency theory.
The "power and dependency relationship" of the actors that are
influential in purchasing decisions regarding clinics at a private hospital
where physicians, who are experts in their field work, is the proposal of this
research.
The
matter of which actors (hospital upper management, purchasing department,
relevant expert physicians) have an influence on purchasing decisions and
mutual relations are discussed in the context of "power, dependency".
Since nowadays businesses are organizations that cannot act independent of the
environment, this shows how much influence the environment has on businesses.
However, not every business can adapt to the environment.
Therefore,
in spite of the positive and negative influences of the environment on the
business, the important thing is that the hospital administration should
eliminate the environmental uncertainty with a proactive approach by utilizing
certain strategies. Only this way the hospital administration can realize
maximum effectiveness and productiveness, and achieve success. With the new
legal statutes regarding designation of hospital service charges, the hospital
administrations pay more attention to purchasing decisions.
Hospitals
are trying to lower the costs stemming from purchasing the right products, the
right services, and the right patient chains at the right time, as much as
trying to lower the costs of purchasing the medical products and materials
themselves.
It is
difficult to talk about an awareness of a purchasing department, an
institutionalization process, and standard operations management at public or
private hospitals where purchasing preferences and decisions are completely
governed by a doctor-centric structure. Therefore, any important consideration
given to purchasing activities and process management, affects the costs,
quality of services and profitability, and thus is a matter of concern for all
kinds of product and service purchasing processes.
Any
disruptions to the purchasing process may result in increased costs as well as
affecting the treatment of the patient who needs that material at that moment,
and thus may cause the patient's health to deteriorate or may even cause their
death. For this reason, purchasing processes must be planned, organized and
inspected accurately.
The
right products, at the right time, with the right costs, in the right amounts
at the level of desired quality must be supplied in an effectively managed
purchasing process. Since private hospitals are exempt from Public Procurement
Law number 4734, they can be more flexible when it comes to purchasing
processes than public hospitals.
7. PURCHASING PROCESS AT PRIVATE HOSPITALS
Hospitals
and clinics as healthcare providers decide on clinical and non-clinical goods
and services and make contract with suppliers and manage relations with these
suppliers (Raaij,2016).
The
purchasing process at private hospitals starts with the emergence of the need,
followed by order request sent to the hospital upper management, one of the
power actors, for approval and then the needs approved by the upper management
being sent to the purchasing department.
The
purchasing department, which is also one of the power actors, does the
preliminary research and if the materials are to be purchased for the first
time, asks the persons or the related division for detailed technical
information about the materials, and then writes up an administrative
specifications contract and a material specifications contract.
If
enough information cannot be gathered for a material specifications contract,
the material's general characteristics are specified and a bidding process is
begun. If the material was purchased before and its technical characteristics
are known, the purchasing department is supposed to already have the
information regarding the characteristics of the material and the suppliers
that sell this material (GÜZEL, 2011).
Billaux,
Borget, Prognon, Pineau and Martelli (2016) compared the importance of
decision making in purchasing of innovative medical devices by the physicians,
surgeons and as well as hospital pharmacists, which are the responsible people
in for the purchase and management of sterile medical. Between these
professionals in the evaluation criteria there is no significant difference was
found. Google and HIMSS Analytics, “Hospital Decision Makers
Study,” May 2013 found that of %42 decision makers initiate purchasing
decisions as a result of user requests and %71 of decision makers initiate
purchasing decisions when replacing used or outdated technology. Many people
influence the purchase decision as shown in the Figure 2 and Figure 3.
Figure 2: Key Influencers of
purchase (Number of Titles/ Roles Cited)
The
leading key influencers are physicians and dir. of materials management (Figure
2 and Figure 3) while the main key decision makers are physicians, CFO, CEO and
administration.
Figure 3: Key Decion Makers
of purchase (Number of Titles/ Roles Cited)
During
the bidding process, bids from various suppliers are listed. The list contains
information about the name of the material, its characteristics, and the amount
as well the specific recommended material from all the suppliers, price,
amount, payment and delivery options etc.
The
suppliers are asked to provide a sample of the material they supply, and then
an examination committee or the physician, who is another power actor, who
asked for the material, is consulted for technical advice on the suitability of
the material. The technical consultancy
involves observing the samples of the materials offered during bidding, and
deciding whether the material is suitable for use.
The
suitability of the medical materials at private hospitals is often determined
by the physicians, and therefore it can be said the power that physicians have
is the most prominent at this point in the process. In some cases, bids that
are cheaper are not found suitable by the examination committee or the
physician that has requested the material, and more expensive materials are
chosen for purchase.
This
situation demonstrates that physicians, who are experts in their fields, play
an effective role in the context of "power and dependency". Afterwards, The National Database Product
Number of the material decided for purchase is checked, and its Social Security
Institution reimbursement conditions are reviewed.
Then
the price of the material is compared with the prices of Public Procurement
Authority and a purchasing proposal statement is prepared containing all the
information about the materials, which then is presented to the upper
management by the purchasing manager. The upper management has the authority to
make decisions regarding approval, correction, and cancellation of the
purchasing process presented to them.
A
purchasing decision is made about the materials found suitable by the hospital
upper management, one of the power actors, and then the purchasing manager
orders the materials by submitting an order document to the supplier, and
thusly the purchasing process ends (GÜZEL, 2011).
8. CONCLUSION
At
hospitals, just like many businesses in the private sector, the necessary
materials are supposed to be procured by the purchasing departments. Purchasing
departments procure the necessary materials after arriving at the best decision
by following certain procedures, and evaluating the quality, ingredients,
applications, and costs.
Hospitals are labor- and technology-intensive institutions that provide
health care services to the public for 24 hours, 7 days of the week. In
addition to health personnel, various materials, devices, and services are
needed in order for the hospital to provide uninterrupted, effective and
productive health care. Hospitals procure the materials and services they need
from pharmaceutical warehouses, medical material and device firms, and other
suppliers.
The
purchasing function is a matter of buying these materials at the most
affordable price in the desired amount, at the desired time and quality level.
Considered a background operation most of the time, purchasing function
actually is effective in reducing costs for the hospital and providing
high-quality health care.
Since
the work done by purchasing managers at health institutions, one of the power
actors there, is different compared to people at similar positions in other
sectors, purchasing managers at health institutions should primarily have a
good working knowledge of regulations, and standards and accreditations in
their sector.
They
also need to possess a satisfactory amount of knowledge about technical and
financial specification contracts to be able to procure the desired materials
at the best price and quality. Moreover, they need to be well-versed in the
business's quality processes.
The power relationship is closely related to the
degree of influence of one actor on another. In this context, it can be said
that the power that expert physicians possess as a result of having authority
over purchasing decisions is dependent on the administrative power of the
physicians at the relevant hospital, how powerful their work-flow relationships
and how central an actor they are in the network they create. Power is not defined only as tantamount to
dependency in the organization literature.
Dahl
(1957:205) defines power as "the friction that social actors apply on
other social actors to accomplish the results and goals they desire".
Quality, ingredients and applications are also important in purchasing
decisions. In this context, when it comes to procuring the necessary medical materials,
one of the power actors, the expert physicians' preferences (regarding quality,
ingredients, and applications) are prioritized, and even when the costs are
higher for the particular material, the brands preferred by the physicians are
purchased unlike how the process works in many businesses in the private
sector.
The
main reason of this is the dependency of private hospitals on the expert
physicians' knowledge as the most important deciding authority when it comes to
purchasing. In conclusion, private hospitals manage their dependency on
physicians by taking into account their decisions almost always exclusively,
which result in the doctors, who have a high level of autonomy due to certain
conditions in Turkey, having a strong preference to work at private hospitals.
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