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TRANSCENDENCE, INTERRUPTED:
MICRO EXPRESSIONS OF NESTED PARADOXES DURING A MERGER
Sandra Costa
Nova School of Business and Economics
Universidade Nova de Lisboa
Miguel Pina e Cunha
Nova School of Business and Economics
Universidade Nova de Lisboa
Pedro Neves
Nova School of Business and Economics
Universidade Nova de Lisboa
Stewart Clegg
University of Technology Sydney
and
Nova School of Business and Economics
Universidade Nova de Lisboa
Arménio Rego
Católica Porto Business School, Universidade Católica Portuguesa
and Business Research Unit, Instituto Universitário de Lisboa (ISCTE-IUL)
Abstract
We conducted aninductive, in-depththree-year study, exploring the case of a multi-organization complex strategic change, a four-organization mergerin a new hospital center. We found that inconsistency producesnestedcontradictions that lead to vicious circles.Change initiatives at thegovernmental level, namely the reorganization of thenational healthcare system around networks of hospital centers for effectiveness and efficiency reasons,wereinitially represented as an opportunity. Transcendence was interrupted, apositive vision that was subsequently re-inscribed in the system as another lost opportunity. Even those employees who viewed the strategic change as an opportunity were forced to revise their interpretation. Redefinition of priorities diminished trust in management, contributing to an already unfolding vicious circle of mistrust and cynicism. The study contributes to the literature on the paradoxes of strategic change, namely those related to the contradictions of strategic changeand its effects on the reproduction of vicious circles.
Keywords:healthcare, paradox, vicious circles, hospital mergers, strategic change.
INTRODUCTION
Mergersare complex processes with correlative, multi-level challenges. Mergersdisrupt existing schemas (Bartunek & Moch, 1987), are fraught with uncertainty and involve power struggles and multiple rationalities. The difficulties of mergers are amplified in the deeply interrelated institutional ecologies of the state (Tsoukas, 2012), where stakeholders juggle multiple organizational logics (e.g., efficiency, quality, equality, solidarity). Despite their frequencyas a meansof strategic restructuring(Daly, Pouder, & Kabanoff, 2004), mergers, in general,present high failure rates (Calipha, Tarba, & Brock, 2010; Cartwright & Schoenberg, 2006; Gunders & Alpert, 2001). Researchers noted that acommon issue is over-attention to financials (i.e., share value, return on investment or profitability; Marks & Mirvis, 2003) at the expense of human, cultural and organizational factors (Marks & Mirvis, 1992; Weber & Tarba, 2010). As King, Dalton, Daily and Covin (2004) have pointed out, “future research should pay more attention to nonfinancial variables that are currently underrepresented in theory and research attempting to explain M&A performance” (p.196).
Hospital mergers, “a combination of previously independent hospitals formed by either the dissolution of one hospital and its absorption by another, or a creation of a new hospital from the dissolution of all participating hospitals” (Harris, Ozgen, & Ozcan, 2000, p. 801), constitute a common restructuring practice in healthcare (Fulop, Protopsaltis, King, Allen, Hutching, &Normand, 2005). The expectation is that, after merging activities, consolidation will be achieved and costs willdecrease (Starkweather, 1971) without harming the quality of patient care. Economic savings, political gains, and clinical efficiency (Choi & Brommels, 2009; Goddard & Ferguson, 1997) are among the most common motivations underlying mergers in healthcare. However, collaboration between hospitals is difficult and resource demanding (Ahgren, 2008), organizations forced into collaboration (asis the case here) are especially susceptible to failure, and paradoxical goals do not always lead to positive outcomes (Smith & Lewis, 2011).
Despite the growing body of research on mergers, the post-merger process and integration hasbeen under-explored,as the research focus has usually focusedon the pre-merger (Weber & Fried, 2011). Research on post-merger integration, however, is necessary for multiple reasons. First, the need to create value (Haspeslagh & Jemison, 1991) and synergy (Larsson & Finkelstein, 1999) becomes more salient after the merger, increasing the pressure overthe TMT(Weber & Fried, 2011). Second, employees’ negative reactions, such as resistance or lack of commitment, rise atthis stage and have the potential to undermine implementation (Fried, Tiegs, Naughton, & Ashforth, 1996; Lubatkin, Schweiger, & Weber, 1999). Third, given the dearth of researchonthe post-merger period (Schweiger & Goulet, 2000), important questions remain unanswered, such as those pertaining to thedynamics of employees’ reactions to the merger and to managerial actions (Weber & Fried, 2011) especially in the case of the state, where gains are not necessarily easy to measure and to defend.
While the GFC’s causes and consequences have been much debated (Legrain, 2014) not much is known about their micro impact and the cascade of consequences at lower organizational levels.[1]In this paper, weinvestigate a change process carried out on a Portuguese regional hospital center in the context of a bailed-out economy and consequent national budgetary pressures and governmental difficulties. Specifically, we suggest that vicious circles develop across levels where (a) the GFC gave rise to governmental decisions aimed at improving the efficiency of regional centers, (b) a sequence of “advances and retreats” in decision making at the governmental level gave rise to mistrust and cynicism at lower levels (organizations, teams, and individuals), (c) the consequence of these being a strengthened cynicism and resistance at lower levels toward further changes emerging from the higher levels.
We followed the case in real time as the merger unfolded, asking participants for their insights related to the past (initial expectations about the merger), the present (how the integration was taking place), and the future (what they foresaw for the future of the hospital center) of the merger. Following methodological best practices (Van de Ven, 1992; Ozcan & Santos, 2014), we started our investigation shortly after a new CEO took charge in April 2011 following the process until the merger was discontinued in October 2012 (our last formal interview with the CEO took place in April 2013 but occasional conversations continued until 2015). The data was collectedin vivo, as the open-ended process unfolded. We saw the case as an opportunity to study embedded complex strategic change, i.e. change involving strategic decisions at multiple centers. More precisely, different strategic goals emanating from different levels (the institutions of the Troika conducting the bailout, the Portuguese state via the government, the TMT) influence the ground level perception of an unfolding complex strategic change process, our research question being: how does strategic change unfold when strategic decisions are nested at different levels of analysis? We were interested in studying the potential conflicts among organizational goals at multiple levels, how they interacted over time and with what consequences. In the spirit of grounded theory we decided not to adopt ex-ante any specific theoretical lens but rather to explore the goals of transcendence as a process. The case was also promising in terms of exploring the dynamics of state reform as it was preceded by a number of transformational attempts in the public sector (Cunha & Tsoukas, 2015). This research question eventually led us in the conceptual direction of exploring the relationship between dispersed decision-making, strategic inconsistency, and the emergence of vicious circles. Despite initial constraints in the search for efficiency goals the creation of the particular Portuguese regional hospital center we investigated was accompanied by the promise of a new facility that would concentrate the previously dispersed hospitals. The original narrative was thus one of synthesis through transcendence, “the ability to view both poles of the paradox as necessary and complementary” (Bednarek, Paroutis & Sillince, 2016, p.1): improving service quality while increasing efficiency (Abdallah, Denis & Langley, 2011).
RESEARCH CONTEXT
The GFC meant that the government was obliged to develop new policies, particularly aimed at reducing costs. The healthcare system was no exception and mergers between public hospitals began. The health ministry merged fourteen units in 2011, with a result of six new hospital centers, defending that the decision occurred in the context of restructuring to promote integration, complementarity and resource concentration(i.e., human, financial, technological). The first announcement of the merger took place in 2009. It created SEAN, an assemblage of four hospitals (South, East, Appendix and North, pseudonyms; see Appendix A for summary descriptions), three of them separated by approximately thirty kilometers. Two of the hospitals were co-located and already formed part of the same structure (South and Appendix [to South]). The initial project assumed the construction of a new building in a new location, but the Government eventually reversed this decision, in 2011, due to the lack of public funds. This reversal took place two years after the public announcement, at a time when all employees were waiting for the final decision regarding the location of the new facility.
The Government decided the merger but its operational execution was, in practice, in the hands of the hospital center’s top management team (TMT). The governmental decision (by fiat) involved no participation, and employees had no prior information regarding the merger until it was formally announced. No measures were adopted to minimize resistance by use of strategies such as transforming employees into change agents, defining a positive vision, stimulating participation, or facilitating the adoption of expected behaviors, as the literature would have recommended (Kotter, 1995). In short, the decision makers neglected the knowledge that the successful implementation of a new strategy requires adopting a fair process (Kim & Mauborgne, 2014): engagement (i.e., involving individuals in decisions that affect them, through asking their perspectives and allowing them to discuss and refute the others’ views and proposals), explanation (i.e., providing conditions for that the individuals understand the decisions and the respective rationality), and expectation clarity (i.e., once a decision is made, the new rules of the game, expectations and standards are clear).
Such an unfair process is consistent with two features of the Portuguese cultural context (Hofstede, 1991; House, Hanges, Javidan, Dorfman, & Gupta, 2004). The first cultural feature is high power distance, which makes participative decision-making less likely. The second feature is a combination of high in-group collectivism with low institutional collectivism. In-group collectivism is “the degree to which individuals express pride, loyalty, and cohesiveness in their organizations or families", while institutional collectivism is “the degree to which organizational and societal institutional practices encourage and reward collective distribution of resources and collective action" (House et al, p. 30). In such a context, rivalries between in-group an out-group are commonas is consideration of institutional and overarching interests being neglected amidst the tensions.
Two of the hospitals were historical rivals. The antagonism between South and Northwas based not only on their separate histories and identities, as these hospitals rarely worked together because they referenced their patients to different central hospitals separated by more than 100 km, but also due to regional rivalry between the two cities where each is located. In addition, the majority of employees from North did not understand why the merger occurred with South (instead of with West), enhancing their concerns about the future (e.g., fear of becoming just an organizational satellite of South). Themerger was part of a wider state process of reformthat, as successivegovernmentissued intensely reformist rhetoricwith little impact, appeared to be an overall failure.The initiativereported here occurred in tandem with severe efficiency measures including pay cuts in the public sector, which adversely affected our informants. In this sense, this change was enveloped in a series of previous measures whose results were, at best, mixed. The first setback in our casewas related tothe promise of a new facility that would physically reflect the promise of the new post-merger hospital center.At the local level this new change attempt initially carried the promise of transcendence: more quality with less cost, a promise not fulfilled.Employees were told that a new facility would be built during the process, but the Ministry of Health decided to reverse the decision due to lack of financial means. The second major setback was associated with the hospitalsinvolved. Initially, the merger involved three hospitals (South, Appendix, and East), two of which were already integratedand where most employees saw themselves as part of the same unit (i.e., South).Shortly after, a fourth hospital was added to the process (North). Three years down the road, in 2014, the ministry decided to re-assign these hospitals into different hospital centers: South, Appendix and Eastwere merged into a newly formedcenter with another hospital, while North was merged with thehospital(i.e., West) it used to refer its patients to, prior to the initial merger.
The case presented a number of conceptually promising features. First, it resulted from a government decision as part of the restructuring program for the national health system. Complex decisions were made at multiple levels without local participation. Second, if opened the opportunity to explore the role of institutional contradictions, as in addition to the government, municipalities and the usual local constituencies, all with different and partly divergent goals, it also involved the Troika, a meta-organization, i.e. an organization whose members are organizations (Ahrne, Brunsson & Seidl, 2016), in this case the European Central Bank, European Commission, and the International Monetary Fund. Third, the case constituted a conceptually extreme exemplar (Eisenhardt, 1989) of a merger, as it involved four hospitals and two opposing institutional logics: managerial efficiency vs. universal quality access to health care. Extreme cases constitute relevant research objects due to their uniqueness (Flyvbjerg, 2006). Framing the whole process, our pre-understanding (Alvesson & Sandberg, 2016) of the case mattered: the case refers to management and change in the Portuguese state sector; together the authors have an accumulated more than 50 years of working for the state. In addition, one of the authors was part of a Governmental team charged with the mission of state restructuring in the decade of the 2000’s. As Mills (2000) pointed out, this personal firsthand experience was important to help frame and interpret the case.
SEAN.The merger betweenSouth(previously merged with Appendix, see descriptive table 1 for generic descriptions of the four organizations), North and East,SEAN was officially announced in January 2009, a result of the reorganization of the Portuguesenational healthcare system. The center’s first TMT was in office from January 2009 to August 2010.Two members from South, two from North and one from East composed this TMT. According to the regional press, the reason for the collective dismissal of the TMT was the group’s dysfunctions. Each member put its own hospital’s interests above the center’s goals.The former CEO defended that the creation of a common identity was necessary because the three hospitals had their own identities and working methods, but failed to achieve the commonality sought. The new TMT(starting in August 2010) had experience in healthcare management and was not originally from any of the hospitals, thus without obviously vested interests.
TABLE 1 HERE
RESEARCH PROCESS
We conducted a preliminary interview with the CEO coinciding with his appointment, in order to understand the coreorganizational issuesidentified at the time. We then obtained the permission from the ethics committee and weregranted open access to the four hospitals within the boundaries established by the TMTand the committee itself. Contacts between the research team and the organization intensified in April 2011, eight months after the new TMT’s nomination.We sought to capture the perspectives of relevant internal stakeholders, including the top management, doctors, nurses, and administrative staff through in-depth semi-structured interviews (see appendix B for more information about our central informants). By collecting data on the interpretations of employees in their natural work setting and considering their views over a two-year period, we anchored our analysis in the members’ own sensemakingof the change(Schultz, 1967[SC1]). We complemented interview data with secondary sources, including archival analysis and numerous informal interactions with members of the hospital community. We thus used the main data collection techniques of process research, i.e. research attentive to the role of time, becoming, and feedback loopsin the constitution of organizations.One of the members of the research team regularly had meals in the hospital’s canteenin order to gain firsthand access tothe informal organization. She traveled frequently to the site in one-hour rideswith the CEO in order to gather information informally about the functioning of the hospital center as viewed from the top. Another author delivered a talk on change management, open to all employees who wished to participate, followed by informal interaction.The team’s embeddedness with the setting was thusrich and varied. The triangulation of data from multiple sources contributed to reinforce the robustness of thefindings (Eisenhardt, 1998).
Methodologically, we conducted an inductive embedded longitudinal case study (Eisenhardt, 1989), borrowing techniques from several inductive approaches, such as case study, as a source of conceptual richness, interpretive analysis as a source of lived experience and ethnography to illuminate the role of everyday practices in a concrete sociomaterial context (Eisenhardt, Graebner & Sonenshein, 2016). The interview protocol initially contained eight questions (see AppendixC) based on key themes related tothe ongoing change: the integration between units, the role of top management, rivalry between hospitals, service quality, influential groups and political circuitry, and major effects of the merger.
We conducted a total of 61 formal individual interviews that tookbetween 15 and 90 minutes (1,873 minutes of planned conversations, in total). All interviews were tape-recorded and transcribed verbatim. They were conducted in two different time periods (first round, 46 interviews, May 2011 – September 2011; second round, 15 interviews, October 2012 – December 2012). The two rounds were defined a priori, as methodologically recommended(Francis, Johnston, Robertson, Glidewell, Entwhistle, Eccles.& Grimshaw, 2010). The first round (time 1) sought to capture individual perceptions at the beginning of the process, including advantages, problems and expectationsabout the change. The second round had two goals:to check the interpretations that emerged in the first round andto verify if the data wasconceptually saturated, i.e. to assure that no further relevant data was obtained that could disturb theconceptual model in the making (Glaser & Strauss, 1967). Between times 1 and 2 we maintainedmultiple conversations with the CEO, formally completed by a closinginterviewin the summer of 2015to discuss the conceptual model the researchers had developed.