IS ABSORPTIVE CAPACITY THE KEY TO IT SUCCESS IN

HEALTHCARE? A COMPARATIVE STUDY OF TWO SWE-

DISH UNIVERSITY HOSPITALS

Andersson, Daniel, Karolinska University Hospital, Hälsovägen, SE-141 86 Flemings-

berg, Sweden, daniel.andersson@karolinska.se; KTH Microelectronics and Information

Technology, Electrum 229, SE-164 40 Kista, Sweden

Keywords: Absorptive capacity, Business processes and work methods, Cost-effective, Culture,

Information technology, Medical record systems.

Abstract

Why is it so difficult to get the information technology (IT) and business communities to support

each other in an effective way? This question is important, not least in the healthcare sector.

The complex division of roles and responsibilities between different organizational layers and

stakeholders with various backgrounds, experience, motivation, interests and goals makes it

very difficult to bridge the gap between business and IT activity. This often results in a situation

whereby the IT departments become vehicles that run in parallel with the core business and its

objectives. In this paper, factors that are critical for success in achieving cost-effective IT solu-

tions in healthcare are put forward on the basis of an empirical study of two large Swedish uni-

versity hospitals with the same socio-political and socio-economic background. The hospitals

had roughly the same organizational structure, size, number of employees, turnaround, and IT

infrastructure, but differed in the number and cost-effectiveness of their medical record systems,

and in the total cost of IT for each hospital. Important clues that might explain the different out-

comes were gained by studying the fundamental culture and investments in absorptive capacity

of the organizations regarding their different ways of handling work processes and organiza-

tional change, and also their values, attitudes, and competence.

1 INTRODUCTION

There are great expectations that information technology (IT) will make healthcare more effi-

cient and better adapted to the patient’s needs, and increase the degree of coordination between

different care units. IT-related development is expected to have an important effect on admin-

istration and management. On the other hand, it is also obvious that the use of IT in the

healthcare sector shows great weaknesses in terms of management and organization [1]. A criti-

cism often expressed when it comes to IT in the healthcare sector is the lack of synchronized IT

systems. The insufficient coordination of the various IT solutions can be seen as a symptom of

deficient coordination of business activity, and as a lack of common business objectives and

processes [2]. It is often said that IT in healthcare is not cost-effective and that it could be put to

much greater use [3, 4]. There seems to be a strong tension between the use of IT on the one

hand and the weaknesses of the management structures on the other.

In this paper, the factors that are critical for success in achieving cost-effective IT solutions in

healthcare are put forward on the basis of an empirical study of two large Swedish university

hospitals with the same socio-political and socio-economic background. The hospitals had

roughly the same organizational structure, size, number of employees, turnaround, and IT infra-

structure, but differed in terms of the total costs of buying and using hardware and software, the

number and cost of their medical record systems, and their ability to support the healthcare pro-

cess. Important clues that help explain the differences can be gained if we study the organiza-

tions’ fundamental culture and investment in “absorptive capacity” regarding ways of handling

work processes and organizational change, as well as their values, attitudes, and competence—

things that can be traced back to the history of the organization.

This article is structured as follows. Section 2 give an overview of the development that has oc-

curred in the Swedish healthcare sector in the last decades, together with the difficulties and

complexities associated with continuous restructuring strategies and different stakeholders’

views and objectives. Section 3 introduces some relevant theoretical concepts such as absorptive

capacity and it includes a few words on methods. Section 4 contains a presentation of the back-

ground of the two hospitals and puts forward some observed differences that are relevant to the

case study. Section 5 includes a discussion and factors explaining the observed differences. Sec-

tion 6 presents the conclusions of this study, together with the corresponding policy implica-

tions that will be of interest for further research and practice.

2 HEALTHCARE STAKEHOLDER’S VIEWS AND OBJECTIVES

One of the problems when it comes to finding well-functioning IT solutions for the healthcare

and medical services sector concerns the different objectives that exist between the different

stakeholders: patients, politicians, administrators, and medical professionals. This situation

complicates the task of taking the point of view of the patient into account and the possibility of

using IT as a tool to facilitate communication and dialogue. Due to IT being a fairly young in-

dustry and to management’s inability to understand its role in the organization, management

often fails to take charge of the IT activities. This often results in a situation whereby the IT de-

partments become side vehicles, separated from the core business and its objectives.

What has been seen over the past few decades is that the changes taking place in the healthcare

sector are placing greater importance on other rules and ideas, namely the ones having to do

with effectiveness and the market. During this period, the healthcare sector has undergone sev-

eral extensive reforms—including responsibility changes mostly concentrated on restructuring

in order to increase the efficiency of the business. At the same time, medical and technological

development has been rapid and the economic restrictions have been significant. The constant

restructuring, the rapid developments in medicine and IT, the lack of managerial skills and of a

clear owner [5] has meant that healthcare personnel and their leadership have been exposed to a

great deal of strain. This has in turn led to a feeling of powerlessness and dissatisfaction with

management, the work organization, and the work environment [6]. Despite this, the newly pro-

duced report “Ansvarsutredningen” is proposing mainly restructuring as a way of achieving a

sustainable social healthcare organization with the appropriate power to develop itself [7].

The ongoing reforms in healthcare can be seen as a struggle over which form of logic will dom-

inate within care as a social field. The medical profession, which represents the logic that pre-

dominated previously, stands in opposition to that of the administrators and politicians who

have found strategies with which to try and change this logic [8]. The conflict between the dif-

ferent values of the elected representatives and administrators on the one hand and the medical

profession on the other is described by several researchers, amongst others by Jacobsson [9]

When it comes to management, the values of the medical profession include the disparagement

of leadership as a skill in itself and the general perception of management as being weak. The

management often complains that they get insufficient support from politicians when it comes

to running efficiency-improvement work, and some also point out a general need for a better

understanding of process management and for continuous improvements. The medical profes-

sion perceives elected representatives as having difficulty in keeping away from the production

process, and therefore interfering with details; however, leading officials state that in the majori-

ty of cases the boundary between the political management and the civil servant is clear [10].

The consequences of strong specialization in the healthcare sector have been described in the

literature; for example, Anell showed that the relationship between doctors with different spe-

cialties is not cooperative but competitive [11]. This leads to fragmentation between different

organizational units. The doctors’ driving motivation is permanent improvement, development,

and increase in depth within their specialty; so while specialization does encourage scientific

development, it also promotes fragmentation and territorial thinking. Research organizations

have an intrinsically horizontal hierarchy built on relative status [12], and researchers are gener-

ally individualists with powerful self-interests; they therefore tend to reinforce functional hier-

archies. Attempts to influence this institution from a political or administrative point of view

have seldom been particularly successful [13].

It has been established that the different organizational layers in academic healthcare organiza-

tions have developed differently. Not only does the academic side have its own conditions and

objectives, but the informal pathways that are created between individuals mean more for de-

velopment work than do formal organizational pathways. In other words, research networks are

an important additional structure that overlies the structure promoted by the healthcare organiza-

tion. Medical education is normally carried out according to the traditional basic specialties. At

university hospitals, this creates organizational problems since basic specialties essentially do

not exist within, for example, medicine and surgery; instead, many subspecialties are involved.

The organizational network created for educational activities thus becomes yet another stratum

overlying the healthcare organization.

Given this picture with various stakeholders with different objectives residing in different insti-

tutional and organizational layers and settings, how would it be possible to bridge the gap be-

tween healthcare and IT? How, do we enable cost-effective IT solutions that facilitate the im-

plementation of both national and organizational strategies and business objectives for the

healthcare sector? What are the critical factors for success?

3 THEORY AND METHODS

It will always be a challenge to bridge the gap between different areas of knowledge. In a com-

plex business activity such as healthcare, one important question is how to take full advantage

of the investments and technological developments within medicine and IT to increase efficien-

cy and enable improved treatment methods? The complex division of roles and responsibilities

between the various stakeholders with diverse backgrounds, experience, motivation, interests

and goals makes this a very complex task. There is a strong possibility that the main reason for

the difficulties concerning badly functioning and unsynchronized IT systems is a poorly func-

tioning dialogue between the various stakeholders and business units, and in turn between them

and those involved in IT activities. To enable well-functioning IT solutions, at least two prereq-

uisites must be fulfilled; the IT representatives must understand the business activity and the

users must have a proper understanding of the possibilities of and restrictions associated with

IT. How can we facilitate this dialogue?

To explain this, I will introduce the concept of absorptive capacity, as studied by Cohen and

Levinthal [14, 15]. In their classic article on the subject, they showed the importance of internal

knowledge in generating external knowledge. A series of different studies has empirically con-

firmed these theories. In order to assimilate knowledge from external sources, an organization

requires the capacity to incorporate new knowledge. Absorptive capacity builds on “prior relat-

ed knowledge”; in other words, previous experience related to the new concept that one wishes

to understand. Absorptive capacity works both at the individual level and the organizational

level. At the individual level, the accumulation of prior related knowledge enhances the ability

to acquire new knowledge. Similarly, the diversity of prior related knowledge facilitates novel

associations and linkages, and helps deal with uncertainty. Absorptive capacity at the organiza-

tional level is shaped by organizational structure in conjunction with absorptive capacity at the

individual level. It is enhanced by: “gatekeeping” or “boundary-spanning” activities with the

external environment (outward-looking absorptive capacity), interaction within subunits (in-

ward-looking absorptive capacity), and interaction between subunits (cross-functional absorp-

tive capacity). Why is absorptive capacity important in the circumstances surrounding

healthcare and IT? The main reason is that IT and healthcare represent two different areas of

knowledge and that a successful IT activity demands an understanding of the business, and that

the business understands the IT activity. So why is it so difficult to achieve a well-functioning

dialogue between the two?

According to the American innovation researcher Eric von Hippel, the difficulties experienced

by IT technicians and users in establishing a well-functioning dialogue [16, 17, 18] do not main-

ly lie in cultural differences between the technology and users, but mainly in the fact that they

represent two different knowledge areas and thought models. Von Hippel states that the techno-

logical knowledge is more general and relatively easier to communicate to a business than it is

for the business to communicate their knowledge to the suppliers. The knowledge concerning

the objectives of the business, their customers, suppliers, knowledge and attitudes amongst their

co-workers, are often based on experience and are business-specific. The relative difficulty in

communicating information from one part to another is described by Von Hippel as being

“sticky”, i.e. inert. This does not necessarily mean that the knowledge in question is “tacit”, but

that its communication is associated with considerable effort and therefore costs. The inertness

can have its root in both the information itself and in the way it has been coded. In another

study, it has been found that the three most important factors behind the “inertness” is the re-

ceiver’s inability to absorb the information (lack of prior related knowledge) in the transference,

incomplete or poorly coded information, and a distanced relationship between the sender and

receiver [19]. How does one ensure that the relevant competence in communication exists re-

garding business and IT activity at the user’s premises?

According to von Hippel, it is more rational to make the user responsible for the problem solv-

ing and to bring forth technological knowledge to him or her rather than to let a party responsi-

ble for the technology on the outside carry this responsibility. This leads us to the conclusion

that the problem solving node, i.e. the arena for the integration of technology and business ac-

tivity should reside with the users. This conclusion also has important implications when it

comes to the kind of learning that is necessary for a well-functioning innovation process: “learn-

ing by using” [20]. By this concept, Rosenberg did not mean the learning that occurs in the pro-

duction, but the learning that occurs in connection with the use of a product. The users have a

very important role in the innovation process. Transference of the users’ knowledge, experienc-

es and preferences is of decisive importance in order to be able to bring about a well-functioning

innovation process. In order to develop the users’ absorptive abilities and evaluate technical

competence, von Hippel states that it would be more rational to employ IT technicians at the

user’s premises instead of at the IT organization. How can we develop these cross-functional

absorptive abilities?

In principle, there are two systems that have been developed to handle problem solving: inte-

grated and separated production systems. Those production systems in which the operators are

the ones who in principle have the responsibility for problem solving, Kazuo Koike [21] calls

integrated production systems. The separated production system is characterized by problems

that are solved by certain specialists who are called upon to solve them. For the individual co-

workers to achieve all the customizations needed in the integrated production system, their

knowledge and abilities (“skills”) need to be formed according to the way the work is structured

in terms of independent problem solving and the extent to which the work activities are devel-

oped over time. For the individual to develop his or her “skills”, however, it is not enough to

have a variable problem solving capability involved in one’s work. According to Koike, the

Japanese skill-formation system also involved work rotation especially aimed at the units that

one’s own unit depended on, or that were dependent on the tasks performed by one’s own unit.

Large efforts were made to let the employees understand the “whole picture”, to enable them to

create their own solutions. The integrated production system combined with this decentralized

information structure [22] laid the foundation for the Japanese successes during the 1980s that

made kaizen, “just-in-time”, thinking possible.

Before moving on to the case study, a brief note on research methods is appropriate. The case

study employs a qualitative and diverse set of methods, including discussions with clinicians,

researchers, politicians, information managers, system developers, administrators, and users of

information systems, as well as observations and document analysis. I would also like to note

that statistical generalization is of course not applicable here. The case study presented illus-

trates and generalizes in an analytical way novel theoretical ideas that may be used in various

contexts.

4 A COMPARATIVE STUDY OF TWO SWEDISH UNIVERSITY

HOSPITALS

Karolinska Hospital (henceforth referred to as KH) has contributed to many medical break-

throughs since its grand opening in 1940, many of them pioneering. It was a state-run hospital

until 1982, when the government transferred it to Stockholm County Council (henceforth re-

ferred to as SCC). Since then, KH has functioned as both a regional hospital and a university

teaching hospital with specialist resources in some fifty medical disciplines. One main mission

of SCC is to ensure that the inhabitants of the county have access to healthcare.

Huddinge Hospital (henceforth referred to as HH) was conceived by SCC in 1961 as a central

hospital to augment healthcare provision for the rapidly expanding southwest area of the county.

Three years further on in the planning process, an agreement was made with the Swedish gov-

ernment that the hospital should be an educational and research hospital. Ground was broken in

1967, construction work started in 1968, and the hospital opened in 1972.

On the April 1, 2000, HH was transferred to a public limited company under the production

board of Landstingshuset AB, a company owned by SCC, and the hospital was provided with a

board of representatives to support the managing director. This created clearer roles and respon-

sibilities toward the owner, a clearer management, and also faster decision-making processes;

decisions were delegated lower down in the organization.

Up until now, KH and HH have been hierarchically structured above the clinic level, while at

the clinic level the organization has been very flat, based on a matrix with the clinic manager at

its centre. Both hospitals were organized with subspecialties within functional hierarchies. His-

torically, all medical specialties have reported directly to the hospital manager. Since the middle

of the 1990s, however, the hospitals have had a divisional organization based on “pills, scalpel,

and laboratory”. This has improved the capability of medical professionals to influence the

work at the hospital management level, and created a more reasonable organizational line of

command.

On the January 1, 2004, Karolinska University Hospital (henceforth referred to as Karolinska)

was born from a merger between HH and KH. The intention was to create an integrated univer-

sity hospital built upon the need to increase competence in highly specialized care, and to pro-

mote Stockholm as a centre for medical research and development on both a national and an

international scale. At the time of the merger, each hospital had a scattered IT environment with

many different unsynchronized applications and systems.

The following section investigates how successful the hospitals have been in establishing IT

solutions for their overall health record system (section 4.1). Furthermore, a short summary of

the total IT costs at KH and HH is presented, as a basis for analysis of their respective invest-

ments in mutual absorptive capacity between the IT and the business activity (section 4.2).

4.1 The number of medical record systems

At the time of the merger, HH used one common electronic health record system, TakeCare,

throughout the entire hospital. TakeCare is a health record system that is focused on administra-

tive activities in the healthcare sector, with integrated functions and modules for such things as

patient administration, referral and reply (e.g. to laboratories), resource management, emergen-

cy care, bookings and reservations, and measurement (e.g. blood values, lab values). It also pro-

vides support for a hospital’s care processes regarding primary care.

TakeCare was very popular among the users, and it was the first IT system for care to be certi-

fied for user-friendliness by the UsersAward organization [23]. This certification guarantees that

the system has satisfied users, and is based on real-life tests at the customer’s premises concern-

ing how an IT system functions in the business on a daily basis.

In contrast, KH used at least three systems, BMS, Melior, and PASS, which—even in combina-

tion—delivered less functionality than TakeCare. For example, in contrast to BMS, TakeCare

was integrated with all the major laboratories. BMS and Melior are medical record systems in

which all administrative activities and journal documentation about the patient are registered.

Their central modules are journal documentation, referral and reply, and support for medical

prescriptions. PASS is a system for handling patients’ administrative information. TakeCare had

higher scores than BMS in most of the assessment categories defined by UsersAward.

An important difference between KH and HH regarding the development and establishment of a

health record system was that HH had concentrated its efforts on in-house development, in close

collaboration with the supplier, while KH had bought standard systems from vendors such as

IBM, SYSteam, and Siemens, and tried to customize them to the organizational needs after-

wards. Both hospitals had a number of local medical record systems for such things as surgery

planning and registration and intensive care.

In general, the employees of KH were less satisfied with their IT support for the healthcare pro-

cess than those of HH. This is a well-supported opinion among the employees at the new hospi-

tal. One piece of evidence for this is that when a vote was taken over which electronic health

record system—TakeCare or BMS—should be used at Karolinska, TakeCare won almost unan-

imously. Not only was TakeCare perceived to be much more user-friendly than BMS, but ac-

cording to an evaluation done by the system owner, its financial cost was lower.

4.2 Differences in the overall IT costs of the hospitals

In order to facilitate an examination of the economic effects of the merger on IT-related activi-

ties, the hospital management decided to carry out a closing of the books at KH and HH [24].

The inventory of costs shows large differences in IT costs at the two hospitals. The cost per

workstation was almost twice as high at KH: approximately SEK144,000 compared to

SEK77,000 at HH. Note, however, that this result alone is not sufficient to determine whether

IT support is effective. The average cost per workstation in other organizations with similar

needs is SEK97,500. KH had costs far above the average cost and HH had costs below it. The

following table shows the distribution of costs between direct and indirect cost groups.

KH IT HH IT

Equipment and software 19 699 10 780

Operations 21 310 10 993

Administration 2 027 2 418

End-user activities 98 175 51 878

Downtime 3 125 929

Total cost of ownership 144 335 76 998

Direct costs 43 036 24 191

Indirect costs 101 299 52 807

Table I: Cost per workstation divided by business unit and cost categories. Source: Revision

enligt SCC IT kostnadsinventering, SCC – Karolinska Universitetssjukhuset.

Direct costs comprise all costs for equipment and software and all IT-related operative and ad-

ministrative costs that can be tied to IT operations, including costs for in-house personnel and

rented resources such as consultants. Indirect costs are those generated by end-user activities,

including costs incurred by utilization of formal and informal IT support and costs related to

interruptions in operations (downtime), which render users incapable of accomplishing their

tasks.

The cost inventory shows that KH had lower staffing and that the employees were less governed

by rules than their equivalents at HH, but this was offset by their relatively higher share of ex-

ternal operative costs—for example, support, service agreements, and consultants. Although KH

had a much higher cost per workstation than HH, its total IT administration costs were still con-

siderably lower than the average for all subcategories (administration, education (IT unit), and

end-user education). Costs relating to end-user education initiatives were extremely low at both

hospitals, and significantly lower at KH than at HH.

The high cost of end-user activity shown for KH in Table 1 suggests that an increase in the effi-

ciency of end-users’ use of their computer tools is perhaps the greatest potential improvement

indicated by the cost inventory. The money spent does not seem sufficient to maintain an ap-

propriate level of competence at the user side, and indeed the relatively high level of spending

on external operative services at KH suggests a substantial deficit in skill in the ordering organi-

zation. Taken together this is an indication of a too low investment in absorptive capacity be-

tween the business and IT activity at KH.

To summarize this section and the preceding one: the overall electronic health record system at

HH was introduced at a lower cost, was more user-friendly, and produced a higher level of user

satisfaction and the total cost of ownership was almost half of that at KH. Neither organization

seems to have had sufficient competence or staffing to solve the tasks brought before it, but HH

had a higher degree of investment in absorptive capacity between the IT and business activities.

This is a basic requirement for success, regardless of the choice between in-house development

and the purchase and customization of standard systems. The higher ability at HH to govern by

rules (formulate contracts) is another indication of its higher degree of absorptive capacity. Pos-

sible reasons for these differences will now be explained.

5 DISCUSSION

The differences between KH and HH doubtless have an organizational explanation, but it is not

necessarily a simple one. Instead, it is quite possible that the deep-down explanation lies in dif-

ferences in the organizations’ fundamental culture and ways of handling work processes and

organizational change, as well as their values, attitudes, and competence. If the cultural explana-

tion is sound, it should be possible to identify and describe how the two hospitals differ in this

regard.

In the coming section, examples of how HH has made a greater investment in absorptive capaci-

ty through a more integrated production system and decentralized information structure will be

presented. It should be noted that many of the basic investments that constitute absorptive ca-

pacity in our examples had started to develop a long time before IT. The viewpoint regarding

processes, the more patient-oriented outlook and extensive collaboration between different

units—with mottos such as “the patient in the centre” and “shared knowledge grows”—and de-

velopment processes including techniques such as TQM for continuous improvements, and so

forth, that have been developed at HH, was something that coming IT departments could draw

experience from and continue to develop later on.

In the discussion of ways of providing uniform IT solutions to problems, it has often been put

forward as desirable that healthcare should be more centralized so that one person has the au-

thority to choose a system, solution, or standard that everyone else must comply with. There

was indeed a difference in the degree of centralization between KH and HH, but it was in fact

KH that had the more centralized management structure.

The problem at KH seems not to have been with the individual responsible for decision making,

but with the quality of information available for use in the decision making process. The organi-

zational culture and structure did not give those involved lower down in the hierarchy either the

opportunity or the incentive to create and provide such information. On the other hand, it seems

to have been the more decentralized processes at HH that enabled the communication of appro-

priate information and relevant experience, making it possible for a central decision-maker to

choose one overall electronic health record system based on in-house development, in close col-

laboration with the supplier and users. Is there a possible reason explaining this?

One of the more obvious differences between the hospitals was that HH had a more process-

oriented organization than KH. By 1994–1995, HH had already begun to concentrate on hori-

zontal thinking in healthcare processes; whereas such an approach is not mentioned even once

in the last ten years amongst the operational programs and annual reports of KH (the process

work at HH was interrupted at the time of the merger with KH, and has not been resumed).

Some important strategies in this work were to keep an unchanged line of command, to build an

infrastructure with structured work procedures for continuous improvements, and to customize

work methods with the help of continuous feedback and action based learning. Two important

purposes were problem solving and learning. The three overall organizational principles for the

management of HH expressed in the operational program for 2001 were [25]:

• Clear responsibilities

• Decentralization

• Process management in the line of command.

The approach to process management taken by HH demonstrates differences from KH in terms

of both work organization and management, and is in itself evidence of the higher degree of in-

tegrated work organization, decentralized information structure, and investment in absorptive

capacity. The effort to decentralize at HH is described in its annual report for 1993 [26] in terms

of implementation of a sweeping administrative reorganization involving, among other things, a

reduction of central duties and the decentralization of administrative management regarding

personnel, economy, and purchases.

The decentralization efforts at HH also applied to IT, where the different clinics and depart-

ments had to pay for their use of IT. This contrasted with KH, which had more centralized man-

agement of IT costs (financed by overheads). The lower total IT costs at HH were probably a

result of the organization’s ability to generate contracts between the IT department and different

business units, which allocated specific rights to use IT resources at a certain cost. Economic

theories concerning transaction costs [27, 28] provide further evidence of such causality. At HH,

the ability to formulate these contracts can be explained as being a result of its higher invest-

ment in the mutual absorptive capacity between business activity and IT.

Further proof of the higher absorptive capacity between the business and IT activity at HH can

be seen with respect to some of the critical success factors identified in the development of

TakeCare: strong end-user involvement, close and daily interaction between the users and the

supplier, and a well put together working group with experience in IT development and business

activity. One question that arises regarding the success of the introduction of TakeCare at HH is

whether the same small group of people could have brought about a similar achievement at KH.

This cannot be clearly explained, but research on technology and social construction [29] has

shown that technology is constructed by the users. Even if two workplaces have the same prob-

lem, and the same type of business and socio-economic/political conditions, their culture and

ways of handling work processes and organizational change are often different. Thus, what

works at workplace A will not necessarily work at workplace B.

Although both KH and HH were organizations based on functions, conversations with the em-

ployees of Karolinska make it clear that most of them perceived HH to be a more modern, flat-

ter organization. KH, on the other hand, was perceived to be a more traditional bureaucratic hi-

erarchical organization. This is also expressed in the KH business plan [30], which states that

the hospital must move from a “rigid administration towards a culture that rewards flexible and

open cross-disciplinary solutions in networks”. In other words, because of the possibility of

changed market and governing forms, KH felt that it would have to make changes—not only to

its work methods and procedures, but also to its structure and culture.

Table 2 compares the characteristics of KH in 2001 with the characteristics of “the hospital of

the future”—an organization that seems to bear strong resemblance to modern Japanese compa-

nies built on the twin concepts of integrated production systems and decentralized information

structure with high focus on cross-functional absorptive capacity.

The hospital of 2001 Requirements for the hospital of the future

Focus on functions and specialties Focus on patient flow

Efficient departments Efficient hospital systems

Introverted professional groups Cross-department professional systems

Focus on costs Focus on customers and on quality objectives

Unclear division of responsibility between hospital

and primary care

Pro-active cooperation with the primary caregiver

Independent information systems Interaction between all systems in the care chain

Development of professional competence Development of both professional and organizational

competence

Table II: A comparison of today’s hospital with requirements for the hospital of the future.

Source: Karolinska Sjukhuset Affärsplan, 2001.

Studies of annual reports and operational programs from KH and HH over the past decade show

that HH was better able to assimilate, organize, and apply this rather Japanese approach. It is

possible that this can be explained by the fact that the hospitals were established during entirely

different time epochs, KH during the Second World War, and HH more than three decades later.

HH was formed during a time when the concept of kaizen - continuous improvement in pro-

cesses and methods - was a subject of intense discussion. It is not unlikely that these debates

influenced the people responsible for defining the initial organizational structure and work pro-

cesses of HH. In addition, HH began to adopt the Japanese principle of “just in time” nearly a

decade and a half ago, in 1992, in order to give faster product flow, a reduced amount of capital

tied in stock, and significantly lower costs. In 1993, the hospital initiated the TVU97 project

(Multidisciplinary Care and Development 1997), with the purpose of using the four years that

followed to define the basis of a new organization, and to establish future work methods and

procedures. At the same time, process work with the aim of mapping and refining the care pro-

cesses started in parallel with the introduction of new IT support. The analysis phase involved

many study visits to hospitals and incorporated models from industry (e.g. ABB: s T50). A

number of pilot projects were initiated. Moreover, an IT strategy with a clear connection to the

business objectives was formulated. The IT strategy was aimed at creating a basis (technical

platform) for information in the care process, incorporating flexible information systems that

supported the care process and that concentrated on time booking, journaling, referral and reply

regarding laboratories and consultations [31].

The coincidence of the foundation of HH with the debate over kaizen is quite possibly a major

reason why, 25 years later, a centrally placed person was able to choose a common electronic

health record system that the entire organization complied with. Earlier-mentioned theories of

path dependency, which have recently had a significant effect on the social sciences [32], pro-

vide further evidence of such causality.

If the Japanese experience and conceptual definitions are transferred to the discussion about or-

ganizational capital, the work rotation between different units should be seen as an investment

in absorptive capacity and communication skills. As an example the work on process orientation

and continuous improvements at HH during the period January–August 2003 involved 108

meetings, in turn involving 350 individuals in multidisciplinary teams, and consumed 1,325

man-hours. Investments of this kind create good ground rules for the business activity, which

the IT activity can continue to build from.

Another obvious difference between the hospitals was that KH concentrated much more on re-

search than HH. During 2001–2003, KH was awarded more doctoral diplomas, published more

scientific articles in international peer-reviewed journals, ran a higher number of specialist

competence courses, and was awarded more research grants [33]. As mentioned earlier, an or-

ganization with a strong research interest tends to reinforce investments in inward- and outward-

looking absorptive capacity. Thus, it is highly probable that the stronger research objectives at

KH in conjunction with the organizational culture resulted in an inadequate investment in cross-

functional absorptive capacity that affected the learning ability at the organizational level. This

explains the absence of a horizontal dimension at KH, encompassing work with care processes

and continuous improvements. The inadequate investment in cross-functional absorptive capaci-

ty is one possible explanation for both the higher total IT costs and the less user-friendly IT so-

lutions supporting the care processes at KH. On the other hand, the reinforced investments in

inward- and outward-looking absorptive capacity are a possible explanation for the more suc-

cessful research results.

HH and KH had the same core business processes, care, research and education, but without a

doubt it was HH that did do long-term work in establishing work methods based on care chains

and processes. An interesting observation is that the formal organization at both hospitals was

built on a divisional organization based on functions. It is very possible that healthcare organi-

zations must organize their business in this way in order to create the necessary trust of the pub-

lic and politicians. The different outcomes in terms of IT costs and IT functionality thus have no

obvious connection with the formal organization.

If the above view of what constitutes absorptive capacity is correct, what consequences does it

have concerning the relationship between an organization’s business activities and IT? One im-

plication is that focus is transferred from formal organization to informal organization—and the

organization’s fundamental culture and ways of handling work processes and organizational

change, as well as its values, attitudes, and competence.

This conclusion is supported by the Swedish Ministry of Finance report “Findings on County

Councils” that takes the view that county councils should concentrate on improvements in sys-

tems and in process-oriented efficiency, beginning with the patient in the centre and with the

goals of i) increasing access to care, ii) improving patient flow, and iii) increasing patient-

related security in order to avoid dangerous and costly treatment errors [34]. The report also

takes the view that the essential factors are values, attitude, and competence in understanding

one’s work and the purpose of one’s work. The report states clearly that a decentralized

healthcare system, structured around a large number of principles (each with their own respon-

sibilities), does not naturally put the patient in the centre. The patient’s needs are often disre-

garded, and the care process can become fragmentary. Despite the excellence of the individual

care units, the hand-over between units is a weak link, with waiting lists and poor coordination

contributing to patients’ perception of substandard care. Indeed, the point of view of the patient

is one of the major problems in Swedish healthcare. Regardless of this, the majority of county

council representatives concentrate only on restructuring in order to increase the efficiency of

their business. The report also gives Jönköping county council as a best-practice example of a

process-oriented organization in Sweden. The reason for this is that over two decades, the man-

agement has consciously strived to work with continuous improvements and Total Quality

Management (TQM), the same approach as that used by HH nearly fifteen years ago [35].

With diminishing resources, healthcare will be forced to change. The functional hierarchy of

earlier decades must be combined with a more patient-centred, horizontal arrangement in order

to create new possibilities for increased efficiency and reduced costs. One important question

that arises from this case study is how to combine the functional hierarchy of today’s healthcare

organizations with a process-oriented organization? The establishment of the horizontal dimen-

sion creates new problems to be solved between different organizations that participate in a val-

ue-added network, but problems also arise between functions within the same company when

the organization is process-oriented. Is it possible to reorganize healthcare into processes while

still retaining the necessary competence of the medical subspecialties, and uphold the trust of

the public and politicians?

6 CONCLUSIONS AND POLICY IMPLICATIONS

What matters in the pursuit to establish well-functioning and cost-effective IT solutions is not

the formal but the informal organization, and its fundamental culture and ways of handling work

processes and organizational change. For the IT investments to come to fruition and give the

proper benefits, each organization must create the necessary mutual absorptive capabilities with-

in its different business units, and between the business units and the IT activity. In order to do

that, each organization must find employees with enough technical competence in the user’s

business and make it possible for the user to undertake a more active and participatory role in

the process of developing and establishing various IT solutions. An important responsibility for

management is to sanction this process and support work with processes, continuous improve-

ments, and dialogue-based work methods. In turn, this will create the necessary absorptive ca-

pacity to enable cost-effective, well-functioning and synchronized IT solutions and business

processes.

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