Executive management in radical change—The case of the Karolinska University Hospital merger

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Summary

Based on the merger of two Swedish university hospitals, this paper examines top management's work in implementing radical change initiatives. Our case confirms the limitations of the classic top-down approach to radical change in professional organizations. We also identify an important paradox: contrary to contemporary change literature prescription, initial managerial success seems to impair the change process further down the organization. A key finding is that when mergers are used as tools to effect radical change in politically ambiguous environment, management appears to be limited to initiate change and to take the role of the scapegoat due to inherent factors in the change process. By elucidating management's difficult role vis-à-vis multiple stakeholders, this paper contributes to one aspect of managerial agency discourse that is rarely discussed in detail.

Introduction

Leading scholars in the healthcare sector claim that mergers are key tools in organizational restructuring (e.g. Fulop et al., 2005, Smith et al., 2001). In this paper we examine such mergers as tools for effecting organizational change, similar to other radical change tools, such as cultural change processes and Business Process Re-engineering (Hammer and Champy, 1993, McNulty and Ferlie, 2002, McNulty and Ferlie, 2004). While large-scale organizational changes have been conceptualized in the wider political and administrative management context, particularly in the periodic restructuring of public sector institutions, a merger is also one example of the New Public Management-philosophy (Ferlie, 1997, Greenwood et al., 2008, Kitchener and Gask, 2003).

The role of top management in radical changes is very controversial. Radical change theorists, such as Hammer and Champy (1993) and Kotter (1996), take a classic functional approach (i.e. top-down) that offers managers prescriptive techniques they can use in engineering transformational change in two to three years. This stream of research assigns the leader a pivotal role in change processes, for example, as an authorizer, visionary and motivator. A successful integration of top management is here proposed as a prerequisite for a subsequent smooth process (e.g. Kotter, 1996, Santala, 1996).

Other scholars (e.g. Greenwood and Hinings, 1996, Greenwood and Hinings, 2006, Pettigrew, 1985, Pettigrew, 1990), highlight the critical role that political negotiation and inter- and intra-organizational dynamics play in shaping the outcomes of change processes. Critical points in the process arise at which the political choices made by dominant coalitions of actors are contested and negotiated by other organizational actors. Proponents of this research stream suggest that attention should instead be paid to emerging processes in which the merger process itself is recognized as an important determinant of post-merger outcomes (Haspeslagh and Jemison, 1991, Jemison and Sitkin, 1986).

The classic functional approach has been heavily criticized because it assumes a “straightforward consequentiality” (Ciborra & Lanzara, 1994) between the decisions of top managers and the outcomes of the change process. However, an alternative approach largely fails to explain how different contextual pressures are interpreted and acted upon by top management, that is, the role the top management group plays in a real change process (Morgan & Sturdy, 2000). Thus the connection between actors’ actions (i.e. executive work) and their understanding of what is going on in organizations is systematically neglected (Watson, 1996). The way actors explain themselves, their actions and their organizations – both to themselves and to others – is crucial for our understanding of the interplay between actors’ intent, their behaviours and organizational outcomes. In explaining themselves, actors also motivate the underlying mechanisms of control and coordination that build a framework for maintaining order (e.g. Law, 1994). For a better understanding of the role of management in radical change processes, more research that examines executive management in such contexts is needed.

Furthermore, there is a clear research need to use the integrated work of management as a group as a point of departure. Various scholars claim that a strategic objective of New Public Management (NPM) reforms in healthcare is to incorporate professional groups within the internal governance structure as a way of reducing the traditional division between medical professionals and administrative managers (e.g. Denis et al., 1996, Greenwood et al., 2008, Sahlin-Andersson, 1999). Although substantial research supports the proposition that physician executives in healthcare are well positioned, well prepared and willing to undertake managerial roles, there is little research that specifically supports the effectiveness of hybrid managerial positions (i.e. medical and administrative) that require balancing the needs of the organization against those of the medical profession (Montgomery, 2001).

The purpose of this paper is to analyze executive management work in radical change initiatives at large and complex organizations, specifically in the post-merger processes of professional service organizations in the public sector. Based on the case of the Karolinska University Hospital merger in Sweden, we examine managerial work by focusing on the interplay between the change efforts initiated by top management and their understanding of the evolving change process. By examining the difficult role of top management vis-à-vis multiple stakeholders (e.g. politicians, the media, professional colleagues), this paper contributes to one aspect of the managerial agency discourse that is rarely discussed in detail in the literature. The paper also addresses the inherent problem related to managerial positions in professional organizations (i.e. hybrid positions) and the emotional pressure that arises when managers must balance parallel institutional logics.

The paper is structured as follows. Next we review the published research on post-merger integration processes with a special interest in executive work and the role of top management in radical change. This review leads to a discussion of our research approach that takes a process perspective. Then we present our research methodology, which is followed by our case study description outlining the post-merger process as viewed by the top management group. Based on this description, we discuss executive work in the post-merger process in terms of change approach, competing logics and inter- and intra-organizational dynamics. This analysis leads to a discussion of our identification of hospital mergers as one form of radical change. We conclude with a summary of our key findings and suggestions for future research.

In healthcare, anticipated economic savings (e.g. Bazzoli et al., 2004, Choi and Brommels, 2009), clinical efficiency (e.g. Ferguson et al., 1997, Goddard and Ferguson, 1997) and political gains (e.g. Choi and Brommels, 2009, Denis et al., 1992) seem to drive mergers. One major task of top management in the post-merger integration process is to manage the drivers and the actors involved (Haspeslagh & Jemison, 1991). Several studies suggest, however, that efficiency often declines post-merger due to unforeseen integration problems (Buono et al., 1985, Fulop et al., 2002, Haspeslagh and Jemison, 1991, Treat, 1976). Managerial hubris, which refers to the tendency to be overconfident in the merger planning stage about merger outcomes, is offered as an explanation for such problems (Seth, Song, & Pettit, 2002). When post-merger problems arise, top management's ability to identify and assess relevant strategic and organizational differences is therefore called into question (e.g. Duhaime & Schwenk, 1985). Therefore, the complex link between plans, processes and outcomes of managerial change initiatives has to be taken seriously (Pettigrew, 1997).

Other researchers have focused on cultural differences in order to explain post-merger problems. Although differences in professional cultures within the organization are recognized as barriers to intended change (e.g. Denis et al., 1996, Sahlin-Andersson, 1999), the literature typically explains merger failures as the result of cultural differences between the two merging organizations (e.g. Datta, 1991, Chatterjee et al., 1992). Paying close attention to these differences at an early stage in the integration process is considered essential for successful management of mergers in later stages (e.g. Lubatkin, 1983, Ramaswamy, 1997).

Still other researchers have considered the potential conflict between the professions and management (Larson, 1977, Freidson, 1984) that can lead to uncertainty about managerial priorities. In healthcare, the conflict between “medical professionalism” and “business managerialism” has attracted the most attention (Denis et al., 1996, Sahlin-Andersson, 1999). Managerialism is here seen as an ideology that asserts that improvement in organizational performance – usually measured by the achievement of relatively short-term financial goals – is management's primary objective. The risk in adopting managerialism, which has increasingly gained influence in public administration (e.g. Denis et al., 1996) is that post-merger processes – for example, in hospitals – may be affected negatively. When management lacks professional knowledge, research shows that management is inclined to place the merger in a larger context. In this way, management influences the professionals by creating meaning for the merger (Empson, 2000).

Exogenous institutional pressure demands a high degree of conformity, particularly in governmental sectors (DiMaggio & Powell, 1983). Profound changes in institutional logics, such as NPM and managerialism, may therefore play an important role, especially in combination with articulated value commitments for change supported by those in power, for example, dominant coalitions (Greenwood and Hinings, 1996, Suddaby and Greenwood, 2005). In tightly coupled institutional fields (e.g. healthcare), where the degree of structuring is high, conflicts among groups are common. This means that “competitive commitments” are widespread (e.g. management vs. professionals vs. political actors). If some groups prefer radical change while others support the template-in-use, evolutionary change is more likely to occur than radical change (Greenwood & Hinings, 1996). Even though contemporary scholars acknowledge the complex interplay between organizations and inter-organizational dynamics, the response of the individual organization to pressure in the institutional field is more or less a blind spot.

It has been suggested that external circumstances may affect the integration process in mergers (Löwstedt et al., 2003, Meyer and Lieb-Doczy, 2003, Nupponen, 1995). For instance, it has been argued that favourable turns in business cycles may provide actors with a false-sense-of-security, which in turn may impede successful integration (Vaara, 2001). Recent research in private industry shows that difficulties in merger processes can be explained partially by management's emerging relationships with external actors (Schriber, 2008). Nevertheless, in general, merger research seems to disregard the importance of the external context in explaining the evolution and outcome of post-merger processes.

Contrasted with the private sector, the research on mergers in the public sector reveals no clear managerial authority among the many, and easily politicized stakeholders (Denis, Lamothe, & Langley, 1999). Arguably, this is particularly true in mergers of professionally dominated organizations, such as found in healthcare, where professionals traditionally exercise considerable power and autonomy and strongly resist changes in their deeply rooted behaviour (Pettigrew, Ferlie, & McKee, 1992).

Although the concept of institutional logics draws attention to the encoded criteria of legitimacy – and hence to the discursive struggles between proponents and opponents of different professional and managerial logics – the issue of managerial agency in this respect is rarely discussed in great detail (Suddaby and Greenwood, 2005, Vaara and Monin, 2010). Despite the fundamental role of management in post-merger processes, few merger studies look specifically at the work of the management group (Schriber, 2008). This research gap is even more evident in the study of healthcare mergers. Thus it is important to examine how management deals with the post-merger integration process if we are to understand, de facto, what advances or obstructs potential post-managerial action. Thus, in order to better understand the interplay between change efforts initiated by top management and the organization's many stakeholders, in this study we focus on management's own understanding of the evolving change process.

Section snippets

The study

This paper reports on the findings from a study of executive management work following the flagship merger of two publicly funded university hospitals in Sweden. Our study is designed as an in-depth, single case study that uses multiple sources combining different data collection methods. This design permitted the accumulation of a rich set of data with high internal validity (see Eisenhardt, 1989, Leonard-Barton, 1990).

Following the merger decision in 2004, the regional government gave

The pre-merger process: drivers for change

The Karolinska University Hospital (KUH) was formed on 1 January 2004 by the merger of Karolinska Hospital (KH) and Huddinge University Hospital (HUH), both located in Stockholm, Sweden, 30 km apart. Both hospitals were publicly funded university hospitals, owned and governed by the Stockholm County Council, and were closely affiliated with Karolinska Institutet (KI). The merger decision was far from an open-and-shut case because of the historic rivalry between KH and HUH. However, in the

Executive work in post-merger processes

In pre-merger discussions in the healthcare sector, the primary merger motive is economic efficiency (Bazzoli et al., 2004, Goddard and Ferguson, 1997). This motive applies in our study as well, even though other merger motives (political ambitions, research excellence) also played a crucial role in the pre-merger process (see Choi & Brommels, 2009). Our study shows that the management's formal mandate that originated in the regional government highly influenced the executive work dynamics by

Radical change revisited

According to Greenwood and Hinings, 1996, Greenwood and Hinings, 2006, radical change is dependent on the interaction between exogenous dynamics (the institutional context) and endogenous dynamics of interest, values, power dependency and capacity for action. For radical change to occur, exogenous dynamics have to be complemented with enabling internal dynamics, supportive power dependencies and the capacity for action (Greenwood and Hinings, 1996, Greenwood and Hinings, 2006).

Resonating with

Conclusion

The case of the Karolinska University Hospital merger outlines a classic top down approach to change with a series of expected and unexpected disruptions, which confirms the limitations of functional change theorists’ approach to understand the work and role of top management in radical change initiatives in professional organizations (McNulty & Ferlie, 2004). We also recognize that even if some stakeholder groups seem to prefer a new dominant archetype (i.e. managerialism), whereas others

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