How do performance gaps shape managerial strategy? The role of sector-differences in U.S. nursing homes

Abstract

Despite the high volume of literature on managerial strategy, few studies have explored how performance gaps shape managerial strategy, particularly across sectors. Emerging studies indicate that different risk preferences, market competition, and financial incentives across sectors play important roles in shaping managerial strategy in response to performance gaps. Using U.S. nursing homes, this study examines how performance gaps shape prospecting and defending strategies, and whether the relationship is contingent on sector. The findings indicate that nursing home managers are more likely to be prospectors when they outperform past performance or other competitors. When considering sector-differences, this finding is consistent in only for-profit nursing homes. Regardless of performance gaps, for-profit nursing homes are also more likely to adopt a defending strategy compared to their nonprofit or public counterparts. The findings suggest that sector-differences should be carefully considered to understand the impact of performance gaps on managerial strategy.

Notes

1 Organizations might be prospectors on some tasks but defenders on others, so the analyzing category, which is a blended strategy between prospecting and defending, is redundant because all organizations become analyzers at some point (Walker 2013). Additionally, a reacting strategy is less predictable based on organizational characteristics because reactors can lack strategy altogether and rely on decisions from powerful stakeholders instead (Meier et al. 2010; Walker 2013). Based on these arguments, this study focuses on the most distinctive strategies, prospecting and defending.

2 Besides these two arguments, Nicholson-Crotty et al. (2017) argue that there can be an inverted U-shape relationship between managers’ perceptions of performance and innovation adoption. They contend that managers will be less likely to adopt innovation when they are just meeting aspirations. Since this study considers both prospecting and defending strategies, this non-linear relationship argument for innovation adoption is not discussed here. As a supplemental analysis, this study tested this non-linear relationship with the study sample, but no significant relationship was found.

3 The CMS five-star quality rating reported in every year is constructed using three years of cumulative performance on health inspection surveys, staffing, and quality measures. The five-star rating is calculated as follows: the top 10% of nursing homes in each state earn five stars; the middle 70% earn a rating of two, three, or four stars—approximately 23.3% in each rating category; and the bottom 20 percent earn one star. As the five-star rating is updated based on the 3-year estimated performance; the historical gap reported between the year 2012 and year 2013 reflects the gap between the 3-year estimates of 2010–2012 and 2011–2013, which include sufficient performance periods for managers to shape strategy in response to performance feedback.

4 The measure of social gap can be different based on reference units. As robustness tests, this study also examines a social gap based on the large (state-level) and the smaller (city-level) units and conducts a sensitive analysis for each measure. The findings are relatively consistent to the findings with the county-level social gap.

5 Using the NHA survey, this study conducted a sensitivity analysis using managers’ perceptual assessment on overall performance to compare the results with the original model. Although this perceptual measure does not provide performance gaps from historical or social aspiration separately, the cross-correlation analysis suggests that managers’ perceptual assessment is correlated with prospecting (r = 0.21, p < 0.05) and defending (r = 0.38, p < 0.05) strategies, which are relatively higher than the ones with the archival performance gaps in this analysis.

6 The collective model reflects cases in which managers respond to social gaps and historical gaps simultaneously.

7 The value of 0 in the social gap can include the case where only one nursing home exists in a county. The additional analysis without monopoly nursing homes was conducted as a robustness check. The result were relatively consistent to the original results.

8 When counties have less elderly populations, nursing homes in those counties may not necessarily focus on innovation to attract more potential residents. With the limited customer pools, they may be more motivated to focus on core tasks and practices to serve the residents. State, county, or local government agencies also may be less likely to focus on nursing homes in these young counties compared to aging counties. With fewer pressures from the market and upper-agencies, nursing homes with low elderly populations are more likely to adopt a defending strategy to optimize operational efficiency.

9 One possible argument is that for-profit U.S. nursing homes are performing worse than other counterparts, which may affect the findings of this study. When conducting a sensitivity analysis on subsets of the for-profit nursing homes regarding this concern, the findings consistently support the main results of this study. Another sensitivity analysis was also conducted by including additional quality of care measure, the number of health deficiencies, to control for the effect of current performance level. The findings also show consistent results that for-profit nursing homes are the only group that responds to historical and social gaps even after controlling for performance levels.

Additional information

Notes on contributors

Ohbet Cheon

Ohbet Cheon ([email protected]) is an assistant professor of healthcare management at David D. Reh School of Business, Clarkson University. She is also an adjunct assistant professor of outcomes research at Houston Methodist Institute for Academic Medicine (IAM). Her research focuses on healthcare management, performance management, health disparities, and policy instruments in health care services.