Does ICT investment necessarily improve operational performance? An empirical analysis of health services firms in India | BMC Health Services Research

Theoretical framework

This study draws on the resource-based view (RBV) to understand the link between ICT investment and firm performance in healthcare. The theory postulates that a firm’s unique, non-substitutable, and inimitable resources give it a competitive advantage [23]. Nevertheless, ICT is often perceived as a standardised resource that competitors can easily imitate. Therefore, the success of a firm is contingent not merely on periodic ICT investments but on capabilities developed over time. For instance [24], argues that firms leveraging IT resources to create unique IT capabilities would exhibit superior performance.

A firm’s stock of ICT resources that is well aligned with the organizational structure becomes hard to replicate [22, 25, 26]. This depth of integration stimulates synergies between technology and human capital, allowing firms to leverage ICT effectively. In the context of health services firms, a substantial stock of ICT can improve the interoperability of medical data within departments. This, in turn, would support efficient decision-making and better resource allocation. The stock of ICT capital enables institutes to process patient information proficiently, deliver better medical care, and standardise medical records [3, 14]. These capabilities derived from a strong, accumulated ICT base become core competencies that improve the delivery of healthcare services. Such technology-enabled core competencies would also be hard for rival firms to replicate.

A firm with a large stock of ICT resources may also develop enhanced capabilities for innovative activities. In a rapidly changing technological landscape, firms with existing robust ICT capabilities can more readily incorporate new technologies with minimal complexities [27]. This adaptability gives firms a competitive advantage, as they can augment their ICT capabilities to respond to market changes more effectively.

In contrast to the accumulated stock of ICT, the flow of ICT investment becomes relevant to accommodate immediate, period-specific operational needs. However, firms’ adjustment to new technology must match the speed at which it flows [28, 29]. In other words, technology may fail to embed quickly into the firm’s existing organizational structure. Although the flow of ICT investment is likely to provide transitory benefits, it may not yield the strategic impact resulting from the accumulated stock of ICT.

Drawing on the RBV, this study seeks to analyse whether the stock of ICT investment can be considered a strategic asset for health services firms. With a large stock of ICT, firms are likely to be better positioned to enhance operational efficiencies and maintain competitive advantage. In contrast, ICT flow is expected to offer limited benefits to the firms. Thus, a firm’s strategy of developing ICT stock aligns with RBV theory, as it contributes to developing valuable, rare, and difficult-to-imitate resources.

Review of literature and hypothesis development

ICT investment and firm performance

Health services firms that effectively leverage their ICT capabilities can provide superior quality healthcare services, reduce medical errors, and augment productivity, thereby achieving a sustainable competitive advantage [7, 15, 30]. Nonetheless, the empirical evidence on the association between ICT and hospital performance is characterised by mixed results [31,32,33]. This section provides an overview of the literature on the relationship between ICT investment and healthcare firm performance.

Linking ICT investment with cost performance

The flow of ICT investment captures a firm’s strategic approach to utilize the latest technology for improved performance. However, its effective application would require regular training programs, which might increase its operating expenses. Cost efficiency is achieved only after the firm becomes more proficient in using the new technologies. Borzekowski [28] observed that ICT usage is associated with decreased costs after three to five years of adoption. Hence, firms with a strong ICT system may experience better capacity utilization. This can effectively reduce overall expenses. For instance, ICT enabled automation has the potential to reduce labor costs and allow hospitals to allocate personnel for higher value-added activities. Within the framework of transaction cost economics perspective, ICT can play a crucial role minimizing ex-ante and ex-post transaction costs in hospitals. One of the major ex-ante transaction costs involves the time and resources spent searching for patients past medical records and disseminating that information across various departments. Diffusion of technologies like electronic health records (EHR), radio frequency identification (RFID), and electronic data interface (EDI) improves storage, retrieval, and sharing of medical records, which makes hospitals more cost efficient. Das et al. [3] argued that consistent ICT investment helps hospitals achieve cost efficiency, which appears to persist in the long term. Additionally [31], observed that ease of information sharing due to higher investment in electronic health records (EHR) translates into lower hospital costs. Improved data sharing and coordination among various departments increase the quality of care and eliminate the need for unnecessary tests and readmissions. Likewise [34], had similar findings in their study. Hospitals capitalising bundle of radio frequency identification (RFID) and electronic data interface (EDI) experience enhanced supply cost efficiency, lower personnel cost, and a consistent decrease in readmission rates. These benefits accrue from the persistent use of technology. Therefore, it is hypothesized that:

Linking ICT investment with profitability

Investment in ICT has the potential to make healthcare firms more profitable by enhancing efficacy, delivering quality services, and fostering innovation. Unlike the period-specific flow of ICT investment, the cumulative ICT investment would enable the firm to attain an enduring competitive advantage, which aligns with the resource-based view. The fundamental premise of this perspective is that a firm’s success is determined by its unique resources and capabilities [23]. Robust ICT capabilities developed over the years are more likely to enable firms to demonstrate operational superiority and better performance.

In the context of U.S., it has been found that hospitals embedding IT in their operations became profitable in the long run [14]. Studies in the subsequent years corroborate the idea that healthcare firms with superior IT orientation reap greater financial benefits [35,36,37,38,39,40,41]. It is therefore hypothesized that:

Linking ICT investment with sales

ICT investment by firms is expected to have a favourable impact on their operational cost. Firms can leverage this cost efficiency to pursue a competitive pricing strategy, thereby boosting sales. Moreover, ICT investment would also enable firms to offer personalized healthcare services and specialized treatments. The enhanced service offerings would attract more patients and bolster sales revenue [20, 32, 35]. More recently, firms are embracing digital solutions to provide improved healthcare services. Standardized patient data through EHR has made healthcare delivery faster and more convenient [31]. As a result, firms can cater to a larger base of patients more efficiently. Additionally, the use of digital platforms to manage patient relationships can possibly foster stronger ties with the patients. ICT thus helps firms understand patient needs and provide additional value through wellness programs or follow-up care over the long term. Such strategies can directly increase sales per patient by providing customized services that patients are more likely to value. Therefore, in light of the above discussion, the following hypothesis is formulated.

Advertising and Marketing (A&M)

In addition to investment in technology, advertising and marketing expenditures have also become a strategic necessity for the firms. A firm pursuing a more differentiated marketing approach is likely to perform better [42]. Firms can effectively develop and maintain long-term customer relationships using conventional and modern marketing channels. Digital platforms have recently provided firms with a cost-effective approach to reach out to more customers. Hence, technology enabled marketing strategies have the potential to assist firms in maximizing their revenue and becoming more profitable [43]. Hence, it is hypothesized that,

Control variables

Size

Bigger firms are usually endowed with a more extensive ICT capital base and advanced technology. Hence, larger firms are expected to be more efficient. Hah and Bharadwaj [44] found that hospital size is a crucial determinant of hospital productivity and revenue for hospitals in the U.S. Similarly [16], found that large sized hospitals demonstrate better financial performance.

Nevertheless, another strand of literature suggests an ambiguous relationship between firm size and performance. For instance [45], reports a negative effect of hospital size on its performance. As firm size increases, it might lead to operational and cost inefficiencies, resistance to technological change, and inconsistency in care delivery. Likewise [32], postulates that as firm size increases, there can be diseconomies of scale on account of lower information transparency and increased transaction costs. A larger firm is typically characterized by a complex organizational structure. It employs a larger workforce for effective management of operations, leading to increased overhead expenses. Thus, increased operational complexity leads to higher costs for larger firms. Consequently, it is hypothesized that

Firm age

With increasing number of years of operation, firms benefit from their accumulated knowledge and expertise through learning by doing. Older firms with greater patient volume, reputation, and financial stability are likely to perform better. For instance [44], found that the older the hospital, the higher the productivity and financial performance. However, as firms grow older, they might become less receptive to innovative ideas due to organizational rigidities. The increased rigidity makes older firms less efficient, resulting in higher expenses and reduced profitability. In contrast, new firms might be more agile and flexible, making them more competent. Kohli et al. [37] observed that the market value of young hospitals is greater than that of their older counterparts. The endowment of the latest technologies and efficient utilization of resources gave young hospitals an edge over their rivals. Hence, in light of this discussion, it is hypothesized that

• H4: As firm age increases, it is expected to reduce operational costs, but increase sales and profits.

Location

Healthcare firms in urban areas typically benefit from easy access to slack resources, better infrastructure, and availability of skilled caregivers. Bardhan and Thouin [21] argue that the availability of better healthcare infrastructure has rendered urban hospitals more proficient. They further observed that urban hospitals are more IT-intensive. Hence, a higher degree of IT integration reduces hospital costs and improves operational efficiency. Additionally, serving the affluent class of clients in urban areas also boosts the profitability of firms [41]. Therefore, it is hypothesized that

Ownership

Firm ownership structure has been widely studied as a critical determinant of organizational performance across industries, including healthcare [41, 44, 46]. Specifically, public and private ownership structures exhibit varying features that can affect operational efficiency and firm performance differently.

Public limited firms are often characterized by easier access to equity and lesser capital constraints [47]. However, the quest to balance profit maximising goals and social objectives sometimes makes them less profitable. In contrast, private limited firms are primarily profit-oriented entities. In the context of the Indian healthcare sector, the effect of ownership structure on firm performance is important. Public healthcare firms often face operational challenges due to bureaucratic inefficiencies. A broader mandate to provide more affordable healthcare services often limits their ability to generate profits. Conversely, private firms typically operate in competitive urban markets with a higher proportion of relatively affluent patients. These firms are able to leverage advanced technologies to enhance profitability and sales. Hence, in light of this discussion, it is hypothesized that

• H6: Public firms are likely to exhibit higher costs, lower sales, and profitability than private firms.