Exploring Organisational Form Divergence among Professional Service Firms in the Healthcare Sector

Abstract

This longitudinal study explores the different approaches to organisational design and governance adopted by professional service providers in two major segments of the healthcare industry in Australia, namely pathology and diagnostic imaging, through the interpretive lens of structural contingency theory. Specifically, we explore the impact of the key contingency factors – size, organizational homogeneity, capital intensity and strategic position – on the move from small partnerships to increasingly larger corporations. We find that a high proportion of private pathology services that are capital intensive and amenable to standardisation and economies of scale are provided by public corporations. By contrast, although public corporations’ share of the diagnostic imaging market also increased over time, this trend has begun to reverse itself, with the recent emergence of new, ‘independent’, smaller firms. Although also capital intensive, diagnostic imaging services are not amenable to production-linked economies of scale; indeed, over time, the cost of professional inputs had an overriding effect on efficiency improvements. We conclude that the public corporation is an effective form of governance for the delivery of medical services that are capital intensive and can attain economies of scale and standardisation. In contrast, the partnership, or private organisation more generally, may be a more effective form of governance for the delivery of customised medical services that rely on highly qualified professionals.