Service Chains' Operational Strategies: Standardization or Customization? Evidence from the Nursing Home Industry

Abstract

Problem definition: We investigate how the Degree of Standardization (DoS) across service chain-belonging units impacts units' performance outcomes. We study this question in the nursing home industry. More specifically, we study the DoS in three operational dimensions: customer mix, service offering, and service delivery, and its impact on three nursing home outcomes: financial performance, clinical outcome, and resident welfare. Academic/practical relevance: All service chains must decide how unique or standardized each of their units should be, but it is unclear how this decision affects units' performance outcomes. We assess standardization strategies in multiple operational dimensions in chain-belonging nursing homes and their impact on important operational outcomes, and generalize our findings to other service industries. Methodology: We use a panel data set covering eleven years (2005 – 2015) of comprehensive measurements of all nursing homes in the U.S. We estimate the relationships between the DoS and important nursing home outcomes using fixed effect models with instrumental variables and clustered standard errors. Results: We find that nursing home chains need to (1) customize service delivery and standardize customer mix across units to improve financial performance; (2) standardize customer mix to improve clinical outcome; and (3) customize service delivery to enhance resident welfare. Managerial implications: To our knowledge, this study is the first systematic multi-dimensional assessment of multi-unit service firms' standardization strategies from a chain perspective. Our results guide nursing home chains in their (1) strategies of within-chain standardization, and (2) investment decisions in acquiring new properties. Our results also provide broader managerial insights for service chains' standardization strategies and merging and acquisition activities.