TRANSACTION COST THEORY AND MODERN MEDICAL CARE.   Term Paper ID:30319 Click to get this paper

Essay Subject: Discusses the economic costs and advantages to organizations.... More...

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Paper Abstract: Discusses the economic costs and advantages to organizations. Transaction theory. Focus on health care industry and employee turnover. Goal of hospitals for health care excellence and cost control. Impact of employee turnover on hospital budgets; drain on profits and efficiency. Staff shortages and elimination of services. Threat to revenues. Paper Introduction: Transaction cost theory, as proposed by Ronald Coase and Oliver Williamson, states that organizations experience enormous economic costs and corresponding economic advantages in each and everyone of their captivities or transactions (Slater & Spencer, 2000). For many years, the dominant neoclassical approach to the theory of the firm suggested that nothing significant would be gained from peering into the "black box" called the firm and that it was enough to know that a firm operated to maximize profits. In the core model of perfect competition, this was achieved subject to known technology and known prices. Transaction cost theory takes into account the assertion that the firm exists because of its capacity to economize on the costs of market-oriented production (Slater & Spencer, 2000). The firm itself emerges as the most superior economic device for the Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Transaction cost theory takes into account the assertion that thefirm exists because of its capacity to economize on the costs of market-oriented production (Slater & Spencer, 2 ). Murphy, M. In a singleyear, this institution incurred the following turnover costs: . Unless the causeof employee turnover is identified, low morale may lead to furtherdifficulties such as greater tension between workers and management anddisruptive behaviors. Kazemek and Shomaker (199 ) believe that health care institutionsexperiencing high transaction costs due to employee turnover should conductan audit of the institution's turnover costs. The time that a supervisor spends in the hiringprocess could otherwise be devoted to managing his or her every dayfunctions. Turnover costs are of special consideration. Munasinghe, L. The nature of the firm. Long-term contracts -- including contracts and otherarrangements that address staffing and employment issues -- will bepreferred unless the costs of negotiation and enforcement of separate orshort-term market contracts are low. Cutting healthcare costs throughwork force reductions. (1937). Stiles and Mick (1997) have argued thatcontrolling quality by also controlling the costs of transactions relatedto turnover is a critical element of health care management today. Though not specifically speaking of the health care sector, theeditors of HR Focus (Retaining high performers...,1999) recommend thatthese transaction costs can be reduced by initially hiring the right personor hiring for attitude and training for skill. White, G.L. The uncertain foundations oftransaction cost economics. Contributing to such adecision -- in addition to regularly scheduled and received wage increases-- is firm-specific learning, which occurs when an organization providesits employees with the opportunity to acquire new skills which in turnenhance their work roles and performance. These improvements include enhanced communication,accessible leadership, increased employee participation in decision making,empowerment, and flexible job structures. HR Focus (Retaining high performers...1999) recently reported thatone explanation for excessive turnover rates in many professional areas isthat the current job market offers more opportunities than there areskilled candidates. (1995). By highlighting transactions and identifying differences in theircosts, it becomes possible to determine not only what is causingunacceptable levels of turnover, but also to devise strategies capable ofreducing turnover (Slater & Spencer, 2 ). In the context ofemployee turnover, health professionals have recognized that there is atransactional aspect of quality as well as staffing itself. Turnover has the effect of draining profits and adverselyaffects the businesses' overall efficiency. Healthcare Financial Management, 44(8), 8 -82. Phase-intraining, provision of growth opportunities, and assessing the underlyingmotivators for work beyond the paycheck are key elements in this strategy. Reducing turnover can bringbottom line results. (1997). Healthcare Financial Management, 5 (7), 64-7 . and Murphy, E.C. Agency or contract personnel to fill staff vacancies totaling $2.3 million . While employee turnover in general represents an at times excessivelevel of transaction costs in health care, Murphy and Murphy (1996) contendthat when senior leadership turnover rates are considered, these costsbecome unacceptable. Non-productive staff time of new hires during orientation, training, and assimilation of $3 , . Though some studies have suggested that employee turnover can providebenefits to an organization (McGarvey, 1997), the bulk of the literatureasserts that this is not the case. (2 ). The firm itself emerges asthe most superior economic device for the reduction of market costs.Consequently, the efficiency advantages of any organization or firm areregarded by Coase as greatest where long-term contracts are negotiated(Coase, 1937). This audit should accountfor recruitment and advertising expenses, agency fees, orientation andtraining expenses, down time, and revenues lost through reduced servicescaused by staff shortages. Kazemek and Shomaker (199 ) believe that employee turnover can often bereduced without any cost or cost reallocation through organizationalimprovements. Recruitment and advertising for new staff of $4 , . Asubstantial number of health care institutions have begun to reduce theirworkforce and to eliminate services. While some of these intangiblecosts may be difficult to quantify, they also have been shown to have anadverse impact on overall efficiency and worker morale. It also makes it difficult for organizations of alltypes to hold onto their best people. Hospital &Health Services Administration, 42(2), 2 5-22 . Cost of human resource and in-service staff to recruit, train, and orient new employees of $35 , (Kazemek & Shomaker, 199 ).These sample expenses, computed in 199 , totaled $3.35 million anddemonstrate that costs related to turnover can be significant to ahospital's budget and bottom line. A substantial numberof management studies suggest that employees value the content of theirjobs, the quality of management, and the culture of an organization overfinancial incentives. At the same time, Kazemek and Shomaker (199 ) also noted thathospital staff shortages caused by both turnover and national vacancy ratesin critical patient care areas pose a considerable revenue threat. and Spencer, D.A. In institutions that were restructuring anddownsizing, senior leadership rates of turnover were much higher fororganizations that cut staff across the board (48 percent) than fororganizations that cut staff on the basis of a restructuring methodology(11 percent). In the context of the present report,transaction costs will be understood in the context of employee turnover,with special reference to the health care industry. For large health care institutions, a high employee turnoverrate also mandates the maintenance of an extensive human resourcesdepartment to process the large volume of applicants who move through aninstitutional version of the revolving door. Components of the costcontrolling quality: A transaction cost economic approach. (1996). HR Focus, 72(1), 15-18.----------------------- 9 McGarvey, R. Economica, 4, 386-4 5. Wage growth and the theory of turnover.Journal of Labor Economics, 18(2), 2 4-221. A turn for the better: Employee turnover maybe good for your business. A singlehospital case study presented by Kazemek and Shomaker (199 ) illustratesthis phenomenon. Given thatthere is inherent uncertainty in the operation of the firm, regardless ofits productive focus, and further given that cost reduction, whilemaintaining high levels of excellence and quality in care delivery are bothgoals of health care provision, transactions costs related to turnover areof significance in this arena. References Coase, R. HR Focus,76(3), 5. Journal of Economic Issues, 34(1), 61-78. A study by Kazemek and Shomaker (199 ) noted that many hospitalsallocate between 55 and 6 percent of their budgets to costs related tohuman resources. Many health care institutionsoperate on a profit margin of only 5-1 percent, a fact which increases thenegative effects of high employee turnover rates. For many years, thedominant neoclassical approach to the theory of the firm suggested thatnothing significant would be gained from peering into the "black box"called the firm and that it was enough to know that a firm operated tomaximize profits. Employee turnover: The hidden drain onprofits. and Mick, S. Retaining high performers keeps costs down. (199 ). For example, Munasinghe (2 )maintains that organizations which provide employees with an opportunityfor professional advancement and acceptable levels of wage growth tend toexperience less turnover and lower staffing costs than organizations whichdo not provide these opportunities. Other ways in which intangible transaction costs linked to turnoverare manifested include increased workloads as co-workers take up the slackuntil new workers are hired (White, 1995). Tangible costs includetime involved for recruitment, selection, and training of new personnel.As White (1995) claims, these are real costs in terms of advertisingexpenses and manpower. Kazemek, A. Theories of employee turnover and wagedynamics have typically studied the impact of wage levels on turnover, butfailed explicitly to model the role of wage growth in predicting turnover.Munasinghe (2 ) suggests that when workers have the opportunity forwithin-job wage growth, they are less likely to look elsewhere foremployment and more likely to remain in place. By understanding the true cost oftransactions of this sort, a reduction in the parametric uncertainty andrisk of business operations in health care will be forthcoming (Slater &Spencer, 2 ). This phenomena suggests that work processanalysis might be useful prior to a downsizing effort. Slater, G. (2 ). Beyond the obvious recruiting and training costs arethe many hidden consequences of employee turnover which include lostproductivity, reduced moral, lost intellectual capital, and lost business. The solution to managing transaction costs related to employeeturnover, according to Kazemek and Shomaker (199 ), need not involveadditional expenses or literally "throwing money" at the problem throughmore benefits, higher wages, and recruiting bonuses. This further deflatesprofitability, indicates a weakness in the selection process, and alsoresults in a decline in the overall quality of patient care. The problem is of particular significance in health care, whereturnover rates can exceed 75 percent over a relatively short period of time(White, 1995). Because the health care organization is increasingly besetby the rigors of managed care and the demands of quality assurance,transaction cost analysis takes on added significance at this point intime. (1999). and Shomaker, B. Transaction cost analysis is auseful tool in this context. Specifically, Murphyand Murphy (1996) believe that assessing work process effectiveness and jobroles before reducing staff increases both short-term and long-term laborcost savings while improving the quality of health care delivery,increasing patient satisfaction, improving employees' perception of theorganization's capacity for fostering job satisfaction, and decreasingturnover rates among managers and executives. The first weeks ofemployment are the most critical time for laying the groundwork that willresult in a long-term commitment on the part of the employee. Murphy and Murphy (1996) claim thathealth care organizations which have implemented across-the-board workforcereductions as a transaction cost savings mechanism have actually tended toexperience decreased service quality, increased employee turnover, andminimal savings in labor costs. The subject hospital was a 35 -bed urban full-servicehospital experiencing annualized turnover of 2 -25 percent. Transaction cost theory, as proposed by Ronald Coase and OliverWilliamson, states that organizations experience enormous economic costsand corresponding economic advantages in each and everyone of theircaptivities or transactions (Slater & Spencer, 2 ). Given the importance ofcontinuous quality improvement and assurance in the health care field, thisis an important consideration. Stiles, R.A. Consequently, reducing turnover induced transactioncosts means reallocating human resource dollars rather than adding to them. (1997). In the core model of perfect competition, this wasachieved subject to known technology and known prices. Entrepreneur, 25(3), 81-84. Stiles and Mick (1997) point out that in terms of exchange processesor transactions, modern medical care is complicated. In general, the costs associatedwith losing an employee can range anywhere from one to five times thesalary of the worker. Exit interviews should be conducted with allemployees who elect to leave and the results of those interviews should beanalyzed on a regular basis. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.