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Application of Organizational Theory to Healthcare Organizations Report


Healthcare organizations have gone through extreme transformations during the last few decades. This has been done in parallel to the mounting pressures that these organizations have faced in the same duration of time. The origin of the pressures is both from internal and external sources which have in turn affected the manner in which the organizations are run, structured and organized.

When it comes to organizational management, healthcare organizations function in a similar manner like any other organization. Organizational theories help to explain how organizations function and how they are structured in the face of internal and external forces. This paper extends the application of organizational theory to the healthcare organizations.

Specifically, the contingency and institutional theories of organization will be examined and applied to the healthcare sector. The theories will explain how the healthcare sector is transformed, organized and restructured to achieve organizational goals even in the face of uncertain and dynamic environments.

Contingency Theory of Organization

The phrase contingency theory was invented by Lawrence and Lorsch in 1967, even though the previous work of Burns and Stalker and Woodward facilitated the laying of its foundation.

The fundamental thesis of contingency theory of organization is that there is no one effective means of organizing but rather the structure of an organization that will facilitate its best performance is determined by the characteristics of the environment within which it exists. In other words, the best structure for an organization is dependent on elements of its environment.

These elements are called contingencies, or contingency variables, and include size, technology, geography and uncertainty. Elements of the organizational structure that are dependent on these environmental features include “the degree of formalization, differentiation, decentralization, and integration” (Johnson, 2009, p. 50).

The entire organization does not experience similar contingencies, but instead a number of sub-departments within the organization experience varied environments and contingencies.

As a result, structural characteristics may also be different. Johnson (2009) argues that, “the greater the variation of environments faced by individual sub-units within the organization, the greater the need for differentiation, and so the greater subsequent demand on coordination and control,” (p. 51). Therefore, the contingency theory of organization operates at both the departmental and organizational levels.

As the complexity and uncertainty of an organization’s environment increase, there is a greater demand for information processing within the organization. This implies that as the organization becomes more and more complex and uncertain, it requires more effective means of processing information.

In the process, the organization’s structural features including formalization, hierarchy, and decentralization should be structured to optimize information processing.

The contingency theory assumes that in any organization, there is the existence of an original state of fit between the organization and its environment. When one of the organization’s contingency variables changes, a misfit between the organization and its environment occurs and the organization is then forced to adapt its structure so as to fit with the environment.

As organizations engage in the process of adaptation, their environments influence how they differentiate their internal structures and units. Lawrence and Lorsch (1967) argued that environmental forces include geographical, economic, technological, and political aspects. These elements force organizations to differentiate structure within the organization as a response to the environmental factors.

This differentiation in turn generates internal fragmentation. The central administration of the organization works to enhance integration by undertaking activities that aim at improving efficiency or productivity. Nonetheless, the integration is sometimes irrational and based on a pre-determined order and governed by political processes instead of certain idyllic and the best possible choice process (Covrig, 2005).

The contingency theory posits that different organizational forms can adapt to the same environment. Those organizations that adapt most readily have the advantage. Adaptation includes achieving an effective balance between the organization’s external environment and internal strategies similar to managed care and iron triangle.

In healthcare organizations, internal strategies include possessing the appropriate technology at the appropriate time, maintaining and hiring appropriate skill levels of individuals, and ensuring that those individuals perform the right tasks at the right time. The theory suggests that the organizations most likely to survive are those that are the most effective at making such adaptations (Johnson, 2009).

The term contingency refers to an event that may occur but that is not likely or intended; a possibility that must be prepared for. As such, contingency is about possessing the knowledge, skills and abilities to respond to a changing situation. Analyzing and responding to the contingencies that influence leader effectiveness may provide one with the ability to succeed in an ever-changing healthcare environment.

Healthcare leadership is about stepping up in times of uncertainty and moving forward to minimize potential threats and exploit opportunities. The leader who is able to respond to ever-increasing levels of environmental uncertainty through the utilization of more than one style of leadership will be most likely to increase employees’ levels of motivation, satisfaction and productivity (Bokowski, 2009).

Institutional Theory of Organization

The institutional theory of organization addresses one major issue: “why so many organizations are so similar and how the organizations relate to their environments” (Meyer & Rowan, 1991; DiMaggio & Powell, 1991; Scott, 1995).

The institutional theory is expanded to take into consideration more complex organizational events such as “organizational change and diffusion, conflicting institutional environments, the instability of mimetic isomorphism compared to other sources of isomorphism,” (Bloom, Alexander, Lerman & Norrish, 1994, p. 322). The theory is widely applicable to healthcare organizations.

One of its chief contributions to the healthcare sector is the provision of a framework that can be used to explain why healthcare organizations adopt innovations and how the adoption is diffused throughout the organization (Tolbert & Zucker, 1983).

Before Tolbert and Zucker published their article, majority of the research studies conducted on innovation focused mainly on the characteristics of individuals, particularly those who were early adopters of inventions. Adoption of innovations at the organizational level is a far more multifaceted procedure.

The institutional theory is widely applicable to the healthcare organizations for instance, in the adoption of total quality management of organizations and in the prevention of HIV infections by drug abuse rehabilitation centres.

Another contribution of institutional theory to healthcare involves providing explanation for the complexity of the environment in which some health organizations such as hospitals operate in for instance the technical and institutional settings (Bloom et al., 1994).

From this point of view, the institutional theory helps to explain the challenging technical and institutional environments of healthcare organizations which in turn determine how the organizations will carry out its staffing processes.

For instance, if a new medical innovation is introduced to a healthcare organization, the organization will have to undertake strategies that will ensure the utmost and efficient utilization of the innovation. A good example is the introduction of electronic medical records. The introduction of EMRs will force a healthcare organization to shift from manual record processing to electronic record processing.

The organization may thus be forced to cut down on the number of employees who had been employed to carry out the manual record processing because the technology can do a lot of the work within a short period of time.

On the other hand, the organization will either be forced to train its retained workforce or hire a workforce that is familiar, knowledgeable and experienced in using EMRs (Follen, Castaneda, Mikelson, Johnson, Wilson, & Higuchi, 2007). Either way, the structure of the organization has been influenced by the new environment in which it is operating.

Institutional theorists emphasize that organizations encounter environments that are characterized by external customs, regulations and conditions with which the organizations must comply so as to maintain legality and support.

Whereas technical environments reward organizations for effective and efficient performance, institutional environments emphasize rewarding organizations for having structures and processes that are in conformance with the environment. The rules, beliefs and norms of the external environment are often expressed in the form of rational myths.

Such myths are rational in the sense of being reflected in professional standards, laws, and licensure and accreditation requirements but are myths in the sense that they cannot necessarily be verified empirically. They are nonetheless, widely held to be true.

Conformity with these myths helps the organization to gain legitimacy and support. This conformance is often referred to as “isomorphism” and causes organizations faced with a similar set of environmental circumstances to resemble each other.

Health services organizations are experiencing a rapid transformation of both their technical and institutional environments. The increased technical pressure for greater efficiency and quality expressed in terms of value is causing health services organizations to change long-established structures.

This is reflected in the reorganization of acute care hospitals as they attempt to become components of more vertically integrated health systems and the development of new norms and beliefs about what constitutes the effective delivery of health care.

This transition results in a great deal of internal conflict that must be managed. An example of the application of institutional theory to healthcare sector entails efforts in continuous quality improvement as a response to newly emerging norms and practices within the health services sector (Shortell & Kaluzny, 1997).

Quality improvement is a concept that is extensively applied in the healthcare sector so as to improve patient safety and quality of care provided. This is as a result of mounting pressures not only from policymakers but also from civil rights groups and the patients themselves.

In order to achieve this, healthcare organizations must restructure their organizations in a manner that will make patient safety and quality of care a realized goal. This entails management commitment, employee empowerment and fact-based decision making.

With regard to management commitment, the management of the organization needs to demonstrate its commitment by developing the strategies for undertaking the initiative based on the vision and mission of the organization. Management commitment is also demonstrated through the creation of the quality improvement teams that oversee the quality improvement initiative.

The commitment of the management is important because it serves as an example for the rest of the organization’s partners to follow (Narine & Persaud, 2003). Regarding employee empowerment, various forms of empowerment such as education, training and staff development can be undertaken.

Empowerment is important because it enables the employees to make the right decisions that serve the best interests of the residents (Wong & Chung, 2005).

Last but not least, fact-based decision making entails continuous data collection and analysis to determine the performance of the medical staff as well as the effectiveness of the quality improvement program. Based on the reports, appropriate actions are taken by the facility to improve the residents’ health (Calomeni, Solberg & Conn, 1999).


Healthcare organizations have gone through remarkable transformations in the past few decades. Some of these transformations entail the adoption of advanced medical technologies, the shift away from traditional care practices to contemporary care practices; and organizational restructuring and re-engineering.

These transformations have in part been driven by the organizations’ clients who have become more enlightened and in part by external forces such as new policies. As a result, healthcare organizations have been mandated to alter their internal and external structures in addition to their care delivery processes. The transformation of healthcare organizations can be explained by various organizational theories.

This paper has focused on the application of the contingency theory and institutional theory of organization to healthcare organizations. The theories have helped to explain why healthcare organizations undertake certain strategies and how they respond to changes in the environments in which they operate.

Reference List

Bloom, J. R., Alexander, J. A., Lerman, S., & Norrish, B. (1994). Institutional and environmental influences on staffing strategies. Dallas, TX: Academy of Management.

Bokowski, N. (2009). Organizational behaviour, theory and design in health care. Sudbury, MA: Jones & Bartlett Publishers.

Calomeni, C., Solberg, L., & Conn, S. (1999). Nurses on quality improvement teams: How do they benefit? Journal of Nursing Care Quality, 13(5), 75-90.

Covrig, D. (2005). Mountains, flatlands and tenuous meaning: Organizational sociology in administrative sense-making. Journal of Educational Administration, 43(1), 102-120.

DiMaggio, P. J., & Powell, W. W. (1991). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. In: W. W. Powell & P. J. DiMaggio (Eds), The new institutionalism in organizational analysis (pp. 61–82). Chicago: The University of Chicago Press.

Follen, M., Castaneda, R., Mikelson, M., Johnson, D., Wilson, A., & Higuchi, K. (2007). Implementing health information technology to improve the process of healthcare delivery: A case study. Disease Management, 10(4), 208-215.

Johnson, J. (2009). Health organizations: theory, behaviour and development. Sudbury, MA: Jones & Bartlett Publishers.

Lawrence, P. R., & Lorsch, J. W. (1967). Organization and Environment: Managing Differentiation and Integration. Boston, MA: Harvard University Graduate School of Business Administration.

Meyer, J. W., & Rowan, B. (1991). Institutionalized organizations: Formal structure as myth and ceremony. In: W. W. Powell & P. J. DiMaggio (Eds), The new institutionalism in organizational analysis. Chicago: The University of Chicago Press.

Narine, L., & Persaud, D. (2003). Gaining and maintaining commitment to large-scale change in healthcare organizations. Health Services Management Research, 16, 179-187.

Scott, W. R. (1995). Institutions and organizations. Thousand Oaks, CA: Sage Publications.

Shortell, S., & Kaluzny, A. (1997). Essentials of health care management. London: Thomson Learning.

Tolbert, P. S., & Zucker, L. G. (1983). Institutional sources of change in the formal structure of organizations: the diffusion of civil service reform, 1880–1935. Administrative Science Quarterly, 30, 22–39.

Wong, F., & Chung, L. (2005). Establishing a definition for a nurse-led clinic: structure, process, and outcome. Nursing and Healthcare Management and Policy, 53(3), 358-369.

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Graves, Camilo. "Application of Organizational Theory to Healthcare Organizations." IvyPanda, 20 Dec. 2019,

1. Camilo Graves. "Application of Organizational Theory to Healthcare Organizations." IvyPanda (blog), December 20, 2019.


Graves, Camilo. "Application of Organizational Theory to Healthcare Organizations." IvyPanda (blog), December 20, 2019.


Graves, Camilo. 2019. "Application of Organizational Theory to Healthcare Organizations." IvyPanda (blog), December 20, 2019.


Graves, C. (2019) 'Application of Organizational Theory to Healthcare Organizations'. IvyPanda, 20 December.

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