Helo Hospital is part of a multistate hospital system that has been adding five

Question

Helo Hospital is part of a multistate hospital system that has been adding five to ten hospitals per year for the past decade. Originally, three local hospitals made up the company, and the largest hospital's CEO supervised the heads of the other two facilities. When the system grew into 15 hospitals, a corporate office was created; when it grew to 30 hospitals, a multidivisional structure based on geography (east and west divisions) was adopted. At this point, disagreements have arisen regarding who should have control of specific services. In particular, the system is debating whether marketing, managed care contracting, strategic planning, business development, purchasing, biomedical maintenance, and recruiting should be centralized or decentralized. The executives from the hospitals and corporate office have scheduled a meeting to decide how these services should be allocated across the system . you have been asked to prepare a report on the advantages and disadvantages of placing these functions in a centralized corporate office, in the divisions, or at the hospital level. What are the problems and possible benefits of each arrangement?

Explanation / Answer

Advantages and Disadvantages of various control types :-

A) Centralized Corporate Office - Following are the advantages of centralized office-

1) Decrease in overhead costs (Costs related to office equipments, utility deposits etc.)

2) Decrease in manpower required (in a centralized stting single HR team and managerial team can work from a centralized location)

3) Centralized procurement helps in decrease in costs due to purchase in bulk leading to decreased costs.

Disadvantages of Centralized office :-

1) Inflexibility is created in a centralized structure. Employees have to reach out to the management team at the central office for evry possible decision, thus making the system rigid.

2) Creativity is almost abandoned in a centralized structure as for every process clearance is required from the central management team, thus leaving no room .

3) Communication in a centralized setting is hindered a lot as employees have to reach out to a single team sitting at different central location for every possible situation

B) Divisional Offices - Advantages:-

1) Under such a structure, the head of any division can foster a culture which is suitable for that structure and hence ther is some degree of decentralization

2) Communication is much more easier as compared to that in centralized structure as one divisional office would be required to handle only that division's offices.

Disadvantages of Divisional structure :-

1) Non-Cooperation between various divisions can be a major problem in such a structure as all the divisions are fighting to get the scarce resources and more funds from the top management.

2) Incompatibility of products and services among different divisions can also be a hindrance.

C) Hospital Level (Decentralized Structure)

Advantages :-

1) Improved growth is one of the main advantages of such structure. An individual office can more appropriately take decisions that are good for their hospital. Also since the golding entity is small, the growth rate is more. This can be viewed with respect to franchise model, where in the capital invested is franchise owner's and hence the investment is lower for the company, but it still enjoys a good growth.

2) Improved ownership in the company. The top management in such a scenario can focus on the most important decisions and the fucnctioning of individual offices can be handed over to other capable employees

Disadvantages :-

1) Less Control is there for the top management. They don't have a say in every possible decision.

2) Fragmentation of too many control centres. Such an arrangement can be confusing for the employees as few things would be handled by the hospital's management and few by the corporate office's management. This can eventually lead to loss in productivity.

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