Service Chains' Operational Strategies: Standardization or Customization? Evidence from the Nursing Home Industry
49 Pages Posted: 9 Jul 2020
Date Written: May 20, 2020
Problem definition: We investigate within a customer-recognizable service chain (meaning customers can tell a unit belongs to a chain from the unit's name) how standardization and customization across chain-belonging units impact that chain's performance outcomes. We study this question in the nursing home industry. More specifically, we study the Degree of Standardization (DoS) in three operational dimensions: customer mix, service offering, and service delivery, and its impact on three nursing home outcomes: financial outcome, clinical outcome, and resident welfare. Academic/practical relevance: All service chains face the decision of how unique each of their units should be. Some chains choose to provide identical services through uniform processes across all units, while other chains choose to differentiate their units. It is unclear how this decision affects the performance outcomes of service chains. We contribute to the literature by (1) assessing standardization and customization strategies in multiple operational dimensions in nursing homes and their impact on important service outcomes; and (2) establishing a new method to identify customer-recognizable nursing home chains to account for the ``spillover" effect among facilities bearing the same chain name. Methodology: We use a data set covering ten years (2006 – 2015) of comprehensive measurements of all nursing homes in the U.S. that are certified by the Centers for Medicare and Medicaid Services (CMS). We explore the Degree of Standardization (DoS) in three operational dimensions: customer mix, service offering, and service delivery, and we investigate the relationships between the DoS and important nursing home outcomes: financial outcome, clinical outcome, and resident welfare. We estimate these relationships using three separate yearly fixed effect models with clustered standard errors, one for each of the three outcome measures. Results: We find that nursing home chains need to (1) customize their service offering and customer mix to improve their financial outcome; (2) standardize their customer mix across units to decrease the number of deficiency citations in clinical areas; (3) and customize their service offering and service delivery to enhance resident welfare. Managerial implications: To our knowledge, this study is the first systematic multi-dimensional assessment of 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 findings also provide guidance for policy makers in guiding nursing home chains' (1) activities both before and after merging and acquisitions, and (2) daily operational decisions regarding standardization and customization. Broadly speaking, our results also provide managerial insights for service chains in their standardization strategies and merging and acquisition activities.
Keywords: Service Chain, Standardization, Service Operations, Nursing Home, Operational Performance
Suggested Citation: Suggested Citation