The impact of ICT enabled process innovation on efficiency measures

Table of Content

List of figures

List of tables

List of abbreviations

1 Introduction to Reserach Gap and Topic

2 Theoretical Background
2.1 Service Innovation
2.1.1 Definition and Theory of Service Innovation
2.1.2 Technology and Service Innovation
2.2 Business Value of Information Technology
2.2.1 IT Effects on Firm Performance
2.2.2 The Impact of IT on Service Success
2.3 The Use of ICT in Healthcare
2.3.1 From teleradiology to e-health
2.3.2 ICT Impact in Healthcare
2.3.3 German Market for Elderly Care
2.3.4 Outpatient Care Service Provider

3 Framework
3.1 Innovation in Services for Elderly Care
3.2 Cost Benefit Analysis
3.3 IT Evaluation in Healthcare
3.4 Conceptualization of the Framework
3.4.1 Estimating Costs
3.4.2 Estimating Benefits

4 Case Study: Helfende Hände
4.1 Sample and Data
4.1.1 E-health Application MediFox
4.1.2 Empirical Data
4.2 Analysis
4.2.1 Estimating Costs
4.2.2 Estimating Benefits
4.3 Results/Discussion

5 Conclusion
5.1 Theoretical Implications
5.2 Managerial Implications

6 Limitations

References

Appendix A

Appendix B

List of figures

Figure 1: Structure of the Study

Figure 2: Screenshot of MediFox Mobile

Figure 3: Overview of Implementation Process of MediFox

Figure 4: Screenshot of MediFox from Office Computer

Figure 5: Screenshot of MediFox Mobile - Overview Services

Figure 6: Revenue and Costs November 2013 - February 2014

Figure 7: Development of Fuel and Maintenance Costs

Figure 8: Development of Delivery Time for Small Care and Big Care

Figure 9: Screenshot of MediFox Data Collected via MediFox Mobile

List of tables

Table 1: Nursing Rates for Outpatient and Inpatient Care

Table 2: Costs for Additional Functionalities of MediFox

Table 3: Capex and Opex of MediFox

Table 4: Overview of Influence of MediFox on Quality

Table 5: Efficiency Gains due to MediFox

Table 6: Net Benefits of MediFox

List of abbreviations

illustration not visible in this excerpt

1 Introduction to Reserach Gap and Topic

Healthcare is one of the fastest growing sectors in the service economy (Sisko et al., 2009). This development is due to the aging society, mounting competitive pressure and ever more emerging treatments and technologies (Andaleeb, 2001). Being an enormously expensive, very complex, information-intensive and universally used service, healthcare significantly affects economies and the quality of daily life (Berry & Bendapudi, 2007).

Since the early 1950s computer technologies have been utilized to collect and manage information (Atienza et al., 2007). The development of computer processing and its implications for the speed, memory and possibilities of network infrastructures to process large amounts of data are seen as a promising way to achieve needed changes within healthcare like lowering costs and enhancing quality. These developments have created a wide range of possibilities for individuals, groups and populations to assess and deliver health information. However, the healthcare sector lags behind other sectors in the utilization of communication and information technology (ICT) and thus exhibits a chance for sustainable growth. Implementations of potentially beneficial e-health technologies are currently in process, often with significant impact on national expenditure. The UK has, for example, invested at least € 16 billion in a national programme for information technology for national health services (Catwell & Sheikh, 2009). Such large-scale expenditure has been justified on the grounds that e-health solutions will help address the problems of cost-effectiveness, quality and safety in modern healthcare.

Despite the surge in technological capabilities the responding research and evaluation methodologies have not kept pace with the evolution of information and communication technologies in healthcare. Therefore, E-health research is at an early stage of development (Atienza et al., 2007). E-health, in contrast to other health industries like pharmaceuticals or medical devices, is not systematically assessed with respect to safety, quality and impacts (Stroetmann et al., 2006). The benefits and overall positive effects of the use of information technology seem clear in theory but the healthcare sector has been slow in adopting information systems and the implementation has proven difficult (Chaudrey et al., 2006). The scientific basis of benefits, which are repeatedly made and seemingly uncritically accepted, remains to be established (Black et al., 2011). There is a growing debate whether the advertised benefits of ICT in healthcare can be realized on a large scale. Over the last decade there have been various reports of successful implementations but also expensive failures (Schweitzer & Synowiec, 2010). The majority of positive evaluations are carried out in large organizations that implemented multi-purpose information systems, which were developed in-house. However, empirical evidence of successfully adopted commercial, off-the-shelf IT systems is rare (Goldzweig et al., 2009). Healthcare providers that want to implement a commercial package system and seek information as a basis for decision making can only resort to a limited amount of studies (Chaudhry et al., 2006). Also the financial implications of ICT technologies in healthcare are under researched (Haux et al., 2008). Heeks (2006, p. 127) concludes that “both the conceptualization and the evidence base for health information system success and failure are weak“.

The evaluation of the effects of ICT utilization in healthcare provides the possibility to verify whether e-health is fulfilling its objectives in facilitating the services of healthcare delivery. A recent OECD report states that the missing evidence for the value of e-health is a main obstacle to its extensive adoption (OECD Studies, 2010). E-health evaluation is “not straightforward [...] unclear and confusing and an existing strong foundation for good evaluation theory and practice is yet to be disseminated” (Yusof et al., 2008, p.378). Many e-health studies lack generalizability, only have a regional scope or do not allow for a transmission of the scientific method to other evaluations. No comprehensive standardized evaluation framework for e-health analysis exists (Häckl, 2010). However, the lack of a broad evidence base can be explained by the rapid development in that field. Other economic sectors have been successful in reaping the benefits of ICT, like enhanced productivity and quicker access to information, and the healthcare sector is very likely to join the queue (Schweitzer & Synowiec, 2010). There is undoubtedly an urgent need for economic analysis as a basis and orientation for public and private investment decision making (Schweitzer & Synowiec, 2010).

This thesis shall contribute to the e-health evaluation literature by assessing cost and benefits of the implementation of the off-the-shelf ICT innovation MediFox by a midsized outpatient care provider. For ICT systems, particularly in elderly care, economic evaluations have been very rare if not non-existent (Vimarlund, 2005).

Interviews with the business manager and accounting employee, as well as a survey with the nursing staff will be conducted to capture different viewpoints about the quality and efficiency of care services after the implementation of MediFox. Furthermore cost and revenue data will be collected. As such quantitative and qualitative data will be used for the analysis. As an economic evaluation of MediFox shall be conducted, data to measure the benefits and costs are needed. Monetary values have to be assigned so that the economic performance can be evaluated. It is important to stress that the objective of this master thesis is not to measure or prove objectively whether the use of ICT in healthcare is worth it. Nor will it be possible to prove that the results, like possible cost savings or efficiency gains can be exclusively attributed to the use of e- health. The overarching goal of this thesis is rather to assess whether the benefits of the implementation of MediFox surmount its costs and provide insights into the impact of e-health on efficiency measures in outpatient care services for the elderly, which might serve as a basis for further research.

This thesis is subdivided into six chapters. Figure 1 depicts the structure of the study. The first chapter constitutes an introduction to the topic, in which the contribution of the study to the academic discourse and its relevance in practice are outlined. Thus the research gap, which is addressed by this case study is identified.

The second chapter describes the theoretical, economic and social context in which the topic is embedded in order to enable a deep understanding of the subsequent framework and case study. For this purpose the emergence of innovation in services (2.1.1) and the role of technology in the appreciation of innovation in the service sector (2.1.2) will be presented. Subsequently the business value creation of IT (2.2.1) in general and the impact of IT on service success (2.2.2) are discussed. Finally the application of ICT in healthcare is examined. For a clarification of the diverse opportunities in utilization of ICT in healthcare the development of e-health over time (2.3.1) is depicted. The impact of ICT application in healthcare (2.3.2) is assessed and the German market for elderly care (2.3.3) is introduced. To create a basic appreciation for the peculiarities of nursing care business the organization of outpatient care providers is described (2.3.4).

In the third chapter the theoretical basis of the framework is laid out and subsequently the framework is developed. At first innovation in services for elderly care (3.1) is shortly defined. Then the basics of cost benefit analysis (CBA) (3.2) are outlined and the relevance as well as difficulties of e-health evaluations in healthcare (3.3) are discussed. The framework is developed based on the concept of CBA but adapted to the healthcare setting. The impact of the e- health application on quality, access and efficiency of the service are assessed in terms of operational as well as capital costs (3.4.1) and benefits (3.4.2).

The empirical case study follows in the fourth chapter. Here the chosen case sample and data gathered are described. The outpatient care provider chosen for the case study is presented (4.1) and the evaluated e-health application (4.1.1) and the procedure of data gathering (4.1.2) are depicted. In the following the data raised in the context of the case study is presented (4.2) and the results (4.3) are summarized and discussed.

Following from the discussion of the results at the end of the study theoretical implications (5.1) as well as managerial implications (5.2) are deducted. Furthermore limitations (6) of the empirical methodology and study results are discussed and linkages to further

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Figure 1: Structure of the Study

2 Theoretical Background

The following chapter provides an overview of the context in which the case study is embedded. First, the emergence of innovation in the service sector will be described (2.1.1). Afterwards a discussion of the role of technology within the evolution of service innovation follows (2.1.2). Then the general impact of IT utilization on firm performance will be discussed (2.2.1). Building on this the role of IT in the context of services and its effect of service success is depicted (2.2.2). The following sub-chapter addresses the utilization of IT in the special context of the healthcare sector (2.3). It serves as an introduction to the case study as it shall contribute to a greater understanding of the environment in which the case study is embedded, namely the German market for elderly care (2.3.3) and outpatient care business (2.3.4). To clarify what the term e-health encompasses and how it is delimited to other terms describing the use of ICT in healthcare, e-health and the e-health market will be defined (2.3.1).

2.1 Service Innovation

2.1.1 Definition and Theory of Service Innovation

Despite the increasing importance of innovation in services no comprehensive definition of service innovation exists up to date (Berry et al., 2006; Den Hertog & De Jong 2010). This might be owed to the fact that in the past no distinction between product and service innovation was made (Damanpour et al., 2009). For a holistic understanding of service innovation also the term innovation shall be shortly defined. An innovation is an “idea, practice, or object that is perceived as new by an individual or another unit of adoption” (Rogers, 2003, p. 17). Thus the perception of the consumer is decisive for the existence of an innovation.

Service innovation then, is the introduction of a new service to existing and new customers or the introduction of an existing service to new customers (Damanpour et al., 2009, p. 654). Since no service specific peculiarities of innovation are depicted a definition of the term service constitutes a sensible addition at this point. Services are marked by intangibility, heterogeneity, inseparability of production and consumption and perishability (Lovelock & Gummesson, 2004). Intangibility refers to the fact that services are not storable or easily representable (Parasuraman & Varadarajan, 1998). Heterogeneity means that a certain degree of standardization is not that easily reached because of a high degree of personnel intensity of service delivery (Rust & Chung, 2006). The inseparability of production and consumption describes the fact that the service delivery of the provider happens simultaneous to the consumption of the service by the customer, who is actively involved in the process of service delivery. Perishability refers to the fact that services cannot be stored or prepared ahead (Parasuraman & Varadarajan, 1998).

Despite the continuous growth of the service sector in developed economies, services have long been seen as non-innovative or technologically backward activities (Droege et al., 2009). Manufacturing constituted the source of new technologies and the driver of economic growth (Tether, 2003). This view began to change during the 1990s and the first authors responsible for this shift saw service firms as supplier dominated, only adopting externally developed technologies to enhance the quality of their services or service delivery process instead of being innovative themselves (Tether, 2004). This supplier-dominated view is closely linked to the well-known taxonomy of technological activities by Pavitt (1984), in which he classifies all private services as passive adopters of such external technologies. Authors in the Pavitt tradition, like Barras (1986, 1990), Evangelista (2000) and Miozzo and Soete (2001) apply the understanding of innovation in manufacturing to innovation in services.

This traditional understanding of innovation is challenged by authors like Weinstein and Gallouj (1997), Djellal and Gallouj (2006) and Sundbo and Gallouj (2000), which see innovation in services as unique and very different in nature to innovation in manufacturing. They increasingly recognize the diversity of innovation behaviors in services without ignoring the role of technology. In fact the dynamism in services when it comes to the accruement and diffusion of information and communication technologies put the traditional, rather passive role of service innovation into question (Castellacci, 2008). However, a comprehensive model that explains innovation in services as well as manufacturing is needed as services, and thus service innovations, are ubiquitous. Service innovation is increasingly used by organizations across all sectors as a means to differentiate their products. A smooth transition rather than a strict distinction between service and manufacturing firms - and thus also their innovation activities - seems appropriate (Den Hertog et al., 2010). Basic elements of innovation, like human and organizational capabilities are relevant in the manufacturing as well as the services sector (Gago & Rubalcaba, 2006).

2.1.2 Technology and Service Innovation

Since the early 1990s a rapid diffusion of interrelated, radical innovations has taken place in the software and telecommunications sector (Freeman & Louca, 2001). As briefly mentioned above, the growth in services is closely linked to the emergence of information and communications technologies (Castellacci, 2008). Information and communication technologies (ICT) “are defined as digital and analogue technologies that facilitate the capturing, processing, storage and exchange of information via electronic communication” (Gagnon et al., 2009, p. 1). Investments in ICT are most acute and dynamic in services (Hempell, 2004). Based on internet and multimedia, a closely related group of innovations has spread, which is linked to new forms of service delivery and new services like voice networks, mobile and satellite communications and data transmission. Innovation plays an important role in the development of new and existing ICT based services. The growth of the service sector is thus “closely related to the emergence of a new technological paradigm characterized by the pervasiveness and growth potential brought by ICTs” (Castellacci, 2008).

Services have become an important location of innovative activity within the knowledge economy, where knowledge is transformed into tangible and intangible values mostly through the use of technology (Gago & Rubalcaba, 2006). Information and knowledge can more easily be stored and transferred within organizations. The service firm can even constitute a source of innovation for its client firm, by initiating and supporting the client’s innovation process through providing knowledge resources. This sharply contrasts with the supplier- dominated view that sees service firms as mere adopters of innovation. According to Kandampully (2002) it is the combined influence of technology, knowledge and networks that strengthens a service firm’s innovativeness. He argues that technologic advances lie at the very heart of the growth of the service economy. ICT enable the knowledge exchange with people inside and outside of the firm and thus create networks. These networks can be used to share and exchange knowledge. The network of relationships in turn leads to an amorphous nature of knowledge, meaning that the knowledge is updated and exchanged on a regular basis and can adapt to new situations. This amorphous knowledge made possible through ICT networks represents the critical resource or the core competency of a firm that determines its innovation potential (Kandampully, 2002). Being able to exploit external knowledge is very important to be constantly innovative. This is significantly facilitated through the use of ICT.

However, not only the network creation and knowledge storage of ICT is important for innovation in services. The innovative capacity of services cannot solely be attributed to tangible technologies such as ICT (Weinstein & Gallouj, 1997). Particularities of services like intangibility and interactive aspects impact the process of innovation. Services are intangible and the quality of the service is highly dependent on the expertise and skills of the employee delivering it (Hempell, 2004). The co-production of the service provider and the consumer leads to a non-standardized, situation-dependent interaction between provider and consumer during service delivery (Hempell, 2004). These intangible properties of services indicate that rather soft dimensions of the interaction with ICT involved in the service delivery process like human skills and organizational practices play a decisive role in the innovation process (Hempell, 2004). Firms must complement the technological advances provided by ICT equipment, with skills and expertise of their employees and innovational efforts, in order to enhance organizational routines and exploit the full productivity potential of ICT (Hempell, 2004). Gago and Rubalcaba (2006) emphasize that in addition to traditional measures of innovative output like costs, productivity or turnover other indicators should also be used like quality, trust and timing. Furthermore as ICT investments are complementary investments their productivity payoff achieved from facilitating other innovations may not be captured and attributed correctly, which suggests that technology has made a larger real contribution than believed up to date (Gago & Rubalcaba, 2006).

Thus it can be summarized that innovation in services does exist and that technology, especially ICT, plays a crucial role in service innovation. The emergence of new ICT innovations and the growth of services is closely linked to each other as new services and forms of service delivery originated from new developments in ICT. The peculiarities of services like the co-production between provider and consumer stress the role of intangible properties within the innovation process. Not the mere application of ICT within services alone but especially the handling of the technology by the employees and the organizational integration determine the quality of the service and innovative capacity of the service provider.

2.2 Business Value of Information Technology 2.2.1 IT Effects on Firm Performance

The relationship between information technology and firm performance has been the topic of controversial studies in recent years. This stream of literature deals with economic impacts of IT and its manifestations at the firm level. Information technology (IT) is defined as “computers as well as related digital communication technology” (Brynjolfsson & Hitt, 2000). Researchers from different disciplines like information systems, economics, strategy, accounting and operations research have conducted countless approaches to examine how IT business value is created and how large its impact is. In doing so they have used diverse conceptual and analytic methods and different empirical approaches at many different levels of analysis (Dedrick et al., 2003; Melville et al., 2004; Wilson, 1995). Though this diversity has certainly led to a rich academic dialogue it has also led to ambiguity and thus it has become difficult to understand what we know about IT business value. According to Melville et al. (2004) IT business value is “the organizational performance impacts of information technology at both the intermediate process level and the organization-wide level, and comprising both efficiency impacts and competitive impacts” (Melville et al., 2004, p. 8). The usage of IT might improve, reduce or have no impact at all on firm performance.

Up to the 1990s the existence of a positive impact of IT on firm performance was the topic of a controversial academic debate. The so called productivity paradox, firstly pointed out by Roach (1987, p. 36) and summarized by his remark that “you can see the computer age everywhere, except in the productivity statistics”, is seen as an artifact of time and measurement (Brynjolfsson & Hitt, 2000; Dedrick et al., 2003; Devaraj & Kohli, 2003). The literature offers at least some arguments that explain the productivity paradox, which describes “low aggregate productivity growth during a period of high IT spending” (Melville et al., 2004, page 5).Firstly, the lack of profitability effects might have been due to missing connectivity and integration of IT in the pre-Internet era (Andal-Ancionet al., 2003). Previous analysis has focused mainly on internal processes but in the Internet era a broader conceptualization of IT business value that accounts for new linkages due to electronic networks is needed (Melville et al., 2004). Secondly, limitations in the statistical calculations and models used might have lead to the conclusion that there exists no distinct effect of IT on profitability (Dedrick et al., 2003) . However, today there exists a critical mass of studies available that point out the relationship between IT and at least some form of firm value, whether it be financial, intermediate or affective (Barua et al., 1995; Brynjolfsson & Hitt, 1996; Devaraj & Kohli, 2003; Kohli & Grover, 2008; Mithas & Jones, 2007). But some uncertainties and difficulties when it comes to measuring the extent and dimensions of IT business value still remain (Brynjolfsson et al., 2002; Cooper et al., 2000; Dewan & Kraemer, 2000).

IT only creates value under certain conditions. The software or hardware tools in isolation do not create value unless they are part of a business value creating process with other information systems or organizational factors (Melville et al., 2004) . Also IT value can emerge at different levels - individual, group, firm, industry or the economy etc. (Devaraj & Kohli, 2003). When it comes to obtaining the benefits, the implementation, adoption and acceptance phases connected with the usage of IT often lead to a lag effect (Santhanam & Hartono, 2003). Another difficulty in assessing the benefits lies in the fact that the causality of IT value is elusive because it is very difficult to clearly attribute the benefits generated by IT investments (Kohli & Grover, 2008).

IT investment is linked to complementary organizational changes since the implementation of IT leads to the redesign of business processes and restructuring of the internal organization (Hempell, 2004). Because of their complementary character, IT should not be seen as a traditional capital investment, but as Gago and Rubalcaba (2006) put it “rather as a general purpose technology the economic contributions of which are substantially larger than would be predicted by simply multiplying [...] them by a normal rate of return”. The economic benefit of IT lies in the facilitation of complementary innovations, which IT needs to fully unfold its productivity potentials (Brynjolfsson & Hitt, 2000). IT success depends on the specific economic circumstances. Of particular relevance for a more efficient organization on work processes are ICT. The most striking feature of ICT, apart from its very rapid diffusion, is the broad range of applications and purposes enabled by its use. That is why ICT are defined as a General Purpose technology (GPT), like electricity, which is an enabling technology that needs innovations in their application to become fully productive (Hempell, 2004). Various industries use ICT components for their own product and process innovations. For example service industries use online banking and web-based after-sales support for new services and processes. Most importantly ICT is used for improving the quality of existing products and services and also the administrative work inside the firm (Bresnahan et al., 1996; Brynjolfsson & Hitt, 1995; Licht & Moch, 1999). Computers and networks are a means to facilitate and accelerate the process and storage of data but in order to have an impact on productivity or cost reduction complementary innovations in products or processes are needed that exploit these characteristics (Hempell, 2004).

In conclusion the productivity paradox can be invalidated. Investments in IT create value with a wide range of benefits like flexibility and quality improvement as well as productivity growth and cost reduction (Melville et al., 2004). A full exploitation of the productivity potential at the firm level is only possible through complementary organizational investments. IT not only automates existing processes, but allows for further organizational changes that can lead to even higher productivity gains (Dedrick et al., 2003). Mithas and Tafti (2012) suggest that IT leads to higher profitability gains in the service industry than in manufacturing. They explain this with the fact that services are more IT intensive and enable greater customization and personalization (Mithas & Tafti, 2012). When looking at the total IT investment in the economy, services are responsible for the largest and fastest growing share of IT expenditure (Licht & Moch, 1999).

2.2.2 The Impact of IT on Service Success

Grönroos (2000) states that nowadays, firms do predominantly compete through services and not on the basis of physical products, as those are fairly similar in the eyes of the consumer. It is rather the service that comes with the product that creates true value. Service encounters gain importance across all industries, even in those, which are traditionally defined as manufacturing industries. In the competitive marketplace almost all firms compete through service offerings and customer service (Bitner et al., 2000). Service encounters are the decisive moment in which employees and customers interact and jointly produce the service. “In most services, quality occurs during service delivery” and thus the service encounter is decisive for business success (Bitner et al., 2000, p. 140; Zeithaml et al., 1988).

Licht and Moch (1997) find evidence in their study that IT seems to have some effect on quality aspects of services. Technology gains an increasing role in service encounters and can provide benefits like higher customer satisfaction (Bitner & Hubbert, 1994), word-of-mouth communication, intention to repurchase (Keaveney, 1995), good relationship quality (Bolton, 1998) and loyalty (Gremler & Brown, 1999). However, the increasing role of technology can also have negative effects and raise concerns of privacy and confidentiality with the consumer (Bitner et al., 2000). Berkley and Gupta (1994) develop a model that describes how IT can be used to enhance service quality. IT can be used along different service quality dimensions like reliability, responsiveness, competence, access, communication, security and knowing the customer. Infusing technology into an organization requires a difficult implementation process and adaption from customers and employees. Also, it is difficult to measure the impact of information technology on quality, especially in the services industry as enhanced quality does not necessarily lead to increased output but rather effects “the way products are delivered” (Gago & Rubalcaba, 2006; Licht & Moch, 1997, p. 7). Investments in IT in the service sector have mostly been aimed at cost reduction and efficiency gains, probably because this is the measure most firms use to identify benefits (Rubenstein & Geisler, 1990). IT can also be used to improve service quality along different dimensions. However, an improved quality of service delivery does not necessarily lead to direct quantitative benefits.

Accounting systems do measure fewer labor costs, achieved by higher productivity, but not the costs of poor service quality or poor customer service (Berkley & Gupta, 1994). The financial payoffs are hard to measure and quantify, which leads to problems in justifying the initial investment. However, the resulting benefits can be substantial (Bitner et al., 2000).

Today, a broad basis of studies exists that confirm some form of business value creation through IT. However, not the mere implementation of technology but the resulting organizational changes and complementary innovations lead to gains in profitability. IT helps to manage and store data but the full potential of IT is only reached through enhanced business processes that use the facilitated access to data. IT does play a particularly important role in services, where investments in IT are especially high. The service sector mainly uses IT to reduce costs and achieve higher productivity. However, IT can also be utilized to enhance the quality of service delivery. But measuring the financial benefits of IT business value remains difficult, especially in services.

2.3 The Use of ICT in Healthcare 2.3.1 From teleradiology to e-health

The substantial benefits of ICT are also touted in the context of healthcare. Though a scientific consensus as to the benefits of ICT utilization in healthcare seems to exist, the evidence base that unambiguously confirms the realization of such benefits is limited. Amongst other things this might be due to a lack of agreement concerning a clear cut definition of health IT (Atienza et al., 2007; Häckl, 2010; Moxham et al., 2012). In the literature there can be found a broad range of terms used like telemedicine (Rudowski, 2003), health information systems (Yusof et al., 2008), and mobile health (Jonda, 2004). The most commonly used and seemingly broadest term is e-health (Kreps & Neuhauser, 2010; Mukherjee & McGinnis, 2007; Murray et al., 2011; Tsiknakis & Kouroubali, 2009). The most frequently cited definition of e-health is the one by Eysenbach (Oh et al., 2005). According to Eysenbach (2001, p.1):

“e-health is an emerging field in the intersection of medical informatics, public health and business, referring to health services and information delivered or enhanced through the Internet and related technologies. In a broader sense, the term characterizes not only a technical development, but also a state-of-mind, a way of thinking, an attitude, and a commitment for networked, global thinking, to improve healthcare locally, regionally, and worldwide by using information and communication technology”.

The terms telemedicine, telematics and e-health are used more or less synonymously in Germany (Jonda, 2004). Internationally the term e-health established itself not least because it comprises the various applications of ICT in healthcare in a more comprehensive manner. The European Commission subdivides the e-health market in four interrelated field:

1. Clinical information systems encompass technologies for managing data in in- and outpatient facilities.
2. Telemedicine and homecare include telemonitoring and teleradiology. This field makes use of the transmission of data and pictures overcoming spatial distance.
3. Integrated regional/national health information networks include electronic health records and functionalities such as e-prescrition or e- referrals
4. Secondary usage non-clinical systems contain information systems that are not directly used in a clinical setting like health internet portals and supporting systems that do not directly concern patients or doctors like administrative and billing systems (European Commission, 2007).

In the following, the terms e-health, health IT (HIT), health information system (HIS) and ICT in healthcare are used synonymous.

2.3.2 ICT Impact in Healthcare

The use of health information technology has been promoted by policy makers and healthcare experts to have a distinctive impact on costs, efficiency, quality and safety of healthcare services (Goldzweig et al., 2009; Hillestad et al., 2005; Menon et al., 2000). The key challenge of the healthcare sector lies in establishing high quality care while limiting care costs (Kreps & Neuhauser, 2010; Ludwick & Doucette, 2009; Tsiknakis & Kouroubali, 2009). The use of ICT in healthcare is associated with the hope to improve the efficiency of decision processes and reduce coordination and communication issues (Mukherjee & McGinnis, 2007; Murray et al., 2011). The empirical results from using IT in healthcare organizations are controversial and lack generalizability but there exists a large amount of studies showing important quality and efficiency related benefits (Bharadwaj, 2000; Black et al., 2011; Mitra, 2005; Thouin et al., 2008). Buntin et al. (2011) conducted a systematic literature review on the impact of health IT and found preliminary positive results. Concrete improvements that can be achieved through the use of ICT can be broader access to patient information through electronic health records or automated patient safety processes. Furthermore the use of ICT in healthcare has the potential to reduce costs by increasing the efficiency of back office processes (Thouin et al., 2008).

The handling, storing and communication of information are of particular importance in healthcare as this sector is very information intensive and consists of diverse and dispersed healthcare providers. Within this highly fragmented sector the need to cooperate and coordinate processes is particularly high (Jonda, 2004). Information and communication technology thus plays an important role considering the need to quickly adopt new medical findings into practice and the high number of transactions between different health actors, like hospitals, ambulant physicians and informed patients (Chaudhry et al., 2006). Thus IT investments in the healthcare sector are expected to have a particularly high impact on firm performance. The need for time and location independent access to relevant patient information is obvious and could lead to distinctive cost and time savings. However, the existence of a variety of out- and in-patient health care provider poses a particular challenge to the German healthcare market. This fragmented structure shows a lack of integrated communication channels between the various institutions. The diffusion of e-health applications and the sectoral division between the inpatient and outpatient sector do influence each other. The use of ICT within the German healthcare sector is seen as a means to overcome communication and coordination issues between the inpatient and outpatient sector. At the same time, however, the sectoral division seems to be an obstacle to an accelerated diffusion of e-health (Häckl, 2010). E-health in Germany is in its infancy and the lack of a standardized national concept is the main obstacle to a comprehensive solution (Jonda, 2004). According to Thouin et al. (2008) “the industry being examined has important consequences for the study of the generation of IT business value because the payoff on IT investment has been shown to be industry dependent” (Thuoin et al., 2008, p. 3). Devaraj and Kohli (2003) observe a higher payoff from IT investments in government and nonprofit sectors than in manufacturing and financial sectors. According to Thouin at al. (2008) increased IT expenditures lead to an enhanced financial situation within healthcare organizations (Thouin et al., 2008).

To accelerate e-health adoption he implementation of e-health applications is widely supported by government spending but the success is variable and there still is some uncertainty about the application in practice (Moxham et al., 2012). Although there has been substantial technological progress leading to ubiquitous information and communication technologies, the healthcare sector has been slow in adopting those technologies and implementation is rather difficult (Christensen & Remler, 2009; Haux et al., 2008; Kaplan, 1997). Estimates by Deutsche Bank research state that the European e-health market, excluding telemedicine, will grow about 5% p.a. (Häckl, 2010). However, this estimate presupposes an enhancement of the circumstances of e-health adoption in Europe. The main barriers to e-health adoption occur in the implementation phase and comprise issues like cost reimbursement, risk identification, understanding intended outcomes and technology anxiety (Moxham et al., 2012). As there is a predisposition against the publication of implementation failures within healthcare literature only a small size of available studies hints at what is presumed to be significant numbers of HIS failures (Heeks, 2006; OECD, 2010). According to Berg (2001) there are presumably more failed implementations than successful ones. The failure can often be attributed to organizational and human issues and also to the degree of complexity of the health information system (Berg, 2001). The adoption of IT-innovations by a health organization leads to profound changes in the organizational structure, work processes and interaction with patients (Grimson et al., 2000; Olve & Vimarlund, 2005; Vimarlund & Koch, 2012). The human factor, meaning the way people interact with the new technology, is decisive when it comes to e-health implementation (Buntin et al., 2011). Despite those complications, the literature suggests that the use of health IT is very promising for reducing healthcare costs and improving the quality and safety of healthcare.

2.3.3 German Market for Elderly Care

A standardized, broad utilization of e-health seems to be especially promising in the German market for elderly care, as it constitutes a fast growing, information­intensive and fragmented market. Also costs for care services are rising exponentially and the amount of people in need of this service will rise significantly during the following years (Mennicken, 2013). Thus a reduction in care costs through the use of ICT would constitute a solution to the funding problem.

Professional care for elderly people is gaining ever more importance. During recent years the care sector grew disproportionate to the German GDP (Augurzky & Mennicken, 2011). The German health sector reached a volume of € 277 billion in 2009 which is 5.2 % more than in 2008 composing the biggest growth within the last 15 years (Augurzky & Mennicken, 2011). On the whole € 30 billion can be allotted to the market for nursing care, making it the fourth biggest market after hospitals, medical practices and pharmacies (Mennicken, 2013). Assuming a moderate rate of price increase of 1.5 % the market will grow annually about 3.2 % and will have more than quadrupled by 2050 (Gasche, 2007). The nursing care sector thus exhibits dynamic growth from which provider of nursing care and products will profit while nursing care insurances and public and private households will have to face higher expenses. The cost of care is increasing disproportionately to the cost of other health services. These developments, rising care costs as well as nursing cases, will be exacerbated by demographics, the process of “two-pronged ageing” - fewer children are born and at the same time life expectancy is increasing (Gasche, 2007). The demographic development has a large impact on the market for elderly care and on nursing care insurance because the risk to be in need of care is increasing considerably for people aged 70 and older. The risk to be dependent on care is only 0.6 % for someone at an age of 50 but 4.9 % at an age of 80 and 60.2 % for someone aged 90 or older (Gasche, 2007). During the coming years a growing group of old and very old people will be facing a shrinking group of younger people. The increasing number of older people causes the number of people in need for care to rise: from 2.5 million in 2013 to 4.5 million in 2050 (Gasche, 2007). The demographic development constitutes a challenge and an opportunity at the same time. The opportunity lies in the strong economic growth in the market for care. The demand for care services and products will rise and as geriatric care is very labor intensive the employment in this sector will rise as well, which poses another challenge, as Germany is facing a skills shortage. The number of nursing homes and employees in outpatient nursing care services will at least double until 2050, with a disproportionate growth in the demand for outpatient care (Gasche, 2007; Mennicken, 2013).

Today 70 % of the 2.5 million people in need of care are nursed at home, mostly by female relatives and only partly supported by outpatient care nurses (Mennicken, 2013). The care service can either be provided by relatives or professionally by an outpatient care service or a nursing home (Schnabel, 2007). The current care system is family based but family support is decreasing. A meaningful figure in this context is the support ratio, which puts the active population aged between 20 and 64 and the passive population aged between 0 and 19 and 65 and older in relation to each other. This index is based on the assumption that the middle age groups have to support the younger and older age groups: Parents support their children and the working population generates the biggest share of the social product and pays taxes from which children as well as retirees benefit. In 1950 one passive person was supported by 1.5 active persons but the support quota will decrease dramatically until one passive person will be supported by hardly one active person (Gasche, 2007). The demographic development is thus the key driver for the nursing care insurance and the cost of care.

2.3.4 Outpatient Care Service Provider

The risk of being in need of care is considered a life risk since the introduction of the nursing care insurance in 1995, which was motivated by the demographic development and the decreasing availability of family based care (Hielscher et al., 2013). In Germany, care services for the elderly as a professional service are organized either in the form of a retirement home or an outpatient care provider, which provides the services to the old people at their own homes. Since the nursing care reform of 1995 nursing institutions can either be privately or publicly organized. The introduction of the care insurance created an open market for nursing care. Apart from private institutions there are also public and non-profit organizations providing in- and outpatient care services. Private organizations differentiate themselves as they operate profit-oriented and use private capital (Augurzky & Mennicken, 2011). In 2009 35.7 % of all nursing homes and 47 % of all outpatient care provider were privately owned (Augurzky & Mennicken, 2011). An often-voiced opinion is that profit orientation is only possible at the expense of the quality of care and the well being of the patients. Augurzky and Mennicken (2011) argue that their empirical findings do not confirm this assumption. The market entry of a private nursing care organization even lowers the overall prices for all non-private institutions in the area by about € 0,85. Also their analysis shows that there is no significant difference in the quality of nursing care of private and non-private institutions (Augurzky & Mennicken, 2011).

In the following special attention will be drawn to the peculiarities of outpatient care business. A person in need of care either receives a nursing allowance or an allowance in kind. Also a combination of both can be utilized. If the care can be provided at the patient’s home and is carried out by relatives the insurance pays a nursing allowance. Should a professional care service be involved the allowance in kind is refunded (Schnabel, 2007). The patient and his family have to decide which kind of allowance they want to utilize. Should the allowances in kind only take up a part of the granted amount the remaining sum is paid out to the family. Thus the outpatient care service providers do not only compete with each other and inpatient nursing homes, but also with the monetary benefits received by relatives providing the care service.

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Table 1: Nursing Rates for Outpatient and Inpatient Care

However, the care insurance only refunds care services up to a maximum rate and is thus rather a partial coverage insurance, which complements the family-based care. If the costs of care services exceed the refunds granted the patient has to bear the excess expenses or has to rely on social welfare (Schnabel, 2007).

The practice of refunding care services limited to a maximum rate has certain implications for the care market, which Hilescher et al. (2013) describe as a process of economization of care services. The system puts pressure on the care service providers to offer its services at acceptable prices or to shorten the time taken for delivering the care service. However, higher prices will only lead to a higher required contribution of the patients’ own money and thus to a competitive disadvantage. Thus the nursing care providers are only partially able to adjust the prices for care services to the actual effort and work put into the nursing process (Hielscher et al., 2013). As the cost of care are basically determined by incoming expenses for staff utilization, this in turn puts pressure on the salaries and wages of the nurses, which bears the risk of the emergence of a low-pay sector (Hielscher et al., 2013).

Also, a reduction of the time taken for care service delivery entails the risk of a decrease in the quality of care. In addition to business considerations also soft factors like sympathy or empathy are important for the evaluation of the quality of the care service by the patients. In the course of care delivery also private conversations take place and close relationships are fostered between the nurse and the patient. Nursing care service is a very personal service, which is delivered within the private environment of the elderly person. This requires a certain degree of trust and familiarization. Thus nursing care is not only comprised of the technical provision of care services but also the maintenance of private relations. It is important to include customer requests and time for personal exchange when planning the route and employment of staff (Hielscher et al., 2013).

A successful balance between diverging demands of being financially viable and providing high quality care services is decisive for business success. This balance is managed through organizational processes. Route scheduling is of particular importance for the efficient design of day-to-day processes and the economic viability of the organization (Hielscher et al., 2013). The costs of the fleet of cars amount to 30 % - 50 % of operational costs. Thus it represents a huge cost factor, which is independent of the actual distance covered only accounted for by a lump­sum payment. The economic scheduling of distances between patients thus offers significant potential for cost savings.

In the discussion of the theoretical background it was demonstrated that the service sector is innovative in its own right and not only a passive adopter of innovations provided by suppliers. Technology plays a significant role in the emergence of innovation in services. The growth of services and the rapid emergence of new ICT applications are closely linked. Services utilize ICT innovations for the enhancement of existing and the creation of new services. ICT can be utilized to save costs and increase the efficiency of business processes. The promised benefits of facilitated communications and easier access to data are of special relevance for the health sector, which is marked by cost pressure and a higly fragmented structure. Despite these expectations the healthcare sector has been very slow in the adoption of ICT solutions. This can be amongst other things explained by a lack of empirical evidence concerning the realization of the much acclaimed benefits of ICT. This study will add to the scarce evidence base of the impact of health IT on efficiency measures. For this purpose an evaluation of an e-health application in outpatient care will be conducted. In the following the evaluation framework and data collection process will be described.

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