Monday, 9 January 2012

Relationship between expenditure in service quality improvement initiatives and profitability in healthcare

What is the relationship between expenditure in service quality in healthcare and profitability? A daunting question that arose in my mind which prompted me to explore various research studies based on this question. Quite a lot of data was found from various sources ranging from Mathews and Ketal (1992) showing negative relationship between expenditure on service quality and profitability to studies by Subramanian et al showing very strong positive relationship. A common factor arose from these studies is that variables other than service quality improvement such as pricing, distribution, marketing and advertisement influence profits more than expenditure on service quality improvements like TQM. Interestingly there is striking evidence that expenditure on service quality benefits cannot be experienced short term and accumulate overtime making them less amenable to detection. The literature review also brought to my attention that mere spending in service quality does not actually lead to profits and the relationship between expenditure on service quality and profitability is neither straightforward nor simple. When we think of investing in improvement of service quality the right variable needs to identified and invested upon. It is however evident that the aforementioned service quality benefits accumulated overtime is what healthcare needs now to stay in the business and to increase the market share continuously. Hence expenditure in variables such as pricing distribution, competition, marketing, advertisement, etc should be considered as a short term investment to create a sudden change and expenditure in service quality should be considered as a long term investment, which will benefit the organization in a long run and keep them in business in this ever changing and challenging world of healthcare.


Binu. Gopinathan

1 comment: