Incentive effects of dynamic tournament inside the firm : evidence from medical service assessment

Abstract

The originality of this study focusses on exploring the impact of incentive effects on the quality of the customer services. This comprehensive approach provides a unique perspective on the effectiveness of non-monetary incentives to improve the performance of operations. As a prominent form of relative performance evaluation, tournaments have attracted considerable attentions in economic studies. Rank order tournaments are ubiquitous in business organization and have been widely applied as performance evaluation on the corporate operations practice where participants compete for given prizes or the distribution of fixed amounts of bonuses, then tournaments can reach several incentive effects, respectively. To supplement the research of dynamic tournament on agent interim and intertemporal performance, this study is focused on the incentive effects of rank order dynamic tournament and the incentive mechanism by examining the operation performance inside the firm. Dynamic tournament, rarely been studied about the firms but more involved sports or empirical scenario, refers to competitive situations where participants compete each other over a certain period of time, and the rewards or incentives should be based on their performance periodically. In this study, overall performance is not evaluated and measured by revenue or direct financial result but customer satisfaction, furthermore it focuses on the heterogeneity of participants' acceptance to feedback incentives. The multiple evaluation dimensions of customer satisfaction are served as service quality criteria for multiunit healthcare organization and the main purpose is to maintain the stable medical services quality. The evaluation of the service quality is necessary to identify the key factors then could contribute to improve customer satisfaction. The importance of this study bases on its potential to furnish the design of incentive systems in the healthcare industry by understanding the impact of different non-monetary performance factors on the quality of customer service. The performance evaluation of medical operations is a major management issue of multiunit healthcare organization. Normally, the strict regulations and competitions are the typical practices to be noticed for the performance inspections. In response to the future regulatory or competitive approaches, healthcare organizations with multiple units can tailor their incentive programs to motivate employees and improve overall performance by their own experiences. This study extends the literature by analysing incentive effects which is principally based on asymmetric information of agency theory. Comparing the dynamic tournaments selected in the other literatures, the dada for analysis is adopted by the longer time span with repeated periods and ongoing stages by higher ranking feedback frequency. For the feedback on relative performance, it includes both positive feedback as bonus and negative feedback as penalty. Unlike the single or multiple ranking feedback in other research, the ranking feedback of dynamic tournament in this study is continuous monthly with more research periods which is closer to the equilibrium result of repeated games and undoubtedly enriches the connotation of related research. Therefore, the relevant hypotheses are studied and examined in more detailed. From the perspective of the research subjects, the incentive effects are also focused including both extrinsic motivation and intrinsic motivation. Different with other studies were evaluated by direct performance including sales revenues, sports scores, or financial performances, the assessment are based on prosocial behavior by the customer satisfaction, which conflicts with major evaluations and assessments on the traditional corporate performance. Expectedly, it may benefit to broaden the horizon of dynamic tournament research. Overall, this study demonstrates the rewards of dynamic tournament have positive incentive effects while the punishments have no significant results. The bonus doubling policy has a significant incentive effect which is higher than that of a single reward, and the double punishment also shows a significant incentive effect which can partially eliminate the slack off effect. The directors who with the highest income level and higher prestige were punished in the previous period will significantly endeavour more efforts in the current period. The incentive effect of intrinsic motivation is reflected on the above results. Besides, it indicates the director's efforts allocated to other targets are not squeezed out, and the indicators with higher proportion of scores have a stronger incentive effect, while the indicators with lower proportion of scores have a weaker incentive effect. Finally, it indicates the strategy of the progressive directors who have continuously improved their ranking are manifested as making up for the shortcomings when they are at the bottom of the ranking. Also, they are continuing to make efforts on indicators of higher proportion of scores and focusing on improving the indicators of lower proportion of scores when they are at the top of the ranking. Moreover, the backward directors will perform as no advances but dropping back.