The impact on the dynamic capabilities and their underlying micro foundations of firms operating in a market with managed Competition : a research from the Dutch health insurers perspective.

The Impact on the Dynamic Capabilities and their Underlying Micro

Foundations of Firms Operating in a Market with Managed

Competition; A Research from the Dutch Health Insurers Perspective.

Master thesis

By: C.W. (Wouter) Houtman, 10282777, Master Business Studies, University of Amsterdam, Faculty of Economics and Business Supervisor: Dr. Ir. J. (Jeroen) Kraaijenbrink, University of Amsterdam,

ABSTRACT

Since the 1940’s the Dutch Government has been reforming the healthcare system, with the purpose to make healthcare universally accessible. The culminating point was reached in 2006 when the Health Insurance Act (HIA) was put into place. This resulted in a system with national health insurance based on managed competition in the private sector. The Dutch healthcare market changed into a highly dynamic market.

To gain and maintain competitive advantage in such a market, health insurers have to deploy their dynamic capabilities through their underlying micro foundations, as Teece suggested in his studies on competitive advantage in highly dynamic markets. However, his work and that of others is based on the principle of a free market. In a market with managed competition however, freedom is limited. In this paper, it is proposed that this must have impact on the dynamic capabilities and their underlying micro foundations of health insurers. The research aimed to investigate the relationship between managed

competition and the deployment of dynamic capabilities through a qualitative research with a multi-case study. In-depth interviews with market managers have been conducted, followed by a validation phase in which the perspective from the health insurer was used to validate the primary data.

Eventually the research findings have lead to the conclusion that the context of managed competition has no impact on the dynamic capabilities and their underlying micro foundations of health insurers as the market has not reached full maturity yet.

ACKNOWLEGDEMENT

To begin with, I would like to sincerely thank my supervisor, Dr. Ir. Jeroen Kraaijenbrink, for his guidance during the writing of this thesis. He was of great support the entire time, being very responsive and keeping me focused all the way.

Secondly, I would like to thank my employer Achmea. Achmea played a vital role by connecting me to the required interviewees, as well as helping me to validate the research data. Furthermore, I would like to thank the representatives of the Departments of Finance, Healthcare and Economics, the Netherlands Authority for the Financial Markets, The Dutch Bank, the Commission for the Protection of Competition, and the Netherlands Authority of Healthcare for letting me interview them.

Last, but not least, I would like to thank my family and friends for supporting me throughout the writing of my thesis. Their support really helped me to stay motivated. I especially owe my parents Dik and Edith, my grandmothers, my uncle Steef and above all my fiancée Chris my gratitude.

TABLE OF CONTENTS

Abstract 2

Acknowledgments 3

I Introduction 5

II The Dutch healthcare system 9

Managed competition 13

II Theoretical perspective 16

Dynamic capabilities deriving from the Resource Based View 17 The relationship between market dynamism and dynamic capabilities 18 The different definitions of dynamic capabilities 19 The underlying micro foundations of dynamic capabilities 22 Dynamic capabilities, underlying micro foundations

and limited degrees of freedom 26

Propositions 27

III Research method 30

Research objective, question and approach 30

Research design 31

Description of the sample 33

Data collection and analysis 36

IV Findings 38

Purpose of the organization 38

The rule(s) that the organization apply/enforce

in creating managed competition 39

Impact on the micro foundations to deploy dynamic capabilities 40

V Discussion 48

Teece’s model reconsidered 52

Validation of the findings 53

Limitations 54

VI Conclusion 55

References 57

Appendix A: Questionnaire 61

Appendix B: Cross case analysis 63

I.) INTRODUCTION

“The Dutch healthcare needs to be changed. The current system is no longer adequate: the problems are piling up and the solidarity within the system is crumbling.” This was the straightforward conclusion by the Board of Public Health and Care in 2001, after having reviewed the Dutch healthcare system.

This conclusion was the tipping point for the former Minister of Public Health, Minister Hoogervorst. After years of debating and looking for a solution to reform the healthcare system, he launched a new law in 2006, the HIA, or Health Insurance Act (van de Ven and Schut, 2009). The HIA is based on the principles of managed competition within the context of a national health insurance system under which all persons legally living or

working in the Netherlands are obliged to buy a basic insurance with a by the Government prescribed package from a private health insurer on an annual basis (Enthoven and van de Ven, 2007).

The system became reliant on a market function and health insurers had to become prudent buyers of care on behalf of their enrolees and were therefore given the possibilities to selectively contract or vertically integrate with healthcare providers. Insurers’ ability to act as prudent buyers of care, aiming for contracting high-quality care at the best possible price, crucially depends on their ability to channel enrolees to selected providers (Pauly, 1987; Sorensen, 2003;Wu, 2009). In turn this depends on the attractiveness of the selected providers to consumers and consumers’ willingness to switch to these providers (van de Ven et al., 2008).

The Minister emphasized however that the Government remains responsible for the quality, accessibility and affordability of healthcare, since healthcare is a duty of care by the Government as stated in the Dutch constitution. These three pillars therefore form the basis of the HIA, which is being executed by the health insurers. To enforce the HIA several

supervising parties were appointed to oversee the health insurers, making sure that they execute the HIA correctly. Since the introduction of the HIA in 2006, the Dutch health insures are operating in a highly dynamic environment, whereby situations change rapidly. To

analyse the sources and methods of wealth creation and capture by private firms operating in environments of rapid change, in this case the health insures, Teece et al (1997) suggest to use the dynamic capabilities framework.

Teece introduced the framework of dynamic capabilities in a working paper he published in 1990. Teece his studies on competitive advantage are based on the resource based view, whereby he applied this view on dynamic markets. In the field of strategy the resource based view has been broadly researched. This view is seen as the way towards competitive advantage starting internally and focuses on the heart of each organization, that is its resources (Barney, 1986). Before the introduction of the dynamic capabilities in 1990, it has not been addressed how valuable resources could be created in changing environments (Teece et al., 1997).

In Teece his later studies on competitive advantage and the dynamic capabilities the principle was that markets were free (Teece, 2000). When consulting the literature

extensively, then there is only one study by Teece in which he did research what the impact is of regulated competition when trying to gain competitive advantage. In a study on the

importance of knowledge management when gaining and maintain competitive advantage, Teece mentioned that regulation tend to limit market competition (Teece, 2000). However, this conclusion was based on the fact that regulation could interfere with proper knowledge management as an encourager of competitive advantage. In other words, this conclusion does not apply automatically for the dynamic capabilities framework.

After having consulted the literature further to get a better understanding of the work on dynamic capabilities by others who elaborated on Teece his work on the dynamic

capabilities, it became clear that others nearly all based their studies on the same principle, namely the principle of a free market. Except for Oliver and Holzinger (2008). They argue that firms operating in changing political environments may need to develop capability trajectories in managing political action that reflect the pace and complexity of contemporary political environments. They suggest dynamic capabilities for this purpose. In the study on the dynamic capabilities framework to explain the effective strategic management of the political environment, Oliver and Holzinger (2008) strongly advise to do further investigation into the dynamic capabilities that optimize firms’ future value in helping firms to develop competitive and political strategies that serve both public and private interests.

In words, there is little evidence that research has been done on the impact of dynamic capabilities of a firm when the context is one of managed competition. This study would like to close this research gap, by contributing to the field of strategy from the perspective of the Dutch health insurers. By limiting the degrees of freedom for health insurers - by managing the competition between them - must have consequences for managing dynamic capabilities. And not only the dynamic capabilities should encounter impact, but their underlying micro foundations - the managerial tools which makes it possible to prioritise certain decisions necessary to deploy the dynamic capabilities – as well. Therefore the current study aims at contributing to the field of strategy by focusing on the dynamic capabilities and their

underlying micro foundations in the context of managed competition. The study answers the following research question:

“What is the impact on the dynamic capabilities and their underlying micro foundations of Dutch health insurers operating in a market with managed competition?”

To briefly sum up the introduction of this thesis; The Dutch Government wants a healthcare system that is efficient and universal accessible. To create this the Government has set up a national health insurance based on managed competition in the private sector. The managed competition takes place between the health insurers. The context in which the health insurers operate is highly dynamic. A lot of successive changes are rapidly taking place. These market circumstances ask for dynamic capabilities and their underlying micro foundations to be applied. However, the question is if the health insurers can deploy these dynamic capabilities, and what impact does the context of managed competition have on the dynamic capabilities and their underlying micro foundations?

This research theorizes the impact on the dynamic capabilities and their underlying micro foundations of the health insurers. In further explaining this link a better understanding of dynamic capabilities and their underlying micro foundations is necessary. But before elaborating on dynamic capabilities and their underlying micro foundations, it is needful to create a better understanding of the Dutch healthcare system, its reform over the last couple of decades, the current system and what managed competition is.

The academic paper is structured as follows; first, a better understanding of the Dutch healthcare system and the role of the health insurer within the system is outlined. Second, a better understanding of dynamic capabilities and their underlying micro foundations will be given. Thirdly, the research methodology is drawn. Subsequently, the results of this research are outlined, followed by a discussion section. Finally, the main conclusions and managerial implications are presented.

II.) THE DUTCH HEALTHCARE SYSTEM

A brief history of the Dutch healthcare reform

A lot has happened during the past century in order to reform the Dutch healthcare system. In general the system has been characterized by much private initiatives in funding care, apart from the provision of it. According to van de Ven and Schut (2008) the reform can be divided into three major waves.

The period between around 1940 and 1970 is the first wave. Here the road towards universal health insurance coverage was paved. It was not until the beginning of the 1940’s that the Dutch Government came with regulations with respect to health insurance. The Government back then, already had ideas about implementing a mandatory comprehensive coverage for every Dutch citizen. Before 1940, healthcare professionals were free to set prices and to establish practices. Around this decade there were more than one hundred community health insurance organizations, and these local insurers paid doctors. Since the beginning of 1940, till the beginning of 1970, the primary focus of the Dutch Government was to promote public health, ensure access to health services, and guarantee quality, or at least a minimum level. In 1941 a mandatory health insurance scheme was introduced for low- and middle-income groups. This was the first step towards universal health insurance coverage. People with an income high-income were excluded. These people bought insurance at private insurers, and they did this voluntarily (van de Ven and Schut, 2008).

The second wave is the period from around 1970 till 2000. During this period the main subject was cost containment by the Government. By the end of the 1960’s the Dutch

Government became worried, worried about the growth of healthcare spending. The spending was seemingly uncontrollable. Reasons for the Government to worry were on the one hand the rising healthcare spending which could jeopardize the goal of universal access to basic healthcare. And on the other hand the rising healthcare costs which would result in higher

labour costs, which would raise unemployment, harming the Dutch economy. Therefore, halfway the 1970’s, the supply and price regulation began. In 1983 the Government decided to implement a budgeting system, replacing the open-ended reimbursement system (van de Ven and Schut, 2008). In that same year the Government was also enabled by the Health Care Prices Act to control physician’s fees and total revenues. In the 1990’s the Government introduced a so-called “lump-sum payment” per hospital for all specialists working in that hospital, creating a cost sharing situation. However, cost sharing has always been

controversial. Therefore, the demand-side constraints have played a restricted role in containing costs, as compared to supply-side constraints.

The final wave starts in 2000 with creating efficiency through managed competition. In the 1980’s criticism grew, focused on the lack of incentives for efficiency within the prevailing system of healthcare finance and delivery (van de Ven and Schut, 2008). Thus the role of competition was being reconsidered. Support for incentive-based reform grew namely. The Dekker Committee was responsible for investigating the role of competition. In 1987 the committee advised a market-oriented healthcare reform and a national health insurance

system. The HIA and the regulatory regime that derived from it, are based on the proposals by the Dekker Committee (Roos and Schut, 2010). The HIA is the result of a series of market-orientated reforms implemented in the 1990’s, just after the committee brought out its advice. Between the 1990’s and 2006, a lot had to been done to come to the point of managed

competition, since none of the preconditions were fulfilled and a radical reform was not feasible. To begin with, a risk equalization system had to developed. Second, a system of product classification and medical pricing was set up. This system would give providers the appropriate incentives for efficiency and prevented stinting on the delivery of services. Thirdly, an outcome and quality measurement system had to be developed to enable specified contracts between insurers and providers. This was necessary to prevent competition

focussing only on price. Fourth, a system of consumer information about the price and quality of insurers and providers had to be developed to enable effective choice by consumers. And finally, a governance structure, including an effective competition policy, had to be made up (van de Ven and Schut, 2008).

The current system; National health insurance based on managed competition in the private sector.

Since January 1st 2006 each persons who legally lives or works in the Netherlands is obliged by the HIA to buy individual private health insurance, with a by the Government prescribed package, from a private health insurer. Insurers are obliged by that same HIA to accept each applicant, at least for a basic insurance without exclusion of coverage. The insurance contract is offered a community-rated premium. This makes the Dutch healthcare system unique. The Netherlands is the only country in the world to implement a system of national health insurance based on managed competition (Roos and Schut, 2010).

In the Netherlands there are nine health insurers, 35 health insurance brands, and 56 types of health insurances. Four of the nine insurers dominate the market. They own 95% of the Dutch health insurance market. Dutch health insurers companies are quite complex companies to get an understanding of nowadays. What makes them complex is the fact that Dutch health insurers, with the exception of a few, are so-called composed insurance companies nowadays. What this means is that the Dutch health insurers not only sell health insurances, but they also sell damage insurances like car insurances and unfit for work

insurances. This way they become a one-stop-shop, where potential clients can get any type of insurance at one at the same shop. Important trigger is the discount clients get when

purchasing more than one insurance, through cross selling. This thesis neglects these non-health insurances, and only focuses on non-health insurances. However, apart from the mandatory

basic insurance insurances there are voluntary supplementary insurances as well. These voluntary supplementary insurances however will be neglected too. Voluntary supplementary health insurances are not part of the public domain, unlike the mandatory basic insurance. So the Government has nothing to say about these insurances. Health insurers have the freedom to determine themselves what the content is of these voluntary supplementary insurances. Because they are private insurances, health insurers placed these voluntary supplementary insurances in a private company, separating them from the basic insurance.

The premium that is being paid for health insurance is one the sources to finance the system as we know it today. Insures set their own community-rated premium (van de Ven and Schut, 2008). There is also a limited annual deductible of 360 euros per individual. Apart from the premium and the deductible, all individuals have to pay an income-related

contribution to the tax collector. These contributions are transferred to the Risk Equalization Fund (REF) (Boonen and Schut, 2011). The Government implemented this fund to prevent insurers from seeking only young and healthy customers. Insurers receive a high-risk equalization payment from this fund for high-risk insured people. However, for low-risk insured people, insures have to pay to the REF. The risk-adjusted equalization payments are ex-ante as well as ex-post. However, the Government wants the health insurers to become more risk bearing. Therefore in 2015 the ex-post compensation will no longer exist. What this means is that the health insurers have to forecast far more precise than they have done in the past to prevent huge financial losses, which until no have partly been covered by the

Government and thus by the tax payer (Boonen and Schut, 2011).

In order to facilitate the entry of providers of health to the market the basic insurance is described in the HIA in terms of functions of care rather than in terms of providers, like before. The HIA enables insurers to selectively contract providers. Insurers can also motivate their customers, by using financial incentives, to use preferred providers. In any case, the

insurers are obliged to show the customers with which providers they have agreements, as well as the conditions both the insurer and the provider have agreed upon. Thus, although the Government prescribes the content of the basic insurance annually, there still can be a

substantial difference between what the insurers have to offer.

According to the HIA the contract period between the provider and the insurer, as well as between the customer and the insurer is one year. So on the one hand the insurer yearly (re)negotiates with providers about the contract, always aiming for the best health, at the best price. And on the other hand the consumers have one option per year to switch to another insurer or basic insurance, assuming that most of the insurers offer more than one variety of their basic insurance (van de Ven and Schut, 2008). This way the HIA enables people to yearly reconsider their choice of insurer. However, the switching rate yearly lies around 7%. Most consumers consider health insurance as a low involvement product.

Managed Competition

The definition of managed competition

The current and next paragraphs are focused on providing a thorough understanding of what managed competition entails and how this is executed in the Dutch healthcare market. When consulting the literature one will notice that managed competition is always associated with healthcare (van de Ven, 2009). However, in the Netherlands there are some other markets where managed competition is taking place as well. Examples are the telecom, energy and postal market. But, in the case of these examples another more familiar term is being used instead, namely that of regulated competition. Anyhow, both regulated

competition as well as managed competition share the same purpose, that is delivering a product or service whereby the quality and efficiency would improve if, in a market controlled by the Government, independent providers compete for consumers.

All markets are in principle regulated by the way. This is being done in favour of the consumer. However, the type of markets and/or the providers that operate within it is

determining the degree of regulation. Another important factor that determines to what extent a market is being regulated is the basic principle of social equality (Gylfason and Zoega, 2003). Social equality includes equal access to social goods and services like education, healthcare and other social securities. It also includes equal opportunities and obligations, and so involves the whole of society.

The term regulated or managed competing is applicable when the extent of regulation is high, because Government money is involved or when the providers that operate in a market belong to the (semi) public sector, because they are (partly) owned by the

Government, and when the aim is to generate universal access, because of social equality. If none of these three determinants are at stake, so in the case of the private sector, then the term competition is applicable, even though there is some extent of regulation within that sector as well.

To conclude, avoiding any misunderstanding, the term managed competition is the same as regulated competition, but for decades has been specifically appropriated to healthcare. Since this thesis focuses on health insurers, it will follow the term managed competition, rather than regulated competition.

Managed competition in the Dutch Health Insurance Market

When the HIA took act in 2006 the reform of the Dutch healthcare system reach its culmination. New incentives should now get the market in motion, creating the efficiency the Government has been searching for so long. Within this new system the national health insurance based on managed competition in the private sector forms the elementary component. The health insurers became the market directors.

However, the new healthcare system remained a semi-public system after the HIA took act. Still a lot of money to finance the healthcare system comes from the Government even though the Government has plans to abolish the ex-post equalization payments. Also, the Dutch Government wants to guarantee universal access. The competition between the

providers, as well as between the health insurers is therefore being managed through regulating. Regulating is a tool that the Government uses to direct behaviour. The

Government here fore uses laws, in this case the HIA, which are a set of rules. But to enforce rules, they need to be backed by the threat of a sanction. That’s why the Government also appointed supervising institutions in 2006. This thesis only focuses on the managed competition between health insurers. Thus, the managed competition between providers is therefore neglected.

When looking at the managed competition between the health insurers there are five types of forces that actually manage the competition. Besides the Government, the legislator, responsible for the content of the HIA, and the supervising institutions, responsible for enforcing the rules through sanctioning, three other forces remain that have not been

mentioned in the Introduction of this thesis. These forces will be neglected, in order to narrow this thesis down. However, they should mention to get a complete picture of how the context of managed competition is build up.

Self-regulation; All health insurers are represented in Health Insurers The

Netherlands, or Zorgverzekeraars Nederland (ZN). The purpose of self-regulation for the health insurers is to come up with informal rules. Also, the health insurers discuss with each other how to interpreted the HIA and the changes being made to the HIA. Especially new rules that have been added to the HIA can change the way the health insurers act, and thus compete with each other.

Public opinion; Public opinion not only results in consumer behaviour, and thus in

behaviour of the health insurers, it also results in the way the Government acts eventually (Burgstein, 2003). Especially since the Dutch are to be considered as populists. The public opinion is becoming more and more an interesting and more powerful force by the way with the increasing use of social media.

Advocating parties; And finally there are advocating parties, like the consumers’

union. These parties are able to bring together groups of people that share the same opinion, and fight for their interest.

Now that a better understanding has been created of the Dutch healthcare system, what the role of the health insurer is within this system and what managed competition is, this thesis continues with a theoretical perspective on dynamic capabilities and their underlying micro foundations.

III) THEORETICAL PERSPECTIVE

In the field of business strategy two types can be distinguished. There is corporate strategy, which is all about where to compete and deals with portfolio decisions, and there is competitive strategy, which is about how to compete and how to gain competitive advantage within a specific market. This thesis focuses on competitive strategy in relation to the Dutch health insurers and how they gain competitive advantage in order to create the efficiency the Dutch healthcare system requires.

Competitive advantage means creating higher performance to distinguish from others. Higher performance can be gained by offering customers relatively high quality products at a relatively lower price compared to the competition. Offering superior customer value and keeping costs lower than competitors can only achieve this. In order to gain competitive advantage firms develop and apply capabilities to make use of their resources. There are

several types of capabilities; among them are the dynamic capabilities, which allow firms to gain and maintain competitive advantage in a highly dynamic market.

Dynamic capabilities deriving from the Resource Based View

The concept of dynamic capabilities was first introduced in 1990 in a working paper by Teece et al. (1990) and derived from the Resource Based View (RBV). At the heart of the RBV lie the resources, which are physical, human and organizational assets. The theoretical framework behind the RBV creates an understanding of how competitive advantage within firms is achieved with these assets (Barney, 1986). This competitive advantage might even be sustained over time (Eisenhardt and Martin, 2000). The RBV is complementary to traditional views, which are externally oriented with a strong focus on strategic positioning within the industry structure, with that structure being the determinant of competitive advantage.

Teece was the first who extended the RBV to dynamic markets (Teece et al., 1997). The view of Teece et al. (1997) on firms “is somewhat richer than the standard Resource

Based View”. Before the introduction of the dynamic capabilities it has not been addressed

how valuable resources could be created in changing environments. The RBV is based on the fact that there is an equilibrium and assumes that firms would generate a competitive

advantage if within this equilibrium resources are valuable, rare, imitable and non-substitutable (VRIN). In essential the RBV is quite a static view (Barney, 2001a,b).

The theory around dynamic capabilities, on the other hand, focuses on the firm’s capacity to create new resources and to renew or adjust its resource mix (Teece et al. 1997). So in other words, it is not only the mix of resources that matter, but what Teece et al. (1990) like to call “the mechanisms by which firms learn and accumulate new skills and capabilities,

and the forces that limit the rate and direction of this process.” Not only does Teece extend

on routines and the way theses routines shape and even constrain the ways in which firms grow and how they deal with changing environments. The reason why this deserves mentioning is that both the approaches by Teece and Nelson & Winter towards firm performance are geared towards efficiency, a relevant aspect for the Dutch health insurers. Another reason why it is important to emphasize that Teece extends Nelson and Winter’s work, is the fact that they both focus on path dependency and the need for firms to

reconfigure their resources in order to evolve and change, which is what Dutch health insurers should constantly be doing.

The relationship between market dynamism and dynamic capabilities

As previously stated, dynamic capabilities allow firms to gain and maintain sustainable competitive advantage in a highly dynamic market. In addition, according to Eisenhardt and Winter (2000) “the pattern of effective dynamic capabilities depends upon

market dynamism.” Interestingly, they also state that dynamic capabilities vary in their

reliance on existing knowledge, which depends on the extent of market dynamism. In their research on dynamic capabilities, Eisenhardt and Winter (2000) defined two types of dynamic markets: moderately dynamic markets and highly dynamic markets.

What characterizes moderately dynamic markets are the frequently occurring changes along predictable and linear paths. Also the industry structure is relatively stable, as a result of which it is clear who the players are and where market boundaries lie. In these markets

existing knowledge is what effective dynamic capabilities rely on. In the context of this existing knowledge managers analyse a situation, and then plan and organize their activities. They do this in an ordered fashion, developing efficient processes, which are quite predictable and stable, containing linear steps starting with an analysis and ending up with the

The highly dynamic market is being characterized by elements contrary to the elements of a moderately dynamic market. Elements that identify a highly dynamic market are rapidly occurring changes along less predictable and non-linear paths. The market boundaries are blurred, business models are unclear. Market players are constantly shifting. Generally also the industry structure is unclear - it is not possible to specify future states. The necessary dynamic capabilities in these markets rely on situation-specific new knowledge, and much less on existing knowledge.

Applying this distinction to the Dutch healthcare market, it can be concluded that its players operate in a highly dynamic market. The market is relatively new, it has been created when the HIA was implemented in 2006. The fact that competition is being managed by several groups of institutions makes it really difficult for the health insurers to predict the future, especially since a majority of these institutions are still finding out what their role is within the context of managed competition. In other words, the industry structure is not clear and neither are its boundaries. The rules of the game along which the health insurers compete with each other also change annually. These rules are not only the ones stated in the HIA, but the content of the basic health insurance as defined by the Government annually should be considered as the main rule of the game. Because of these reasons, the theory of Eisenhardt and Winter (2000) about highly dynamic markets is relevant in this context.

The different definitions of dynamic capabilities

After the release of the 1990 working paper by Teece et al., Teece and Pisano

continued investigating the concept of dynamic capabilities and published the first real article on dynamic capabilities in 1994. In this article the starting point again was the RBV.

Pisano and Teece stated in addition to the RBV, that it is essential for firms to always consider what happens outside the firm and react to that through strategic management. The

RBV was not able to explain this. In their 1994 paper Teece and Pisano explained that

dynamic capabilities are about “adapting, integrating and reconfiguring internal and external

organizational skills, resources and functional competencies toward the changing environment.” This was their conclusion after looking at firms struggling as their

environment changed. In 1997 Teece et al. followed up on their 1990 and 1994 research by publishing a new paper, stating that with dynamic capabilities the limitations that the RBV has can be overcome. It was in this article that one of the most well known definitions of dynamic capabilities was formulated: “The firm's ability to integrate, build, and reconfigure

internal and external competences to address rapidly changing environments.” The definition

of Winter (2003) with regards to dynamic capabilities also gives an understanding of how important dynamic capabilities are for firms and is in line with the RBV by Barney. Winter states: “Dynamic capabilities govern the rate of change of a firm's resources and notably its

valuable, rare, inimitable, nonsubstitutable (VRIN) resources. Those VRIN resources, that is the firm's resource base, enables a firm to achieve sustained competitive advantage.” So if a

firm does not use its dynamic capabilities, even tough it possesses resources that are to be considered VRIN, its returns are not sustained. In fact, without dynamic capabilities, there will only be temporary returns in case the environment changes significantly. Dynamic capabilities therefore continually allow firms to have a competitive advantage. Apart from this, dynamic capabilities also help to avoid inertia, stifle innovation and stimulate

development.

There are many other definitions of dynamic capabilities. All of them are adaptations of Teece’s 1997 definition (Ambrosini & Bowman, 2009). Looking at the definitions given on what dynamic capabilities are by Helfat et al.(2007), Zahra et al. (2006), Winter (2003), Zollo and Winter (2002), and Eisenhardt and Martin (2000), it becomes clear that within the field of strategic management there is consensus about what dynamic capabilities are. At a minimum,

every definition contains elements of changing the resource base and organizational processes. Some definitions contain additional ingredients, such as: path dependency and dynamic capabilities are built rather than acquired in the market.

Ambrosini and Bowman (2009) state that, because there is consensus about what dynamic capabilities are, it is also possible to explain what dynamic capabilities are not, i.e. that it has nothing to do with luck, that dynamic capabilities must be used deliberately, or at least with some intention (Zahra et al., 2006; Helfat et al., 2007), that they are not ad-hoc problem solvers and that they contain patterned elements (Winter, 2003; Helfat et al., 2007).

Because there already is a lot of knowledge about what dynamic capabilities are and what not, and as all this knowledge is based on the original definition on what dynamic capabilities are, this thesis will follow the definition by Teece (1997): “the firm's ability to

integrate, build, and reconfigure internal and external competences to address rapidly changing environments.” However, the concept is still in need of theoretical and empirical

development (Helfat et al., 2007; Ambrosini and Bowmen, 2009). One of the shortcomings of this definition is that it remains rather abstract and vague, especially when it comes to

answering the question: How do I apply dynamic capabilities as a manager? This vagueness has been widely acknowledged within the field of strategic management. Attempts towards resolving this vagueness have led to the formulation of several types of dynamic capabilities. Some dynamic capabilities focus on the reconfiguration of resources, while other dynamic capabilities focus on the integration of resources, or are related to the release and gain of resources (Eisenhardt and Martin, 2000). It was eventually in 2007 that Teece decided to answer to the need of clarification and break the dynamic capabilities up into three parts, i.e. the capacity to 1.) Sense and shape opportunities and threats 2.) Seize these opportunities, and 3.) Manage threats and transform the organization. With this break up he created a perfectly

balanced strategic path that firms can follow towards sustainable competitive advantage, whereby they have an fluctuating focus between internal and external factors.

The underlying micro foundations of dynamic capabilities

By breaking the dynamic capabilities up into parts, Teece has managed to define the concept more clearly. However, the question How do I apply dynamic capabilities as a

manager? has not been answered yet. The three dynamic capabilities that Teece had defined

therefore still lacked practical relevance - they are in fact organizational processes. Organizational processes have to be supported by managerial processes, which take place more at the heart of the organization and thus closer at the source where sustainable competitive advantage is being created; the resources. Therefore, it is important to create a better understanding of these managerial processes and define in what way they support the organizational processes, which are the dynamic capabilities. Teece acknowledged this and therefore split up each dynamic capability into four micro foundations. This resulted in a summary of managerial tools, which managers could choose from in order to prioritize their decisions and actions, through which they eventually deploy dynamic capabilities. Teece placed the three dynamic capabilities along with the twelve micro foundations in a model, which is reflected in Figure 1.

Figure 1. The dynamic capabilities model by Teece (2007).

For the purpose of this research, a simplified interpretation for each component of the model has been constructed, which will be followed for the remainder of this paper.

Dynamic capability I: Sensing

The ability to recognize opportunities, which comes from individuals and their cognitive and creative capacities as well as from organizational processes, such as R&D.

• The underlying micro foundations are:

o Employees and R&D. Creating opportunities through R&D and the employee’s ability to detect opportunities. Each employee within a firm is different because of differences in background, education, experience and interest. These differences could contribute to detecting opportunities. o Partners. Scanning the market through the eyes and ears of the partners of

the organization. Each organization works with one or more suppliers. These suppliers may have a market view that could lead to opportunities for the organization they provide to.

o Knowledge institutions. Gathering knowledge from knowledge institutions, like universities, where research is constantly being done. Opportunities may arise by tapping into these knowledge sources.

o Customers. Scanning the market through (potential) clients to find out what their needs are. Customer needs constantly change, it is important to have a constant understanding of what these needs are and will be in the future.

Dynamic capability II: Seizing

The ability to address sensed opportunities through new products, processes or services. • The underlying micro foundations are:

o Business model. Developing a business model in order to determine how money is being earned, through selected propositions for selected

customers.

o Enterprise boundaries. Setting enterprise boundaries to determine what and what not to do.

o Decision structure. Setting up a decision structure, to avoid mistakes, bias and inertia. Especially in a highly dynamic market it is important to make the right decisions fast. A clear structure will contribute to this.

o Loyalty. Creating loyalty between the organization and partners. Loyalty leads to willingness and understanding. When next steps are necessary for an organization, then loyalty will help making these steps faster and more efficiently.

Dynamic capability III: Managing

The ability to recombine and reconfigure assets and organizational structures, as the enterprise grows and as markets and technologies change, in order to achieve sustained profitable growth.

• The underlying micro foundations are:

o Knowledge management. Setting up proper knowledge management to stimulate knowledge transfer and learning. Knowledge is a very important intangible asset for a firm. In a highly dynamic market the ability to learn fast and share knowledge quickly will contribute to changing the

organization.

o Co-specialization. Managing co-specialization that constantly results in a strategic fit. In a highly dynamic market organizations are more often searching for a strategic fit. When a strategic fit is created through co-specialization with an external partner, than proper management of this process is necessary.

o Decentralization. Decentralization, which stimulates and accelerates decision-making. When organizations grow, it becomes impossible - especially when operating in a highly dynamic market - for decision-making to happen in one place within the organization. Decentralization costs a lot of time.

o Governance. Creating proper governance in order to avoid taking the wrong strategic decisions. Quick changes require the right decisions being made fast.

Dynamic capabilities, underlying micro foundations and limited degrees of freedom Now that a better understanding has been given about dynamic capabilities and their underlying micro foundations, it’s worth adding that dynamic capabilities deal with two factors; external and internal factors. Internal factors are for instance management and resources; external factors are the changing environment and paths.

Looking at the external factors specifically, Teece has always assumed in his research that the organizations deploying dynamic capabilities operate in markets with maximum degrees of freedom, i.e. private markets. However, nowadays state-controlled companies are of great influence on the world’s economy, making up 80% of the value of the stock market in China, 62% in Russia and 38% in Brazil (The Economist, 2012). From this perspective, it is remarkable that Teece and others never investigated what the impact is on dynamic

capabilities and their underlying micro foundations of firms operating in a market with managed competition.

Only when looking at some of the individual micro foundations some research in relation to regulation has been done. Teece (2000) has written an article about the micro foundation knowledge management and its importance when trying to gain competitive advantage. Is this article he concluded that regulation does limit market competition and the ability of firms to innovate. In the introduction of this paper, the research by Oliver and Holzinger (2008) on strategic political management has been mentioned. Strategic political management refers to the set of strategic actions that firms plan and enact for the purpose of maximizing economic returns from the political environment. In their research they look at the dynamism of the political environment. They present a dynamic capabilities framework to explain the effective strategic management of the political environment. They state that this framework should be applied to gain competitive advantage in a highly dynamic political

environment. Rather than investigating the impact of an already existing framework for a highly dynamic marketplace, they developed a completely new framework.

Apart from Oliver and Holzinger, many others did research on strategic political management (Hillman, 2003; Meznar and Nigh, 1995; Munger 1988; Rehbein and Lenway, 1994Shaffer and Hilllman 2000) However, all of these researches had the purpose of discovering a way or getting a better understanding of how firms could maximize the

economic returns from a constantly changing political environment, rather than trying to limit its potential negative effects. Further consulting the literature, there are no signs of researches using an existing dynamic capabilities framework.

This paper investigates this research gap from the perspective of the Dutch healthcare market. On the one hand the competition in this market is being managed, limiting the degrees of freedom and at the same time Dutch health insurers operate in a rapidly changing environment with a lot of uncertainty, as a result of which the health insurers need to rely on the micro foundations through which they can deploy dynamic capabilities in order to gain sustainable competitive advantage. It is in fact the sustainable competitive advantage that leads to sustainable performance and thus creates the efficiency within the new healthcare system the Government is so desperately striving for.

Propositions

To research the impact on the dynamic capabilities and the underlying micro foundations of managed competition in the Dutch health insurance market, the model by Teece (2007) examined previously will be tested among selected interviewees who represent organizations that contribute to the context of managed competition. In total there are five groups of organizations that form the context of managed competition. To narrow down the research, a selection of two groups has been made. The group of Departments representing the

legislator and the group that is formed by supervising organizations have been selected, for reasons explained earlier in the chapter about the Dutch healthcare system.

To assess the impact these organizations have on Teece’s model, propositions have been defined for this research. Each proposition will have two variations, since the group of Departments impose rules and the supervising organizations enforce these imposed rules. Furthermore, the model is split up into three parts with each part representing one of the three dynamic capabilities. Since the aim is to assess the influence of managed competition on the underlying micro foundations of each dynamic capability, each proposition has been based on logical reasoning about whether the individual micro foundations will be influenced by the rules of the Department and the supervision of the organizations. The propositions formulated for this research, along with their supporting arguments are outlined in Figure 2.

The formulated propositions in Figure 2 indicate that the deployment of two of the three dynamic capabilities are expected to be hampered by the contribution of the

Departments and supervising organizations to the managed competition context. The only dynamic capability that can effectively be deployed, without any of its micro foundations being constrained is the capability of sensing and creating chances. The reasoning behind this proposition is that every organization is able to scan the market looking for opportunities. Applying the acquired knowledge however will be more challenging in a market that is subject to an increased level of control, as the degrees of freedom are limited. In short, seeing opportunities is allowed, converting them into a competitive advantage is constrained in this context.

III.) RESEARCH METHOD

Research objective, question and approach

As repeatedly mentioned throughout the course of this paper, the research objective is to find out what the impact is on the dynamic capabilities and the underlying micro

foundations of Dutch health insurers operating in a market with managed competition. As this research has been founded on the model by Teece (2007) based on dynamic capabilities and their underlying micro foundations - also examined earlier – the research question can be formulated as follows: How does the context of managed competition influence the dynamic capabilities of sensing, seizing and managing of Dutch health insurers and their underlying micro foundations? The first step towards answering this question was to extract propositions, as listed in Figure 2.

Given the early stage of empirical research on dynamic capabilities and their

underlying micro foundations, this thesis employs the logic of a general inductive approach. The goal of inductive inquiry is to allow new theoretical insights to emerge from examination

of relevant data collected from multiple sources, analysed through constant comparison and validated by another source than the source that delivers the primary data (Eisenhardt, 1989).

Following this approach a group of interviewees were selected; representatives of organizations that contribute to the context of managed competition. The interviews were designed to get a better understanding of the purpose of each of these organizations and how they contribute to the managed competition context. The propositions were presented to the interviewees and an open discussion contributed to preliminary conclusions with regards to their validity.

The inductive approach then demanded validation of the acquired data through another source. This source should be a party that would look at the matter from the opposite

perspective; the perspective of the health insurers working under the pressure of managed competition. They would best be able to confirm whether the influence as described by the organizations contributing to the context of managed competition, indeed hamper the deployment of their capabilities.

Research design

Because little known is known about this research topic so far, the current

investigation is of explorative nature, with the aim of providing a thorough basis for further research. The research design is a qualitative exploration with the help of a multiple case study, which makes it possible to focus elaborately on details from different perspectives and to thoroughly examine processes, while giving answers to “how” and “why” questions (Yin, 2003a). A case study involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence. This method involves gathering sufficient information systematically about the setting of managed competition in order to effectively understand how what this context implies.

Support for applying a qualitative research design comes from researchers of dynamic capabilities studies. Ambrosini and Bowman (2009) state that: “Qualitative, smaller sample

studies are likely to be more appropriate for understanding the subtlety of resource creation and regeneration processes. To fully understand firm specific resources, their context and how they were created or renewed in practice requires fine-grained investigations and to obtain rich and contextualized data from qualitative fieldwork.” They also say that

quantitative studies “do not delve into the detailed, micro mechanisms of how these

capabilities are deployed or how they ‘work’.”

Helfat (2007) argues that ‘qualitative research has an important role to play in

uncovering interesting or unexpected phenomena that statistical analysis may miss, because such research provides fine-grained detail and insights that can only come from case

analysis’ (p.189).

More specifically, following the theory by Saunders et al (2006) on their research onion, this research applies a multiple method in the form of data gathering through semi-structured interviews, the and validating the results from that data through unsemi-structured interviews. So, as described in the previous paragraph, the research has been set up into two parts.

For gathering the primary data, one representative per selected institution creating the managed competition situation has been approached for an interview. In total seven

institutions have been selected. After gathering the data through seven one hour-interviews, the data were analysed through a cross-case analysis. This analysis produced a model, which has been used for the second part of research; the part in which the results were validated. For the validation of the results three representatives of one of the largest Dutch health insurance companies has been approached.

Description of the sample

Case selection

The selection of cases using theoretical, rather than random sampling is an important aspect of providing more theoretical insights about phenomena that still foster little

understanding (Eisenhardt, 1989). For this research multiple cases have been selected; the first group of cases providing the primary data is formed by the two groups of organizations that contribute to the context of managed competition. The second group was formed for the validation of the data delivered by the first group.

Cases for primary data: In the Introduction of this thesis five types of forces have

been described responsible for creating the context of managed competition: 1.) the Government represented by three Departments, 2.) the supervising organizations, 3.) self-regulation, 4.) public-opinion, and 5.) advocating parties. In order to narrow the focus of this thesis, this research has focused only on the first two groups; the Departments and the supervising organizations. The remaining three groups have been ignored and left to future investigations.

Being the legislator, the Government as a whole is responsible for the HIA. However, only three parts of the Government actively contribute to the HIA, which are the Departments of Finance, Healthcare and Economics (Curfs, 2010).

The Department of Healthcare is the most important one, being the Department that has drafted the HIA. The ambition of the Department of Healthcare is to keep everyone healthy for as long as possible and to minimize the recovery time of the sick. The Department also seeks to support people with a physical or mental limitation and promote social

participation.

The Department of Finance works towards ensuring the Netherlands as a country is financially healthy and prosperous and guards the national treasury. This Department oversees

the effective spending of Government resources, makes rules to ensure a stable financial system and oversees the quality of financial institutions, which the Dutch Health insurers are part of.

Finally there is the Department of Economics. This Department is committed to creating an excellent entrepreneurial business climate by creating the right conditions and giving businesses room to innovate and grow.

Each of these three Departments in turn supervises one or more supervising

institutions, which help enforce the HIA. In total there are four. The Netherlands Authority for the Financial Markets and the Dutch Bank are both linked to the Department of Finance. The goal of the Netherlands Authority for the Financial Markets is to make sure that every financial institution releases comprehensible and transparent communications about financial products. The Dutch Bank has the ambition to safeguard financial stability and thus

contributes to sustainable prosperity in the Netherlands.

Then there is the Commission for the Protection of Competition, which is linked to the Department of Economics. This commission is constantly trying to create and maintain well-functioning markets. Their aim is for consumers to have a choice, make sure they are not afraid of making a choice and ensure they know their rights.

Finally there is the Netherlands Authority of Healthcare, which is linked to the

Department of Healthcare. The Authority creates properly functioning healthcare markets and monitors them. The interests of the consumers are central in the performance of these tasks. Efficiency - both in the short and long term, market transparency, freedom of choice, access to healthcare and quality are guaranteed. This eventually leads to the best possible healthcare, in terms of quality and affordability.

Validating cases: To validate the results from the data that the first group delivered,

selected. These respondents are involved in managerial processes on a daily basis. Their daily activities require a very precise understanding of what is happening outside the organization, in order to constantly check if plans, strategies and initiatives will bring the organization forward. So not only do they have a perfect understanding of the external factors that may influence the way they should manage the firm, they also have a perfect view on the resources within the firm. In other words, these respondents have been selected based on their senior management positions within a health insurance company whereby their view constantly switches between external and internal resources. Figure 3 gives an overview of the cases used in this research.

Figure 3. Overview of cases used for primary data collection and the validating cases.

Recruitment and characteristics of respondents

For the selection of the right respondents within the previously nominated

organizations for the primary data collection, Achmea was consulted. Within Achmea several people constantly work closely with representatives of both of the three Departments as well as the four supervising organizations. These are Achmea’s lobbyists, scanning opportunities and trying to forecast what impact imposed or enforced rules may have.

The aim was to approach one representative per Department and one per supervising organization, creating a multiple case study, consisting of seven cases. Ultimately, all

approached respondents were people that are constantly involved in either imposing rules - in case of the respondents from the Departments, or enforced rules - in the case of the

respondents from the supervising organizations. All respondents have been approached directly, either by e-mail or phone.

Data collection and analysis

The primary data from the first group were collected through seven face-to-face, semi-structured interviews. The order of questions varied from interview to interview, following the responses from the interviewees. Since the interview followed the responses from the participant, the type of questions varied from probing and specific questions, to direct and interpreting questions (Saunders and Lewis, 2012). Each interview has been recorded, and transcribed afterwards. The discussion guide and transcripts have been enclosed in the Appendices of this thesis.

After the transcription of each of the seven interviews, the next step was to analyse the data. For this research a cross case analysis has been applied to extract and clarify the data from the transcripts. A cross-case analysis helps explaining the causal links in real-life situations that are too complex for a single survey or experiment (Yin, 1994). Another reason for choosing a cross-case analysis was the fact that the data showed a lot of coherence. Since the sample for this research was relatively small, frequent checks during the research were necessary to determine whether responses diverge or converge. This was done after each interview. The level of diversion and conversion determined whether the sample needed to be expanded and to what extend. Due to the high level of coherence of the answers given, it was relatively easy to define certain themes. Therefore, the decision was made not to expand the

sample and the data were analysed through a comparative analysis, in the form of a cross-case analysis. The cross-case analysis has been enclosed in the Appendices of this thesis. Through the cross-case analysis it was possible to determine what impact the context of managed competition would have on the dynamic capabilities and underlying micro foundations of health insurers. The outcome of the analysis was used to adapt the model by Teece.

This model would then be used to approach the second group, which consisted of representatives of Achmea. This was done to validate the outcome of the result of the cross-case analysis. For this validation process unstructured interviews were used, without a specific interview protocol. Each of the three interviews started off with the same question though: “Do you agree with this model? Why (not)?”

The purpose of validating the outcome of the cross-case analysis through a model was to investigate whether the Achmea representatives would acknowledge the newly proposed theoretical framework. They were also asked to give suggestions for alterations of the model, if required.

In summary, data have been collected by interviewing one representative of each of the seven institutions, purposely selected for this research because they contribute to the context of managed competition. These data have been transcribed and analysed through a cross-case analysis. This produced a new model, which has been validated by a second group. This group consisted out of three representatives of Achmea, who judged the new model according to their own experiences from the perspective of a health insurer.

IV.) FINDINGS

In this section the findings will be presented from the cross-case analysis. These findings are based on the output from the interviews with the representatives of the Departments and supervising organizations, making up the primary data. The results are outlined following the order of questions in the discussion guide.

The result of the validation will be outlined in the Discussion of this paper, after the new model has been construed.

Purpose of the organizations

Five out of the seven interviewees explained that the purpose of the organization they represent is to develop a market for health insurers in which they can compete with each other and therefore aid in further developing the new healthcare system, aiming for affordable, accessible and highly qualitative healthcare. A respondent who represents the Department of Health mentioned: “We develop the rules of the game.” The most frequent used phrase in the interviews was: “We develop sensory perceptions for the health insurers and thus the market

in which they compete.” They see themselves as market directors, setting up and organizing a

market whereby market parties - the health insurers - can compete with each other in order to develop the best possible offer for their customers.

The other two interviewees answered that their organization controls how the health insurers operate and whether they comply with the rules. In fact, they check if the health insurers operate in an orderly fashion by assessing if what they sell, to whom and for what price is correct and sustainable. Especially the Dutch Bank has this ambition; according to the respondent who represented the Dutch Bank their task is to “fulfil the role of advisor.” They do this after they determined to what extent health insurers should be creditworthy.

The rule(s) that the organization apply/enforce in creating managed competition The interviewees stated that their organizations manage the competition by applying the rules that are stated in the HIA. The HIA states what the Government expects from the health insurers. However, each organization accounts for a subset of the rules. As previously mentioned, the HIA is based on three pillars; affordability, accessibility and quality of health.

- Department of Health: “Healthcare must remain affordable.”

- Department of Economics: “Our ambition is to have universal access to basic health.” - Department of Finance: “Affordability and quality is important to us.”

- The commission for the Protection of Competition: “Health insurers must play a fair game,

creating a healthcare system that is universally accessible.”

- The Netherlands Authority for the Financial Markets: “Customers should be able to make

the right choices, this makes healthcare accessible for them.”

- The Dutch Bank: “The financial situation of health insurers matters the most to us.” - The Netherlands authority of healthcare: “We focus on the financial aspects of healthcare,

affordability is the most important aspect for us.”

The basic idea is to help create a healthcare system based on affordability, accessibility and highly qualitative healthcare. Sanctions have not been applied so far, however some

organizations do exert pressure on the health insurers to move them in the right direction by threatening with sanctions and as a result constantly resetting the market boundaries, and by making the health insurers more risk-bearing instead of bearing the risk themselves.

However, most of what the organizations do is being done with good intentions; they want to learn from the health insurers by looking at how they operate and the results, and to stimulate the health insurers to do what’s right for the consumer. So the rules coming from the

HIA and the input from the health insurers are being interpreted in order to constantly optimize the market.

Impact on the micro foundations to deploy dynamic capabilities

After creating a better understanding of the purpose of the organizations the interviewees represent, it’s time discuss the findings with regards to the three propositions that have been formulated in the theoretical part of this thesis.

Proposition 1

The first proposition was found to be the most interesting discussion point during the interviews. Sensing and creating opportunities seems to be what it is all about for the health insurers. The interviewee representing the Netherlands authority of healthcare mentioned that

“creating opportunities will become more and more important for the health insurers as the market is getting more mature. We are learning more and more about what the market does, which gives us the ability to constantly reset the market boundaries. This helps us to reduce the risks within the market and to focus more on what it is all about, which is affordability, quality and accessibility.” The interviewee that represented the Dutch Bank agreed and

mentioned: “With fewer risks in the market over the next couple of years, opportunities for

the health insurers will become scarce. Creating them will become their biggest challenge.”

In other words, the process of sensing and creating opportunities is more important now than ever, because opportunities in the Dutch healthcare market are scarce. This is due to three reasons.

The first reason is the fact that every health insurer has to sell the same product, which is the basic health insurance annually determined by the Government. The interviewees acknowledge that it is a challenge for health insurers to differentiate on product level.

The second reason is that customer selection is prohibited by the Government. The representative of the Department of Finance explained that the market has begun functioning properly since 2012, because risks have been reduced and increasingly more focus has been put on the product and service that health insurers provide. Before 2012 there were more risks in the market, so it was possible to apply risk selection meaning the selection of only healthy clients. But with more rules being imposed and enforced, this has become impossible. Every one has to be accepted, without exceptions.

The third opportunity that has been extracted from the market in the context of managed competition is price differentiation, which is impossible nowadays because of strict rules regarding credit worthiness. The price structure most health insurers apply is as follows: 96 cents of each euro is being spent on healthcare, three cents of each euro is being reserved for operations and one cent for reserves/profit. The one cent profit is necessary, to anticipate on misfortunes that may occur in the future. So there is nearly no margin for health insurers to differentiate on price. Most health insurers try to save on operations, so a small difference between the prizes is possible.

During the interviews, the representatives specifically honed in on two of the four micro foundations, as they generally felt that Customers and Partners are the most vital sources of sensing.

With regards to Customers one interviewee said: “Health insurers can only focus on

the quality of the product they sell and the service they provide in addition to the product. And by focussing on quality, only the best healthcare providers will survive in the Dutch

healthcare system. By adding more service, people don’t always have to rely on healthcare, because they are more empowered, making them self-sufficient.” He rounded up by