Healthcare Vehicle Maintenance Contracting in Developing Economies: The Role of Social Enterprise

Problem definition: Difficulties in healthcare delivery in developing economies arise from poor road infrastructure of rural communities, where the bulk of the population reside. Although motorcycles are an effective means for delivering healthcare products, governments in developing economies lack expertise in proper maintenances, resulting in frequent vehicle breakdowns. Riders for Health, a nonprofit social enterprise (SE), has developed specialized capabilities that enable significant enhancements in vehicle maintenance. Riders has engaged with the governments and provided its services using different contract schemes. We analyze a game-theoretic model of outsourced vehicle maintenance, shedding light on the costs and benefits of two different contracting approaches adopted by Riders. Relevance: This paper presents one of the first rigorous analyses of how SEs achieve their goals through innovations in operations. Our analysis highlights the relationship between a social mission objective and a service contract choice, contrasting it to the choice by a profit-maximizing organization traditionally assumed in the service contracting literature in Operations Management. Methodology: We conduct a game-theoretic analysis of a model that combines the elements of reliability theory and contract theory. Results: We find that the “total solution” approach of providing all aspects of vehicle maintenance, including fleet ownership, is a preferred choice for an SE like Riders who prioritizes improving health outcomes; by contrast, an organization that focuses on profit generation would find this approach less attractive. Our analysis also suggests that Riders would further benefit from the total solution approach if it manages a large fleet that consists of vehicles with strong resale values. Managerial implications: Our findings provide a theoretical support for Riders’ recent move toward the total solution approach as it expands its service into wider rural areas in many countries. The insights obtained from our analysis offer actionable guidelines to Riders, and the model developed in this paper can be used to quantify the costs and benefits of implementing a contract.