A common answer I hear from healthcare leaders when I ask them how they have achieved a certain organizational success, be it a strong financial year or major reduction in infection rates, is to pass the recognition along to others in their organization. It's the front-line workers and managers, they say, who are responsible for the success, not the leader. But a new study in to be published in Strategic Management Journal and summarized by Harvard Business Review suggests these leaders' humility — while socially appropriate — may be somewhat inaccurate. While front-line workers are certainly needed to carry out a leader's vision, it is the leader who is most responsible for the success, or lack thereof, of the organization he or she leads.
The study, which examined the organizational success of publicly traded companies across a variety of industries, found that the CEO was a stronger predictor of organizational success than macroeconomic trends, industry-specific factors and the organization's overall health.
While the study didn't explore why CEOs matter so much, the study did find the "CEO effect" — "the portion of company performance that is associated with who's in charge" — has increased significantly over the past decade.
According to the HBR report:
"In the period from 1950 to 1969, for instance, just knowing the industry a company was in predicted 38.7% of differences in performance. By contrast, from 1990 to 2009 industry predicted only 3.7% of the difference. That gap is telling, and the authors see it as evidence that what has changed goes well beyond CEO leadership. A combination of forces — including the shift of emphasis toward maximizing shareholder value and the role of technology in increasing the pace and complexity of business in countless sectors — made business more dynamic and less predictable. It’s against that backdrop that CEOs have been empowered to pursue new strategies and markets, often across the globe. The result has been an increase in CEO impact."
With CEO impact at a high, it's concerning then, that a report out just last week found hospital CEO turnover to be at an all-time high. Hospital CEO turnover grew to 20 percent in 2013, the highest rate recorded since the American College of Healthcare Executives began tracking turnover in 1981.
While some turnover may be beneficial to an organization, as an ineffective leader only holds back a hospital's ability to grow, a 20 percent turnover rate suggests one of two things: 1) more effective leaders are leaving organizations where their positive "CEO effect" could help guide the organization to strong performance or 2) leading a healthcare organization to success is becoming more difficult and complex, making success rarer and rarer.
Yet another recent study on healthcare leadership suggests it may be the latter. "Hospital and health system leaders are struggling at a much higher rate than they were three years ago. The cause of that increase is an increasingly complex environment," wrote the study's author Tom Olivio. In this study, Mr. Olivio and his fellow researchers looked at a large sample of healthcare leaders, initially grouping them on a bell curve based on performance and categorizing them as A, B, C or D leaders. In just a three-year period, the number of "B" leaders labeled as struggling increased by 163 percent!
Taken together, these studies offer a frightening scenario: In a time when CEO leadership is of utmost importance, healthcare leaders are struggling more than ever.
What does this mean for the future of our industry? And what can be done about it? Certainly something must be.