Mounting pressure to deliver better care at lower cost is driving profound change across healthcare.
Consolidation, new sources of competition, and new payment models like bundled pricing and population health demand new priorities in operational and strategic management. Success will depend on leadership realigning organizational expectations and accountabilities with the requirements of a value-based approach. These changes put a premium on redefining key roles, upgrading staff capabilities, and sustaining new behaviors to be successful in the new healthcare millennium. The criticality of these changes make infrastructure development more than a human resources concern; these changes need to be at the top of the CEO’s strategic priority list.
Organizations don’t have the luxury of time to adapt. Increasing consumer expectations, amplified by growing transparency, will reward those organizations that can achieve these changes in a timely way and punish the rest. What is needed is a leadership infrastructure that enables organizations to focus their resources strategically and best positions them for continued success.
What is leadership infrastructure? Specifically, it is a process that:
• Fully aligns the management team with the strategic objectives of the organization.
• Focuses accountability on those critical outcomes that matter.
• Engages employees in career path planning and development, supporting increased responsibility and movement toward additional opportunity.
• Ensures the necessary leadership performance for the organization to succeed, now and in the future.
• Delivers direct ROI by reducing time- and cost-to-fill for open positions.
• Strengthens the organization’s position as an employer of choice.
The return for committing to and investing in leadership infrastructure is a culture that maximizes performance, adapts to market challenges, supports succession planning, and is the preferred employment environment for the most talented employees.
High Costs of Turnover
In many parts of the country, the need for healthcare personnel – particularly nurses and allied professionals – significantly outstrips supply. An aging workforce and expanding employment options are structural challenges that intensify competition for staff. But the biggest issue is that many employees who take jobs in hospitals are simply dissatisfied and don’t stay. In fact, a recent survey1 found that vacancy rates range from 13.3% for allied professionals to 17% and 17.6% for nurses and physicians, respectively.
Within this group, nurses represent the vast majority and have the greatest potential impact on the bottom line. They have the strongest link to customers, are a critical source of competitive advantage, and have a high replacement cost. Nursing turnover drives increased costs of care, reduced revenues, and higher patient mortality. Reducing nursing turnover benefits profitability, productivity, efficiency, and quality.
According to the U.S. Department of Labor, the cost to replace an employee averages 20 percent of that employee’s salary. Based on that, a hospital with industry average turnover of 17 percent in 2015 spent about $233,000 per 100 nurses to replace those who left. And that doesn’t include the indirect costs of stress on remaining staff, care delays and errors made due to short staffing.
Resources spent on recruitment and replacement activities could be better invested in building a leadership infrastructure that values and rewards employees, encourages loyalty, and ultimately supports safe, high-quality care. The ROI is easy to justify.
Investing in Leadership
Effective managers are the central mechanism for making the organization’s objectives meaningful to employees, for building organizational alignment and cohesion. Managers provide constructive feedback and support, resolve process issues, remove obstacles, recognize and reward exemplary effort, and coach employees for success. These elements define an employer of choice and attract and retain employees. Managers are the critical link between employees and the rest of the organization and the key – or hindrance – to a positive work environment and reduced turnover.
Investing to create more effective managers produces powerful results, including:
• Shorter time to productivity
• Greater employee satisfaction and retention
• Lower staffing costs
• Streamlined information flow
• Better financial performance
For healthcare executives serious about addressing the high cost of turnover, the answer lies in investment to build an effective infrastructure.
Where to Begin
Figure 1 below presents a high-level view of the process and the components of an effective leadership infrastructure.
Strategic vision. The starting point is the strategic vision, which provides the context for the organization’s leadership needs. A clear strategic vision provides focus for effective and efficient decision making, resource allocation, and process development.
Job charters. Job charters are the critical definitional base for building the underlying leadership infrastructure that any organization requires to enhance and sustain performance. Creating a common understanding of each role that is applicable across the system facilitates developmental moves, helps to break down “silo thinking,” and builds a system orientation at key management levels focused on achieving the system’s strategic vision.
Job chartering is a powerful process that requires cross-functional management and job incumbent participation to articulate the strategic relevance of roles, provide clarity to those roles, and reach consensus on the key accountabilities, interfaces, and decision authority for their successful execution.
Performance management system. The accountabilities from the job charter are the foundation for evaluating performance. This process ensures that performance, compensation, and strategic objectives are aligned. A meaningful conversation between an individual and his or her manager and the results captured from that conversation are used to support the system-wide leadership development plan and succession planning.
Individual development review. From the accountabilities developed in the job charter, competencies – critical skills necessary to meet the accountabilities – can be defined. Competencies can then be used in a transparent, structured, and objective process, the individual development review, to assess and focus on those competencies in need of development and critical to the strategic mission. This assessment process provides a common language for a meaningful dialogue between an employee and manager, resulting in a clear plan of action focused on the highest priority development needs.
Curriculum architecture. Curriculum architecture defines the breadth of development training required to meet the needs of leadership candidates and aligns, or maps, offerings with the competency development requirements identified in the individual development review. Curriculum architecture enables maximum use of training resources by providing only the required training to only those individuals identified as requiring such developmental help.
Training tracking. Training tracking is a development program management process that facilitates course selection, scheduling, and tracking for individual employees. This tool, based on the mapping done in the curriculum architecture, provides employees with a customized list of training to consider when addressing personal competency developmental needs identified in their individual development review.
Hiring and selection. In the hiring and selection process, structured behavioral interview protocols based on accountabilities and competencies identified in the job charter are used to identify qualified candidates. An effective leadership infrastructure not only defines the competencies necessary to identify qualified candidates, it provides the basis for becoming an employer of choice among the best candidates. Candidates choose to work for companies that create clearly defined roles visibly connected to the organization’s mission.
Succession planning. With a job charter definitional base established and hiring, competency development, and performance management aligned with the strategic mission, the components are in place to create a sustainable and strategically relevant succession planning process. These provide the framework for a process to identify high-potential leadership candidates, assess their readiness to take on new responsibilities, and track their progress.
A systematic succession planning process benefits both the organization and its employees. It costs and risks less to develop needed leaders internally. Development is focused on the competencies most critical to the strategic mission and on future leaders already culturally in tune with the organization. Development and promotion from within is also one of the most meaningful elements of an employer-of-choice culture that attracts and keeps the best employees.
Transforming a Culture
Creating the initiative to improve processes and operationally improve the organization can provide significant returns. Building a leadership infrastructure and transforming a culture takes time, measured in years, not months. Organizations that have taken the challenge realize progress in a range of important metrics, including:
• Employee satisfaction and an improving sense of accomplishment
• Positive employee identification with the hospital and system
• Higher patient satisfaction
• Improved physician satisfaction and increased referrals
• Operational metrics improvement
• Financial metrics improvement
These financial implications and the idea that employee retention is closely linked to employee satisfaction do not represent new thinking. If employees are actively involved and are positive about their professional future at a hospital, their satisfaction will grow. And here, as in so many other industries, lies one inescapable fact: Satisfied employees provide better quality service to their customers, which results in higher patient satisfaction levels. And satisfied customers ultimately translate to a healthier bottom line for hospitals -- the final measure of any organization’s success.
Michael Abrams, MA is Managing Partner and Kim White, MBA is a Vice President at Numerof & Associates, Inc. (Numerof). Numerof is a strategic management consulting firm focused on organizations in dynamic, rapidly changing industries. We bring a unique cross-disciplinary approach to a broad range of engagements designed to sharpen strategic focus, increase revenues, reduce costs, and enhance customer value. For more information, visit our website at www.nai-consulting.com.
1 AMN Healthcare Clinical Workforce Survey 2013, www.amnhealthcare.com