Many hospital transactions are guided by the financial fit of two hospitals. During discussions, the status and health of each hospital's finances as well as potential financial opportunities are most often discussed, and the cultural fit of the organization may be overlooked. However, it is imperative, if long-term success is a consideration, to include cultural due diligence in the overall diligence process.
"The important issue is putting culture on the table with other business performance issues. Oftentimes, it is not on anyone's radar until post-transaction, when serious performance problems arise due to poor fit between the parties. At the end of the day the transaction firms are incented by the financial opportunities and culture ends up being marginalized," says Carol Geffner, PhD, co-founder and president of Newpoint Healthcare Advisors.
"Culture is a business issue. It's not 'soft and fluffy'", Dr. Geffner says. "Ultimately, culture determines what is and is not acceptable inside of an organization, and that directly impacts business processes and performance. At the very least, culture should be integrated into the early due diligence phases. It is not always comfortable for the investment bankers to ask the questions that will get at the issues related to cultural fit. This is one reason why some firms are using organizational psychologists as members of the diligence team."
Murray Rudin, partner at Riordan, Lewis & Haden, a private equity firm focused on investments in the healthcare, business services, and government services sectors, agrees. "The objective parts of a transaction can be added up in an Excel spreadsheet very easily. The ease with which that can be accomplished has tended to give [the financial] part of the merger more attention and drawn focus away from the cultural integration. When you do not consider the influence a transaction will have on individuals, the organization suffers unanticipated operational problems," says Mr. Rudin.
In order to bring culture to the table, all hospital leaders need to do is ask a few questions. Here are five questions that should bring culture to the forefront of transaction discussions.
1. What is the culture at both hospitals? Hospital executives need to ask about a potential partner's values in order to understand its culture. According to Dr. Geffner, The aim is to discover the gap between what is stated and what actually happens. One way to get at this is to ask questions about key decisions and how they were made and then executed. Another more objective approach is to review data within both companies on employee satisfaction, organizational effectiveness and SWOT information which highlights strengths, weaknesses, opportunities and risks. According to Dr. Geffner, these can also lead to more thorough discussion on what is at the heart of the organization's "DNA."
"Values can be very important. That is a key element. But, you don't know whether people 'walk the talk' every day or if they are just values on a wall. The questions about culture should be about the origin of values, how they are reinforced and how they are reflected. This could yield rich conversation," says Ms. Geffner. The following questions are a great way to start the conversation and to dig deeper for a better picture of how the organization's culture functions.
• Can you tell me about the hospital's values?
• Can you tell me how the hospital's values are perceived within the organization?
• Can you speak to how the hospital's values originated?
• How long has the hospital followed these values?
• How are the values reinforced internally?
2. How does the leadership team reflect the hospital's culture values? Dr. Geffner recommends asking about the potential partner's leadership team, given their importance in shaping what actually transpires inside the organization. "Many times a hospital's leadership team will reflect an organization's culture and values — what is actually rewarded and tolerated —so asking how the leadership team reflects the values and strategic priorities of the hospital can lead to a revealing discussion," says Dr. Geffner. "If there is interest in retaining some of the leaders of the acquired company, it is critical to dig into their reputation within the organization not just their performance. It's prudent to surface information about leadership style early on, rather than leaving that to a post-transaction inquiry when damage may have been done," she says.
According to Nitsa Lallas, partner and healthcare practice leader for Senn Delaney, a culture shaping firm, spending time with the leadership team can tell you a lot about the culture of an organization. "How hospital leaders behave is more important than what they say. We call this Shadow of the Leader. Is how they behave matching what they say? What example are they setting? Are they walking the talk?" says Ms. Lallas. The leadership shadow cast by members of this team and the overall team can be telling of a hospital's true culture.
The following questions about the leadership team are effective for revealing a leader or leadership team's shadow in order to discover a hospital's cultural priorities.
• Are the values used as criteria for hiring new executive leadership?
• How are new team members oriented to the hospital's values?
• Does the leadership team use the values to align on making decision for the organization?
• Is the team's similar background on purpose or coincidental?
• How do the leaders engage and inspire employees to live the hospital's values?
3. What are the specific business achievements? Are there examples of the culture through action? According to Dr. Geffner, hospital executives should never be satisfied with high-level descriptions of how critical decisions were made. Details are important. There are many questions that can yield insight into how the company functions.
• Who led a particular initiative?
• Who was involved all the way through the process? How?
• How long did the team take to reach a solution?
• Who was impacted by the decision? How were they actively involved in the decision making?
• Do you have examples of the communications that were sent about this initiative and the solutions?
"Let the other organization talk about specifics and then use that as a platform for more detailed questions," says Ms. Geffner.
4. What are the strengths and weaknesses of your culture? According to Ms. Lallas, another way to determine a hospital's culture is to ask the executives to discuss their organization's strengths and where they need improvement. "Executives should have a good sense of their culture, including how it helps and hinders the organization's operations. Questions to ask include: What are the cultural behaviors that lead to success? What behaviors are getting in the way? How do you address behaviors that are not aligned with the hospital's values?" says Ms. Lallas. She also adds that it is very important to understand the cultural similarities and differences between the merging hospitals. Executives that have a clear vision of their hospital's vision, values and guiding behaviors understand how they impact the quality and efficiency of their healthcare services. This understanding also better prepares them to be successful in culturally integrating with another hospital.
5. Can you discuss why your hospital's culture was perceived this way? According to Dr. Geffner, the due diligence of a transaction will reveal external perceptions of the hospital, which may offer insight into their level of insularity or customer-centricity. "The perceptions of the community, former employees and former leaders surface during due diligence. This information will provide clues not only about perceptions but the extent to which the business has involved external entities such as customers, vendors and the community in overall decision making. The external perceptions — right or wrong — can be a platform for an effective discussion on the real vs. described culture," says Dr. Geffner.
However, perceptions are not always accurate, so while asking about them can garner rich conversation, hospital executives should do their own research. "One of the diligence points about organizational culture is not only what the business says about itself but what others say — the former employees, executives and patients. It may also be a good idea to ask to see employee satisfaction surveys — not to be judgmental, but to get a sense of what the employees like and do not like," says Mr. Rudin.
There is no right or wrong in a cultural discussion
Before beginning a cultural discussion it is important for hospital executives to remember to leave judgment out of the assessment. Many hospitals and organizations have succeeded in a variety of cities with a range of cultures. "There is no right or wrong or better or worse in a cultural discussion," says Mr. Rudin. "It is not that black and white. I think it would be fair to say that a cultural assessment should be non-judgmental. [Executives] should only be looking at whether there is a compatible way to combine the two organizations," he says.
Cultural issues are gaining visibility for mergers and acquisitions in the healthcare industry because they are a key factor in how a hospital operates. Although every hospital is different, addressing the cultural compatibility and integration between two healthcare organizations in transaction discussions is a key best practice. Delaying the cultural discussion only hurts the transaction. "The financial integration [in a transaction] is the easiest. The system integration is more difficult, [but] the cultural integration is by far the hardest," says Mr. Rudin. For this reason, hospital executives need to be prioritizing culture.
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"The important issue is putting culture on the table with other business performance issues. Oftentimes, it is not on anyone's radar until post-transaction, when serious performance problems arise due to poor fit between the parties. At the end of the day the transaction firms are incented by the financial opportunities and culture ends up being marginalized," says Carol Geffner, PhD, co-founder and president of Newpoint Healthcare Advisors.
"Culture is a business issue. It's not 'soft and fluffy'", Dr. Geffner says. "Ultimately, culture determines what is and is not acceptable inside of an organization, and that directly impacts business processes and performance. At the very least, culture should be integrated into the early due diligence phases. It is not always comfortable for the investment bankers to ask the questions that will get at the issues related to cultural fit. This is one reason why some firms are using organizational psychologists as members of the diligence team."
Murray Rudin, partner at Riordan, Lewis & Haden, a private equity firm focused on investments in the healthcare, business services, and government services sectors, agrees. "The objective parts of a transaction can be added up in an Excel spreadsheet very easily. The ease with which that can be accomplished has tended to give [the financial] part of the merger more attention and drawn focus away from the cultural integration. When you do not consider the influence a transaction will have on individuals, the organization suffers unanticipated operational problems," says Mr. Rudin.
In order to bring culture to the table, all hospital leaders need to do is ask a few questions. Here are five questions that should bring culture to the forefront of transaction discussions.
1. What is the culture at both hospitals? Hospital executives need to ask about a potential partner's values in order to understand its culture. According to Dr. Geffner, The aim is to discover the gap between what is stated and what actually happens. One way to get at this is to ask questions about key decisions and how they were made and then executed. Another more objective approach is to review data within both companies on employee satisfaction, organizational effectiveness and SWOT information which highlights strengths, weaknesses, opportunities and risks. According to Dr. Geffner, these can also lead to more thorough discussion on what is at the heart of the organization's "DNA."
"Values can be very important. That is a key element. But, you don't know whether people 'walk the talk' every day or if they are just values on a wall. The questions about culture should be about the origin of values, how they are reinforced and how they are reflected. This could yield rich conversation," says Ms. Geffner. The following questions are a great way to start the conversation and to dig deeper for a better picture of how the organization's culture functions.
• Can you tell me about the hospital's values?
• Can you tell me how the hospital's values are perceived within the organization?
• Can you speak to how the hospital's values originated?
• How long has the hospital followed these values?
• How are the values reinforced internally?
2. How does the leadership team reflect the hospital's culture values? Dr. Geffner recommends asking about the potential partner's leadership team, given their importance in shaping what actually transpires inside the organization. "Many times a hospital's leadership team will reflect an organization's culture and values — what is actually rewarded and tolerated —so asking how the leadership team reflects the values and strategic priorities of the hospital can lead to a revealing discussion," says Dr. Geffner. "If there is interest in retaining some of the leaders of the acquired company, it is critical to dig into their reputation within the organization not just their performance. It's prudent to surface information about leadership style early on, rather than leaving that to a post-transaction inquiry when damage may have been done," she says.
According to Nitsa Lallas, partner and healthcare practice leader for Senn Delaney, a culture shaping firm, spending time with the leadership team can tell you a lot about the culture of an organization. "How hospital leaders behave is more important than what they say. We call this Shadow of the Leader. Is how they behave matching what they say? What example are they setting? Are they walking the talk?" says Ms. Lallas. The leadership shadow cast by members of this team and the overall team can be telling of a hospital's true culture.
The following questions about the leadership team are effective for revealing a leader or leadership team's shadow in order to discover a hospital's cultural priorities.
• Are the values used as criteria for hiring new executive leadership?
• How are new team members oriented to the hospital's values?
• Does the leadership team use the values to align on making decision for the organization?
• Is the team's similar background on purpose or coincidental?
• How do the leaders engage and inspire employees to live the hospital's values?
3. What are the specific business achievements? Are there examples of the culture through action? According to Dr. Geffner, hospital executives should never be satisfied with high-level descriptions of how critical decisions were made. Details are important. There are many questions that can yield insight into how the company functions.
• Who led a particular initiative?
• Who was involved all the way through the process? How?
• How long did the team take to reach a solution?
• Who was impacted by the decision? How were they actively involved in the decision making?
• Do you have examples of the communications that were sent about this initiative and the solutions?
"Let the other organization talk about specifics and then use that as a platform for more detailed questions," says Ms. Geffner.
4. What are the strengths and weaknesses of your culture? According to Ms. Lallas, another way to determine a hospital's culture is to ask the executives to discuss their organization's strengths and where they need improvement. "Executives should have a good sense of their culture, including how it helps and hinders the organization's operations. Questions to ask include: What are the cultural behaviors that lead to success? What behaviors are getting in the way? How do you address behaviors that are not aligned with the hospital's values?" says Ms. Lallas. She also adds that it is very important to understand the cultural similarities and differences between the merging hospitals. Executives that have a clear vision of their hospital's vision, values and guiding behaviors understand how they impact the quality and efficiency of their healthcare services. This understanding also better prepares them to be successful in culturally integrating with another hospital.
5. Can you discuss why your hospital's culture was perceived this way? According to Dr. Geffner, the due diligence of a transaction will reveal external perceptions of the hospital, which may offer insight into their level of insularity or customer-centricity. "The perceptions of the community, former employees and former leaders surface during due diligence. This information will provide clues not only about perceptions but the extent to which the business has involved external entities such as customers, vendors and the community in overall decision making. The external perceptions — right or wrong — can be a platform for an effective discussion on the real vs. described culture," says Dr. Geffner.
However, perceptions are not always accurate, so while asking about them can garner rich conversation, hospital executives should do their own research. "One of the diligence points about organizational culture is not only what the business says about itself but what others say — the former employees, executives and patients. It may also be a good idea to ask to see employee satisfaction surveys — not to be judgmental, but to get a sense of what the employees like and do not like," says Mr. Rudin.
There is no right or wrong in a cultural discussion
Before beginning a cultural discussion it is important for hospital executives to remember to leave judgment out of the assessment. Many hospitals and organizations have succeeded in a variety of cities with a range of cultures. "There is no right or wrong or better or worse in a cultural discussion," says Mr. Rudin. "It is not that black and white. I think it would be fair to say that a cultural assessment should be non-judgmental. [Executives] should only be looking at whether there is a compatible way to combine the two organizations," he says.
Cultural issues are gaining visibility for mergers and acquisitions in the healthcare industry because they are a key factor in how a hospital operates. Although every hospital is different, addressing the cultural compatibility and integration between two healthcare organizations in transaction discussions is a key best practice. Delaying the cultural discussion only hurts the transaction. "The financial integration [in a transaction] is the easiest. The system integration is more difficult, [but] the cultural integration is by far the hardest," says Mr. Rudin. For this reason, hospital executives need to be prioritizing culture.
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