Thoughtful Management for Hard Times

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Historically, financial downturns have not affected the health care industry, but it is not so this time. Patients are deferring care or avoiding treatment completely; uncompensated care and bad debt are rising; and the impact is being felt by all provider organizations, both large and small.

Out of necessity, practices are responding. Some of these reactions are thoughtful, but unfortunately, many appear to focus on short-term, bottom-line fixes. This is very significant, as many gains in long-term quality improvements and cost management achieved during recent years may be lost through poor decisions being made today.

Industries outside health care have a more robust history of coping with market swings. Therefore, it is useful to learn from their experiences and understand how they have preserved the core values of their organizations as they have navigated tough times.

The December 2008 issue of Harvard Business Review provides a useful focus on this topic: Staying Calm at the Center of a Storm. Health care leaders can learn practical approaches from these well-respected industry leaders and consultants. Three articles from this issue will be particularly helpful to the struggling health care leader.

Strategic Budgeting

Kaplan and Norton¹ (inventors of the balanced scorecard) suggest that challenging financial times provide the motivation to focus on productivity improvements. They also caution readers that cost reductions can sometimes sacrifice strategic initiatives that will build capabilities for long-term strategic management.

To avoid this dilemma, they recommend that organizations maintain and manage a separate budget for strategic expenditures. To avoid the easy financial reflex of deferring these expenses, successful organizations specifically indentify each strategic initiative with a budgeted amount and assign it to an existing manager.

Lower The Heat

Friedman² cautions against turning up the pressure and making employees work harder. He advocates a smarter approach: Be open with employees about the business problems you face and invite them to be part of the solution, while encouraging them to meet critical needs in other parts of their lives. Do this correctly and you’ll reduce stress, decrease wasted time, boost trust, build resilience, and improve productivity.

Acknowledging the pressure that employees feel during downturns and paying attention to employees’ lives beyond work shows concern for the whole person and will be rewarded with loyalty and extraordinary effort.

The Wisdom of Crowds

Erickson³ suggests that, during tough times, executive instinct drives greater control; executives review costs, tighten approval criteria, redirect key decisions to higher levels, ensure that everyone is as busy as possible, narrow the scope of the business, and so on. Small teams of executives attend secret retreats to review options, even as meetings that would bring all the troops together are canceled. As a result, authority becomes centralized.

What leaders frequently forget, in the heat of crisis, is that the wisdom of crowds applies within their own companies. Instead of hogging the ball during a downturn, they ought to tap the ideas and the energy of the entire organization.

Adaptive Leadership

An extension of all of these recommendations is another very useful approach to change that is used by many industries: adaptive leadership. Heifetz4 developed this model at Harvard, and it focuses on successful change management.

Change can take two forms. Technical change uses existing knowledge and skills; an example would be expanding a clinic’s space, but using existing staff and procedures to operate the new space. In contrast, adaptive change requires individuals and groups to generate new knowledge, skills, and behaviors. An example of adaptive change would be the installation of new software that changes work processes and roles within a clinic.

Conflict and ineffective change occur when a technical fix is applied to an adaptive problem. This phenomenon is particularly widespread in health care due to its technical and scientific base. Adaptive problems usually cannot be successfully solved by someone who provides answers based on authority structures. To the contrary, adaptive work creates and demands both independence and interdependence of individuals and teams.

Heifetz provides a number of strategies for successfully confronting adaptive challenges. Find partners in the change,