Leadership changes are more common and important than ever. But most companies don’t get it right.
Every leadership transition creates uncertainty. Will the new leader uncover and seize opportunities and assemble the right team? Will the changes be sustainable? Will a worthy successor be developed? These questions boil down to one: Will the leader be successful?
Hardly anything that happens at a company is more important than a high-level executive transition. By the nature of the role, a new senior leader’s action or inaction will significantly influence the course of the business, for better or for worse. Yet in spite of these high stakes, leaders are typically underprepared for—and undersupported during—the transition to new roles.
Executive transitions are typically high-stakes, high-tension events: when asked to rank life’s challenges in order of difficulty, the top one is “making a transition at work”—ahead of bereavement, divorce, and health issues.2 If the transition succeeds, the leader’s company will probably be successful; nine out of ten teams whose leader had a successful transition go on to meet their three-year performance goals (Exhibit 1). Moreover, the attrition risk for such teams is 13 percent lower, their level of discretionary effort is 2 percent higher, and they generate 5 percent more revenue and profit than average. But when leaders struggle through a transition, the performance of their direct reports is 15 percent lower than it would be with high-performing leaders. The direct reports are also 20 percent more likely to be disengaged or to leave the organization.
Successful or not, transitions have direct expenses—typically, for advertising, searches, relocation, sign-on bonuses, referral awards, and the overhead of HR professionals and other leaders involved in the process. For senior-executive roles, these outlays have been estimated at 213 percent of the annual salary.4Yet perhaps the most significant cost is losing six, 12, or 18 months while the competition races ahead.
Studies show that two years after executive transitions, anywhere between 27 and 46 percent of them are regarded as failures or disappointments.5Leaders rank organizational politics as the main challenge: 68 percent of transitions founder on issues related to politics, culture, and people, and 67 percent of leaders wish they had moved faster to change the culture. These matters aren’t problems only for leaders who come in from the outside: 79 percent of external and 69 percent of internal hires report that implementing culture change is difficult. Bear in mind that these are senior leaders who demonstrated success and showed intelligence, initiative, and results in their previous roles. It would seem that Marshall Goldsmith’s advice—“What got you here won’t get you there”6—is fully applicable to executive transitions.
The pace and magnitude of change are constantly rising in the business world, so it is no surprise that senior-executive transitions are increasingly common: CEO turnover rates have shot up from 11.6 percent in 2010 to 16.6 percent in 2015.7Since 69 percent of new CEOs reshuffle their management teams within the first two years, transitions then cascade through the senior ranks. Sixty-seven percent of leaders report that their organizations now experience “some or many more” transitions than they did in the previous year.
Nursing and physician shortages aren’t the only staff challenges providers are facing. According to a new STAT poll from the Medical Group Management Association, a majority of healthcare organization leaders said their group can’t find enough qualified applicants for non-clinical positions either.
The poll was conducted on May 1, 2018 with 1,299 applicable responses.
More than 60 percent of respondents said their organizations had a hard time recruiting non-clinical staff. The reasons include larger organizations offering better pay, low unemployment rates and difficulty recruiting in rural areas. One respondent said “recruiting millennials is a completely different game” and another cited lack of future career advancements in the billing and coding field.
“Lack of medical training in colleges and technical schools and reliance on ‘on the job training’ means less qualified non-clinical applicants,” MGMA said.
Other reasons include competition from other medical groups, hospitals and health systems as well as competitive pay from other industries that trigger turnover.
One-third responded they haven’t experienced this shortage, citing low turnover. Those respondents also said they had increased wages to retain staff, MGMA said.
A past poll has shown this high-turnover is prevalent in front-office staff, which some experts have argued are the face of a practice and the first ones to interact with patients, often setting a tone for the care episode making it a crucial influence of patient satisfaction.
When there is high turnover, new employees are often not as well-versed in office policies and procedures because they likely haven’t been there very long. This can lead to mistakes, inaccuracies and bumpy interactions with patients who expect staff to know operations inside and out. It can also lead to costly errors not just on the part of new employees, but veteran staff who are busy training and juggling multiple tasks at any given moment. The trickle down effect could mean patients wait longer to be seen, appointments go longer and collections and claims may be riddled with mistakes.
Medical group leaders know that it isn’t just doctors and nurses who make their practices successful and run smoothly, so they would be well-advised to treat retention of non-clinical staff with urgency.
Since a third of respondents reported lower turnover after raising wages for non-clinical staff, decision-makers for practices may want to consider researching current competitive rates for these positions and potentially raising wages such that staff would be less inclined to seek higher-paying employment elsewhere.
Practices also might consider how else to boost employee benefits and the workplace environment so that employees experience greater satisfaction. Turnover leads to operational hiccups, less efficient service for patients and lower satisfaction rates.
“While finding qualified candidates is a challenge for medical groups, practice leaders can begin by assessing how they are approaching retention of their best employees and mitigating turnover before it becomes an issue,” MGMA said.
Sending a senior executive off-site to expand his perspective was part of the Cincinnati-based health system’s leadership institute, which aims to develop the skills of some 1,000 administrative and physician executives and prepare them for new roles.
While many executives move around within their organization’s network, the approach aimed to expose the employee—who had spent much of his career at TriHealth—to another corporate culture and operations.
“We obsess about spending $2 million on a CT scanner, but we can’t find a way to spend $10,000 on investing in our leaders,” said TriHealth CEO Mark Clement, who launched the system’s leadership institute about ½ years ago. “I would argue that investments on improving talent within our organization produce dividends far greater than a piece of equipment.”
For many providers, it’s the end of an era. Hospital, health system and physician group executives are seeking new leaders. They are prompted by an exodus of top healthcare executives, a generational transfer of power highlighted by the departures of senior managers like Dr. Toby Cosgrove, former Cleveland Clinic CEO; Michael Murphy, CEO of Sharp HealthCare who is retiring in 2019; and outgoing Mayo Clinic CEO Dr. John Noseworthy.
Organizations are actively searching for what’s next and who will take them there. Industry consolidation is accelerating that conversation. But there is wide variation on their approach and level of preparation.
There’s a lot at stake, both from a cultural and financial perspective, said Mark Armstrong, vice president of consulting operations at Quorum Health Resources. Good managers translate to engaged employees, he said.
But only about 33% of U.S. workers are actively engaged in their jobs, and a mere 15% of employees strongly agree the leadership of their organization makes them enthusiastic about the future, according to a 2016 poll by Gallup. The firm estimates that disengaged employees cost the U.S. $483 billion to $605 billion each year in lost productivity.
“Even when systems know someone is retiring, it is interesting how few of them still don’t have an assertive plan in place,” Armstrong said. “Any kind of turnover can be disruptive, especially if there has been a trend of declining performance. It’s not unusual for a ratings agency to have heightened concerned when a CEO leaves.”
Almost every system grapples with a huge retention problem, which can make it difficult to plan ahead, said Alan Rolnick, CEO of Employee Engagement and Retention Advisors. The most costly departures are often experienced nurses, he said.
“It’s not just the cost of replacement but the loss of institutional knowledge,” Rolnick said.
TriHealth’s leadership program highlights potential candidates within the system who could fill upcoming vacancies. It puts executives on a multiyear track that assesses potential areas for improvement and exposes them to systemwide quarterly leadership training sessions and other development opportunities. The company’s vice president of finance, Brian Krause, spent a week at BJC HealthCare in St. Louis, relying on connections TriHealth had with the organization. Krause is also planning on spending some time at the University of Pennsylvania Health System, as well as a few other systems.
Since launching the institute—which is conducted with the help of the consultancy Studer Group—TriHealth’s employee engagement improved from the 26th to the 74th percentile, which has helped the organization generate a 3.5% operating margin—one of its highest margins in recent history, Clement said. Its patient experience scores are also up from the 50th percentile to the 75th, helping to drive an increase in admissions, bucking the national trend.
Ideally, promoting from within will ensure cultural and operational continuity and motivate executives, Clement said. “When you bring new senior executives in from other organizations, it can be a threat to the culture,” he said. “For an organization like ours that has invested a lot of money in building a culture based on value, engaging team members and flattening the organization, it’s often best to promote from within.”
Ascension also recently launched a diversity inclusion campaign that seeks to cultivate minority leaders.
“The types of leaders are changing,” Ascension CEO Anthony Tersigni said at the American College of Healthcare Executives’ 2018 Congress on Healthcare Leadership in March. “The time for guys like me who started as a hospital operator is passing.”
The CEO of a Fortune 100 company told Tersigni several years ago that he spends about 30% of his time on leadership development. Tersigni, who at the time only spent a fraction of that on cultivating executives, said that interaction completely changed his perspective. Ascension has since partnered with a number of universities to build a better leadership curriculum and management pipeline.
“Disruption in the healthcare industry is not going to come from the hospital across the street, it has been coming from outside the industry,” Tersigni said. “We need to understand how they think, how they act, how they make decisions, because it is a lot faster than healthcare can dream of.”
Renton, Wash.-based Providence St. Joseph in 2017 partnered with the University of Great Falls in Montana, in part, to create a stable pipeline of managers to feed into the integrated health system. The university, which was renamed University of Providence, will include professional and certificate programs for Providence St. Joseph’s more than 111,000 employees.
The health system has also implemented mentoring and leadership development programs that have increased its women executive cohort by 50% over a three-year period.
“Diversity begets diversity,” said Dr. Rod Hochman, CEO of Providence St. Joseph, adding that women and minority leaders will help the system better understand its most vulnerable populations. “We are looking for folks with different perspectives who can help lead us through this time of change.”
Whether the successors are internal or external, establishing a strong executive pipeline requires a proactive and standardized approach, and the board should take the lead, industry analysts said.
A health system should identify the competencies it needs to lead the team going forward and where the gaps are, said Craig Deao, a senior leader at Studer Group. “The three keys leaders of tomorrow need to have are getting people to do things better—performance improvement; getting them to do new things—innovation; and helping people do those things—engagement,” he said.
Managing the process rather than the people will translate to more innovative and engaged employees, according to Rolnick. It starts with communication, he said.
“Today, the average employee of a hospital has no idea of the strategic direction of their organization and what their role is,” Rolnick said. “You have to tell them as much as you can, and be open and honest.”
Beyond employee engagement, executives need to understand how to interact with patients. As the industry adapts to thinking of patients as consumers, that requires a different lens, Deao said.
“People need to understand how to shape behavior and apply concepts of psychology to running the business,” he said.
Healthcare is becoming more consumer- and technology-oriented. Health systems are also focusing more on nutrition, transportation, education, fitness and other social factors that influence an individual’s health.
Novant Health, for instance, is launching a new leadership program that looks to train untapped community leaders in Charlotte-Mecklenburg, N.C. The program involves a combination of teaching sessions and mentoring that aims to reach individuals who otherwise wouldn’t have access to programs that hone their leadership skills, said Tanya Blackmon, executive vice president and chief diversity and inclusion officer at Novant.
While there is a significant learning curve, experience in consumer insight, marketing or technology can better equip individuals to tackle healthcare’s current challenges, said David Schmahl, executive vice president of consultancy SmithBucklin and chief executive of its healthcare and scientific industry practice.
“The experience people are obtaining in leadership roles outside the healthcare field is critical,” he said.
The role of healthcare leadership has evolved into a platform used to convey a moral foundation, spanning conversations from racism to gun control. They have to balance their role as an influencer while dealing with budgets, managing their boardrooms, implementing both long-term visions and short-term goals, and maintaining an engaged workforce.
The average tenure of healthcare executives and managers is also decreasing, particularly among CEOs, nurses and physicians, which exacerbates labor shortages. A C-suite executive’s pay is still tied to financial metrics, but quality, safety and patient satisfaction are becoming a more prominent determinant.
While Novant’s initiative isn’t necessarily geared to develop successors, it signifies how the definition of a leader is evolving.
“We are looking at trying to tap talent across all spectrums,” Blackmon said. “We’re not leaving any area untapped.”