Leading in a Multi-Entity System, Part 1

Challenges and Concepts for the Healthcare System Leader
As the healthcare landscape continues to reshape itself through various forms of enterprise combinations, leaders face the challenge of integrating multiple entities into a unified enterprise. The theoretical value of increasing scale is undeniable but capturing that value is no easy task. It requires thoughtful, persistent effort to overcome the natural human resistance to change at the individual and entity level. Success depends on building a cultural foundation of trust rooted in shared purpose, values, and vision. It demands skillfulness in identifying, developing, and implementing an integration plan that recognizes and addresses the human side of change.

Here are a few suggestions which can help capture the promise that comes with assembling a multi-entity system:

1. Understand the possibilities, and limitations, of scale. The pursuit of scale brings with it a number of potential advantages, the most obvious of which is the ability to reduce fixed cost through consolidation and elimination of excess capacity or duplicate functions. Offsetting the economies of scale are the potential diseconomies of complexity. Rather than reducing costs, organizations often face the need to add additional layers of overhead to oversee a widely dispersed enterprise. It becomes harder to maintain an intimate understanding of the character and challenges faced across the different parts of the organization, and harder to remain nimble to respond to internal dynamics and competitive threats. Before embarking on any form of business combination, it is important to clearly identify the sources of new value to be created and the changes that will be needed to capture that value.

2. Affirm the compatibility of culture, values, mission, and vision. It is imperative to dig deeply into the culture and values of the combining organizations to determine whether they share a common foundation from which to drive the joint endeavor being undertaken. While this assessment is inherently subjective, it is often the most critical determinant of success or failure. Beyond cultural compatibility, it is vital to define clarity around mission and vision so that all parties understand and align around the changes that are contemplated to create new value. For example, if part of the value of the business combination is expected to come from rationalizing the distribution of clinical services, that must be clearly understood, along with definition of the process and criteria by which such decisions will be made. It is all too common for parties to enter into these relationships with divergent visions of the future, resulting in conflict and frustration all around.

3. Integrate thoughtfully. Often, the issue of centralization vs. decentralization is addressed as a singular, philosophical decision. The decision of when to “act together” by centralizing or standardizing should be a functional one, not a philosophical one. Leaders across the organization must own and exhibit commitment to the overall success of the system enterprise. For a leader to hold that position in the local market, it is critical that in each instance where the system supersedes local autonomy with central authority there is clear and compelling benefit from acting together that can’t be achieved by acting alone. Integration or standardization should be limited to circumstances and conditions conducive to such action, where processes and circumstances are similar, and the building blocks are in place. Using functional criteria to guide the integration process can help build understanding, trust, and support among diverse stakeholders.

4. Manage change effectively. No matter how compelling the case for change, there is likely to be significant resistance. For all of us, there is comfort in the known, even if the known is not entirely satisfactory, as compared to the uncertainty of change. Overcoming resistance involves understanding and addressing the fears that stand in the way of letting go of “what is” in order to embrace the possibilities of “what might be.” While that sounds simple enough, the process can be exceptionally challenging when bringing together organizations with different identities, histories, cultures, and stakeholders. A great approach for leaders to manage through this transformation is:
   • Identify the key stakeholders who will be affected by the change and seek to understand their fears and aspirations from the change process.
   • Build trust by staying firmly focused on the organization’s shared purpose.
   • Help those who will be affected by the change to let go of the familiar by designing solutions that address their fears.
   • Bring forward from the past those things that are helpful for the future and mark the transition in a way that honors the past.
   • Engage stakeholders in designing the future state, staying clear and firm about the goal but open to finding a way to achieve the goal that addresses the legitimate concerns of those affected.
   • Recognize that good faith disagreement is inevitable when there are different beliefs about the future. Respect the right to disagree but expect support, not just compliance, when a decision is made.

5. Deeply listen to understand and diagnose resistance. One of the most difficult challenges in leading disruptive change is recognizing the difference between resistance rooted in legitimate concerns about the design of the change and resistance arising from the predictable awkwardness of any change. There is no magic formula for discerning the difference. It requires deep listening and a genuine effort to see the problem through the lens of another. For system leaders who see, with clarity, the benefit of the proposed change, any form of “push back” can be seen as defiance. And the inclination in response to that perceived defiance is often to intensify the pressure to comply, thus creating fear and a hesitancy to raise concerns. This is a dangerous situation because it turns leaders at the local level into victims and suppresses information that may be vital to making effective decisions.With local leaders, compliance alone is not enough. Their indifference speaks volumes to local stakeholders (employees, physicians, board members). It is essential that local leaders fully support the decision, once made, and own the rationale for the decision as if it was their own, even if it is not the decision they would have made. In return for that expectation, the local leaders should have the opportunity – in fact, the obligation – to voice their concerns and seek resolution. This does not mean that they will prevail. Good faith impasse is inevitable when there are different, mutually exclusive assumptions about the future. It is imperative though, that local leaders have the right to be heard and the chance to come to understand and own the decision they will be asked to support.In dealing with local leaders, it is important for system leaders to resist the temptation to paint with a broad brush.

   Local leaders may voice resistance for many reasons: genuine concern, lack of understanding, gaps in competency, or lack of alignment. To build trust in the process, it is important for system leaders to address local leaders individually, identifying and addressing whatever barriers stand in the way of their full support. While this may take more time at the front end, it increases the likelihood of success and reduces the need for damage control and rework.

6. Account for the impact of system-level decisions on local entity performance expectations. System-level decisions in many cases generate positive impact overall, but with negative consequences on the performance of some parts of the organization. For example, supply chain decisions that create system-wide savings but alienate physicians in some local entities can result in overall gains but entity-specific losses. Or consider a situation in which the system rationalizes its clinical configuration to improve overall clinical efficacy and operating efficiency, causing a change of scope at the local level.   Those entities whose scope is contracted could see local deterioration of their financial performance.  To ensure the support of local leadership in such instances, it is helpful to have the ability to recognize the impact and adjust performance expectations accordingly. Otherwise, local leaders are likely to resist positive change if it puts them at risk for failing to meet the performance goals for which they are held accountable.

7. Support local leaders in a sustained effort to foster trust with their stakeholders and build recognition of the value of system-ness. One of the most difficult aspects of leading a local entity within a multi-entity system is when a decision that is good for the overall organization is not optimal for the local entity and its stakeholders. It is imperative that local and system leaders work together on an ongoing basis to actively develop among stakeholders an understanding of how their local interests are best served, over time and overall, by being part of a strong system. To garner support when the local entity “loses a battle,” the stakeholders must understand how it helps them “win the war.” This is hard to do from a defensive posture, fending off opposition to a specific decision. It is best done on an active and ongoing basis, accompanied by examples of real benefit made possible through the system affiliation. It is also helpful if the system leaders have enough presence in the local entity to develop and maintain trust rooted in shared purpose and mutual respect.

Being part of multi-entity systems can give healthcare leaders additional sources of new value, which are critical in today’s challenging environment. Realizing that value takes skillful leaders who understand and manage the challenges of system-ness.  MEDI can help through the ongoing development of leaders, equipping them to meet this challenge.
Look for Part 2 of this series, Leading in a Multi-entity System: Challenges and Concepts for the Local Hospital Leader.