70% of Hospital Strategic Initiatives Fail: How Hospitals Can Avoid Those Failures

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Under this new era of reform, hospitals will have to become experts at change management: They need to become more profitable at Medicare rates; they need to consider sharing risk with other providers; they need formulate plans to manage the health of a population; and amidst all this, patient quality and satisfaction must also be above par. These are, indeed, lofty goals.

As such, hospitals and health systems are undertaking more strategic initiatives to meet these new demands. A recent survey by McKinsey & Company of more than 2,200 hospital and health system executives found that roughly 70 percent of executives said their strategic initiatives failed.

"There are three kinds of failure," says Gauthier van Eetvelde, a consultant for McKinsey & Company, which owns Objective Health. "Failure to launch, meaning people are resisting to change. Failure to sustain, in other words [the hospital] has a great idea, but it's not becoming a part of the day-to-day of everybody. And failure to scale, meaning you are not finishing and not involving everyone there."

So how can hospitals and health systems make sure their strategic initiatives are not part of that 70 percent? In a webinar on Sept. 19, Mr. van Eetvelde and two Objective Health executives — James Stanford, client service executive, and Josh Sens, CIO — explained how hospitals can avoid those failures through new ways of understanding change management.

The influence model

Mr. van Eetvelde said negative organizational behaviors are one of the biggest initial impediments to a hospital's successful strategic initiative. For example, if employees are not engaged during the project, they will see the entire initiative as "another change coming from the ivory tower." "Obviously having adequate resources and a budget is important, and a clear vision is, as well," Mr. van Eetvelde said. "But organizational change largely fails due to behaviors getting in the way."

Hospitals are most successful in their new strategic projects when they engage in the "influence model." The influence model has four key areas: role modeling (if CEOs and other executives adopt the change, so will others); understanding and conviction (getting the point across of why this initiative makes sense); developing talent and skills (guidance is needed to see the vision); and formal systems and processes (the actual implementation of a plan). Mr. van Eetvelde said a fruitful project will result from hospital leaders pulling all four levers of the influence model simultaneously.

The last component — formal systems and processes — is the one area where many hospitals and other industries focus a lot of attention but are not necessarily effective. Mr. Sens said hospitals have to think about two simple concepts when it comes to the formal systems and processes of a new strategic plan: How much change are we really trying to achieve? And what level of capabilities (new or existing resources) are going to be required?

Once hospitals know the levels of change that will result from a strategic initiative — and after they determine what resources will be needed — then the actual processes can be rolled out. This, too, requires more effort than compiling a dry standard operating procedure manual. It requires sound structure and complete accountability from start to finish.

"How do [hospitals] provide transparency throughout multiple levels of the organization? Programs do better if people are able to get the right information at the right time to monitor progress," Mr. Sens said. "People also need to have the ability to correct things, if necessary. We also see that it's important to understand performance in both progress and specifically around results. Are we having the impact we expected?"

Strategic plan case study

Mr. Stanford described this culture of transparency and efficacy among senior leadership and frontline staff members through a case study. Objective Health met with a four-hospital health system with roughly $1 billion in total revenue. The health system pitched a new strategic initiative: to improve operating profit by $100 million by 2019.

Mr. Stanford said the health system CEO ensured all 6,000 employees knew about the strategic project — and why it mattered to both the organization and to the individual. From there, the health system engaged the entire organization to generate a huge list of potential initiatives, which they then prioritized according to impact and feasibility.

"Look at all ideas as a portfolio and manage the risk of these initiatives over time," Mr. Stanford said. The health system then whittled down its list of commitments to those that were "quick wins" and those that could be started later. Before finalizing the list, they considered the cultural impact of the changes and adjusted the approaches for initiatives that would require cultural change.

In the end, successful change is led by hospital leaders who give compelling reasons to change, create clear and robust processes, put necessary skills in place and serve as strong role models.

"The greatest obstacle to successfully introducing change in your heath system is communication, which is fundamentally about ensuring that stakeholders understand what they need to do and commit to do their part," Mr. Stanford said. "For example, a hospital may want to reduce length of stay, but that won't go anywhere unless each person who touches the patient understands how his or her specific activities need to change. And those activities won't change unless that person's mindset and beliefs are aligned with the new approach."

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