5 Critical Mistakes Hospitals Make When Downsizing

The downsizing process is a difficult transition for any hospital, but there are certain mistakes that can turn an already-tough process into a public and internal relations disaster. Here Aneil Mishra, PhD, professor and director of executive education at Michigan State University's School of Human Resources and Labor Relations and Denice Higman, founder and president of Soyring Consulting, discuss five critical mistakes hospitals make when laying off employees.

1. Hiring a consultant to deliver the bad news. According to Mr. Mishra, the recent George Clooney film "Up in the Air", which depicted a corporate downsizer, gave many companies the wrong idea about how to implement layoffs. "Hiring a consultant to deliver the news is absolutely the wrong thing to do," he says. "It sends the message that employees are not valued. It may not always be the supervisor that delivers the message, but it should be someone the employee knows."

2. Giving different information to administrators, employees and the public. One of the most common mistakes in downsizing is giving inconsistent information about the reasons for layoffs, the number of affected employees and the rationale behind downsizing decisions, Mr. Mishra says. He says inconsistencies will become public before your hospital realizes it, endangering your relationships with your employees and your customers, who will see you as unreliable and secretive. He says it can help to involve people at different levels of the hospital in the decision-making process to ensure that all the decisions aren't coming from the top tier of executives. "Involving a cross-functional team will help fan out the news," he says.

He says hospitals should also not delay in providing information about layoffs to the public, since employees will spread the information anyway as soon as they find out. He gives the example of online retailer Zappos, which announced its layoffs through a post on Twitter. "That might be asking too much, but the idea is right," Mr. Mishra says. "You want to tell everybody as soon as possible and tell them the same message at the same time. What you're telling the public should be what you're telling your employees."

3. Trying to "do more with less." Traditionally, Mr. Mishra says hospitals and other organizations have tried to make up for the loss of employees by "doing more with less" — that is, giving each remaining employee more work to save money on staffing. For each job you eliminate, he says, you should examine the parts of the job that should be kept and those that are no longer useful. Once you have identified the parts of each job that are still necessary for hospital stability, give that work to remaining employees. While you are reallocating that work, you have a great opportunity to ask remaining employees about aspects of their job that seem redundant or inefficient, Mr. Mishra says. Rather than just piling responsibilities onto your remaining staff members, ask them how their jobs could be improved.

He says hospitals should also focus on keeping those people who will change the hospital for the better over the next decade. "The best organizations that downsize now are those that preserve resources for opportunities in the future," he says. "In particular, hospitals will succeed if they can innovate cost structures that improve patient outcomes, not just deliver services more cheaply."

4. Failing to address the downsizing with remaining employees. Ms. Higman says hospital layoffs often go awry when the organization focuses too much on the departing employees and fails to think about those who remain. "Concentrate your focus on those you are keeping and how they feel about how you handle the layoffs," she says. In his research, Mr. Mishra identified several different reactions that hospital employees can have to company-wide layoffs: fearful responses, cynical responses, obliging responses and hopeful responses. Obviously hospitals want to avoid fearful and cynical responses first by explaining the reasons for the layoffs — lower patient volumes, decreased revenue and economic downturns, for example — and tasking department heads with encouraging their remaining staff members that their work is valued. But he says hospitals should also try to avoid "obliging responses," which mean employees are committed and loyal but afraid to try anything out of the ordinary for fear of being laid off.

He says the best response to hospital layoffs is the "hopeful response," meaning employees are active and enthusiastic about suggesting new ideas and helping the hospital grow. After a mass downsizing, employees are often afraid to speak up. "You've got to foster, through very explicit reward systems, that you're going to reward people for doing things that are different and better than what was done in the past," he says. "If you don't empower the front line in particular, at best you'll get this meek following, and at worst you're going to have people who are very upset and fearful."

An "explicit reward system" might involve bonuses for ideas that the hospital implements. The most important thing is to stress throughout your organization that ideas — whether they hospital implements them or not — will not be punished. At the same time, don't promise individual employees that they will not be affected by future layoffs in case you are forced to downsize more staff.

5. Stating an exact number of planned layoffs. While your hospital should distribute a consistent message to the organization and public about your plans to downsize, you should not give an exact number about how many employees will be affected, Ms. Higman says. Instead of giving the number of employees who will be downsized, give a strict time period in which the layoff decisions will occur. "That time period will ideally be about three to four months," Ms. Higman says. "It's not something you can get done in a few weeks."

According to Mr. Mishra, stating an exact number of layoffs can "set the hospital up for some embarrassment down the road." He says with the volatile economy, your hospital's situation may change from month to month and quarter to quarter, thus affecting how many people you plan to lay off. "You may not have the complete picture as to how many people will be affected," he says. "Your administration may want to do 1,000 cuts, but you should tell people that circumstances are constantly changing and the hospital is adapting to those changes."

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