An unorthodox leadership arrangement: The transition to horizontal leadership

It was a trip to Haiti that spurred Chris Van Gorder, CEO of Scripps Health, to re-evaluate the leadership structure of the San Diego-based health system.

Mr. Van Gorder, had traveled with the Scripps medical response team to the Caribbean country following the earthquake that struck Port au Prince. He stayed atop Mount Calvary overlooking the capital city.

"Early one morning I looked down and said, 'Oh, that's really pretty,'" he says. "When we drove down into Port au Prince and drove horizontally across it, we saw a different picture. There was nothing pretty to be seen. I wondered if that was the same thing I would see if I came back to Scripps and looked at things horizontally instead of vertically."

Scripps subsequently underwent a total restructuring, moving from a vertical leadership organization to a matrix structure. Instead of each hospital in the system operating, more or less, as its own entity, the leadership roles became horizontally oriented across the enterprise. The COO role was eliminated from each hospital's vertical structure, and the sitting COOs took over a specific service line, serving as the liaison for all hospitals systemwide.

Instead of replacing the COOs, the CNOs were delegated the operational duties and were promoted to what Scripps calls chief nursing and operations executives.

In their new positions as corporate vice presidents, the former COOs were tasked with identifying non-value added variation as well as implementing best practices across the system.

Four years later, Scripps Health has saved $320 million in operation variation costs.

Scripps was one of the first hospitals to completely reorganize its leadership structure, and a handful of health systems have since taken a second look at their own. For example, Toledo, Ohio-based Mercy Health System and Madison-based University of Wisconsin Health both reorganized and eliminated the CEO position from their executive leadership boards this year. San Francisco-based Dignity Health also reorganized and shifted the decision-making process by slimming down 10 regional organizations into four divisions.

A number of these restructurings are occurring in larger, highly complex health systems, a result of these systems' continuous review of how they can improve performance and better leverage resources and capabilities, says Ron Seifert, a consultant with Hay Group, a global management consulting firm.

"You don't want people having functional kingdoms," he explains. "Across the health system, it's about how you leverage all of what you have to offer in the best way possible."

Or, put simply, strategy must be the main driver of any restructuring. "Structure follows strategy," Mr. Seifert says, and all subsequent changes should adhere to the forward-looking strategy of the business.

In the case of Scripps, Mr. Van Gorder's idea was to reduce as much operation variation as possible and shift the focus of the individually contained organizations by charging the corporate vice presidents to maximize the capabilities of the hospitals. Mr. Van Gorder's concerns stemmed from the potential of a rocky future healthcare environment, as well as the system's guiding goal to reduce costs for patients.

"We thought healthcare has the potential of bankrupting the country, so we all have to be focused on efficiencies, taking advantage of the economies of scale and lowering costs which are often passed on directly to our patients," he says. "That was the driver toward the structure that would reduce variation."

While Scripps' reorganization has so far had beneficial results, changing leadership structures is never without growing pains.

At the basic level, most restructurings ask employees to work differently than they have in the past, says Mr. Seifert, outlining three main changes employees face. In many of these restructurings, employees are ushered into a matrix organization — an unfamiliar setting in which they must often readjust to a new boss and reporting structure. The second change deals with the "rules of engagement," Mr. Seifert says, and figuring out how employees are going to work together within a new model and how decisions are to be made. Finally, a new set of leaders —physicians and others — are being asked to lead through influence rather than control. It's a whole new world, and the impact on people and the change required can be significant.

For example, Mr. Van Gorder says asking the COO-turned-corporate vice presidents to essentially change jobs and take on new responsibilities wasn't initially warmly received. However, this initial pushback was largely overcome by educating the COOs, as well as middle managers and physicians, on why the new organizational structure would help the organization meet its strategic vision.

Other large health systems have taken note, pointing to Scripps as an example of a successful organizational overhaul, says Mr. Van Gorder.

However, Mr. Seifert says reorganizing leadership in response to other systems is not, and should not be, a sufficient driver for a restructuring, which also might indicate why more organizations aren't undergoing the process. He returns to his original point, that structure follows strategy.

"Organizations look at what's best for them and their communities and work hard to leverage their capabilities in the best way possible," he says. "These changes can't be about anything other than what's the right thing for the business."

More articles on hospital leadership:

How to replace an iconic CEO? Turnover at Pimco, Henry Ford Health
Promoting leadership from within: 11 pros and cons
When the deal is done: How 13 hospital mergers, restructurings affected CEOs

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