As the healthcare industry continues through a period of unprecedented change — the volume-to-value transition, degradation of stable reimbursement, rise of accountable care organizations, adoption of the ACA and now its potential dismantling — reassurance comes when a clutch skipper is in the dugout.
However, 75 percent of healthcare CEOs say they are planning for retirement within the next ten years. Smart organizations work years in advance on identifying and developing new leaders who can replace senior leaders when they leave, retire, or step down unexpectedly for health reasons. However, too few organizations — particularly hospitals and health systems — develop internal people to fill key positions at the top.
Traditionally, succession planning in healthcare has been viewed as a function of Human Resource departments. But there is a strong business case for consciously building a sustainable leadership pipeline and investing in succession planning. This commitment measurably impacts performance outcomes such as value-based purchasing metrics for patient satisfaction scores and clinical quality, turnover and engagement metrics, leadership bench strength, and executive team diversity. Organizations that fail to prioritize talent management practices will find themselves at a competitive business disadvantage.
In my years of conducting research projects and consulting engagements with healthcare leaders such as Kaiser Permanente, Sutter Health, Cleveland Clinic, and Hospital Corporation of America (HCA), I’ve found certain high-performing companies are fearless about examining and modifying their talent management and succession planning practices to achieve optimal outcomes. I call these best practices, identified through years of qualitative, quantitative, and case-based empirical studies of hospitals and health systems, Talent Management Capabilities.
The eight TMCs are:
• Top Management Team Support, or the extent to which senior leadership teams identify talent management as a strategic priority.
• Talent Assessment Practices, the formal process by which high-potential leaders and successors to critical leadership positions are identified.
• Performance Appraisal Practices, the use of credible, data-driven, objective performance evaluation metrics.
• Incentive Pay Practices, the use of pay and incentives to incentivize the pipeline and align goal-setting and performance review with talent management activities.
• Leadership Development Culture, which values fairness, enforces transparency, and adopts an enterprise-wide view on developing leadership talent.
• Role-Based Leadership Development, through which high-potential leaders are assigned new roles within different regions or business units to gain a broader perspective on the healthcare ecosystem.
• Selection and Onboarding Practices, aimed at comprehensively selecting and socializing key individuals into leadership roles.
• Talent Management ROI, the last step: the way that organizations use metrics and ROI analyses to evaluate the effectiveness of their talent management practices.
In a general sense, utilization of TMCs results in more inclusive and comprehensive succession planning process and more effective succession management outcomes–filling critical leadership roles with the qualified candidates. But the reason these best practices are even more critical to hospitals and health systems is that they contribute to a business case as well – they are significantly associated with hospital and workforce performance outcomes.
Organizations with high utilization of TMCs, for example, experience stronger outcomes across value-based purchasing performance domains – especially Medicare Spending-per-Beneficiary and patient satisfaction (HCAHPS scores). Organizations with high utilization reported a per-beneficiary expense of $17,493, while low TMC utilization organizations average $20,706. For patient satisfaction, healthcare organizations with high TMC utilization received an average HCAHPS score of 71% compared to only 64% for low TMC utilization hospitals and health systems.
Workforce performance, as measured by the employee productivity ratio, shows a similar pattern. When comparing net patient revenue per FTE, organizations with high TMC utilization realize an average of $173,484, compared to $110,748 for those with low TMC use. The differences are even more significant in employee turnover, both among nursing staff and executives. At high TMC organizations, nursing turnover averages 8.74 percent, and executive turnover averages 3.33 percent. At low TMC organizations, nursing turnover averages 13.6 percent, while executive turnover is a remarkably higher 19.95 percent.
In terms of leadership development, the differences are also dramatic. As measured by leadership bench strength ratio, which reflects the percentage of leadership positions with at least one ‘ready now’ internal candidate, high TMC organizations scored 52 percent while low TMC organizations reported a paltry seven percent. One of the most common metrics for assessing the strength of a succession planning process is the internal/external hiring ratio for executive positions. High TMC organizations reported a 68 percent internal/external hiring ratio for executive roles compared to just 21 percent at low TMC organizations. Given the enormous costs of attracting, selecting, and placing external candidates for executive roles, the financial benefits of healthcare organizations with robust TMCs are substantial.
Finally, Talent Management Capabilities contribute significantly to the creation of diverse management teams. Executive team composition (VP and higher) at high TMC organizations are comprised of 54 percent women and 32 percent ethnic minority representation, compared to 43 percent women and 17 percent minorities at low TMC organizations. In the c-suite, the differences are even more pronounced: 52 percent women and 43 percent minority representation with high TMC utilization, compared to 24 percent women and a dismal 12 percent minority representation with low TMC utilization.
It’s clear that as healthcare organizations consider their future lineups, they must put as much time in their Talent Management and Succession Planning practices as their clinical ones. Ultimately, long-term business success is predicated on developing up and comers as the CEO transitions from spotlight to spectator.
Kevin Groves, PhD, is an associate professor of organizational theory and management at Pepperdine Graziadio School of Business and Management and president and founder of Groves Consulting Group, which helps organizations develop leadership talent through executive assessment, development, and succession planning capabilities. His new book, “Winning Strategies: Building a Sustainable Leadership Pipeline Through Talent Management & Succession Planning,” is available through Amazon and Second River Healthcare Press.
The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker’s Hospital Review/Becker’s Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.
