Which Strategic Areas Are Most Critical for a Successful Leadership Transition?

A recent national survey of leaders of acute-care hospitals across the country identified several key reasons for an executive turnover event and explored how health system executives and board chairs rated the importance of nine strategic areas during a turnover event. The findings illustrate the importance of strong interim leadership maintaining or improving operation performance during the transition to new permanent leadership.

As part of my dissertation research at the University of Alabama at Birmingham, I recently conducted the national survey of CEOs and board chairs of acute-care facilities. Children's hospitals, rehabilitation hospitals, LTACs and government hospitals were not included in the survey. The survey, conducted between Feb. 23, 2013 and March 19, 2013, resulted in 443 responses from CEOs (95 percent) and Board Chairs (5 percent).  

In addition to soliciting feedback on interim executives, the survey delved into executive turnover that is at the root of many requests for interim executives. The American College of Healthcare Executives maintains some of the best CEO turnover information in the healthcare industry. ACHE has CEO turnover data from 1981 through 2011 (see chart below). ACHE data shows turnover rates ranging from 12 percent to 18 percent per year, and the trend of CEO turnover is increasing. 

CEO turnover

Source: ACHE

What are the causes of CEO turnover?

While the ACHE data focuses solely on CEO turnover rates, the focus of my dissertation research study was the explore the causes of CEO turnover and key priorities during a leadership transition. The most common cause of CEO turnover, according to survey respondents, which included CEOs and their direct reports, was the result of the incumbent voluntarily leaving his or her position. Forty-one percent of respondents listed this as the reason for a recent turnover. The next highest cause of executive turnover was that the organization had outgrown the capabilities of the incumbent (23 percent). This result begs the question of how much voluntary turnover comes about as a result of the incumbent realizing the job is outgrowing them before the organization takes action on the same issue.

Respondents to my survey were also clear in their assessment of what is important during a turnover event. Respondents were asked to grade the degree of importance of nine strategic focus areas on a scale ranging from "not an issue" to "mission-critical issue."  The highest rated mission-critical issue is maintenance of operational performance (47 percent) followed by support of the recruitment process (35 percent). Operational performance was rated important or mission-critical by 85 percent of the survey respondents. Only 3 percent indicated that operational performance during a transition was not an issue. In the area of what is not critical but important, the most frequent responses were "completion or carrying-on of major projects or initiatives" (54 percent) followed closely by "solving difficult problems" (52 percent). The weight placed on operational performance was greater than that placed on financial performance.  Compared to the 85 percent that saw operational performance important or critical, financial performance was graded by important or critical by 68 percent of the survey respondents.

Operational performance as key

Operational performance focus is vital during a turnover event. A 2006 study (Khaliq et al.) found high incidences of competitors attempting to take advantage of a turnover situation by opening clinics (21 percent), recruiting physicians (43 percent), marketing heavily in the service area (50 percent) and recruiting key employees (44 percent). Any of these strategies pursued by a competitor has serious potential to adversely affect operational and ultimately financial performance. Based on this evidence, an executive faced with a turnover situation should highly prioritize operational performance experience in their interim and permanent candidates. It is clearly very important to insure that operational performance is not adversely impacted by a turnover event and there are many risks. Given the indication that turnover breeds turnover, the loss of a CEO will materially increase the probability that other executives in the system will depart in coming months. Filling a leadership role with strong operational capability will help the organization mitigate the inevitable effects of damage from ancillary turnover following a CEO transition. The organization will be well served to focus on leadership development to increase the bench strength of the hospital what will certainly be tapped any time there is turnover at the top and the risk of a bad outcome is the highest.

Raymond A. Snead, Jr., FHFMA, FACHE is an independent interim executive supporting CFO transitions in healthcare organizations. He is currently doing dissertation research at The University of Alabama at Birmingham on the value of interim executives in the healthcare industry,, the first research of its type that has ever been conducted in the U.S. healthcare industry. Mr. Snead may be reached at r.snead@comcast.net

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