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Clarity vs Letting Things Evolve: What’s Your Organizational Structure?

During Sg2’s 2015 Executive Summit meetings, we have been asking health care executives to provide some perspective on how their organizations make decisions today. We ask attendees to rate, on a 5-point scale, the extent to which their health systems follow a strategy that leans toward Clarity (1) vs Letting Things Evolve (5). Not surprisingly, the scores have varied dramatically across markets and organizations. What is surprising, however, is that the responses often seem to vary widely among executives from the same health system.

What’s going on here? Some CEOs have hypothesized that the rapid rate of change in our industry has given rise to a new type of organizational dysfunction or paralysis. Others have suggested that the combination of health system consolidation and the imperative to take on so many different types of initiatives has created a crisis in effective organization-wide communication. Sg2 finds both explanations plausible. We would add that the traditional approach to organizational structure has outlived its usefulness. In order to transform health care, we must also transform the way we organize ourselves and execute strategy. This is a topic we addressed in our June 2012 Sg2 Letter, but it’s time for an update and progress report.

Let’s start with the progress report. Many Sg2 clients have used the urgency of cost reduction, executive turnover, a merger or the launching of a clinical integration model as an occasion to reshuffle the org chart in some dramatic ways. At the same time, additional scale, metric overload and unfunded mandates have combined to increase confusion about roles, responsibilities and accountabilities. Running a health system doesn’t seem to be getting any easier.

Let’s acknowledge that it requires a good bit of intestinal fortitude to operate in a marketplace that is increasingly schizophrenic about what incentives it wants to reward—the proverbial volume vs value taffy pull. Still, Sg2 believes there is a set of updated organizational design principles that can serve you well as you chart your journey forward.

In today’s health care market, an effective organizational structure must:

  1. Reflect the organization’s strategic direction. This may sound simple, but too often we see organizational diagrams that reflect historical functional silos instead of creating a means of executing a consumer-focused strategy or pivoting toward population health. At your next senior management meeting, consider taking stock of the key decisions you must make over the next 2 to 3 years and asking the group how well the organization is set up to take on those challenges.
  2. Shift focus from the hospital to the ambulatory enterprise. The majority of your revenue probably already comes from your non–acute care businesses. It’s time your management model, metrics and incentive compensation reflect this new reality as well. Managing across the System of CARE involves much more than new executive titles. To be successful, you will need new talent, experienced clinical leaders and a cultural mind-set focused on vertical health care consumers, not just horizontal hospital patients.
  3. Balance local needs with system goals. Deciding what to centralize and what to keep local is the toughest challenge facing most Sg2 clients today. There is no one right model out there that we know of: most systems are experimenting with a hybrid model. The appeal of centralizing to achieve economies of scale and standardization is undeniable, but it’s never been more important to be responsive to local market needs. At the Sg2 Executive Summit in Orlando, FL, one executive described how her system is now decentralizing certain functions that had been centralized only a few years ago. Another organization spoke of the virtues of a running a system-wide cancer program.
  4. Manage strategic partnerships to fill gaps. Equally important for large systems and independent players alike, partnerships that round out the System of CARE are now the indispensable part of a strategic playbook. Developing multiple partnerships adds organizational complexity, requires fluency with collaborative decision making and demands a high comfort level with yielding control to another party. Executives charged with identifying and managing partnerships must ensure these relationships begin and stay aligned, or are eliminated.
  5. Embrace shared decision making. As the complexity of the System of CARE increases, the management matrix can get muddled with a number of dotted-line reporting relationships. To make the matrix work, establish clarity regarding accountability and responsibility. Health systems that execute well have developed a means of both seeking broad input from across the organization and making decisions quickly. Sg2 clients increasingly tell us that investment in an advanced analytics infrastructure and discipline around the selection of metrics facilitate better decision making.

Each health system has to find a balance between Clarity and Letting Things Evolve that uniquely suits its leadership team, culture and market circumstances. Given that all 3 of those elements may be currently undergoing change, now is an appropriate time to break from orthodoxy, reconfigure the org chart and find new and faster ways to make decisions and get things done.

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As of February 11, 2016, Vizient, Inc. has completed its purchase of MedAssets Sg2 and spend and clinical resource management segments from Pamplona Capital Management, LLC. MedAssets revenue cycle business will continue to operate as a wholly-owned subsidiary of Pamplona Capital Management LLP.

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