Effective Communications Yield Stronger Operating Performance

It's hard times for many hospitals. Negative margins, declines in non-operating income, investment losses, decreases in days cash on hand and declining patient volume are wreaking havoc with the bottom line. The good news is, most of us can do better. We can reduce capital spending, change debt structure, contain labor and non-labor costs, seek strategies to improve patient volume and improve processes to enhance productivity and efficiency. But WHO will do this? It won't be the CFO. It will be the strategic and operations leaders. And HOW will they know what to do? Here's where communications is critical.

I'm talking about providing the right information to the right people at the right time. Financial statements should be timely, concise and meaningful. They should be understandable, focusing on the results, metrics and variances from plan that facilitate identifying areas of opportunity. Information should be provided to the Board, senior management and operating managers, that allows them to make the correct decisions to address the organization's situation.

Its incumbent on the CFO to develop reporting that provides the greatest insight. We know the language and business of accounting and finance, but do we know the language and business of the operating departments? I understand, as CFOs we're consumed with finance-related matters. But an important first step in communications is understanding the subject matter about which we're communicating. How can we be reporting, developing, interpreting, coordinating, and administrating the hospital's policies on finance, if we do not know what is happening outside of the finance department? So, walk around! Meet with operating managers, at their desks, and discuss their operating results. Spend some time in their departments and learn what they do, and the language they use.

Once you understand their issues, create reports that communicate the relevant facts, packaging information and concepts in a way that is meaningful to the targeted reader. Think about the appropriate frequency with which to report different kinds of information. It could be daily, weekly, bi-weekly, monthly or less frequently, depending on the subject matter. Use plain language, and the terminology they understand. Use charts, overviews, trends, whatever it takes to get your information across in a meaningful way.

Here's one important reporting vehicle, to start you off. Develop a Balanced Scorecard, incorporating the Key Performance Indicators that focus on the strategies, objectives and initiatives deemed by the Board and senior management to be critical to your organization. The Balanced Scorecard should be produced monthly. The KPIs should be relevant to each accountable hierarchical level: System, Organization, Division, Subdivision and Department. Set goals based on peer-related benchmarking information. The actual KPIs could relate to productivity, volumes, liquidity, quality, etc. I won't delineate them here, for purposes of brevity.

Create a budget process that incorporates benchmarks and metrics,where each level in the hierarchy contributes to the development of targeted balanced Scorecard indicators.
Report the information consistently and timely. Create a culture of accountability, where all strive to achieve the targets, and are recognized for their achievements.

Other reports might include service line profitability analysis, supply chain analysis, labor management reports, and quality indicator trends.

Congratulations! You're on your way to creating a communications environment where  information (not data) is provided to the end-users that will allow them to make better decisions and manage effectively.

Board Education - Many Want It. Do You Provide It?

Over the course of my career, I've worked with numerous Boards. Frequently, the Board composition is diverse. There may be business-savvy professionals, along with community advocates, physicians, religious leaders and others. The level of understanding of the business they govern, programs and services, financial reporting, strategic planning principles, regulatory matters, etc., may vary widely from member to member.

The more knowledgeable a Board is with regard to the matters critical to their governance responsibilities, the more effective they will be. Of no less importance, I have always felt senior management will be more challenged to achieve objectives, and will be empowered to collaborate with the Board as a team under such circumstances.

It's also been my experience that individual Board members may be hesitant to request education on particular issues, for various reasons. With that in mind, it behooves management to work with Board leadership in developing ongoing Board education. The first step is to determine those areas of knowledge that are a) desired by the Board and b) believed by management to be important, particularly in light of the specific circumstances of the organization.

The venues and types of education can be of many types. Here are a few suggestions:

Develop a new Board member orientation package. This can include such items as: a set of by-laws; Board committees; an organization chart; a list of those policies and procedures of most relevance to the board, for example, human resources and compliance-related policies; a standard financial reporting package; and any other materials deemed important.

The orientation package should be walked through by one or more senior managers in detail with the new member. For example, depending on the members business experience, the CFO may review the financial statements in terms of the meaning of the Balance Sheet, Statement of Income & Expenses and Statement of Cash Flow.
(S)he would then review the meaning of each line item. Finally, (s)he would review key metrics and their importance. If this type of orientation has not previously been done, a presentation might be made, as an agenda item, to the full Board.

Create a standing agenda item for the Board meeting, where a Department Manager makes a 10 or 15 minute presentation regarding their particular specialty and how it interacts with the rest of the organization. This is effective not only in education terms, but personalizes the organization and has a positive impact on morale.

Dedicate a special meeting to a particular subject. The presenters can be internal or external. For example, one or more representatives of  the Board's Strategic Planning Committee, or if necessary an engaged external consultant, could explain how the planning process works. Then, senior management can describe how the plan is integrated into day-to-day operations. For example (if this was true of your organization), you could indicate how the 5-year Strategic Plan drives the annual Business Plan, which drives the Management Action Plan (assigning tasks, responsibilities and timetables), which in turn drives the annual Operating and capital Budgets.

Concurrent with posting this, I raised the question of the importance of Board education, with a LinkedIn group, the Healthcare Executives Network. Linda Ollis, FACHE, a CEO, provided the following excellent suggestions, which I thought worth adding to the post: "As a CEO, I used as many expert resources as possible for general education from local experts to the Governance Institute. Membership in organizations like the Advisory Board, Sg2 and others, generally includes board level presentations that are oriented towards general market issues and legislative/reimbursement changes while the state hospital association and experts from public health, insurers, etc. can provide more depth to local and regional issues. I like to follow these presentations with open discussion and board dialogue, linking it to our strategic plan and organizational challenges. We also shared key issues from "Trustees" magazine that have a lay board focus and orientation. Board education is one of the most critical aspects of the CEO's responsibilities."

You get the idea. Board education is critical. It makes for a more informed, interesting and exciting governance process. What are you waiting for?

Once a Turnaround Guy/Gal, Always...?

There are a number among us who have had a great deal of experience in turnarounds and restructurings. Our numbers have grown, with the worsening of the economy and its effect on our organizations. As a result we may find ourselves being cast as "a turnaround person". Being pigeon-holed as a "type" (whether turnaround, technician, small or large company, start-up or whatever) is likely to affect the way we're viewed by peers and others in our field.

I thought it would be worthwhile to discuss the skill sets we have developed in doing turnarounds, that create value for diverse organizations. The purpose here is to shine a light on how you should think of your own areas of expertise, and how your experience has prepared you for other challenges, whether within your existing organization or in a new situation.It also illustrates the need to educate peers, potential employers and others that what you have been doesn't preclude you from smoothly transitioning to what you want to be.

Organizations in need of a turnaround are generally deeply distressed. Cash flow deficits may exist. Vendors may be withholding goods and services. Employee morale is low. Management may not have a plan to address the issues. The Board may have lost confidence in management. The community, regulators, and reimbursement sources may have serious concerns. Processes and systems are probably not effective.

Did I paint a gloomy picture? So, forces are gathered to effect a turnaround. What's the common (inaccurate or, at the least, incomplete) view of how a turnaround occurs? Cut staffing and other costs, reduce programs and services...slash and burn! But successful turnarounds are the result of careful, albeit expedited, planning. Strengthening the top line is more effective and less morale-crushing than arbitrarily cutting costs, which can lead to service issues and a downward spiral. I don't argue that productivity should not be reviewed in the context of processes, or that other cost containment measures not be pursued.

Here's the point: As a result of the multiple issues to be confronted in a turnaround, we have developed valuable skills. We're stronger, hands-on strategic leaders, because we need to be. We've developed concise, meaningful timely financial reporting and established metrics to measure progress toward strategic objectives. We've been innovative and creative, in order to "operate in the grey" and to team with the rest of senior management to develop a turnaround strategy.

Our communication skills have been honed by the necessity to communicate with all internal and external constituencies, and to convince them the strategies devised by management are the right course of action to turn the ship around. We've developed mentoring and team-building skills, and re-designed functional teams, because we've had to, in order to be effective. Not least, we've developed a sense of humor to help deal with the tribulations of a turnaround, and a flexibility in the way we approach strategic, operational and financial opportunities. Finally, if we have achieved a successful turnaround, we have strengthened our confidence to accomplish what we set out to do.

I liken turnarounds to setting your hair on fire and putting it out with a hammer. Does that mean we wouldn't be comfortable and effective applying our skills in an organization that is, or has become, stable and poised for growth?

These skills would be of as much value in a stable, profitable organization, as they are in a distressed situation. We have skill sets we've developed in the course of our careers. It's up to each of us to recognize, utilize and communicate those skills, as circumstances dictate.