Healthcare mergers — health systems, hospitals and other providers, insurers and suppliers — continue as strategists, consultants and financial advisors proclaim that size counts in the post ACA environment.
Their argument is the equivalent of the popular phrase, get big or go home, which is to say get big or die, or at best, struggle.
While there are many who would argue that this merger logic has several major drawbacks, not the least of which is that they rarely produce benefits for customers, they continue at a steady pace, save Chicago and Harrisburg, PA where the FTC has objected.
While even the most ardent opponents of mergers concede that some hospitals, customers and communities will benefit from the consolidation, there are some tricky “soft” issues that could threaten their effectiveness.
The biggest is cultural mismatch.
A CEO of a large system in the Southwest explained that his organization brought in a nationally respected consulting firm to conduct a cultural appraisal prior to a mega merger and they concluded “our values are the same.”
That is certainly important, but “values” are not the definitive sum of an organization’s culture. In fact, within many organizations there is a divide between the values espoused in their Mission Vision and Values statement in the strategic plan and incorporated into the employee orientation program, and the day-to-day realities of how the company operates. As one well-known leadership coach confided, half the time the executive team does not even know what the official values of the organization are. “This is especially true in healthcare,” he lamented, “which probably speaks to the major problems we have with quality and safety.”
As I have written here in the past, Peter Drucker famously said, and I paraphrase, hospitals are among the most complex of human organizations ever created by man. “We tend to respond to the complexity within the organizational structure with complex solutions,” a national healthcare quality consultant explained, “even when the answer is really straight forward.”
So, within this complexity, you have silos — divisions, departments, and functional teams — and within those silos there are egos and agendas which sometimes compete. Conflict exists regarding what they feel the organization’s values are, or should be, to address their level of comfort. These values are not written down anywhere but they exist nonetheless.
Many times an organization’s values and “culture” are undermined by deeply buried habits, from the executive suite to the mail room. As Charles Duhigg wrote in his seminal best-selling work, The Power of Habit: Why We Do What We Do In Life and Business, an important factor to achieving success in business — and that would include mergers — “is to focus on patterns that shape every aspect of our lives” — transforming habits. Habits, Mr. Duhigg writes, emanate deep from within the brain. Some actions occur without the individual consciously thinking, as when they put the car in reverse and automatically turn to ensure there are no obstacles. Changing or merging cultures is hard because, in the end, you are really altering habits, some of which we are not even aware.
The problem with many mergers or acquisitions is that while some organizations may bring in a consultant to evaluate culture — and that frequently is the exception versus the rule — that same corporate culture is rarely a deciding factor in whether a deal is done or not.
This has produced some spectacular problems with performance and service, and even business failures.
Look no further than the demise of Continental Airlines’ superb reputation for customer service and satisfaction since their poorly executed merger with United Airlines in May 2010. In a 2015 JD Powers survey the “new” United Air ranked at the bottom, even below US Airways (now American Airlines). As the Continental-United merger evolved, there were giant cultural clashes over values and control of how things would be done, day in, day out. While the exterior of the planes looked like Continental, the similarity was only paint-scheme deep. The frustration and resentment was palpable in the cabin. While new CEO Oscar Munoz has made some improvements in operational performance and employee morale, this airline is a long, long way from regaining the prominence and customer admiration that Continental enjoyed. Their financial performance lags as well.
When you consider mergers, there is great truth to the old saying, “It is hard to make a great first impression the second time around.”
In healthcare, particularly on the provider side, these types of battles over culture and silo control, can lead to poor quality, certainly lower satisfaction, and almost always higher costs for the customers.
Bringing in consultants to evaluate the cultural conflicts before a merger is a good idea, but to be done correctly, it is a mammoth undertaking. Values are important but the truth is buried within each employee.
So, the culture really does matter, and it should be a defining issue when two large organizations decide to get bigger, or go home.
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