In the early 1980s, a Houston hospital CEO was frustrated by his hospital’s anemic financial performance despite the tightening of financial controls, as well as noisy department manager meetings replete with leadership huffing and puffing about dire consequences if things didn’t change.
So this medical center CEO came to believe that it was time to try something fairly heretical. The command-and-control approach would be dumped, the outraged protestations of his senior team notwithstanding. The team members were all from the investor-owned industry and at that point in time command-and-control was the management standard. You could not trust those silly department managers the theory went, they were in their roles because they had the clinical expertise, not the management savvy or a real understanding of accountability. Better that should come from their vice presidents who had master’s degrees in hospital management. They knew better. Wrong, said the CEO.
He decided that the department managers would henceforth act like general managers, responsible for running their own businesses, their department. The vice presidents would step in if the train ran into a ditch, but until then, their job was to support their “general managers” and provide consulting expertise to coach them to success, not control them into mediocrity.
Managers saw their spending limits increase from $350 to $10,000 for purchases. They were given the responsibility for creating their own marketing plans and they were held accountable for meeting their budget projections and managing their physician relationships.
The senior team all but guaranteed to the CEO that without their direct involvement (control) in the day-to-day hospital operations, financial performance would plummet. Wrong, again.
By the end of the first year of this little experiment, the hospital reported record increases in revenue and record retained earnings. It seemed that once empowered, the department managers knew more about how to succeed than their bosses in the executive suite.
The CEO just smiled. So did the managers. Within two years, there were many new vice presidents, and a few new department managers, all who had a different set of skills and mind-set about their role. The new VPs were recruited based on their ability to coach, mentor and cheer for success. They had the knowledge to step in if need be, but they no longer spent all afternoon signing requisitions.
This is an idea whose time has come — again.