Restructuring and Organization: Managementʼs Role in Defining Organizational Culture

Abstract

The lights are on late in evening in executive suite of St. Swizzlestick Hospital as Executive Team meets to consider organization's future. All along, management has recognized that there have been huge shifts in volume of activity, and while pleased with their hospital's competitive position, it was very clear that its main revenue stream-inpatient care-was gradually being diminished. They always knew that future would see fewer people working within organization, and they expected to deal with this lower volume in some thoughtful, deliberative way. Recent financial reports, however, have shaken their belief in more prolonged, leisurely pace at which they anticipated reducing size of organization. In fact, last several months had yielded major losses-something that until Executive Team had yet to face, and something that certainly disappointed trustees. The problem was further compounded when Executive Team recognized that many of managed care contracts they had successfully negotiated, which called for a per diem arrangement, had turned out to be financially disastrous, as length of stay dropped precipitously by as much as 30 percent over last year and a half. The team finally had to realize that economic downturn of hospital was not a temporary phenomenon. Combined with a lesser volume and prejudicial managed care contracts, hospital's revenue, in immediate and long-term future, was likely to be significantly less than anticipated. The team's choices at this late-night session were difficult. It was clear that failure to stop bleeding could have disastrous results. Most obvious was that it would begin quickly to damage hospital's financial ratios, which could possibly call into question its bond covenants and, if unchecked, ultimately weaken its credit worthiness. This would have disastrous long-term results, not only financially but for hospital's image. The truth of adage the future is now sunk home with this group of executives with startling reality. The desperateness of situation caused significant tension in room. It was clear that this group could no longer avoid obvious. While no one wanted to be accused of a knee-jerk reaction, clearly some immediate attention was absolutely necessary. The proposals were quickly and quietly outlined on blackboard. They included such obvious opportunities as limiting travel policy, canceling special events, and reviewing all purchasing decisions. It was quickly realized that monetary effect of these changes fell far short of what was needed to reverse situation. The management team was then faced with fact that in an organization whose expenses are from 50 to 60 percent personnel related, any effective reaction would necessitate a cutback of employees. There, in that executive suite, managers came face-to-face with most dreaded decision that employers must make, particularly if they have a sincere regard and affection for their employees. The future viability of organization was very much in question, and failure to act would have longterm consequences. Yet realization that a significant number of employees could be cut back was a very unhappy thought. This scenario is being repeated in executive suites of hospitals and healthcare systems across this country. In some cases warning signs were present for years and management simply failed to acknowledge or address them. In other cases, financial fortunes reversed much quicker, and while it was always management's intent to deal with issue, it was caught off guard with rapidity with which financial situation deteriorated. In either case, need for action is evident. Downsizing, Reengineering, and Restructuring: Long-Term Implications for Healthcare Organizations deals analytically with elements involved in reducing labor costs and reviews most recent literature and experiences researchers have had with these cost-cutting tools. …