According to a 2004 study by the American College of Healthcare Executives, only 21% of 722 hospitals routinely engaged in leadership-succession planning, compared with two out of three for-profit companies in other industries. Will Powley, senior consulting manager for GE Healthcare’s Performance Solutions group, Waukesha, Wisconsin, says that this is no surprise. “In my experience, health-care systems can become very short sighted and reactionary because a hospital is a place where people come to get treated, so they put most of their resources into quality and patient care,” he observes. “By the nature of their business, they’re always in the moment, and they have a tough time stepping back and doing more strategic thinking.”
What can health care learn from the succession-planning practices of businesses in other industries—and why is succession planning so critical? Powley points out that the accretive financial impact of leaving a top position unfilled for any length of time can be staggering, and with a generation of baby boomers set to retire in the coming years, health care literally can no longer afford to neglect the process of shaping its next generation of leadership.
“The absence of a succession plan often means you’re hiring people from the outside,” he notes, “and research indicates that the median compensation for an external hire in 2007 and 2008 was 65% higher than the median for internally promoted people.”
Powley estimates that many hospital executives spend 10% or less of their time on talent management and succession planning, while best practices from other industries indicate that the proportion should be much higher. “You want, periodically, to look deeper into your organization, really to understand who your people are, to get to know them, and to give them opportunities to do special projects or assignments so you can see them in action,” he says. “We recommend that leaders spend at least 30% of their time on people and people development.”
This is particularly critical in health care because “hospitals tend to pigeonhole people in a particular job for many years, and in doing so, they’re shortchanging their capabilities and talent,” Powley says. “A lot of times there are diamonds in the rough that senior leadership doesn’t know about; if there’s no process in place for a C-level executive to go through a formal presentation of his or her organization’s talent, he or she will never know that there’s someone down at the manager level who’s a super talent and could, in five years, be the next COO.”
There’s also a strong economic incentive for hospitals and health systems to engage in talent management and succession planning. As Powley notes, in addition to higher median compensation for an outside hire, there are other costs associated with unfilled top positions. “The components add up quickly,” he says. “There are the overtime that other people will have to put in, the cost of recruiting, and the higher salary (and likely sign-on bonus) for an outside hire. Having a succession plan in place also reduces the amount of time a team is without its leader, and there tends to be a lack of productivity that comes with that.”
Starting From Scratch
Powley says that the first step in effective succession planning is a quarterly talent review that begins with an examination of the hospital or health system’s organizational chart. “You need to know a few things about every position you oversee: how long that person has been in his or her job, the complexity of each position, and what the key deliverables are,” he says. “Then, you start looking at positions that are a high retention risk—positions that are absolutely critical to have as part of the organization—and you ask yourself who, within your organization, might be able to take over that role.”
Instead of overwhelming themselves attempting to identify candidates for every position in their purview, leaders should focus on these high-risk positions. A position might be a retention risk if it’s difficult, highly skilled, and unique, or if the person currently occupying it is a candidate for another role in the organization. “You don’t want to succession plan for every single job, but instead, target the critical jobs, where it would have the biggest impact if someone left,” Powley advises.
He recommends identifying a few candidates who might be able to take over each position. If they require cross-training