Putting your money where your people are: investing in enduring success. (Building Employee Loyalty).

Aspiring Health Care had just been through merger mania, doubling its size through re-engineering and destroying employee morale. Both patient and employee satisfaction plummeted to regional lows and staff turnover soared to 27 percent.

Given the deep pockets of other hospitals in the highly competitive environment, Aspiring Health Care leaders decided to compete on the basis of extraordinary service instead of outspending on facilities, programs or equipment.

However, they knew they could not deliver the required world-class service consistently with every patient unless their workforce was behind them and every employee was fully engaged in what they were trying to do.

Clearly, it required a sustained effort to change their culture and work environment.

* Given the history at Aspiring Health Care, can this new strategy really succeed?

* While well-known, people-focused success stories exist in other industries, can this really happen in health care?

* What specific investments must be made to achieve the enduring success that others have enjoyed?

* What can health care leaders learn from those who have walked a similar path before them?

Harley-Davidson recovered from near bankruptcy in the 1980s by building mutually beneficial relationships among its people. Beyond producing a long line of applicants awaiting job openings, returns to investors have ranked among the top tier of all public companies. (1)

Results from Enterprise Rent-A-Car, Chick-fil-A, SAS, and Southwest Airlines are similar. Enterprise raced past Hertz and Avis to become the largest car rental firm in North America. Its growth at more than 20 percent a year in an otherwise sluggish industry flows from putting the interests of customers and employees ahead of those of owners. (1)

SAS, a leading statistical analysis software firm, enjoyed a similar pattern of outcomes, including a five percent turnover rate among software engineers that is less than a quarter of the industry average. What is their secret to success? Leaders indicate that they have hired the right people and provided them with a career and lifestyle that reinforces work-family balance. (1)

A similar pattern of outcomes exists at Chick-fil-A. Operator turnover runs at five percent compared to the competition's 55 to 40 percent. The resulting experienced operators earn compensation double or triple industry averages, while still generating sufficient cash flow to grow the chain as a private company. (1)

As the only consistently profitable major airline in the United States for the past 30 years, Southwest's strategy of putting employees first seems to regularly pay off. With a turnover rate half that of the industry and a long line of job applicants, the company's results seem particularly relevant to the health care industry, which is currently suffering from both labor shortages and revenue restrictions. (2)

Health care 'very, very broken'

Why are similar patterns of results so seldom seen in health care? In the words of one hospital CEO, "the system is very, very broken... we're behind. There's been a reluctance to view human capital the way we do other investments, and we're ignorant of how to record, guard and treasure it." (3)

Clearly many long-term winners have recognized the importance of people in producing enduring success. Is that flue in your organization? Would a review of decisions made over the last few years indicate that your people are viewed as a cost (to be reduced) or an asset (to be built up)? Evidence across industries suggests that your answer to this one question affects the likelihood of your enduring success.

Efforts to contain costs through downsizing have typically not led to desired results. Downsized organizations lagged in value by an average of 24 percent at the end of three years. This makes sense, because organizations that cast off their human assets should be worth less. (4)

Recent findings suggest, not surprisingly, that it is not possible for organizations to shrink their way to success. Rather, it is only by growing a business that an organization can outperform its industry in profitability and total returns. (5)

All well and good you say, but be realistic. Increasing revenue seems nearly impossible in today's health care environment, so we certainly have to cut costs. How can this be done while investing in our human assets?

Putting people first

Getting and keeping the right people has everything to do with getting and keeping the right customers. Employees who are loyal are likely to build an inventory of customers who are also loyal. (4) Generating enduring profits depends on attracting, focusing and keeping talented people in every role. If a company is bleeding people, it is bleeding value. (6,7)

Would you be interested in a way to increase your revenue per employee by over $27,000 per year, increase your bottom line per employee by over $3,800 per year and decrease your turnover by more than 7 percent?

Results across industries suggest that these numbers may even be conservative. (8,9) Common sense, as well as compelling recent research, points to a direct link between financial success and treating your people as valued assets.

A 2001 article in The Physician Executive summarizes the results that are possible if you invest in your people. It also presents the seven questions listed in Figure 1 as a way of assessing the degree to which you are making the investment in your people required to increase revenue and reduce costs. (10)

How do your organization's approaches compare with these human resource strategies of long-term winners? What areas demand further consideration, if not action, in order to enhance the foundation for your long-term success?

Are you still skeptical? How can investing in people reduce costs, you ask?

Long-term relationships with your people lower hiring costs, lower training costs, increase efficiency, improve customer recruiting, provide higher customer retention, increase customer referrals and increase employee referrals. (4)

Recent findings, for example, indicate that hospital employee replacement, lost productivity, and temporary staffing costs average 50 to 150 percent of an individual's base pay. In addition, fewer people result in more delays in delivering patient care, higher dissatisfaction among patients and staff, decreased quality of care, higher cost per discharge, lower return on assets and lost market share.

By contrast, increasing employee satisfaction results in increasing revenue per employee as well as lower turnover. (11)

Attracting and retaining for long-term success

Getting the right people on the bus, the wrong people off the bus, and the right people in the right seats is fundamental to your success. (12) Great managers tell us that people don't change much. The best predictor of future behavior is past behavior. (13)

So don't waste time trying to fix those who do not have the attitudes and talents required for success. Your time is best spent on drawing out the talents that people already have. (7) But how can you attract and retain these talented people?

The seven areas presented in Figure 1 describe an environment proven to be conducive to successfully attracting talented people. A number of additional steps such as bonuses each quarter that objectives are met, regular meetings to explain financial and quality indicators, and clear performance expectations create an entrepreneurial environment that simultaneously attracts people and stimulates high performance. (14)

Average managers, however, can easily undermine large investments in such practices. Talented employees need great managers. While employees may join an organization because of its generous benefits or world-class training, their relationship with their immediate supervisor determines how long they stay and how productive they are. People join organizations; they leave managers. (7)

Implications for health care leaders

What about the results at Aspiring Health Care? Did their investment in human resources produce the type of success that is evident in other industries?

The answer is yes.

The organization is actually Baptist Health Care in Pensacola, Florida, and their story has received national acclaim. Seven years of concentrated and sustained effort resulted in Baptist Health Care being ranked at the top of both patient and customer satisfaction surveys.

In spite of their highly competitive environment, their market share has expanded in each of the past five years. They have cut $2.3 million from operations based upon employee ideas, and won the VHA Employer of Choice award. Turnover has fallen and their stellar performance has been attributed to their willingness to invest in people. (2)

What is your level of commitment to your people? Would you be willing to hold managers accountable for patient and employee satisfaction and for developing leaders? Are you willing to share turnover and patient satisfaction information as well as employee satisfaction and bottom-line results with your people on a real-time basis?

Are you willing to put your money where your people are in making the investment required for enduring success?

Figure 1

Characteristics of Systems that Produce Performance through People

Please describe your organization using the following questions. Answer each question on a scale ranging from Never (1) to Always (5).

Your organization protects employee security, recognizing that:

People's good ideas must not result in lost jobs _____

Employee longevity is fundamental to the success of all other investments in people _____

Your organization utilizes selective hiring by:

Screening large applicant pools for all positions _____

Selecting its people based on critical attributes that are difficult to change through training _____

Your organization has implemented decentralized self-management teams that:

Encourage people at all levels to feel responsible for operations _____

Allow removal of administrative layers that block the use of creative ideas from task experts _____

Your organization provides high compensation contingent on organizational performance, recognizing that:

High compensation relative to industry norms is both a cause and an effect of success _____

Contingent compensation is important in most high-performance systems _____

Your organization invests in extensive training, recognizing that:

Thorough training is not a frill when knowledgeable workers are critical _____

Training is essential in high-performance systems that rely on front line employees to identify and resolve problems, initiate changes and take responsibility for quality _____

Your organization has reduced status differences, recognizing that:

Performance improves when organizations tap into the ideas of people at all levels _____

Reducing the distinctions that separate people and groups supports employees in feeling that they are important and that their contributions are valued _____

Your organization openly shares information by providing data on financial performance, strategies and operational measures to:

Convey to people that they are trusted _____

Partner with people to produce improved results _____

References:

(1.) Reichheld, F. Loyalty Rules. Boston: Harvard Business School Press, 2001.

(2.) Freiberg K., & Freiberg, J. Nuts! Southwest Airlines' Crazy Recipe For Business And Personal Success. Bard Press: Austin, Texas, 1996.

(3.) Grossman, RJ. "The staffing crisis." Health Forum Journal, May/June, 2002 3:10-15.

(4.) Reichheld, F. and Teal, T. The Loyalty Effect. Boston: Harvard Business School Press, 1996.

(5.) Cascio, WF. "Strategies for responsible restructuring." Academy of Management Executive, 16: 3, 2002, 80-91.

(6.) Heskett, JL., Sasser, WE. and Schlesinger, LA. The Service Profit Chain. New York: Free Press, 1997.

(7.) Buckingham, M. & coffman, C. First Break All The Rules. New York: Simon & Schuster, 1999.

(8.) Huselid, MA. "The impact of human resource practices on turnover, productivity, and corporate financial performance." Academy of Management Journal, 38: 635-672. 1995.

(9.) Pfeffer, J. & Veiga, JF. "Putting People First For Organizational Success." Academy Of Management Executive, 1999. 37-48.

(10.) O'Connor, EJ. & Bujak, JS. "Looking for answers in new places: Applying lessons from winning organizations." The Physician Executive, September-October, 2000, pp. 56-63.

(11.) Kosel, K. "The Business case for Work Force Stability." October, 2002. White Paper. Reported in Sandrik, K. 2003. "Putting the emphasis on employees." Trustee, January, 2003, pp. 6-10.

(12.) Collins, J. Good To Great: Why Some Companies Make The Leap And Others Don't. New York: HarperBusiness, 2001.

(13.) Owens, WA. Background data. In M. D. Dunnette (Ed.). Handbook of Industrial and Organizational Psychology, 1976, pp. 609-644.

(14.) O'connor, EJ. & Fiol, CM. Reclaiming Your Future: Entrepreneurial Thinking in Health Care. Tampa, Fla.: American college of Physician Executives, 2002.

(15.) Sandrik, K. "Putting the emphasis on employees." Trustee, January, 2003, pp. 6-10.

Edward J. O'Connor, PhD is a professor of management and health administration at the University of Colorado at Denver, a principal with the Implementation Institute and a faculty member of both the American College of Physician Executives and the Kaiser Consulting Network. He can be reached by phone at [phone], through his Web site at www.edwardoconnor.com, or by email at [e-mail].

C. Marlena Fiol, PhD is a professor of strategy and health administration at the University of Colorado at Denver and a principal with the Implementation Institute. She can be reached by phone at [phone] or by e-mail at [e-mail].