Unconventional Leadership

by Nancy M Schlichting

  3. Surround Yourself with Supporters

  Doing what’s difficult becomes a lot easier if you have a coalition of people around you who have a stake in your success. I mentioned sponsors and mentors above. Both are not only great teachers but can also open doors. When Al Gilbert asked me to come back to Akron to become his successor, for instance, I might have done just that if he had not been so supportive when Gail Warden at HFHS called me.

  Al said, “Nancy, you have to consider Henry Ford because this is a very important health system in this country. And for you to have that opportunity, you need to go there and take a look.” He was right; it was a great move for me in every way. Al was such a strong mentor that he made it easier for me to move to a larger opportunity, even though it left him without a successor.

  Mentors and role models go a long way, but supportive managers are equally crucial. I often tell people: make sure you have a boss who cares about you. If not, you’ll stagnate. As a woman, I have been fortunate to frequently work for men who have daughters. In some ways, I believe that’s part of what has changed this country—men with daughters have opened a great many career doors for women. It’s more complicated than just that, of course; women have gotten ahead for many reasons. Yet, the support, sponsorship, and mentorship they receive is critical.

  The final place where support yields career success is in the personal arena. I’m married and have a supportive family, and that makes it far easier to be confident in myself and keep things in perspective. My partner, Pam, not only encourages me, but also keeps me grounded, providing critical thinking when I need it the most. For me, support at home started with my parents, who not only encouraged me but also pushed me to succeed on my own terms.

  Probably my earliest memory is of my mom deciding that I should take the test for early admission to elementary school so my sister and I would only be two years apart in school. I passed (somewhat to her surprise since I enjoyed playing more than books!), and that meant I was younger than my classmates throughout my entire upbringing. Of course, I still managed to get into trouble just about every year. Often, I felt that I needed to prove myself in some way. I stood up for myself with a little too much force.

  I was different from other kids I knew, just as I am different from most CEOs. As a young girl I didn’t wear pigtails and dresses. I liked boys’ clothes and chunky watches. Before my braces did their job, I had terribly crooked teeth, and the kids (and even a few teachers) made comments. It hurt for a moment, but I never really listened deeply to what anyone said. I didn’t let negativity or personal attacks affect me because I never wanted to be like anyone else. I had a great deal of confidence in myself, which came from the way I was raised. I was brought up with the notion that everything I needed to succeed was right inside of me. I didn’t let adversity bring me down and I never listened to the naysayers. This is part of what gives me the strength to be an unconventional leader. Even when a teacher didn’t support me—as happened a few times—I turned to my mom because she was a teacher. She reassured me every time.

  My father was impressive and unusual as well. He knew how to cook for the family and he claimed to have changed more diapers than my mom. He took pride in the fact that he had progressive beliefs on gender roles in the family. By vocation he was an engineer and an inventor, with eight patents to his name, and he designed nuclear components for steam generators at the Babcock & Wilcox Company. What I admire most about my father is that he always had a distinctive way of looking at things. He said that inventors solve problems—sometimes problems that most people don’t even know exist. He taught me that a problem is not a crisis; it’s something that needs to be figured out and fixed.

  Both my parents were always on the team of people who supported me. I will forever hear my mom’s voice in my head saying, “What are you waiting for?” And then my father saying—“Of course, you can do it. Why not?”

  4. Keep Your Eyes on Values

  The last thing that has enabled me to break free from cultural norms and do what is difficult is that I’ve made key decisions based on my values. Making career choices, in particular, with values as a guide creates a solid foundation to build on. Even if you fail at a certain task, there is something substantial that remains intact.

  Shortly before accepting the position at HFHS, for example, I left two organizations within a space of eighteen months because the positions were not a good fit with my guiding beliefs. In the first case, at Riverside Methodist Hospital, there was a lack of support for diversity within the organization, and it ran deep. I decided to quit and move on. The next job at Catholic Health Initiatives required constant travel, with little chance to establish ties with employees or physicians or the community I moved to. It was not what I thought I had signed on for. At that point, my priority was to establish roots at an organization and work within a community. In both cases, I made difficult decisions based on my personal values rather than opting for what may have seemed smart for my career in the short term.

  I am not an advocate of hopping from job to job, of course. Everyone has her own goals in life, and these need to be actively managed. Many women and men today, I know, struggle with work–family balance. Whether that means taking care of children or helping aging parents, it’s easier to make tough choices when you know what is most important to you. I have never had children “of my own” (although I became a fully committed parent to my partner’s children later in life). As a result, I know that I’ve had an easier time than many other women getting promoted and navigating work–life trade-offs.

  For most of my career, work has been my primary emotional, intellectual, and practical priority. Still, I have never taken a job based on money. The result is that my career arc has a solid infrastructure—namely, people, performance, and progress. The related values in work that guide me are: strengthening relationships with and between people; driving operational performance improvement and financial success; growing the business through innovation; and strengthening or supporting our ecosystem and surrounding community.

  My mom used to say, “Nancy, your whole life has been a set of building blocks,” and she was right. Everything I have done I’ve ended up building upon in some way—even the things that did not pan out as I expected. This idea of doing what is difficult is made easier when nothing is lost and mistakes become lessons. Reading about Henry Ford has reinforced this because he didn’t succeed right away as a business builder. He only became truly successful in his forties, with the launch of Ford Motor Company.

  The truth is that we all need to find our own way, but having a firm foundation can certainly help. In the chapters that follow, I will present the big building blocks that I have used to turn around organizations and foster high performance over the long term.

  CHAPTER TWO

  Learn to Turn It Around

  We do not make changes for the sake of making them, but we never fail to make a change once it is demonstrated that the new way is better than the old way. We hold it as our duty to permit nothing to stand in the way of progress. . . .

  —Henry Ford

  Henry Ford Health System is a $5 billion organization with 23,000 employees. That includes a 1,200 member medical group, five hospitals, a 690,000-member Health Alliance Plan, thirty-two primary care centers, and many, many other health-related entities. That amounts to a lot of moving parts! When they are all interacting smoothly, it’s almost like watching a major symphony playing its best performance—it’s mesmerizing. But imagine, if you will, what would happen if an earthquake struck in the middle of the performance. The music would stop.

  This is exactly what has occurred in health care. Historically, incredibly intense inflection points erupt about every fifteen years. These massive shifts alter the rules of the game and altogether change how the business is run. Touched off by new legislation, such as the Affordable Care Act, these dramatic pivots impact payments to hospitals, health systems, and physicians, forcing everyone to scramb
le and resuscitate revenue streams.

  When I first worked at Akron City Hospital, the disruption was caused by the introduction of a new classification system (DRG, or diagnosis-related group) for types of hospital care, which altered the Medicare payment system. And when I joined HFHS, in 1998, we were grappling to deal with the Balanced Budget Act of 1997, which substantially reduced Medicare payments to hospitals. These major events hit academic hospitals especially hard because they rely on federal payments for graduate medical education, physician professional services, and hospital services. But all of heath care is affected when legislation and reform mandate major changes.

  By the time I arrived at Henry Ford, I had encountered a number of these strategic inflection points and led the charge in major turnarounds.

  At Akron City Hospital, in 1983, for instance, we had substantial losses due to a precipitous dip in length of inpatient hospital stays triggered by the new DRG system in Medicare, mentioned above. When I became chief operating officer we were bleeding $1 million a month and occupancy rates had plummeted from 95 percent to 75 percent at the 650-bed hospital. All of this plus a major recession made for a very stressful time. Families across the region were suffering, people were clinging to their jobs, with neighbors and spouses among the unemployed, and I desperately wanted to avoid massive layoffs. With that in mind, I created a plan to reduce 250 full-time-equivalent employees without a layoff. I sold the plan, including an early retirement plan to the board and was also able to get the union to agree. We worked together, day and night, and turned the hospital around within six months and made $9 million the following year.

  At Riverside Methodist in Columbus, the situation was similarly intense. Although we were in much less of a crisis, we nonetheless needed to reinvent our baseline cost structure to improve financial performance. As part of that effort, we went through a period of abruptly removing a significant percentage of the expense across the board. We did so by attacking all cost categories and dramatically improving integration with the larger health system. The cuts were a shock to the system, but we needed to proactively improve the business. In the end, we improved our margins significantly and were able to protect jobs by leveraging attrition and taking a surgical approach to cost reduction.

  At Catholic Health Initiatives, my next role, we were merging three health systems into one. There was a lot of work to do, financially and structurally, to integrate operations, reduce costs, and simply complete the merger without disrupting or derailing the entire business. It was a dramatic process that mirrored, in a lot of ways, the difficult work of a turnaround.

  Later, when I went back to Akron City Hospital, called Summa Health by that time, the organization was in a deep financial quagmire. I had not been there for ten years and had a lot to learn about current operations. Pretty quickly, I started a process of zero-based budgeting. That micro approach allowed me to learn the ins and outs of the financial structure and to understand how the budgets were being developed. Getting down to basics enabled a lot of fundamental shifts in the way departments were operating and allowed us to significantly improve the overall performance. Once again, we got the organization back to profitability within about a year and put it on a positive trajectory that lasted a very long time.

  All of those situations turned out to be ideal opening acts for the massive financial turnaround at Henry Ford. HFHS, because it is so large and complex, tends to take a hit on a number of different levels in times of extreme transition within the industry. We rely on every payment stream known in health care as well as a number of others that we’ve pioneered ourselves. That type of diversity can be a vulnerability as much as it is a strength.

  When I arrived at Henry Ford in 1998, we were in the eye of a perfect storm—a triple whammy. Not only did we, along with the rest of the nation, get hit with the Balanced Budget Act, but the state of Michigan was introducing its Medicaid Managed Care plan at the same time, which meant a $16 million reduction in Medicaid program payments to Henry Ford. On top of that, we owned a health plan—Health Alliance Plan—which suffered a three-year period without premium increases because the auto industry, grappling with its own uncertainty, was putting incredible pressure on local partners, including health-care suppliers, to freeze costs. By that time, the organization had been losing money operationally for years. We were posting positive net income based on strong returns from large-cap investments, but the bull market only masked the fundamental problem. The bottom-line results were weakened because of chronic operational losses.

  I came on as the chief administrative officer, recruited by the CEO, my mentor Gail Warden. Gail told me pretty quickly that he wanted me to be chief operating officer—the system’s first ever. He knew, based on my experience, that I had a strong operations perspective and was always looking for ways to make organizations work better.

  I understood right away that this was a turnaround situation. When I took a closer look, I saw some of the problems that went above and beyond the major industry shifts. First, I couldn’t detect a cohesive performance strategy that spanned across the system. Unit leaders were setting goals and managing them in different ways. Next, most of the fundamentals weren’t being measured. For instance, we didn’t have reliable customer service metrics, and employee and physician engagement measures were inconclusive. Another key piece of the puzzle was our system’s flagship institution, Henry Ford Hospital.

  Founded in 1915 by Henry Ford himself, the hospital fulfills a vital need for affordable, high-quality health care in metropolitan Detroit. It is an anchor institution of the City of Detroit. Yet, by about 2001, the health system was losing $90 million a year with Henry Ford Hospital hemorrhaging the lion’s share. The vulnerability of Detroit was a large part of the dilemma. With the city reporting record levels of crime, political corruption, and widespread economic instability, uncompensated care at the hospital was at an all-time high. And because of its size, if Henry Ford Hospital remained unprofitable, it would be virtually impossible for the rest of the health system to operate in the black.

  Just after the first of the year, in 2001, with the gloomy financial backdrop looming large, Gail came to me and asked if I would go over to Henry Ford Hospital as the CEO, on top of my system COO role. I jumped at the chance.

  It was a complex calculus but we worked on dramatic improvement in three major areas of the health system: Henry Ford Hospital, the Henry Ford Medical Group, and Corporate Services. Since I was also functioning as the chief operating officer of the system, I was able to work with Dr. Mark Kelley, the CEO of our medical group, also a new leader, and a number of other established leaders, to make decisions about costs and priorities. It took about two years to turn things around. We lost $100 million operationally in 2001, but by 2003 we were profitable. The systems we put in place at that time and thereafter are what enabled HFHS to remain profitable for 11 of the last 12 years running—through the 2008–09 recession—while we were building a new hospital, and as Detroit itself shrank by 30 percent.1 In fact, even with all of those challenges and initiatives in our wake, 2015 will be the most profitable year in our hundred-year history.

  I can’t say that I’ve cracked the code for turnarounds, but what I can say is that I know what has worked for me on each of these occasions. First, I will mention the common threads that have run through these turnaround situations. Next, I will offer the four specific steps that I take as I endeavor to fix a failing organization and work, with others, to engage in the ongoing pursuit of going from good to great.

  Common Threads of Successful Turnarounds

  There are a few important commonalities from every turnaround effort I have managed. These are the imperatives that need to be designed into the strategy to make lasting success more likely.

  First, in every effective financial turnaround I have seen, top leadership has been personally and visibly invested in the effort every day. Not just involved but invested. In the case of HFHS, I put my job on the line during
the turnaround when I stepped in to run Henry Ford Hospital myself, as chief executive. Why? To send a clear signal to the organization that this change was a priority—I wanted to be held accountable and to position myself on the front lines of change. A turnaround requires a commitment from every person from the top down. From a leadership standpoint, you have to be involved, you have to be present, and you have to put yourself in the line of fire. In other words, you have to lead.

  Next, leaders need to not only make the tough calls but also stand by them, first with courage and then with humility. During a financial turnaround you are dealing with a burning platform. It may seem easier to put off the difficult decisions, but waiting only increases the problem and decreases your options. I remember my boss at HFHS telling me when I joined the organization, “Nancy, you know we’re having some difficulties right now, but it’ll all be turned around by October.” Well, it just got worse. We had to face reality and make the difficult choices. We were not seeing revenue changes that would support the expense levels we had, so we had to reduce labor costs, and we cut well over a thousand jobs. It was the most difficult thing I had ever done.

  Beyond taking responsibility for tough calls, such as reducing costs and replacing entire teams, it is equally important to find ways to focus on the people being affected and be present for them. We went to great lengths during that time to treat people with respect, dignity, and empathy. As a result, many came back and worked with us later when we started to grow again. Today, if you talk to HFHS employees, many will tell you, “I left in 2001 or 2002, and I came back about a year later.” In fact, when I took over as CEO of the health system, I started to attend employee orientations and my question for years was, “How many of you have worked at Henry Ford before?” Sometimes half the audience would raise their hands. We made taking care of people a stated part of the turnaround strategy and it paid off.