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Health care always has been a demanding industry in which to lead. Managed care, clinical quality and service delivery models have tested even the most capable leaders. The Affordable Care Act, however, promises to usher in change and complexity on another order of magnitude, requiring even broader and more sophisticated leadership performance. The question is, what will this mean for organizations in desperate need of leadership stability and excellence?

Other industries, such as manufacturing or financial services, have undergone major transformations driven by globalization, technology and innovation. The winners became more efficient, productive and customer-oriented, but many organizations and leaders failed. In general, transformation raises the bar for leadership and leads to higher levels of voluntary and involuntary turnover across the range of C-suite roles. And across the economy in general, average C-suite tenure declined steadily in the last decade until the economic downturn moderated the trend in 2009 and 2010.

Changing Competencies

During transformational times, a strong strategic and technical skill set is necessary but not sufficient. CFOs, for example, still must manage capital, revenue and expenditures, but also must be intimately involved with the political, alliance-building and engagement activities that will allow new financial models to be successful. In general, there is a premium on working across traditional functional boundaries, building relationships with physicians and health plans, and maintaining stakeholder motivation in the face of numerous barriers. How leadership competencies need to change in light of the reform law is shown in "Focus Points" on the next page.

Leaders will need these new and differently focused competencies because many of the business implications of the ACA are still somewhat unclear, such as the likelihood of consolidation, the pervasiveness of accountable care organizations and the timing for shifting revenue and costs to a new model. The level of uncertainty increases organizational risk and makes the leadership competencies required for successful transformation more valuable.

Past transformations show that the skills required for future success are not innate to leaders just because these leaders have been successful previously. It takes time to acquire and practice skills that either are new or must be used in new ways. Some strong performers will not adapt effectively. Boards and senior leaders should be working ahead to deepen and broaden the leadership bench through development and succession planning.

Six Keys to Success

To ensure an excellent return in an environment in which everyone has too much to do, focus on the following six components to prepare a leadership bench:

  1. Business- and ACA outcome- driven. Begin by determining your organization's strategic response to the ACA, such as whether or how it plans to develop or be part of an ACO. A focus on development and succession should link directly to the leadership capabilities needed to execute that strategy effectively. This allows the board to focus on the gaps with the most leverage and builds urgency among participants for actions with a clear line of sight to strategy.
  2. Health care values. Health care organizations and their leaders emphasize mission and values more than organizations and leaders in many other industries. This is a huge advantage during times of transformation because mission and values form the foundation for loyalty, sacrifice and collaboration. Translate and reinforce these values within development and succession activities, so the resulting leadership sustains the mission within its new environment.
  3. Talent summits and slates. Few leadership bench activities have more speed and impact than conducting talent summits to produce slates of potential future leaders. In these meetings, senior leaders assess the current and potential capabilities of candidates. This results in slates of "ready now" or "ready later" leaders for key roles.
  4. Dashboard technology. Advances in recent years easily allow boards and senior executives to monitor and query key metrics for the leadership bench, including talent slates. Drawing on a range of performance and development data, a dashboard provides insight into the readiness of many individuals for specific leadership roles. Boards can compare talent for leadership positions and critical roles with analytics to manage the talent pipeline.
  5. Action learning. Leadership literature has shown for years that the best development occurs through on-the-job experience, especially in intense, diverse and adverse situations. The benefit of reform's challenges is the large number of organizational needs that can be matched with leaders for these kinds of learning experiences, such as new assignments, membership on a task force or rotation. Success requires effective scoping, matching and feedback, but the upside is getting important work done while fostering career development and institutional knowledge.
  6. Open and adaptable. This approach to strengthening leadership is fast and results-focused, which is essential in a transformational environment. Openness and adaptability are essential because some well-regarded leaders may underperform while others exceed expectations. Rather than consider leaders in fixed roles, the mindset is of a broader bench where leaders, like athletes, may fill a variety of needs — some cross-functional, part-time or intermittent — to meet the needs of the team and maximize their own growth and value.

Reform as Catalyst

It is important for trustees and executives to think of leadership depth and readiness as one of the organization's most significant risks: it drives whether the hospital will survive and prosper in the turbulent industry of the future. Assuming that current leadership simply will adjust to the new demands is like assuming that past financial approaches will just need tweaking for a transformed funding environment. The risk management lens for leaders during transformation is both broader and more intense.

Successful leadership preparation will not happen without real and sustained sponsorship from the board and CEO. No one else has the formal and moral authority to make a difference. This is hard work, and it will be derailed easily if not actively sponsored.

The choice is whether to be an organization in which "there are never enough good leaders" or one in which "leadership is truly our competitive advantage." The reform law can be a catalyst or a curse, and leadership capability is pivotal to the outcome.

Bruce Barge (bruce.barge@mercer.com) is a partner in Mercer's human capital practice, Los Angeles.

Sidebar - Focus Points