Editor's note: As health care organizations confront unprecedented change in an environment of reform, governance and leadership will become a differentiator between success and failure. This is the first in an occasional series of articles on companies that have faced transformational change to provide insights for boards and leaders as they reframe their organization's vision and mission.
In many ways hospitals and health systems are at the epicenter of the transformational changes now under way in the health care industry. Making better use of fewer resources to deliver high-quality, safe, efficient and accessible care in ways that provide greater value to patients and other stakeholders is a challenge that requires more than quick fixes or incremental improvements. It demands a new vision and strong board, executive and clinical leadership to shape and guide its achievement.
When Hospira, a global specialty pharmaceutical and medication delivery company, launched six years ago, we faced similar challenges. We were performing at the bottom quartile of our peer group across a host of financial measures. With dedication to our business strategy as well as a strong focus on our customers and product quality, we managed to move to the middle of the pack over the next few years.
In this competitive environment, however, that simply wasn't enough. We recognized the need to further improve our operational efficiency and free up resources to reinvest in new companies, technologies and talent development to fuel growth and increase shareholder value. Achieving this goal would require transforming the way we did business by focusing on three areas: optimizing our product lines and work processes, evaluating nonstrategic assets, and streamlining our organizational structure. This formed the foundation of a 24-month endeavor called Project Fuel, which we launched in 2009 and remains our company's
No. 1 priority through the end of this year. Our objective is to deliver annual cost savings of $110 to $140 million by 2011.
At the outset I challenged our organization to move from mid level to top-tier performance among our peer companies in order to better serve our patients and customers, shareholders, employees and communities. Our board then encouraged us to deepen our presence globally and to increase to 25 percent the impact that Project Fuel goals had on our company's incentive plan.
Hospira leadership set aggressive goals in three areas for completing Project Fuel by 2011, including:
Organization goals: Faster, high-quality decisions made further down in the organization; clear roles and accountability; a focus on value-added work; talent development through a leadership pipeline; information technology as an enabler; sales organizations aligned with customer needs and reduced layers of management.
Product goals: Develop sustainable, profitable product lines; create a steady stream of new products from optimized research and development; and achieve a 40 percent reduction in list numbers (presentations of the same product), while meeting customer needs.
Financial goals: Achieve an operating margin consistent with top-performing peer companies; improve productivity per employee by 35 percent; derive 25 percent of sales from new products; have a 60 percent sales presence in the United States and 40 percent in the rest of world; and reduce total procurement expenses by more than 5 percent.
Each Project Fuel initiative was assigned an executive sponsor, and multidisciplinary project teams were formed. Teams challenged each other to achieve goals and to both lead and learn. The executive team also evolved and now includes vice presidents for organization transformation and enterprise excellence.
Our company set clear performance metrics and made a commitment to be candid and transparent about our performance. Employees, customers and investors receive frequent updates on project initiatives directly from management and through a variety of communication vehicles. Our board receives an overview of Project Fuel accomplishments at every meeting as well as ongoing communication between meetings to support a commitment to no surprises.
Project Fuel Results
Compared with peer companies, Hospira achieved top-quartile performance in total shareholder return in 2009. The company also advanced its performance in its three areas of focus through the following accomplishments.
Optimizing products and processes. To date we have implemented a reduction of more than 35 percent of our product presentations, improving both inventory management and manufacturing efficiency while reducing the costs associated with supporting these products and advancing our commitment to product quality. A redesigned approach to annual financial planning saved hundreds of work hours and improved the quality of the process. Implementing a new go-to-market strategy has increased the effectiveness of our U.S. sales force. We also rolled out a new global IT service model and established strategic partnerships to drive better IT service and flexibility.
Evaluating non-strategic assets. Hospira reinforced its commitment to two product lines—specialty injectable pharmaceuticals and medication management systems—as key drivers of company growth. This focus enabled us to divest product lines and facilities that did not support future growth and profitability.
Streamlining organizational structure. Our company streamlined its research and development to get new products to our customers more quickly, generating more funds to invest in R&D in 2010. We also made significant progress toward our goal of reducing layers of management and our overall workforce of more than 14,000 employees by 10 percent. These moves followed process and efficiency improvements—and marked a difficult, but necessary, decision to support long-term growth.
Our focus in 2010 is on meeting additional milestones to achieve overall goals by 2011 and ensuring that improved performance is sustainable for the long term.
We could not have achieved these goals without the vision and guidance of Hospira's board and leadership and the hard work of many multidisciplinary teams organizationwide. To be effective, change of this magnitude has to touch every person in the organization. Leadership must be visible and supportive of the change process and take every opportunity to communicate about its importance and success. Even small victories are worth sharing. Performance must be measurable and tied to incentives and accountability for performance established at all levels. Most importantly, our organization can never lose sight of our primary reason for undertaking Project Fuel—to improve the quality and safety of health care for the patients, hospitals and communities we serve.
For more information about Project Fuel, e-mail firstname.lastname@example.org.
Christopher B. Begley (email@example.com) is chairman and CEO of Hospira Inc., Lake Forest, Ill., a member of AHA's Center for Healthcare Governance, and a director of the National Center for Healthcare Leadership.