In addition to the several items listed in the case, what other information would need to be collected to fully evaluate the centralization-decentralization decision? What information should be included when developing a financial analysis of this decision?

What are some non-financial arguments for or against centralizing training and development at the health system? How could a centralized organizational development department support a culture of "systemness" at WHS?

With whom should Ms. Sinclair and Mr. Snowdon speak when considering the impact of each alternative? How might physicians and nurses be affected by the different alternatives?

What critical success factors would be associated with the pursuit of a centralization alternative?

Please read below and answer to the following questions above

Improving Organizational Development in Health Services

Ann Scheck McAlearney and Rebecca Schmale

Who, What, and Where?

John Shea, CEO and president of Worthington Health System (WHS), needed some time to think. He had been leading WHS for ten years and was contemplating the legacy he wanted to leave. WHS, based in the Midwest, comprised four hospitals, a home health company, and an ambulatory care service line (for basic information about the system, see exhibits 20.1 and 20.2). The system had been formed 12 years ago when two local community hospitals combined forces. The two freestanding hospitals each served distinct patient populations, with 600-bed Lincoln Hospital located downtown and 800-bed Riverview Hospital in a nearby suburb. Rather than take the name of either hospital, the organizing group elected to make a new, neutral name for the health system, and each individual hospital kept its original name. Shea was hired soon after the system's formation, so he had personally experienced most of the changes WHS had navigated.

Since the formation of WHS, the rapidly changing healthcare market and shifting patient demographics had presented a series of opportunities for WHS. Shea had successfully managed the acquisition of two other local hospitals for WHS when another local system dissolved, and he had extended the reach of WHS to the adjacent county by forming a strategic alliance with Graystone Memorial Hospital (see exhibit 20.3). Additional market changes led to the formation of Worthington Home Care and the creation of a network of ambulatory care centers that expanded WHS's reach. WHS was financially strong, and it enjoyed a positive reputation in the area, despite competition from two other health systems and several newly developed specialty hospitals.

Shea's continuing concern was the lack of "systemness" within the broad WHS system. Building community awareness of WHS as a health system had taken quite some time, and patients were still primarily loyal to the original flagship hospital, Riverview, rather than to WHS. This loyalty was also evident among employees. The Riverview staff identified with Riverview Hospital, not WHS, and the Lincoln Hospital staff exhibited the same silo loyalty. When Shea had arrived at WHS, he was thrilled by the challenge of creating a true system out of the previously competing entities, but as he now reflected, he had not succeeded. He wanted his legacy to include a shift in the WHS organizational culture to one of system-focused thinking rather than entity-oriented decision making.

Several functions had been centralized in the past few years to achieve economies of scale and reduce redundancies within the system. The first functions to be centralized under the corporate umbrella were finance and supply chain. Greg Hanson, the chief financial officer, was a strong leader, and within one year, centralization saved the system more than $200 million. Some resistance to the centralization had existed, but the savings quickly made the decision difficult to dispute.

Given the current financial strength of WHS (see exhibit 20.4), Shea realized that he had an opportunity to focus on the goal of enhancing system-focused thinking. Because entity culture seemed so prevalent, Shea knew he must engage his employees to achieve systemness. He also knew that education, especially leadership development, could play a key role. One of Shea's goals was to advance WHS as a learning organization. Pursuit of this goal had led to two recent hires in the areas of organizational development and human resources (HR), and both Fiona Sinclair and Blake Snowdon seemed to sense the lack of systemness at WHS quite quickly. Shea scheduled a meeting with Sinclair and Snowdon to introduce his ideas.

Behind the Scenes

As system vice president of organizational development, Sinclair had spent the past two months getting to know WHS and its various entities. She had come to WHS from outside the healthcare industry and had repeatedly been surprised by how "behind" she found the health system. Even basic education and training functions were still delivered at the entity level, with little sense of organizational identity at the system level. Yet Sinclair saw hope for improvement, as signaled by her own recruitment and the apparent interest of the CEO.

Snowdon, the director of HR, shared Sinclair's perspective about the fragmented nature of WHS (see the organizational chart in exhibit 20.5). He was also struck by the seeming lack of awareness about the potential for strategic human resources management to help reduce this fragmentation. Snowdon had come to WHS three months ago from a smaller system based in California, and he now saw how good he had had it. Snowdon found that WHS was not a fully aligned health system that saw human resources as a strategic capability, but rather a collection of individual entities that appeared to compete among themselves for corporate-level attention. Many Riverview staff came across as arrogant because they believed they worked for the "best" hospital in the system. In contrast, Lincoln staff prized themselves on their ability to respond to the needs of the surrounding urban community, despite a largely unfavorable payer mix and staggering use of the emergency department. Snowdon had not yet characterized the cultures of the Mount Rising or Fairland hospitals, but he felt certain they were as entrenched and individualized as those of Riverview and Lincoln.

Given their similar interests and start dates, Sinclair and Snowdon were in frequent contact. Organizationally, the department of human resources reported to the chief operating officer (COO), and Snowdon was its senior executive. The area of organizational development, however, was new for WHS, and Sinclair had been hired with the charge to design and build the department as she saw fit. She reported directly to CEO John Shea, but she understood the strategic importance of close ties to human resources if she was going to be able to accomplish anything with respect to organizational development.

In Sinclair's previous position, she had directed the development of a corporate university to centralize training and development for a large organization. Sinclair believed this model held promise for a health system such as WHS, but she was aware of the challenges associated with centralizing a previously decentralized and tightly controlled function. Coincidentally, Snowdon's previous role as director of human resources for a smaller health system had involved an evaluation of the corporate university model, but that system had rejected it. Instead, Snowdon's role had focused on building credibility for human resources as a strategic capability of the health system. The emphasis was on making targeted investments in strategic human resources capabilities, such as developing hiring managers' abilities to use behavioral interviewing techniques and linking individual performance evaluations to the health system's overall performance through use of a balanced scorecard.

Getting together to prepare for their meeting with Shea, Sinclair and Snowdon discussed their initial assessments of WHS. They agreed that WHS was a disjointed collection of individual entities with little loyalty to the system, but they also agreed that a fragmented culture could change. The key, they felt, would be in centralizing the education and training function for WHS at the corporate level, but they knew this idea would be met with resistance from all entities. They also knew that a move to centralize any function within WHS would fail without the commitment and support of the CEO.

The First Meeting

Shea decided to meet with Sinclair and Snowdon in Sinclair's office, signaling his willingness to move outside the suite of executive offices to collaborate with others who were experts in their own fields. He had purposely not created an agenda for the meeting, and he instead had proposed this as a "conversation" about WHS. Shea opened the meeting with a basic question: "What can we do to make WHS feel like a system?"

Neither Sinclair nor Snowdon was timid, and they had previously agreed to be completely honest and direct with Shea. They described their early observations of WHS and the component entities, and they presented their collective assessment that, beyond the common logo and centralized payroll system, almost nothing bound WHS together as a system. Even though WHS had several corporate-level functions, such as strategic planning and marketing, the individual hospitals often seemed to replicate these functions in-house to ensure entity-level control. Particularly troublesome, Sinclair and Snowdon reported, was the training and development function; however, they also noted that this area presented a tremendous opportunity to bring WHS together.

Although Shea knew that WHS suffered from the entity-focused territoriality common to many US healthcare systems, he had been unaware of the magnitude of the problem. He was struck by the financial implications of hospital-based duplication of services. With education and training alone, duplication of training programs, evaluation processes, tracking systems, and even trainers was costing the system thousands of dollars. However, Shea was also aware that each hospital entity took training and development seriously as an entity-level capability. He knew the hospitals prided themselves on providing continuing education programs for physicians and nurses that were appropriately tailored to the hospital's perceived needs. Any move to centralize what was considered an important organizational competency would be perceived negatively and would likely be resisted. Shea knew that this issue would have to be evaluated thoroughly and, if accepted, introduced carefully.

The Charge

Shea liked the notion of centralizing the training and development function at WHS, and he believed it could help him achieve his goal of transforming WHS into a cohesive system and learning organization. Yet he needed to be convinced that this approach could work, and that it would be worth the investment. He felt Sinclair and Snowdon were the appropriate individuals to lead the assessment process, and their newness within the system might help them uncover challenges or concerns less obvious to someone who had worked at WHS for a longer period.

Talking with Sinclair and Snowdon, Shea outlined what he would need to make his decision. First, he would need a list of the current financial and nonfinancial costs associated with decentralized training and development. Though Shea knew that Sinclair and Snowdon would not be able to cost out everything, he felt that a list and general estimate of costs could be sufficient for his purposes. Second, Shea wanted options. If, as they suspected, the centralized option was going to prove favorable, he needed to know what it could mean for WHS. Were there alternative models for centralized training and development? If so, which would be appropriate at WHS? What costs would be associated with this type of change? Further, how long would this organizational change take to implement? What would be the "value-add" of a centralized department for the entities? How could programs such as orientation, leadership development, and clinical management training reinforce a new way of thinking beyond the boundaries of each entity?

Shea asked Sinclair and Snowdon to collect the necessary data and prepare to present them to WHS senior leadership at the end of the next quarter. This timeline would give them several months to do their background research, followed by another couple of weeks to refine their assumptions and properly frame the results of their research. Shea also offered to participate in regularly scheduled meetings so that he could remain informed about their ongoing findings and any challenges they encountered. The meeting left all three feeling mutually energized, but Sinclair and Snowdon knew they had to get started right away.

Considering the Options

After Shea left Sinclair's office, Snowdon remained to continue the discussion with Sinclair. Their first task was to plan for the work they would have to do in the coming months. In particular, they wanted to determine the scope of the project and try to get a sense of how to frame the alternatives.

Based on the preliminary conversations they had had with each other and their knowledge of the organizational development and training literature, Sinclair and Snowdon were able to outline six separate alternatives that varied by level of centralization and magnitude of organizational changes required:

Centralize training and development within the existing department of human resources. Centralize training and development within the new department of organizational development. Centralize training and development with the creation of a new structure, a corporate university, housed with the new department of organizational development. Maintain decentralized delivery of training, but centralize the development function within the existing department of human resources. Outsource training and development to a third-party vendor. Maintain the status quo with decentralized training and development. Given these six alternatives, Sinclair and Snowdon next had to consider what information they needed to collect to assist Shea in the decision-making process. Their biggest task was to perform an organizational assessment of WHS as a whole with respect to training and development. In particular, they needed to determine what currently was going on in education, training, and development, including where these activities occurred, who or what department provided them, and how they were delivered. With regard to education and training, they were curious about such factors as whether any programs were offered online, whether some areas of the organization collaborated with others, and how clinical training and continuing education were delivered. With regard to development, they wanted to know if any formal system was in place to track development activities, if employees in any entity or area were required to makeprofessional development plans that could be monitored, and whether developmental programs were tied to annual performance evaluations.

Another important part of the assessment was to identify key stakeholders in the areas of training and development for each health system entity. Sinclair and Snowdon knew that organizational politics had a powerful influence on the support for or resistance to any initiative that required change. As a result, they needed to identify important decision makers within each entity and, ideally, recruit organizational champions who could help them with any change process.

Finally, to fully evaluate the different alternatives, Sinclair and Snowdon would have to develop some projections about costs associated with current operations (the sixth alternative) in comparison with the five other alternatives they had outlined. Shea had mentioned nonfinancial costs associated with training and development in addition to financial costs, so Sinclair and Snowdon needed to consider those along with the financial and nonfinancial gains that could be accrued with each alternative.

Building the Case for Change

Shea was known for his ability to make quick decisions and then back his decisions with resource support. However, Sinclair and Snowdon knew they needed not only financial resources but also organizational commitment to ensure success for this initiative. They were excited to move forward with their ideas about centralizing the training and development function for WHS, but they knew they needed to build their case carefully