CEO SUMMARY: When the Province of Alberta sliced more than 30% from the healthcare budget in less than two years, it was borrowing a trick from high performance turnaround experts. Laboratory executives in the United States can use these same management principles in their own laboratory.
REMARKABLE ACCOMPLISHMENTS result from setting ambitious goals. In a two-year period, Alberta’s provincial government slashed healthcare costs by over 30%.
When healthcare providers in Alberta reacted to these cutbacks, clinical laboratories underwent a radical transformation. As a management coach who strives for extraordinary results, I am impressed with how Alberta’s government used two secrets of high performance management to achieve its objectives.
Secret number one is to establish the goal first. Regardless of whether or not the team understands how they will achieve the goal, it is the goal itself which triggers innovative solutions.
In the case of Alberta, the provincial government told the healthcare system that the budget would be reduced by 20% effective in 1995. They also declared that further budget cutbacks would follow in subsequent years.
Armed with this knowledge, healthcare providers had no option but to consider any and all ideas that would lower costs while maintaining quality and preserving universal access.
Secret number two is to strive for radical departure from existing methods. It is a fundamental premise of Value Analysis that “the greater the change, the greater the improvement.” Human nature tends to reject change and when given the choice, makes only minor adjustments to their lives and environment. Turnaround experts know that drastic situations require drastic measures… and they take them.
Alberta established a difficult goal in cutting 20% from the healthcare budget in one year. However, it was this stimulus which triggered the radical restructuring among healthcare providers to achieve the goal. Radical departures from the status quo brought about radically different results.
Of course, none of this took place without a significant amount of turmoil. As Dr. Dawson noted in the preceding story, over the two years since reduced healthcare budgets were implemented, the number of pathologists and medical technologists has declined by one-third in the province. Comparable staff reductions took place among hospital employees and other providers.
All of us understand that extensive restructuring such as this is invariably accompanied by pain. However, it is a rule of management that the longer you postpone making changes which you know need to be made, the greater the negative impact upon people and organizations.
In other words, change is inevitable. Perceptive managers know that embracing change permits them maximum flexibility to cushion its negative effects.
The experience of Alberta reinforces this point. As a government-directed healthcare system, evolutionary changes to the system were deferred until a budget deficit of crises proportions could no longer be ignored. The negative impact of these necessary changes was greater than it had to be.
For laboratory executives, the Alberta experience teaches us four lessons. One, set the goal first. When people know what the goal is, they become extraordinarily creative in making it happen. Dr. Dawson’s quote illustrates this perfectly: “Things which you would have thought impossible become immediately doable once people understood the consequences of inaction.”
Two, strive for a radical departure from established practice. The more extensive the change, the greater the benefits from the change.
Three, during this process, quality can always be sustained, and generally improved. There is no mention of any significant decline in quality during this process in Alberta.
Four, there are great benefits in cooperation versus competition. As excess laboratory capacity was dismantled and laboratory competitors arranged to use regional laboratory resources in new ways, huge savings resulted.
Alberta also did something that was smart management. As part of the process of cutting back funds, Alberta created a new group of decision-makers: the 17 regional health authorities. These new players were given a global budget, then allowed to take whatever steps were necessary to maintain required services with the allotted budget. The establishment of new decision-making authority defused existing vested interests. It made the process of innovation easier.
There is no reason that Alberta’s cost-cutting success could not be duplicated by laboratories in the United States. The management principles necessary to accomplish the task are proven and simple to learn. Further, the speed with which these changes occurred provides a management lesson. Alberta demonstrates how rapidly major restructuring can be implemented.
Value Analysis Techniques
What I find fascinating is how Alberta’s provincial government used techniques integral to Value Analysis in their efforts to cut costs. Value Analysis has been used by manufacturers for almost 50 years to improve quality and cut costs. It is a controlled way to get results on an accelerated basis. That certainly squares with Alberta’s cost-cutting success in the healthcare and
Key Management Lessons For Labs
- Establish the goal first.
- Strive for radical departure from existing methods.
- Quality can always be maintained and even improved.
- Great benefits accrue with cooperation as opposed to competition.