"Part Two"

Ten Management Myths Misled Clinical Laboratory Executives

PART TWO OF OUR THREE-PART SERIES

CEO SUMMARY: We offer our second installment about the ten management myths which led the clinical laboratory industry astray during the 1980s and 1990s. Regretfully, clients responding to part one of this series tell us that these management myths remain alive and well—and continue to steer many well-intended but misguided laboratory managers in the wrong direction!

IT SEEMS THAT OUR FIRST INSTALLMENT in this series about laboratory management myths stirred up controversy in some quarters of the clinical laboratory industry.

This is a healthy development. It is time for concerned lab administrators and managers to seriously question the current state of laboratory management and organization. Outmoded thinking and outdated management practices should be identified and discarded.

The ever-hastening pace of change within the world economy is mirrored by the equally swift restructuring of the American healthcare system. In order to survive these radical changes, management leaders within the clinical lab industry must constantly reassess the manner in which they organize and deliver laboratory testing services.

Failure to do so will mean continued turmoil in our industry. The unnecessary lay-offs of loyal, hardworking lab employees will continue even as counterproductive consolidation measures remove existing lab services infrastructure from the very neighborhoods that rely on them.

It is for this reason that we offer our “ten myths of lab management which led the lab industry astray.” It is time to move the debate about effective laboratory management to a higher level. As of yet, few of the lab industry’s trade associations have been willing to tackle this subject with candor, vigor, and even bluntness.

THE DARK REPORT is venturing into this leadership vacuum. In this second installment of our series, we offer the next four management myths of the lab industry.

MANAGEMENT MYTH #4
Laboratory automation is an automatic way to access cost savings.

LABORATORY AUTOMATION IS ONE of the most fascinating topics in clinical laboratory management. Since it first appeared on the lab industry’s radar screen some ten years ago, most lab executives came to believe it was inevitable that every clinical laboratory, including their own, would have to automate in order to remain competitive and cost effective.

This uniform belief in the potential of lab automation was so strong that there was really only one question that the typical lab manager asked about automation—when must I automate my laboratory?

It is the opinion of THE DARK REPORT that the management myth of laboratory automation was rooted in the lab industry’s universal acceptance of this basic assumption: an automated lab would have lower costs and higher quality than a non-automated laboratory.

For most of the 1990s, many lab managers considered it an unquestioned truth that any competitive laboratory would have to fully automate its lab if it was to remain viable and match the services of its competitors. This competitive spiral would begin once the earliest labs to automate became operational and gained competitive advantage.

But a funny thing happened on the way to the automation party. Those pioneering laboratories which were first to automate did not gain an immediate competitive advantage! To the contrary, a number of the earliest TLA (total laboratory automation) sites failed to yield enough cost savings and service enhancements to justify their acquisition and installation.

More importantly, the inflexible design of these early systems locked these labs into a work flow arrangement that prevented them from efficiently incorporating other management philosophies and emerging lab technologies.

THE DARK REPORT believes that validation of this management myth comes from one fact: since the earliest TLA |sites became operational in 1995 and 1997, there has not been a rush by the lab industry’s highest volume laboratories to adopt TLA into their own operations.

When other lab executives studied the actual performance of those pioneering TLA laboratories, they quickly realized that the expenses of TLA were prohibitive when compared to the modest benefits they delivered in cost savings and productivity improvement.

Most laboratory executives have ceased to grant unquestioning acceptance of the premise that lab automation must occur, and with it comes automatic competitive advantage. Rather, a more skeptical attitude has emerged.

Now laboratory administrators and managers are looking at lab automation solutions which address specific areas of lab operations. Under the various monikers of automated workcells, modular automated systems, and the like, a new generation of automated laboratory equipment is entering the marketplace.

It is this “component” approach to laboratory automation which will first achieve the necessary balance of acquisition cost, return on investment, and operational benefits. Moreover, as component automation proceeds, there will be a natural evolution in technology and lab processes that will eventually yield a cost-effective TLA solution.

MANAGEMENT MYTH #5
The best way to cut costs in the laboratory is to cut people.

WHAT SINGLE MANAGEMENT strategy was used by more clinical laboratories than any other during the 1990s? THE DARK REPORT believes the answer is indisputable: staff layoffs.

It was the loyal, long-serving med techs and support employees who bore the brunt of deficient management leadership during the 1990s. Whenever costs needed to be squeezed, the easiest solution for the brass upstairs was to terminate employees and downsize the staff.

It is a tragedy that the lab industry placed such profound reliance on staffing cutbacks as the way to deal with the need to reduce costs. Had many commercial and hospital lab managers studied the long-proven effective management techniques of manufacturers, distributors, and service companies outside the healthcare industry, they would have discovered a wide range of other techniques for reducing costs and improving quality.

Addicted To Layoffs

Staff downsizing was just as prevalent among hospital laboratories as it was in the commercial lab sector. High-performance management experts who’ve studied the clinical laboratory industry say that lab managers were addicted to staff layoffs as the swiftest, easiest way to reduce costs.

They observe that a great number of laboratory administrators and managers never got training in sophisticated management techniques such as deliberate methods change, quality management, value analysis, ISO- 9000, re-engineering, and others.

Thus, a significant number of the commercial lab and hospital lab industry’s management leaders were unfamiliar with the other effective management techniques available to them. Utilization of these methods could reduce laboratory costs without widespread, repetitive layoffs of lab employees.

Industrial engineer Mark H. Smythe, a frequent contributor to these pages, has noted that in a well-executed consolidation of manufacturing facilities, it is typical to get cost savings from operational changes which equal those of reducing staff.

To apply this to the clinical laboratory, anytime that a laboratory consolidated operations and cut costs by 25% through employee layoffs, it could have saved an additional 25% from operational savings, using value analysis, deliberate methods change, and other proven management cost reduction methods.

This means that a rigorous consolidation of multiple hospital labs had the potential to yield up to a 50% reduction in total costs! But since lab managers generally were untrained in these more sophisticated cost management principles used by industry, it was common to see an absolute reduction of not more than 15% to 25% of costs, with the majority of these savings directly attributable to cutbacks in the number of lab employees.

Myth Will Curse The Industry

Unfortunately, this management myth will curse the laboratory industry for years to come. Unless some lab trade association steps up and develops a “lab management university,” most laboratory administrators will have no other tool for swift and deep cost-cutting but employee staff reductions.

MANAGEMENT MYTH #6
It takes a long time to implement plans for lab restructuring or reorganization.

FOR ACTION-ORIENTED LAB MANAGERS, this myth is the most frustrating. There seems to be a built-in expectation that any significant change to laboratory operations or organization must take months, if not years, to prepare and implement.

This myth is particularly prevalent among hospital lab administrators. It is understandable, given the historic problems of gaining buy-in from hospital administration, physician staff, nurses, and other vested interests in the hospital.

Premier, Inc.’s Vice President, Bill Nydam, succinctly described the situation among hospital labs last year. “…our hospital owners were frustrated with the lack of speedy responsiveness that seemed to be common from many laboratories,” he told THE DARK REPORT. “Although they were focused on cost reduction, we found that it was happening in little steps…it was taking as long as 10 years for labs, on their own initiative, to work through these incremental steps [cost-cutting, consolidating testing among several hospitals, organizing a regional lab network].”

Nydam’s GPO represents 1,700 hospitals. His observations about lab management should be a wake-up call to administrators and executives genuinely concerned about maintaining a viable laboratory organization while providing employment stability to their employees.

This myth will disappear once a sizable number of laboratory managers acquire the mindset, along with the ability, to effect change on a rapid timeline. Individual laboratories no longer have ten years to adapt and transform themselves to the needs of today’s healthcare system.

Laboratory Industry’s Ten Biggest Myths

Here’s the first seven on our list. The final installment will complete the list of ten management myths:

  1. Lowest cost per test gives a laboratory an unbeatable competitive advantage.
  2. Bidding for additional specimens using marginal cost pricing is a viable business strategy.
  3. Getting a managed care contract guarantees that pull-through business will follow.
  4. Lab automation is an automatic way to access cost savings.
  5. The best way to cut costs in the laboratory is to cut people.
  6. It takes a long time to implement plans for lab restructuring or reorganization.
  7. Only other laboratorians can offer useful management or business advice to lab managers.

Myths 8-10: To be featured in final installment.

MANAGEMENT MYTH #7
Only other laboratorians can provide useful management or business advice to lab managers.

THIS MYTH ALSO REPRESENTS our pet peeve about the clinical laboratory industry. Entering the 1990s, it was an ingrained trait of both commercial and hospital-based lab managers to reject the business advice offered by professionals who had no lab experience.

Although management within the clinical laboratory industry was inbred, it was generating immense profits during the 1980s and early 1990s. Such confidence encouraged managers to look within the lab industry for management wisdom.

It was common to hear statements such as: “how can someone who’s never worked in a laboratory understand what kind of business expertise we need?”

This mindset caused lab managers to look at other laboratories for inspiration and innovation. Seldom would they go outside the clinical lab industry to find business and management models that could benefit their particular laboratory.

Clients of THE DARK REPORT remember how unique it was that the Bob Hamon, then Laboratory Director of Presbyterian Laboratory Services (PLS), in Charlotte, NC, had ridden in a semi-truck on its LTL (less than a load) delivery route to understand how it scheduled stops. (See TDR, October 21, 1997.)

This same individual went to Federal Express in Memphis to watch its system of picking up and delivering packages. When it came time to hire a new manager to run the PLS courier system, he hired a former United Parcel Service (UPS) manager.

Why? Because a lab courier system is almost identical to Federal Express, UPS, Airborne Express and other commercial delivery systems. Their business wisdom learned from delivering and tracking packages had value and relevance to that part of the Presbyterian laboratory operation.

There is still an innate resistance by clinical laboratory managers to learn the techniques, methods, and philosophies of other industries. Evidence of this is the fact that few laboratory programs will feature successful executives from outside the healthcare industry on the podium.

Someday the clinical laboratory industry may realize that much of the management wisdom it needs for survival can be found by studying the experience of other industries.

Difficult To Collaborate

As these four laboratory management myths demonstrate, much of the clinical lab industry continues to operate with inappropriate or outmoded management philosophies. That is why it remains difficult, if not impossible, to develop collaborative laboratory projects such as core lab joint ventures, regional laboratory networks, and shared facilities arrangements.

The final three lab industry management myths will further demonstrate why “honest-wrong” thinking continues to lead the lab industry down unproductive paths.

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