Net Operating Margin

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How to raise your organizations net operating margin up to 4%

What’s keeping you up at night? Labor shortages, new regulations, or your hospital’s shrinking net operating margin? How about the health of your hospital’s organizational culture? If you are like the average hospital CEO, you probably don’t spend much time worrying about quantifying and improving your organizational culture. But consider this: You can increase your net operating margin up to 4%, by improving your current workforce optimization practices.

Our research, involving approximately 500 healthcare organizations and over 200,000 healthcare professionals has established a number of important findings:

Hospitals with the best business practices have the best workplace culture (i.e., employee satisfaction, loyalty, and engagement).
Hospitals with the best workplace cultures have the highest patient satisfaction and loyalty scores.
In turn, hospitals with the highest patient satisfaction scores are more financially successful than the average hospital and exhibit the best community stewardship.

In other words, good workforce-related business practices keep employees engaged and motivate them to go beyond the call of duty. It is this discretionary effort that tangibly improves performance, creates happier patients, and eventually leads to a rise in the net operating margin.

Our research has shown that front-line manager capability is the key healthcare practice that fosters a passion for service. It is the most important performance driver as well as a key predictor of employee satisfaction. Front-line managers that are not very effective at leading their departments contribute to a large degree to: low employee engagement, high turnover, low patient satisfaction, and ultimately poor or negative net operating margins.

On the contrary, front-line managers who do a good job at creating ‘mini-cultures of excellence’ in their department contribute to high employee-engagement and patient satisfaction. We estimate that hospitals can increase their net operating margin up to 4% by improving their front-line leadership and talent management practices. Confidence in executive leadership and an institutional focus on patient care versus profits, also contribute to employee engagement and patient satisfaction.

Based on our research and case studies with key clients, we recommend that CEOs who want to tangibly improve employee performance and improve their organization’s net operating margin consider these recommendations:

Recognize that the fastest way to improve a hospital’s overall performance is by improving individual departments, one department at a time. The catalyst to improving the performance of each department is the department manager.
Identify the low-performing departments, compare to national benchmarks, and prescribe the appropriate remedy. .
Stop trying to “change people.” If performance does not improve after you have removed key operational obstacles and have actively coached a front-line manager, you must have the courage to do what’s best for your organization.
Hire or appoint front-line managers based on leadership capability that is appropriate for the department’s relative ‘Degree of Difficulty.’ Do not hire or appoint managers using leadership potential and/or tenure as selection criteria.
Go beyond the basic levels of accountability. Senior management and the Boards of Directors must take the appropriate actions that will create departmental cultures of responsibility, ownership and high performance.

With so much at stake, how much longer can you afford to allow poor or mediocre performance at your healthcare organization?

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