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Spring 2009

Practice Governance in Relation to Organizational Lifecycle

Paul Kennelly, MBA
Regional Director of Practice Management, Anesthesiologists Associated, Inc.

Ruth Morton, PHD
Vice President of Administration & Organizational Development, Anesthesiologists Associated, Inc.

Many practitioners believe that organizations go through stages of life not dissimilar to the stages in the lifecycle of living organisms. Various conceptual frameworks identify these lifecycle stages within small and large groups, and companies of all sizes and industries1. Do any of these frameworks apply to physician practices, and specifically, do anesthesia practices go through somewhat predictable (and perhaps repetitive) patterns of behavior as they grow and develop? And what impact do changes have on the maturity (or stage in the lifecycle) of a practice? We believe these questions are worthy of exploration, and that application of the concept of organizational lifecycle holds potential for informing choices about practice governance.

Organizational Lifecycle Stages2

The Dream or Idea (Conception)—A time of imaging and planning by the founders, often based on a vision of a service or product or market potential. There may or may not be a demonstrably effective product, but there is energy and desire while the organization is “in utero.”

Launching the Venture (Birth and Infancy)—With the energy of the founders, the dream or idea coalesces enough to take form – to become a start up. The venture is small and changing rapidly, very flexible but not independent of considerable energy and support to keep it going. Things get done in whatever is the easiest way – with few policies, procedures, or structure, although the entity starts delivering its product or service. Sacrifices may have to be made to keep it alive, although energy and creativity may be high, as in most entrepreneurial ventures.

<b.Getting Organized (Adolescence and Early Adulthood)—The energy of the founders is not enough to sustain the entity and its commitments. Roles become more specialized, financial controls are established or refined, policies are developed more clearly, communication channels are put into place, and it is establishing itself in the marketplace. Form and structure coalesce to help the organization operate more effectively on its own.

Making It (Prime Adulthood)—If the organization is successful in getting organized it moves into its own. It starts to reap the benefits of delivering its goods or services through established relationships. It has a positive reputation in the marketplace. It may successfully grow in size and profits due to its responsiveness to meeting needs and ability to deliver quality services. Importantly, it has a balance between flexibility and controls.

Becoming an Institution (Late Adulthood)—Reputation is a given, or assumed. The focus subtly shifts from externally oriented to more internally oriented, with energy directed to how things ought to be done, and who fits in and who does not. Flexibility begins to wane. Responsiveness to external changes and shifts in markets lessen. Profits may still be high.

Closing In (Old Age)—May grow as an outcome of self-satisfaction, continued success, and little competition from the outside. The entity turns even more inward, often with internal focus on status and rules, with less connection between the organization and its environment. The organization is sluggish in responding to change in its marketplace and displays rigidity in its processes and behaviors. Yet it can be kept alive by “life support” or a monopolistic position.

Obsolescence/Demise (Death)—No longer viable, organizations at this stage may go out of business, operate with only minimal staff and a diminished product, file bankruptcy, or get acquired or split up. The identity of the organization barely or no longer exists.

From reviewing the lifecycle stages adapted from Bridges and Adizes one can see the stages that an anesthesia practice potentially experiences. Thinking of the practice in organic terms can help understand the lifecycle concept and some of the “growing pains” the practice experiences. At each stage in this developmental process an organization is faced with a unique set of challenges or problems to overcome. These arise from the growth and success of the practice and from external changes in markets, competitors, technology, payors, and regulatory entities. However, it is important to realize that practices are not entirely “organic”; the practice has some control, through its decisions and actions, over how successfully it enters (or not) the next stage, and how long it will dwell in any given stage. The role and impact of group leadership appears to be a considerable factor in determining the health of movement through the lifecycle.

What causes a practice to move from one stage to another?

External changes that impact the practice (i.e. hospital changes, payor shifts, new regulations, economic downturn) or changes within the organization (i.e. new president or board, retirement of longstanding key members) can move the practice from one stage to the next. Although this may seem fairly intuitive, organizations frequently are caught short in planning for and responding to change. This is due to the potential delay between the change and its effects on the organization. For example, the precipitating event can be sudden such as an abrupt change in staffing or it can be slow such as longer and longer delays in reimbursement from payors. Additionally, the effect of change varies depending on where the practice is in its lifecycle. For example, delayed reimbursement may have a more severe and rapid impact on a newly formed practice than one which is established and in its prime. Another factor to consider is if the event or issue is internal or external in nature. An internal factor such as a change in the group’s compensation plan demands a certain approach while an external issue such as a state budget crisis delaying reimbursement requires a different approach. How change is addressed weighs heavily on the governance structure and approach selected.

It wasn’t too long ago when many anesthesia practices would probably been considered established and stable. But recently the landscape is littered with anesthesia groups that have fallen apart (Death) because of conflict among the members or with their hospital. Typically these groups are reconstituted, often times with many of the same members of the old group but with one important difference — a new sense to “make things right” with the hospital (the Dream or Idea). In such a situation, one could easily see the need for a different governance approach. What may have been seen as an entrenched, inflexible approach (more typical of “closing in” stage) to the hospital must change to one favoring collaboration and service (often typical of “making it” stage). Governance within a newly formed group (launching the venture) may be held by a small group who are more entrepreneurial in their thinking and who favor a customer service approach to the hospital and surgical community.

Following the start up phase, a practice begins to address the need to have processes and standards. Issues such as benefits, compensation plans, equitable call scheduling, and quality measures, begin to surface and the need for the entrepreneur gives way to the “organizers”. The “idea” people may no longer be the best candidates to lead the organization as the need to refine structure and solve organizational issues intensifies. Governance that focuses on issues of structure, processes, and communication is most appropriate for a group in this stage of “Getting Organized.”

A practice that is in its “prime” enjoys a sense of wellbeing and security. The group tends to be at peace with its hospital(s) and may play an active role in managing the operating room. There is a balance between those in the group who are income driven and those who are life-style driven. Staffing issues are minimal and the group is the “provider of choice” as new anesthetizing sites develop. Life is good. Practice governance displays a balance between flexibility (creative ideas, open to new markets and products, engaging members in committees and decisions) and controls (consistent application of policy, strong communication among members, clarity of processes and decision-making, strong oversight of revenue cycle). Groups who recognize the dynamics of the marketplace and the precariousness of being satiated will elect leaders who retain a healthy sense of reality and who can walk the fine line between alarmism and naiveté.

But what of the mature practice (Becoming an Institution) — how does change affect its governance? Mature practices tend to have a solid presence in the community and may have little or no outside competitive threat. They have become an institution, may be large, and have providers that fall along the entire practice spectrum from those early in their career to those who now contemplate retirement. Maintaining a competitive advantage in balance with the diverse needs of the group’s members becomes a major point of emphasis. Managing quality of life and work ethic issues magnify as the practice grows. In many respects this can be a vulnerable time for a practice. There is little sense of urgency and the prevailing thought may be to leave well-enough alone. For the leadership, however, it should be a time of careful introspection and evaluation. A sudden change in hospital administration, the addition of an overly-demanding surgeon, the loss of a high volume surgeon, the departure of a member(s) of the group, or an outlier shareholder who thinks cases are not distributed equally — are all examples of transitions that might shake the practice from this sense of well being. Suddenly the “organizer” yields to the “visionary” who can see the big picture and who can appease the multiple stakeholders affecting the practice. This is also a time when the practice must guard against becoming entrenched and difficult to deal with lest it hasten its own demise and death. Threats often come from within the practice as much as from forces external to the practice.

What can a practice do to prepare for the inevitable transitions that come from and evoke shifts in the organizational lifecycle?

First, recognize and acknowledge that change is going to happen, and that it is a natural occurrence. The only place where change does not happen is in death. Groups that admit organic internal and external change will confront them (maybe even welcome it) and who plan for it are far better positioned to succeed than those who fail to accept organizational change.

Second, another important area to address is the group’s corporate documents such as bylaws, shareholder agreements, and employment contracts. A regular review of the governing documents to ensure they are current with state and federal law as well as guarantee practice leaders flexibility to deal with contemporary issues is an important part of maintaining organizational health and keeping it in its prime.

A third element is developing and nurturing a strong sense of trust. Some anesthesia groups lack a sense of collaboration and joint problem solving skills. These practices are a loose coalition of providers who operate more in terms of individual needs rather than organizational needs. In such groups trust is often at a premium and concerns that the leadership will not perform in the best interest of the group is common. To cultivate the public trust of its members, and to address problems / challenges that the group faces, an anesthesia practice must promote a cooperative and “greater good” mentality if it hopes to sustain itself. To be sure, some groups have members who revel in working in a fashion that emphasizes the individual rather than the group and the concept of working ”in the best interest of the organization” may be subject to wide interpretation. Unless the practice has the political will and leadership fortitude to address this public trust issue, it will surely flounder when external change challenges the norms and stability of the practice.

Ichak Adizes, an international figure in lifecycle management, tells us:

Leading an organization through lifecycle transitions is not easy, or obvious. The same methods that produce success in one stage can create failure in the next. Fundamental changes in leadership and management are all required, with an approach that delicately balances the amount of control and flexibility needed for each stage. Leaders who fail to understand what is needed (and not needed) can inhibit the development of their companies or plunge them into premature aging3.

For anesthesia practices, planning for change and recognizing the need for a flexible governance model means strategic planning and decision making. Planning is not just about growth or revenue streams — it involves those economic considerations, but it also embraces an introspective look at the practice, its hospital, and primary market. It evaluates the organization’s strengths and honestly assesses the flexibility of its leadership structure. The issues facing health care are significant: the renewed debate on national health reform, the recession, the emergence of pay-for-performance, the increased shift of financial responsibility to the patient, staffing issues, higher expectations of service to the hospital, surgeon, and patient are all real factors facing anesthesia practices today. A practice must adjust to a rapidly changing environment by altering its governance structure, ensuring that it is appropriate not only to its environment but to its own developmental needs.

Your Practice?

As you reflect on the history of your group, are there issues or challenges that, in the context of lifecycle, can be more fully understood? Currently, in what stage of its lifecycle is your practice? Are there stage-related events or problems to be addressed? Does your governance body and structure need to change to reflect developmental needs of your group? These are a few of the questions that we hope this article has caused you to ask yourself.

Insights on the Nature of Problems4

Problems are normal and desirable. Problems are the natural result of change. The only place on the lifecycle curve where there are not problems is the place where there is no change, which is Death.

Your role as a leader is not to prevent problems or slow the pace of change. Instead, focus on accelerating your (practice’s) ability to recognize and resolve problems. Your ability to work together as a team and quickly tackle any and all situations, or decide not to, is your ultimate competitive advantage.

Some of the problems you face are normal and some are abnormal. Normal problems are those that are expected for a given lifecycle stage. Abnormal problems are those that are not expected (or desireable) in a stage of the lifecycle.

You can drive your (practice) faster when you know the road ahead. Mot of the issues you face are common. you can save time and effort by understanding the nature of stages in the lifecycle and knowing what it will take to transition from one stage to the next. If you share a common understanding before problems arise, it will help you attack the problems, instead of attacking each other.

Prime is the Fountain of Youth for (practices). One key difference between the lifecycle for human beings versus organizations is that living things inevitably die, while (practices) need not. The “age” of a (practice) is not related to its chronological age. Instead, the lifecycle is defined by the interrelationship between flexibility and control. In Prime a (practice) has achieved a balance between control and flexibility… knows what is doing, where it is going, and how it will get there. Once a (practice) reaches Prime, leadership must work to sustain that position.

If you have comments, questions, or needs on matters related to this topic, we invite you to contact us: 503.372.2789 or 925.949.2318

Paul Kennelly, MBA, is Regional Director of Practice Management for Anesthesiologists Associated, Inc.

Ruth Morton, PHD, is Vice President of Administration & Organizational Development for Anesthesiologists Associated, Inc.

1 Two such frameworks were developed by Ichak Adizes in Corporate Life Cycles (1988) and William Bridges in Surviving Corporate Transition (1990) and The Character of Organizations (2000).

2 Adapted from the work of William Bridges, Surviving Corporate Transition, 1990, and Ichak Adizes, Corporate Life Cycles, 1988.


4 Excerpted and adapted from ibid.