An excerpt: Why do organizations fail?

Saving Organizations That Matter describes the various reasons that not-for-profit, mission driven organizations fail. As with any type of organizations, there are many reasons… some obvious. Others are more subtle. In Saving Organizations That Matter, I describe many of the far less obvious ones to which mission driven organizations may be particularly vulnerable. Here is an excerpt from the first part of the book, entitled “Into Chaos”. The second part, “From Chaos” contains specific and practical strategies that organizations can deploy to counter the challenges they are facing.

The section below is called: “Failure is the Norm”:

Failure is the Norm

I have often heard colleagues within the health care industry describe those who work within the for-profit sector as overly obsessed with the bottom line, to the detriment of quality and service excellence.  My own experience consulting to for-profits has not borne this out; in fact, some of the for-profit organizations I have been associated with have been highly principled, quality and service oriented, and driven by a strong desire to do what is best for their patients.  Having a for-profit motive can be quite clarifying.  It can unify executives and provide for a level of precision around strategy and purpose.  In defense of not-for-profit health care organizations, however, programs and services directed to vulnerable populations often endure over time due to a mission that extends beyond solely financial considerations. 

Increasingly, not-for-profits facing deteriorating reimbursement rates, difficult payer mix trends, and costly regulatory challenges must take on more of a for-profit mindset and sensibility.  Though financially compromised programs may persist, executives must become more articulate about costs versus benefits in describing how and why the programs will be sustained, typically through subsidization from other programs or enterprises or from enhanced and more effective fundraising efforts.

Unfortunately, some not-for-profits have not adjusted in this manner.  As profits turn to losses or as manageable losses grow to unsustainable levels, they adopt a “woe is us” attitude.  They describe the changes as inevitable and foisted upon them by insensitive regulators and payers who “don’t care” or who “just don’t get it.”  Those who hold the purse strings are demonized, and over time, the attitude of the management team, employees, and boards of directors becomes a collective shrug of the shoulders.  Presentations after presentations of losses are met with the corporate-speak equivalent of “it is what it is” and “oh well, what can you do?”

This is not to say that real challenges do not exist for such not-for-profits as they most surely do.  Health care organizations are frequently asked to do more for less, and the ongoing stress to our national economy caused by persistently increasing health care costs forces regulators and payers to continually tighten those purse strings.  The same is often true of not-for-profits in other segments as well.  The issue here is that a corporate culture that accepts defeat in this manner often becomes blinded to weakness and poor managerial performance.  Ineptitude, bad decision-making, lack of analytical consideration, poor judgment, and misguided executive performance are often covered over and hidden deep within the morass of a broader “oh well, what can you do?” ethos.

This attitude becomes prevalent, sometimes surprisingly explicit.  It influences the language used in meetings and becomes so dominant that those who question decisions, who object to mounting losses, or who have the courage to suggest that some of the most concerning programs or services should be reduced or eliminated, are seen as heartless.  They are viewed as counter-cultural — for indeed, they actually are.

In other cases, the attitude is more subtle and acts as a powerful but unseen undercurrent.  Employees, members of the medical staff, managers, and board members all know better than to question performance.  Again, “it is what it is” becomes the prevailing sentiment.  This undercurrent seeps into every meeting and runs through every decision-making process.  It impacts how underperforming employees are managed — or better said, not managed.  It influences how leaders think about how key performance indicators are tracked and reported.  Downward sloping graphs are depressing, bad for morale, and raise many questions that managers struggle to answer, so those graphs are often left off reports and ignored completely.  This subtlety becomes insidious and, over time, remarkably destructive.

Failure is normalized, and bad news becomes old hat.  Alarming trends no longer seem all that alarming.  Organizations are lulled to sleep, especially ones with legacy assets and endowments that can be slowly depleted over time.  I have known CEOs who calculate how long the assets will remain during a financial decline and overlay that onto their retirement plans.  They essentially decide to wait out the decline, choosing to favor their personal interests over the long-term health and viability of their organizations.  The board, by this time, is essentially comatose and does not even notice.  As I said, it’s an insidious thing.

Available here.

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