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This Hospital Culture Change Sustainably Reduces Labor Costs

This Hospital Culture Change Sustainably Reduces Labor Costs

Before we kickoff the final post of our strategic cost management series, let’s take a quick detour. Imagine you are the winner of a DIY contest at your local hardware store. You have just won all of the materials you need to update your bathroom, and you will also get access to their DIY video library for free. So you watch lots of tutorials, create some designs and pick up exactly what you need from the hardware store for the bathroom of your dreams. But once it’s actually time to start, something holds you back. You’ve tried DIY before, and the results are never quite what you hoped for. In the kitchen, every day you notice the light fixture that’s just a little bit crooked, and the uneven brush strokes on the cabinetry. Your lack of skill might lead you to abandon the bathroom update completely. Or maybe you give up on the idea of doing it yourself and hire professionals to do the work for you. But they don’t really listen to your requests. Either way, you are no closer to having the bathroom of your dreams.

The key takeaway is that change doesn’t happen easily and must start within. When it comes to making changes within a hospital with the goal of uncovering labor cost savings, a cultural shift from top to bottom is needed. You must begin giving department leaders responsibility to set targets and create action plans. It’s not easy, but it’s worth it. Let’s take a deep dive into the three components needed to save hospital margins without losing key staff members.

This is the third of a three-part series on The Culture Change that Delivers Sustainable Hospital Operating Margin Improvements. If you’re finding us for the first time, go back and read Part 1 - Four Ways to Cut Your Labor Costs, Not Your Staff .


1. Departmental teams must be brought on board.

Large organizations, regardless of industry, aren’t strangers to needing to grease the wheels to get the train moving. In other words, change takes time but more importantly change requires buy-in across and throughout the org. When hospital leaders establish staffing targets based on benchmarks and productivity reports without involving individual departments, the cost savings initiative has a high risk of failure.

There are four big risks with tops-down target setting:


The group with the most detailed knowledge of how a team works and why will always be the members of that team. Every layer of distance introduces a knowledge gap and increases the potential for error.


A lack of creative collaboration between leadership and departmental teams moves these teams further apart from each other. It sows mistrust, eliminates fresh perspective and stifles innovation.

Performance Failures

The teams responsible for meeting new tops-down targets are likely to quickly spot any flaws in the thinking behind them. If you’ve ever been handed a goal you felt was unattainable, you know how defeating this feels; Teams that don’t believe in their targets are less likely to meet them.

Impact on Morale, Retention, Care

When departments regularly fail to meet the targets they never believed in, the stress of being set up to fail has the potential to negatively impact team morale, employee retention and even patient care.

Alternatively, when hospital leaders set targets that department leaders agree with and believe in, they’re much more likely to be successful in the pursuit of labor cost savings. They also have motivated, confident and loyal staff that believe in the targets set forth by management. This means they’ll feel that their work has meaning and that they’re positively impacting the bottom line, because they are.


2. Set interim targets with your department managers.

The key to bringing your department leads on board with your strategic cost management initiative goes beyond just lip service. It’s important to bring them along the journey in a meaningful way, which means giving them authority to set targets for their departments on their own. We know this sounds radical and has the potential to unleash chaos, but hear us out. In our previous post we mentioned that one of the reasons why hospital benchmarks and productivity reports fail to enact real change is the skill gap within the hospital organization. Your department managers likely don’t know how to look for cost savings. They likely have ideas on how to, but no official training. This is an opportunity to not only increase the chances of successfully meeting your targets, but also invest in internal talent that increases job satisfaction and employee retention.

First, have your managers look for cost savings based on their own departmental data and prior knowledge to set interim targets. That doesn’t mean handing them over a series of reports filled with averages and percentages. Compare their proposed staffing targets to the targets proposed by upper management and see if there’s room to compromise. From there agree on an interim target that they feel confident implementing. History has shown us that by empowering department managers to set interim targets as opposed to dictating one hefty target, you’re gearing your teams for success. Those small wins along the way to the finish line are essential to igniting the cultural shift needed for change.


3. Close the skill gap.

As previously mentioned, teaching department managers how to look for cost savings is critical, but it’s just the tip of the iceberg. In part two of our series, we mentioned that most department leaders are unfamiliar with action planning to optimize hospital operating margins. For the better part of their careers, they focused on prioritizing patient care and even though they moved farther away from the day-to-day of caregiving they likely still haven’t acquired the skills needed to translate staffing benchmarks into action plans.

Circling back to our earlier scenario, giving materials and instructions for a bathroom update to someone with no experience isn’t likely to empower or motivate them to do the work. However, add in an experienced contractor to coach and mentor along the way, chances are you may feel more confident completing the project. Taking a hands-on approach and dedicating resources to training and mentorship to close the skill gap will mean more dedicated employees, more cost savings and savings that will be sustainable over time.

Rome wasn’t built in a day.

The purpose of this three-part series was to walk you through the necessary steps to transform your organization into a labor-savings, forward-thinking machine. Our goal is to show you that you can both prioritize and optimize hospital operating margins without negatively impacting patient care or laying off key talent. That means getting creative with your strategic cost management initiative, reframing how you think about hospital staffing benchmarks and slowly starting to create a culture that empowers its employees.

However, without a partner to help you set those targets, and develop your team’s ability to create action plans as well as execute them, you may find yourself overwhelmed by data and uncertain of what to do next. After working with Futura Healthcare on your next strategic cost management project, not only will your organization see cost savings, but your team will feel empowered to do their jobs to the best of their abilities. At the end of a Futura SCM engagement, your team will say ‘I believe in this’. It’s not just cost-savings, it’s culture-change.


3-Part Series on Strategic Cost Management

The Culture Change That Sustainably Reduces Hospital Operating Costs


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