Healthcare Organization and Information System Strategic Alignment: A Leadership Perspective.

Organizational and Healthcare Information Systems (HIS) strategic alignment is a key factor in developing successful healthcare organizations.  Scholars suggest that a shared Chief Information Officer (CIO) and Organizational Executive Team (OET) strategic vision might best be formed by engaging in exchanges surrounding organizational practices, business processes and strategies, communicating knowledge regarding HIS capabilities and HIS business operations, integrating HIS and organizational strategies towards common goals, and generating a coherent vision of HIS-enabled organizational advantages.  Preston and Karahanna (2009) suggest that six visioning methodologies might serve to better align the HIS vision with organizational objectives and promote the adoption of a shared HIS vision.  These mechanisms include utilizing a shared language of business, the creation of an inclusive network hierarchy that aligns the CIO to the Chief Executive Officer (CEO) in reporting and thoroughly integrates the CIO into the Organizational Executive Team, CIO education leadership aimed at educating members of the OET regarding the current capabilities and limitations of the organizations IS infrastructure and operating systems, building common interests across the CIO-OET framework, enhanced CIO understanding of the organizations strategy, and finally CIO relational capital that builds trust across the CIO-OET working relationship.

Three core personal attributes supporting strategy oriented CIO efforts include communication and influencing attributes, commercial business skills, and people management skills.  CIO’s endeavoring to communicate effectively and influence the adoption of a shared IS vision across the organization face challenges relative to engaging other key leaders in IT decision making processes. Here CIO’s might look towards methodologies centered in CIO educational leadership as a model that suggests CIO’s sponsoring educational initiatives such as organizational seminars, in-service instruction, and workshops that serve to build a body of knowledge that might assist other key leaders in understanding important issues surrounding IT decision making.  Additionally, trends in healthcare IS innovation suggest that the innovative pace will continue to significantly impact healthcare organizations across the complete spectrum of operations, services, and quality .  Therefore, CIO’s must endeavor to communicate the best use of HIS innovation in a manner that translates into language understood throughout the organization.

Yet another attribute successful CIO leaders must develop include people management skills that translate into the CIO becoming increasingly engaged in championing innovation.  Creating a shared IS vision is a challenge that requires CIO’s to develop and sharpen soft skills that are required to motivate and drive change in areas such as transparency, care quality, patient safety, and that maximize quality-cost-value competitiveness across the organization.  Finally, CIO’s should strive to enhance their commercial and business skills so that they are better equipped to meet challenges related to justifying IS expenditures. This becomes especially important in relationship to trends that suggest future access to enterprise capital might become constrained and costlier to the organization as capital markets evolve towards higher interest environments.

Contemporary CIO’s face multifaceted challenges that reach far beyond the technical complexities of information systems and require them to take on additional roles aligned to leadership, facilitation and education, and healthcare business management.  It should also be noted that healthcare administrators, managers, an practitioners should endeavor to improve their understanding  of the issues and challenges faced by HIS personnel and leaders. Moreover, each of these important organizational contributors should seek to form collaborative partnerships that create competitive advantages that bring value to healthcare consumers.

Author: Michael Cosmah for CurativeMangement.com

Preston, D., & Karahanna, E. (2009). How to Develop a Shared Vision: The Key to Is Strategic Alignment. MIS Quarterly Executive8(1), 1–8.

Understanding Long Term Care Costs and Their Impact On Individuals, Society, and Healthcare.

Long term care (LTC) services in the United States (U.S.), for the most part, are paid for through taxes imposed on the citizenry (Shi, & Singh, 2014).  In 2009, LTC services paid for by government funds totaled $203.2 billion and two-thirds of LTC services were paid through Medicare or other public LTC entities such as the Veterans Administration, and Medicaid (Shi, & Singh, 2014). Based on Fiscal Year (FY) 2010 expenditure data, Medicare provides 62.2% of all long-term care expenditures, followed by Out of Pocket payer expenditures of 21.9%, Private Insured expenditures of 11.6%, and finally other public payer expenditures totaled 4.4% (Who Pays, 2013)

While Medicare provides the largest share of expenditures, Medicaid expenditures in 2010 accounted for 31% of all Medicaid spending (Who Pays, 2010). Further, some researchers suggest that growing Medicaid expenditures in long term care place significant pressure on state’s budgets (Kozol, 2013).  These researchers posit, that the growth of Medicaid long term care outlays might push the proportion of Medicaid expenses in state budgets to 30% (Kozol, 2013).

In 2010, LTC expenditures across all sources collectively totaled $208 billion, by 2040, LTC expenditures are anticipated to expand to $346 billion (Who Pays, 2013).

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Source: Who Pays for Long-Term Care in the U.S.? The SCAN Foundation. Aging and Long Term Care with Dignity and Independence. (2013). Retrieved from http://www.thescanfoundation.org/who-pays-long-term-care-us

Medicare provides coverage for qualifying LTC in Skilled Nursing Facilities (Medicare, 2016).  Medicare coverage pays 100% of the patients first 20 days and the patient pays a maximum of $140 per day for days 21 through 100, Medicare pays remaining balances for days 21 through 100 (Medicare, 2016).

However, there are stipulations regarding Medicare LTC coverage’s, for example, Medicare Part A covers LTC at Skilled Nursing Facilities (SNF) after a patient is hospitalized for three or more days or up to 30 days post discharge from a 3 day hospital stay, and only if the patients physician has directed a need for care in a SNF, and only if skilled nursing care is performed at a Medicare certified facility, and only if SNF admission is related to a medical condition that required the original hospitalization (Medicare, 2016).

Medicare Part A provides hospice coverage at home or as an inpatient depending on the nature of terminal illness (Medicare, 2016).  Again, stipulations exist for eligibility including that a physician certifies the patient’s terminal illness carries an expectancy of 6 months or less, the patient accepts palliative care versus care for cure, and the patient signs a statement indicating preference for hospice over continued curative treatment (Medicare, 2016).

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Source: Brown, J. R., Goda, G. S., & McGarry, K. (2012). Long-Term Care Insurance Demand Limited By Beliefs About Needs, Concerns About Insurers, And Care Available From Family. Health Affairs, 31(6), 1294–1303. https://doi.org/10.1377/hlthaff.2011.1307

A study of 1500 individuals 50 years or older found several reasons exist for individuals not obtaining Long Term Care Insurance (LTC) insurance, these include, 57% of respondents indicating cost as the primary reason, and 12% citing a perceived lack of need for long term care (Gleckman, 2011; Brown, Goda, & McGarry, 2012).  Additionally, individuals are often reluctant to purchase LTC insurance because they fear their investment might be wasted if not utilized (Medicare, 2016).  Finally, another reason that might lend to low utilization of LTC insurance includes the notion that many policies have limitations on how long they will cover LTC, or have limitations on amounts the policy will payout for LTC (Medicare, 2016).

Other options relative to providing for LTC include combination Life/LTC insurance, insurance products with Accelerated Death Benefits, Annuities, and Reverse Mortgages (Medicare, 2016). While each individual must evaluate risk to benefit impacts regarding these products, it is important that patients be informed regarding the existence of alternative avenues for the provision of their Long Term Care needs.

For additional information regarding this important topic visit the following sites:

References

Brown, J. R., Goda, G. S., & McGarry, K. (2012). Long-Term Care Insurance Demand Limited By Beliefs About Needs, Concerns About Insurers, And Care Available From Family. Health Affairs, 31(6), 1294–1303. https://doi.org/10.1377/hlthaff.2011.1307

Gleckman, H. (2011). Why People Don’t Buy Long-Term Care Insurance. Retrieved from http://www.forbes.com/sites/howardgleckman/2011/09/12/why-people-dont-buy-long-term-care-insurance/

Federal LTC Plan Details and Long Term Care Insurance Introduction to LTC and LTCI. (2016). Retrieved November 14, 2016, from https://www.ltcfeds.com/start/aboutltc_cost.html

Kozol, G. B. (2013). The Long-Term Care Conundrum. Journal of Financial Service Professionals, 67(1), 30–35.

Medicare – Long-Term Care Information. (2016). Retrieved from http://longtermcare.gov/medicare-medicaid-more/medicare/

Who Pays for Long-Term Care in the U.S.? | The SCAN Foundation | Aging and Long Term Care with Dignity and Independence. (2013). Retrieved November 19, 2016, from http://www.thescanfoundation.org/who-pays-long-term-care-us

 

Improving Healthcare System Integration

file-7029-work-corridor-walnut-creek-hospital-1953In many ways, today’s modern healthcare system in the United States (U.S.) is a legacy arrangement based on the hospital system structure created by The Hospital Survey and Construction Act of 1946, often referenced as the Hill-Burton Act (Shi, & Singh, 2014).  This legislation created a national hospital system dominated in number by nonprofit hospitals (Shi, & Singh, 2014).  In 2012, 50.5% of U.S. hospitals were classified as nonprofits, 18.9% were operated by state and local government, 17.3% were private for profit facilities, and the remaining 13% were psychiatric, federal, or classified as other nonfederal entities (Shi, & Singh, 2014).

Since the middle 1980’s, hospital facilities across all classifications in the United States (U.S.) have undergone considerable contraction and consolidation (Shi, & Singh, 2014).  Consider, that since 1985 average bed capacity (ABC) across community hospitals decreased from 169.5 in 1985 to 161.5 in 2010 (Shi & Singh, 2014).  More recently, the total number of community hospital beds have moved from 823,560 in 2000 versus 804,943 in 2010 (Shi, & Singh, 2014).  Scholars suggest, that downward compression in U.S. hospital capacity, since the 1980s, is primarily related to three primary factors including changes in hospitalization reimbursements, efficiencies across the spectrum of managed care, and finally hospital closures (Shi, & Singh, 2014; Fundamental, 2012).  More recent factors impacting downward pressures relative to hospital consolidations also include extensive capital outlays for developing or upgrading Electronic Health Record (EHR) systems, and impediments to accessing capital required to remain competitive (Fundamental, 2012).

Impacts of Changing Reimbursement Models and Managed Care Cost Efficiencies

The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 eventuated the elimination of the cost-plus reimbursement model and instituted the prospective payments system (PPS) that utilized Diagnostic Related Groups (DRG) (Shi, & Singh, 2014).  The PPS methodology pays by fixed rate criteria based on patient admission diagnosis (Shi, & Singh, 2014).  Hospital profit margins are frequently impacted by this rate structure, in that, to generate cost efficiencies facilities must keep costs per patient below the PPS rates per admission (Shi, & Singh, 2014).  Payment pressures related to PPS squeezed hospital margins significantly across the previous two decades, conversely, these pressures resulted in over 550 hospital closures during this timeframe (Shi, & Singh, 2014).  Further, declining margins created fiscal headwinds across the hospital sector that led to increased merger and acquisition activity among hospital entities (Shi, & Singh, 2014; Kaul, Prabha, & Katragadda, 2016).  For example, in 2011, median revenue growth across the hospital sector was four percent, the lowest rate in 20 years (Fundamental, 2012).

During the 1990s, Managed Care Organizations (MCO) brought efficiencies in cost containment to the U.S. healthcare system (Shi, & Singh, 2014).  The resultant impacts of MCO’s utilizing the managed care model brought about significant improvements in areas such as patient education, preventive treatment modalities, and clinical patient care and health maintenance that diminished hospital utilization rates (Shi, & Singh, 2014; Kaul et. al., 2016).  Evaluating average length of stay (ALOS) metrics one finds that ALOS for community hospitals in 1980 was 7.3 days (Shi, & Singh, 2014).  However, after the introduction of MCO systems, ALOS fell to 4.9 days by 2000 (Shi, & Singh, 2014).  These data provide potential insight into the synergies surrounding managed care cost controls and treatment efficiencies, and their impacts on hospitals.  The combination of which, eventuated significant financial headwinds further compressing hospital revenues, and impacting hospital profit margins (Shi, Singh, 2014).

Decreasing revenues from changes in reimbursement, and decreases in hospital utilization rates based in managed care impacts resulted in hospitals nationwide consolidating in-house services by closing whole in-patient units and combing in-patient services through the implementation of multi-service units (Shi, & Singh, 2014; Kaul, et. al., 2016).  Additionally, the hospital sector consolidated through the closure of over 200 rural hospitals, and 300 urban community hospitals from 1990 to 2000 (Shi, & Singh, 2014).

New Headwinds

Researchers suggest, that two more recent factors impacting hospitals include requirements for capital expenditures to modernize electronic health records (EHR) systems, and diminishing capacities to access capital to modernize systems and remain competitive (Fundamental, 2012).  A primary component of the move towards value based care reimbursement includes the quality of facility EHR systems (Fundamental, 2012).  Meaningful use standards include requirements aligned with implementing certified technologies in EHR (Fundamental, 2012).  Facilities that have failed to upgrade to EHR meaningful use compliant systems report financial barriers related to system costs, costs of capital, and system maintenance costs (Fundamental, 2012).  These barriers, with emphasis on costs of capital, create significant fiscal burdens on hospital systems further endangering margins (Fundamental, 2012).  Further, deferred systems up-grades, or periods of low level modernization projects, potentially place hospitals in disadvantaged positions relative to competitors with lower costs of capital or greater access to capital (Fundamental, 2012).

The totality of consolidation, reimbursement challenges, expanding patient populations, and capital expenditures for a growing array of physiological technologies, healthcare information technology infrastructure, EHR systems, client management and scheduling systems, revenue management systems, bioinformatic and data analytics place many healthcare systems in vulnerable fiscal position (Fundamental, 2012; Shi, & Singh, 2014; Kaul, Prabha, & Katragadda, 2016).  Moreover, systems with challenging capital positions often face an inevitable downward spiral consisting of declining fiscal health eventuating deficits in system credit ratings, bringing about deteriorating capacities to access capital at reasonable rates, compelling systems to utilize larger portions of retained earnings to finance near-term system upgrades, resulting in diminished levels of savings to invest in future technologies, finally culminating in significant impacts in financial health and competitive positioning (Fundamental, 2012).

Beyond Consolidation Towards Integration

Considering these headwinds, both old and new, healthcare systems must move beyond the cost efficiencies garnered through previous periods of consolidation.  Contemporary systems in search of greater efficiencies in providing quality care and services based in the wellness-quality continuum, methodologies to maximize capital expenditures in ways that best utilize capital and opportunity costs, and generate scaled efficiency must focus on system-wide operating models (Kaul, Prabha, & Katragadda, 2016; Toward, 2016).

Today, health systems face extraordinary pressure to enhance quality across the spectrum of their operations, while at the same time, improve upon cost efficiencies across their systems.  Traditional healthcare organizational systems often employ structures that find individual facilities operating as stand-alone entities (Kaul, Prabha, & Katragadda, 2016).  Further, these traditional systems often fail to develop and deploy system wide guidelines, programs and complementary operations across the organization (Kaul, Prabha, & Katragadda, 2016).  Additionally, traditional systems commonly grade individual facilities in areas such as profitability, performance improvement, and quality of care versus evaluating the entirety of the system on these and other metrics (Kaul, Prabha, & Katragadda, 2016).

The Integrative Model

Forward looking models must serve as structural frameworks, across which, the fundamental production of care and services are delivered.  This model engages the continuous evolution of internal and external forces shaping modern healthcare delivery and translates these forces into dynamic integrative strategies.  During the preceding period of consolidation integrative strategies, when utilized, often centered on assimilating business support lines to derive cost efficiencies (Toward, 2016). However, contemporary healthcare systems should integrate across business, support, and clinical lines throughout the entirety of their systems to obtain maximal synergies in efficiency.

Integrated systems must engage all system facilities and lines in a manner that supports the development of a singular integrative organization.  Integrative models de-silo classical healthcare systems arrangements and re-aligns contemporary systems business, support, and clinical operations on a shared responsibility towards a continuum engaging patient-centric and wellness-quality delivery (Kaul, Prabha, & Katragadda, 2016; Toward, 2016).

No two healthcare systems are alike, in fact, the U.S. healthcare system is an amalgamation of non-profit, for profit, and government healthcare system entities.  These entities differ in many ways such as facility size, capacity, capabilities, market size and patient populations, and fiscal health.  Likewise, no singular integrative model will suffice to meet the needs and requirements of every system.  Kaul, Prabha, and Katragadda (2016) suggest, that a baseline integrative framework might contain three key components including a corporate nucleus, a joint enterprise complex, and patient facing operating units.

In this baseline integrative framework, strategists suggest, that the Corporate Nucleus (CN) provides overall guidance relative to integrated strategy development and oversight, corporate portfolio lines, lean core organizational services, and policy development (Kaul, Prabha, & Katragadda, 2016).  The Joint Enterprise Complex (JEC), collaborates with patient facing units to provide efficient delivery of business and support assistance, and delivers products, information, and service to the CN (Kaul, Prabha, & Katragadda, 2016).  Patient Facing Operating Units (PFOU), concentrate resources on the provision of exceptional healthcare delivery focused on expanding value on the wellness-quality continuum (Kaul, Prabha, & Katragadda, 2016).

 
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Figure 1: Based on the baseline integrative model introduced by Kaul, Prabha, and Katragadda (2016). 

 Fostering Integrative Change

A 2015 survey on corporate integration and mergers polled 800 American executives from various industries (Toward, 2016).  Regarding systems integration, 82% of responding executives indicated their organization created integrative teams (Toward, 2016). Perhaps more important, 90% of these corporate executives indicated, that integrative teams were vital to successful integrative ventures (Toward, 2016).  Change management practitioners often point to the importance of Change Management Resource Teams (CMRT) as being instrumental in successfully carrying out change initiatives (Employee, 2016).

Alpern and Aguirre (2014) submit, that ten impactful principles play important roles in shaping change throughout an organization they include:

  1. Synergize the existing culture; rather than endeavoring to bring whole-sale cultural change. Identify elements of existing culture aligned to the change initiative, highlight these strong cultural influences and engage the attention of those in the organization most impacted by the change.
  2. Strong executive commitment in supporting organizational leaders and teams engaged in carrying out change.
  3. Engaging all layers of the organization; Bring the full complement of corporate knowledge to bear; front line personnel often prove to be instrumental repositories of technical, logistical, and customer centric issues centered in change.
  4. Presenting and supporting both the rational and emotional case for change; Rationale might include capturing new market share, emotional motives such as enhancing the lives of customers are often equally powerful and engaging.
  5. Begin by defining and modeling a critical few new behaviors aligned to change and evolve in complexity from there.
  6. Engage and sustain engagement across the organization, across the timeline of change, and beyond. This tenant should be continual; its importance is manifold.
  7. Lead beyond the traditional lines by acknowledging the social networks imbedded in the organization and the informal leaders of these networks.
  8. Leverage formal structures such as reward and acknowledgement systems and promote training and development.
  9. Leverage informal mechanisms that create an ethic of ownership across the organization.
  10. Assess and modify by implementing change and performance measures aligned to change processes.

Industry Differentiation

Dr. John Halamka (2011) explains, that healthcare differs from other industries in several important ways including revenue payments that emanate, not from the consumer, but third parties such as insurance or Medicare. Further, employee conventions differ significantly from other industries with key organizational members, namely physicians, most of whom do not work as employees of health systems but as independent contractors interacting with the system. Price negotiation is restricted and payment models are established by external entities creating artificial market prices for health system services, while most other industries operate on free market principles. Additionally, health systems are confined by “anti-kickback” laws that discourage healthcare entities from building referral relationships. Furthermore, most industries produce products or offer services that can be standardized throughout a company’s operations where improvements in service, performance, or quality can be efficiently carried out. However, healthcare is based in significant physiological differences among individuals, who are acted upon by a myriad of disease processes, injuries, and behavioral antecedents requiring a host of differential services and treatment capacities be employed to provide effective care.

The confluence of these differentiators, and other distinguishing factors relative to healthcare systems discussed above, suggest that, as these systems seek to establish efficiency through integrative models and change management principles one key dynamic might enhance integrative efforts.

Integrative Liaison Teams as Collaborative Multipliers

This writer concludes, that the addition of Integrative Liaison Teams (ILT) to baseline integrative models will significantly impact integrative efforts across the healthcare systems spectrum.  ILT’s comprised of leadership and functional subject matter experts from entities across the system serve as the nexus for collaborative system integration.  Like Change Management Resource Teams, ILT’s should be chartered to develop and apply structured integration management and strategic methodologies towards healthcare system network integration (Employee, 2016).  Utilizing integrative strategies, Integrative Liaison Teams should develop system specific plans for engaging the people and systems in integrative processes.  These plans include establishing communication plans, an integrative time-lined course map, and training plans aimed at educating system employees relative to leaderships integrative vision, integrative objectives, timelines and outcome expectations (Employee, 2016).

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Figure 2: The authors modified integrative model with the inclusion of the Integrated Liaison Team

Perhaps, equally important, is the role ILT’s play in the 10 principles to leading change mentioned above.  Here, this group of leaders and functional experts serve as a communicative and collaborative core, through which, the organizational integrative vision flows.  Further, the ILT enhances communicative and collaborative integrative efforts through ensuring each of the three primary system components, the Corporate Nucleus, Joint Enterprise Complex, and Patient Facing Operating Units remain informed and connected regarding integrative processes.  Finally, the ILT serves as stewards of the integrative program by addressing process concerns identified by any of the three primary system components and collaborates with and between the primary components to problem solve and improve efficiencies impacting integrative efforts or organizational performance.

Issues related to the consolidation era, evolving modifications in reimbursement models, and growing capital expenditures in technology investments have resulted in many healthcare systems operating in precarious fiscal environments and in mal-aligned systems.  The confluence of these factors impact efficiencies in system performance, weigh on organizational cost efficiencies, and produce deficits in opportunity costs across the system.  Health systems must move beyond institutional paradigms fixed in classic healthcare operating models, towards integrative models producing patient-centric paradigms focused on the wellness-quality continuum.  This writer suggests, integrative models that include Integrative Liaison Teams might best serve as an efficient nexus engaging health system’s integrative visions, communication, and collaboration.

References

Alpern, D., & Aguirre, M. (2014). 10 Principles of Leading Change Management. Retrieved from http://www.strategy-business.com/article/00255?gko=9d35b

Employee Roles in Initiating Successful Change Management | Prosci. (2016). Retrieved from https://www.prosci.com/change-management/thought-leadership-library/roles-in-change-management

Fundamental Transformation of the Hospital Field. (2012). Retrieved from http://www.aha.org/research/policy/realignment.shtml

Halamka, J. (2011). Healthcare is Different | THCB. Retrieved from http://thehealthcareblog.com/blog/2011/08/14/healthcare-is-different/

 

Kaul, A., Prabha, K. R., & Katragadda, S. (2016). Size should matter: Five ways to help healthcare systems realize the benefits of scale. Retrieved from http://www.strategyand.pwc.com/reports/size-should-matter

Shi, L., & Singh, D. A. (2014). Delivering Healthcare in America: A Systems Approach (6th ed.). Sudbury, MA: Jones and Bartlett Publishers

Toward Systemness | Deloitte US | Health Care Providers. (2016). Retrieved from https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/towards-systemness-insights.html

Effective Managers Are Essential To Effective Organizations

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Management of Effective Organizations

Effective organizations include structures that align with external environmental factors, positively engage and improve internal factors, and contain managers practicing the art, craft, and science of management. This article documents the necessary components of effective organizations and discusses the effects of an organizations environment on its structure.  Additionally, principles of effective management are addressed relative to the constructs of art, craft, and science (Mintzberg, 2009).  Further, the author investigates the imperfect nature of management, reflective behaviors, analytic proficiencies, worldly outlooks, collaborative constructs, and proactive functioning that managers might employ in the practice of management.  Next, the work evaluates the importance of management engaging organizational personnel, the introductions of new hierarchies, and constructs of effective organizational communication.  This is followed by, an overview of decision making and problem solving principles that lend to an integration with the confluence of art, craft, and science in management.  Finally, the author considers the efficacy for authentic leadership practices and their potential impact on an organization and its personnel

Organizational Structure

Hodson, and Sullivan (2012) suggest, that organizational structure is the recognized arrangement of relationships throughout the varied components of a group, business, or organization, and between the assorted members belonging to these entities.  Various organizations such as federal and state governments, manufacturing businesses, service oriented enterprises, or educational institutions all exist to serve different purposes.  However, it is likely many of these organizational types share similar organizational structures (Hodson, & Sullivan, 2012).   Organizational structures are shaped by influential factors such as an organizations size, purpose, arrangement, or vision.  Scholars investigating organizational structure have identified key constructs that frequently influence organizational structure.  These foundational constructs involve the complexity of organizational dimensions, types of formalized dimensions through which activities are regulated, and the extent to which the organizations leadership is centralized (Hodson, & Sullivan, 2012).  Theorists indicate that the effectiveness of an organization frequently improves when it’s structural composition matches the unique circumstances of the organization (Ostroff, 1999).  Contingency theorists suggest, that an organizations environment often influences its structure (Ostroff, 1999).  For example, external environmental factors such as pronounced variability in the organizations market sector, frequently found in operating areas such as technology, pharmaceutical, or biotechnology sectors, might dictate that organizational performance would benefit from a loose structure (Hobson, & Sullivan, 2012).  Whereas, organizations functioning in more predictable sectors, such as the financial or service sector , might fare better operating under a more fixed structure (Hobson, Sullivan, 2012).  This author suggests, that effective organizations are often the result of corporate visions formulated by a management-leadership complex that develop the organizations operations, processes, and strategies in a manner that best suits the organizations external environment (Guerra, 2009).  Further, effective organizations strive to utilize management practices that are communicative, engaging, gratifying, innovative, adaptive, and problem solving oriented (Guerra, 2009).

Principles of Effective Management

Some scholars suggest that management takes place at the intersection of multifaceted behaviors and traits amalgamating the art of creative insights and vision; the craft of experience developed through learned proficiency; and the science of incorporating a fusion of analytical evaluation and formulating a dynamic equilibrium across the spectrums of communication, engagement, innovation, and problem synthesis that creates organizational order from disorder (Guerra, 2009; Mintzberg, 2013).  This writer suggests, that effective management might be considered a merger of both leadership and managerial traits resulting in a management-leadership complex.  That is, in the modern work environment, effective management involves developing and employing leadership traits such as intensity of effort, integrity, vision, and collaborative communication. Further, today’s organization, require manager-leaders skilled in incorporating these behaviors into the art, craft, and science of modern management.  (Guerra, 2009; Mintzberg, 2013).

Mintzberg (2009) posits, that successful managers suffer from the human condition of being imperfect.  Suggesting, that the key to imperfect managers being successful rests in the fact that their imperfections are not ruinous in relationship to their operating environment (Mintzberg, 2009).  Further, that these successful imperfect manager-leaders might operate from a structure of contextual threads incorporating reflective behaviors, analytic proficiencies, worldly outlooks, collaborative constructs, and proactive functioning (Mintzberg, 2009).

Reflective traits involve learning from one’s encounters in the world surrounding them; investigating the possibilities in alternative routes, and accessing the effectiveness of current actions, in a manner that juxtaposes prior experiential learning, against existing conditions and results (Mintzberg, 2009).  Mintzberg (2009) suggests, one method of utilizing reflection might include asking relevant reflective questions, such as.  Where does my information come from? How can I more effectively collaborate with my associates? Do I have sufficient frames of reference and understanding of the issues I am addressing? What information do I need to relay to my superiors, peers, and subordinates?  How can I effectively transmit information to co-workers so that they can make informed and timely decisions?  Analytic proficiencies involve manager-leaders ascertaining, evaluating, and using relevant information in ways that allow them to integrate the results of their analysis into the art, craft, and science that form the practice of management (Mintzberg, 2009).  Exercising a worldly outlook encompasses the notion of being immersed in the worlds of others.  This principle suggests, that manager-leaders benefit from improving their understanding of backgrounds, traditions, customs, and processes of other cultures, work-groups, and organizations (Mintzberg, 2009).  Collaborative manager-leaders engage in the work of building environments that support people in their efforts to work together (Mintzberg, 2009). Further, Mintzberg (2009) indicates, that collaboration necessitates managers connecting with their employees in a manner that builds trust, exhibits caring, inspires them to improve as individuals and groups, and places a premium on listening.  Finally, proactive functioning entails the behavior of being initiative seeking.  Proactive manager-leaders must develop a proactive approach that engages them in the events, issues, people problems, and opportunities germane to their organization (Mintzberg, 2009).

The Importance of Management Engaging Personnel.

Highly effective manager-leaders utilize their knowledge, skills, and abilities relative to the practice of the art, craft, and science of management to develop environments that fully engage employees in the vision and objectives of the organization (Mintzberg, 2009).  Engagement involves the intricate and vibrant activities that denote an employee’s distinct and personal connection with their organization (Kataria,  Restogi, & Garg , 2013).  Engaged personnel sense their work to be personally fulfilling and typically devote their efforts and time whole-heartedly (Kataria, et. al., 2013).  Research indicates, that organizational citizenship behaviors impact employee interpersonal relationships, relationships between workers and management, and share a strong correlation with organizational effectiveness (Kataria, et. al., 2013).  This author posits, that managers wanting to maximize employee engagement will take into consideration factors that drive engagement, and organizational citizenship behaviors (Mintzberg, 2009; Kataria, et. al., 2013).  Additionally, manager-leaders might consider the influence of the effects of group social capital.  Hongseok, Labianca, and Myung-Ho (2006) imply, that the construct of group social capital contains the collection of resources found in the social connections existing in the social makeup of groups, and the official and unofficial arrangements of an organization.  Further, these researchers argue, that an abundance of group social capital will result in enhanced organizational effectiveness and performance (Hongseok, et. al., 2006).  Management entities seeking to improve organizational effectiveness should improve their understanding of the social groups functioning in their organization (Hongseok, et. al., 2009).  Specifically, managers should comprehend the relationships that connect and interact across the hierarchical structures in their organization (Hongseok, 2009).  Further, management can enhance these relationships buy building collaborative environments and through effective organizational communication.

New Hierarchies

The changing world of business, and the impacts of the global economy have resulted in organizations moving from organizations featuring vertical hierarchies to enterprises employing structures more horizontal in nature (Malone, 2010; Ostroff, 1999).  While, vertical organizational structures remain, they are commonly associated with organizations requiring rigid controls, they are often found in military organizations, government organizations, or healthcare organizations (Malone, 2010).  However, we have acknowledged the shaping effects that an organizations external environment plays in deciding organizational structure (Hodson, & Sullivan, 2012).  The recent shift to an expanding global economy has created an external environment that resulted in corporate down-sizing and large organizations outsourcing work to contracting companies (Malone, 2010).  The resulting impact on organizational culture include a shift to organizations that are flatter, and that utilize decentralized control (Malone, 2010; Ostroff, 1999).  These impacts have the potential to increase the importance of management’s ability to collaborate and engage employees across corporate groups in ways that maximize group social capital (Malone, 2010; Hongseok, et. al., 2006).  The evolving nature of the global economy, and its effects on organizational structure and work place groups place increased importance on management’s ability to communicate.  (Malone, 2010; Bisel, Messersmith, & Kelley, 2012).

Organizational Communication

Positive and engaging organizational environments are typified by open and sincere communication across the organizational structure (Mishra, K., Boynton, & Mishra, A., 2014).  Management-employee relationships based in communication competence builds trust and dedication, in turn, these trust building communicative flows enhance employee engagement (Mishra, K., et. al., 2014).  While on the other hand, poor management-employee communication may deter important information flows emanating from bottom up communicators (Bisel, et. al., 2012).  An important by-product of trust and commitment building communication, along the management-employee continuum, is an enrichment of the communication structures that build and sustain social corporate capital (Bisel, et. al.; Hongseok, et. al., 2006).

One communication construct that might restrain trust and commitment is the hierarchical mum effect (Bisel, et. al., 2012).  An example of the mum effect might include “facework strategies” whereby, employees choose to remain silent rather than loose face among other employees by communicating controversial information held by a social group in the organization (Bisel, et. al., 2012). To diminish the impacts of these mum strategies manager-leaders must work to establish open and engaging communicative relationships with employees (Bisel, et. al., 2012).  Understanding potential communicative roadblocks such as the mum effect, striving to develop open communication that builds trust and commitment, and the relationship between communication and group social capital are principles the manager-leader must employ in the art, craft and science of management (Mishra, K., et. al., 2014; Bisel, et. al., 2012; Mintzberg, 2013).

Decision Making and Problem Solving

Adair (2013) suggests, that a common bridge model for decision making and problem solving exists.  This model incorporates three primary components that include defining the aim or problem, generating feasible options, and choosing an optimum course (Adair, 2013).  Perhaps, more important than having a ready-made model for problem solving, is attaining and developing competence in identifying, evaluating and addressing decisions and problems (Adair, 2013). According to Adair (2013) three particular competencies manager-leaders might utilize are awareness, understanding, and skill.  Awareness involves being aware of potential problems that exist or decisions that need to be made (Adair, 2013).  The competency of understanding implies, that both management and employees must comprehend which step in the decision resolution model they are in.  For example, using the bridge model the team must identify if they are in the defining the problem step, option generation step, or choosing an optimum course step.  Lastly, developing problem solving skill requires that one must utilize the context of their experiences, corporate knowledge, and prior problem solving background to ask the right questions, of the proper people, at the proper time (Adair, 2013; Keeney, 2004).  In the end, this author suggests that decision making and problem solving, regardless of the model used, aligns with the construct that effective management is a set of learned dexterities one incorporates practicing the art, craft, and science of management.

 Authentic Leadership

In justifying the necessity for authentic leadership one only need review a list of corporate scandals that entailed unauthentic leadership behaviors.  In 2001, the Enron scandal culminated in bankruptcy, centered in unethical accounting, that resulted in losses of $74 billion (Larsson, & Eid, 2012).   In 2002, WorldCom leadership manipulated corporate earnings and assets resulting in losses of $180 billion and associated job losses impacting 30,000 individuals (Larsson, & Eid, 2012).  In 2008, Lehman Brothers attempted to cover up the existence of $50 billion in risky loans, on which the organization defaulted, and later went bankrupt (Larsson, & Eid, 2012).  Authentic leadership is exercised through the confluence of leadership principles based in the practice of owning one’s actions and acting with self-awareness (Larsson, & Eid, 2012).  Leaders become self-aware through introspection based on their ethics, personal values, motivations, and aspirations (Larsson, & Eid, 2012).  Additionally, authentic leaders self-regulate their outlook and behaviors (Larsson, & Eid, 2012).  Self-regulative practices utilize the constructs of balanced processing, relational transparency, and authentic behavior (Larsson, & Eid, 2012).  Balanced processing engages the practice of objective analysis, relational transparency contains the ideology of consistently presenting the true self, versus a distorted representation of one’s self, and authentic behavior includes the correlation of behaviors based in introspective regulatory practices (Larsson, & Eid, 2012).  Authentic leaders utilize constructs such as affirmative modeling and emotional contagion to develop increased levels of self-awareness, positive self-image development, and enhanced inner regulation among organizational members (Larsson, & Eid, 2012). It is the authors opinion, that this leadership archetype aligns well with the principles of management practiced through the intersection of art, craft and science.

Conclusion

The information presented here identifies the essential elements that comprise an organizations structure, principles management and their effects on the personnel in the organization, and offers an opinion on authentic leadership.  The work offers an evaluation on the effects of an organizations environment relative the make-up of its structure.  The author endeavors, to discuss a system of management that functions at the intersection of art, craft, and science.  Expands on the imperfect nature of management and focuses on management practices involving reflection, analysis, worldliness, collaboration, and proactivity.  Additionally, the work evaluated the import of management and employee engagement, recent evolutions in hierarchical arrangement, and the impacts of utilizing effective communication strategies.  The author then provides an overview of decision making and problem solving skills that enhance management practices.  The work culminates with an evaluation of authentic leadership and offers a justification for manager-leaders utilizing its principles in today’s workplace.

Michael L. Cosmah

References

Adair, J. E. (2013). Decision Making and Problem Solving Strategies (Vol. 2nd ed). Philadelphia, PA: Kogan Page.

Guerra, H. S. (2009). Effective organisations in the international arena / Effective organizations in the international arena. Pensamiento & Gestión, (26).

Hodson, R. & Sullivan, T. (2012). The social organization of work. Australia, Belmont, Calif.: Wadsworth.

Hongseok Oh, Labianca, G. (Joe), & Myung-Ho Chung. (2006). A MULTILEVEL MODEL OF GROUP SOCIAL CAPITAL. Academy of Management Review, 31(3), 569–582.

Kataria, A., Rastogi, R., & Garg, P. (2013). Organizational Effectiveness as a Function of Employee Engagement. South Asian Journal of Management, 20(4), 56–73.

Keeney, R. L. (2004). Making Better Decision Makers. Decision Analysis, 1(4), 193–204.

Larsson, G., & Eid, J. (2012). An idea paper on leadership theory integration. Management Research Review, 35(3/4), 177–191.

Malone, T. W. (2010). Decentralization Is the New Center of Command. IESE Insight, (4), 38–45.

Mintzberg, H. (2013). Simply Managing : What Managers Do and Can Do Better (Vol. 1st ed). San Francisco: Berrett-Koehler Publishers.

Mishra, K., Boynton, L., & Mishra, A. (2014). Driving Employee Engagement: The Expanded Role of Internal Communications. International Journal of Business Communication, 51(2), 183–202.

Ostroff, F. (1999). The Horizontal Organization : What the Organization of the Future Looks Like and How It Delivers Value to Customers. New York: Oxford University Press.

Conflicts of Interest, Agency Problems, and Their Impacts on the Firm

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Agency Theories

To establish a framework for analyzing potential agency problems, it is important, to first identify theoretical constructs surrounding the firm.  In the context of agency, Fama (1980) suggests, that management-agents and risk-bearing principals utilize a nexus of contracts.  That is, management carries out various contractual responsibilities through coordinating in put activities through managerial decision making (Fama, 1980).  On the other hand, principals contract to undertake varying degrees of risk to finance the activities of management and the organization (Fama, 1980).  The resultant outcomes of these factors of production create a contract based firm consisting of agents and principals endeavoring to create value for the firm (Fama, 1980).  Closely aligned to agency theory, is Milton Friedman’s supposition implying that the primary concern of the contractual based firm is to increase shareholder profits (MacAleer, 2003).

A third theoretical perspective regarding agency problems might be found in stakeholder theory.  Contemporary stakeholder theory is often grounded in Freemans Strategic Management: A Stakeholder Approach (1984).  Here, stakeholders are identified as individuals or groups holding an interest in a firm’s activities or those impacted by the firm (Freeman, 1984).  These stakeholders are often identified as primary stakeholders having prescribed roles in a firm, having authoritative responsibilities in a firm, or those with contractual relationships to a firm, and secondary stakeholders include all other individuals, groups, or societal parties impacted by the firm and its outputs (Freeman, 1984).  A foundational component of stakeholder theory, intimates that, the role of the management-agent is to attain balance between the concerns of all stakeholders (Shankman, 1999).  One might posit, that stakeholder theory expands the firm based contractual construct in a manner that engages both primary and secondary stakeholders (Shankman, 1999; Rose, 2004).

Examples of Potential Agency Problems

In September of 2016, the United States (U.S.) Department of Justice (DOJ)indicated that Deutsche Bank (DB) would be subject to a $14 billion fine for its role in propagating mortgage backed securities products linked to the 2007-2010 era global financial crisis (Valentini, 2016).  Some suggest, that managers and executives at DB failed to fulfill their firm based, others might argue societal based, contractual agreements supporting shareholder value (Valentini, 2016; Freeman 1984; Shankman, 1999).

In September of 2015, the U.S. Environmental Protection Agency (EPA) announced that Volkswagen (VW) engineers installed illegal software in its diesel engines capable of overriding emissions monitoring systems (Tuttle, 2015).  In December 2015, VW admitted that firm had installed emissions monitoring defeat devices in U.S. diesel vehicles (Tuttle, 2015).  The EPA estimates these devices resulted in emissions 40 times the allowable rate to be released into the atmosphere (Tuttle, 2015).  Two days following the September 2015 announcement VW stock plummeted 55% resulting in a loss $55 billion in market value (Tuttle, 2015).

In these aforementioned cases involving potential agency problems, one might find, various and differing conflicts of interest among the actors of these firms.  For example, engineers at VW concocting felonious software to dupe regulators, or executive managers at DB proliferating credit default swap vehicles that subjected shareholder investments to out-sized risk (Valentini, 2016; Tuttle, 2015).

Proponents of classic agency theory might suggest goal conflicts surrounding the divergence of management-agent decision making from the interests of principals (Shapiro, 2005).  Agency theory adherents, often infer, that agency problems involve goal conflicts impacting Friedman’s intimation, that the central role in agency relationships is in achieving the economic paramount of expanding profit (MacAleer, 2003; Shankman, 1999).  For example, poor incentives that diminish agent engagement and congruence with principal party interests, might entice agents to devise opportunities to improve their personal position (Shapiro, 2005).

Conversely, theorist aligned with firm based stakeholder principles consider the notion that managerial agents are often inundated with conflicting interests among both internal and external competing forces (Shankman, 1999; Shapiro, 2005).  Despite theoretical approaches, each of these architypes, might agree the agency problem exists and the impacts on the firm are manifold (Shapiro, 2005).  Agency problems involving each of these examples might include potential impacts to wealth of principal investors and the investments of holders of the firms’ securities.  Further, societal impacts might include the potential for monies in the form of taxes to bail out the companies, were they to falter, the potential for job losses predicated on the firms weakened financial positions, and in the case of VW, environmental impacts with potentials to affect the health and well-being of societal members.  Thus, exists the potential for impacts to multiple stakeholders including agents, principals, employees, and society (Tuttle, 2015; Valentini, 2016).

Congruence on Agency Problem Primacy

This writer suggests, that to support the position of the primacy of agency problems one might identify common ground between competing theoretical views. Further, this position might be augmented if these views can be harmonized in a manner that combines these competing theories in a supportive methodology.  To that end, the author submits, that Friedman’s position of the firm’s existence as an economic engine, classic agency views supporting the management-agent to principal contract, and stakeholder views combined provide a self-propagating contractual system.

Consider, that in order to continue growing as an economic engine stakeholder management agents must provide returns, economic and otherwise, across stakeholder types including, employees, shareholder-principals, and society (Shankman, 1999; MacAleer, 2003).  In other words, the interests of all stakeholders contain intrinsic value to the agency (Shankman, 1999).  Further, agency intrinsic value across stakeholder groups is manifest through implicit societal contracts with firms (Shankman, 1999).  These contracts provide the grounds, some might add liberty, upon which the firm operates as an economic engine endeavoring to create wealth for principals, while at the same time, they allow the firm to fulfill its contracts with principals, stakeholders, and society (MacAleer, 2003; Shankman, 1999; Shapiro, 2005).  On these ground, the author submits, that conflict of interest problems interfering with the agencies operations impact the most fundamental component of the agency, its liberty granted through contracts, both internal and external, to operate as an economic engine (Fama, 1980; Freeman, 1984; MacAleer, 2003; Shankman, 1999).

References

Fama, E. F. (1980). Agency Problems and the Theory of the Firm. Journal of Political Economy, 88(2), 288–307.

Freeman, R.E. (1984). Strategic Management: A stakeholder approach. Boston, Ma: Pitman.

Keown, A. J., Martin, J. D., & Petty, J. W. (2014). Foundations of finance: The logic and practice of financial management (8th ed.). Upper Saddle River, NJ: Prentice Hall.

McAleer, S. (2003). Friedman’s Stockholder Theory of Corporate Moral Responsibility. Teaching Business Ethics, 7(4), 437–451.

Shankman, N. A. (1999). Reframing the debate between agency and stakeholder theories of the firm. Journal of Business Ethics, 19(4), 319–334.

Shapiro, S. P. (2005). Agency Theory. Annual Review of Sociology, 31, 263–284.

Tuttle, H. (2015). Volkswagen Rocked by Emissions Fraud Scandal. Risk Management, 62(10), 4,6-7.

Valentini, F. B. (2016, October 5). French Lawmakers Say Deutsche Bank U.S. Fine Could Cause Crisis. Bloomberg.com. Retrieved from http://www.bloomberg.com/news/articles/2016-10-05/french-lawmakers-say-deutsche-bank-u-s-fine-could-cause-crisis