Building the Case for Succession Planning in Physician Practices

Every organization, large or small, eventually must deal with leadership vacancies; no leader remains in his or her position forever. Succession planning is an essential strategy to manage inevitable vacancies.(1) In healthcare, industry pressures such as growing personnel shortages and increasing legislative pressures make preservation of organizational leadership and intellectual capital particularly crucial to organizational success.(2) Healthcare organizations must focus on proactive succession planning to ensure organizational continuity and performance.(3) Succession planning is associated with higher organizational performance(2,4) and stability.(5) Healthcare organizations that manage succession proactively perform better financially, too.(6) Equally compelling, healthcare organizations that practice succession planning have higher employee retention(7) and greater employee motivation and loyalty.(6)

Although succession planning is only now growing more prevalent in hospitals,(2) it has a long history in the corporate world.(5) The SEC recognizes poor succession planning as a significant risk for investors, and strongly recommends that Boards require well-developed succession management procedures.(8) Although healthcare initially was slow to follow the corporate example,(3) succession planning in hospitals has grown significantly in the past decade.(2) Whereas just 21% of hospitals focused on succession planning in 2005, a 2015 survey indicated that this number has grown to 75% of hospitals.(2)

The benefits of succession planning are well established for large organizations, both in healthcare and in the corporate world. However, the same cannot be said for smaller organizations, although examples discussing succession planning in small-to-medium enterprises (SMEs) in the corporate world can be found in the literature, such as Durst and Wilhelm(1) and George.(9) For healthcare SMEs such as physician practices and clinics, the literature base is sparse at best. Yet smaller organizations arguably have more to lose if they neglect succession planning, because “every position counts more” in smaller businesses.(9) Smaller organizations are more vulnerable to knowledge attrition if intellectual capital leaves the organization.(1)

Addressing the question of whether best-practice succession planning from large organizations can be effectively applied to smaller organizations, George(9) argues that the answer is yes. The same can be said for healthcare SMEs.

Definitions

The terms succession planning and SME are both established in the literature. However, applications and definitions tend to vary. For the sake of clarity, this section defines both terms as used in this article.

Succession Planning

Succession planning is broadly recognized as the process by which businesses ensure leadership continuity in core leadership positions.(9) Durst and Wilhelm(1) define succession planning as the process of planning leadership development to ensure an organization has skilled individuals to fill leadership vacancies as they occur. This is a formal, structured process where current employees are assessed for leadership potential and groomed to take over leadership positions as vacancies occur.(5)

Succession planning is distinct from a replacement strategy; succession planning should be both proactive and long-term.

Two points require clarification. First, succession planning is distinct from a replacement strategy; succession planning should be both proactive and long-term.(10) In contrast, replacement is reactive, replacing leaders as they leave instead of planning ahead to develop potential successors in advance.(11) Second, succession planning is comprehensive and applies to all key leadership positions in an organization.(5) It should not be confined to a single key position such as the CEO(12) or to physicians.(11)

SMEs

For this article, the terms small healthcare organizations, physician practices, medical practices, and healthcare SMEs are used interchangeably. Arguably, there are nuances that separate the terms, and, in fact, the literature rarely addresses the concept of SMEs in healthcare. However, the goal of this article is to provide a broad solution for small entities in healthcare, so the terms are used synonymously.

There is no generally-agreed on definition of SMEs in the literature; guidelines tend to vary.(13) In their analysis, Motwani et al.(13) presented the following guidelines based on organizational size and balance sheet ranges:

• Microenterprises have fewer than 10 employees and less than $2 million annual balance sheet total;

• Small enterprises have fewer than 50 employees and less than $10 million annual balance sheet total; and,

• Medium enterprises have fewer than 250 employees and less than $50 million annual balance sheet total.

The scholarly literature currently provides no guidance for SME definitions in healthcare, but the Small Business Administration qualifies physician offices with a balance sheet of $11 million or less as small businesses.(14)

Background Information

The benefits of succession planning are well established, both in the business world and in healthcare.(15) However, much of the healthcare literature focuses on hospitals. For SMEs, succession planning is only now beginning to be explored; for smaller healthcare entities such as physician practices and clinics, there is almost no specific literature to draw on. This section first briefly examines the benefits of succession planning in healthcare, and then examines the benefits of succession planning in SMEs.

Healthcare Succession Planning

Healthcare is at an increasingly challenging juncture: the most recent presidential election and current political climate has added an element of uncertainty to an already difficult healthcare environment.(16) Even without the uncertainty of a potential Affordable Care Act repeal, growing labor shortages and the looming specter of the retiring baby boomers make succession planning crucial to maintain a competitive edge.(6) Succession planning is consistently associated with better outcomes and financial performance,(6) greater employee satisfaction,(6,15,17) and lower turnover.(7,15,17) Yet even in large healthcare organizations, approximately one out of every four hospitals still does not practice succession planning.(2) It is clear that healthcare organizations need to focus on succession planning to maintain a competitive edge, and survive and thrive in today’s healthcare environment.

Succession Planning in the SME

Succession planning is as important in SMEs as it is for larger entities. In fact, it is arguably even more important because the smaller pool of employees magnifies the impact of vacancies.(9) The knowledge loss that occurs during leadership turnover can be particularly devastating for SMEs because there is less redundancy in knowledge storage and expertise.(1) Succession planning for SMEs correlates with organization resilience(18) and long-term survival.(1) It can also be an important way to retain talent and minimize turnover.(19) The literature is clear that succession planning should be a core business strategy for SMEs.(13)

Synthesis

There is almost no literature regarding succession planning for leadership positions in physician practices and clinics. Of the many articles about succession planning in healthcare, only two stand out for applying the concept of succession planning to physician practices:

• The Journal of Oncology Practice recommended formulating succession plans for both physicians and key executive positions.(20) Although the article focuses primarily on physician-focused succession planning, it does note that practices should implement succession planning for key executives as well.

• Donner et al.(11) noted that most radiology practices do not have comprehensive succession plans in place to cultivate internal talent and ensure leadership continuity; instead, practices merely replace leaders as vacancies occur. Given the inefficiency and expense associated with external hires, the authors argued that comprehensive succession planning for both physician and administrative leaders is vital for the success of radiology group practices. Further, they cite leadership continuity in radiology practices as a significant factor in long-term organization success and ability to formulate and execute long-term business development. To ensure organizational success, the authors recommend comprehensive succession planning for radiology group practices.

With these two exceptions, the world of comprehensive succession planning for SMEs in healthcare is still unexplored. Although a PubMed search does bring up articles under the search term “succession planning,”(21-23) these articles examine physician retirement without examining the rest of the practice. Given the declining prevalence of solo and partnership medical practices in favor of larger multiphysician group practices,(24) it behooves the world of medical practices and clinics to consider succession planning beyond the physician level. Although ensuring physician succession is certainly important, it is akin to succession planning only for the CEO: it is valuable in its own right, but does not garner the full benefit organizations can gain from comprehensive succession planning.(5)

Succession Planning Barriers

Successful succession planning requires multiple levels of organizational support. It is necessary, therefore, to examine any potential barriers. This section addresses two potential barriers that organizations must evaluate and address to implement a comprehensive succession planning process.

Executive Sponsorship

Healthcare is constantly faced with competing priorities, and it is no surprise that managers take their cue on priorities from top leadership. Leaders who want commitment to succession planning must model that commitment for their staff.(5) For comprehensive succession plans spanning the organization, top-level executive support is required in order to allocate resources and define priorities.(15)

Succession planning can, of course, occur on a smaller level without executive support. Executive support brings resources,(15) but even in the absence of executive priority, departmental leaders can still focus on leadership development within their own sphere of influence.(25) For top-level executives who desire to create an organizational culture of leadership development and succession planning, however, leader commitment is key.(5,11)

Resources

One of the frequently cited barriers to successful succession planning in SMEs is finite resources.(26,27) Larger organizations have larger budgets and a higher level of resources to devote to succession planning.(26) Even in hospitals, however, finances can be a barrier to developing comprehensive succession planning and leadership development.(17)

Smaller organizations with smaller budgets can still develop leaders.

Finances are not an insurmountable barrier, however, particularly given the long-term benefits of succession planning.(27) Smaller organizations with smaller budgets can still develop leaders and potential leaders. Even small entities often have line items on the budget for staff continuing education, and succession planning funding can be drawn from there. When the budget allows, intensive additional external training can be provided.(25) When additional funds cannot be drawn on, there are still ample internal opportunities to develop leaders: web-based learning, mentoring, job-shadowing, and project-based learning have minimal associated costs.(5,25) Garavan et al.(27) and Patidar et al.(6) have noted that succession planning should demonstrate financial benefit in the long term, so any costs incurred in the short term ultimately are likely to be mediated.

Framework

Although many articles on succession planning demonstrate the strengths and advantages of comprehensive succession planning, authors tend to focus more on theory than on process.(15) The articles on succession planning lack details on how the process should be implemented. As George(9) noted, the succession planning literature that does detail the how-to tends to vary in implementation details. However, once barriers within an organization have been addressed, the core process for succession planning remains the same:

• Step one: Identification of core leadership competences and positions;

• Step two: Identification and evaluation of potential leaders;

• Step three: Career development and training; and

• Step four: Regular monitoring and reassessment.

Step One: Identify Core Leadership Competencies and Positions

The essence of succession planning is ensuring leadership continuity.(5,9,15) Identifying vital leadership positions is the foundation for a successful leadership process.(3,12) An inventory of leadership positions within an organization should include both clinical and administrative management.(11) In addition to formal leaders, senior positions requiring highly specialized skills may also need succession planning; any positions that require highly specialized expertise should be identified as well.(5)

Generally, the literature recommends starting at the highest level of leadership and rolling succession planning out in phases through levels of leadership.(5,12,15) However, this advice is geared toward larger organizations with several layers of leadership and a vast number of employees. It can still be followed for smaller organizations, but SMEs, by definition, have fewer employees and, therefore, fewer leadership positions. Therefore, succession planning can be approached as a holistic endeavor in SMEs rather than piloting it with a small number of leaders.

Once a list of leadership positions has been established, core competencies required to staff those positions must be identified.(5,9,15) Some of these competencies may be true of multiple positions, whereas others may be unique to only one position.(9) Competency identification should include general leadership knowledge and skills(5) as well as factors specific to the position in question, including job challenges and specific knowledge requirements.(9) This step helps identify goals for training potential successors.(5,9)

Step Two: Identify and Evaluate Potential Leaders

Once key positions have been identified, the next step is to evaluate internal talent within the organization. Every leader should evaluate his or her direct reports to inventory leadership and learning potential, and evaluate competencies demonstrated.(5,9,15) Although this process typically is more formal in larger organizations than smaller ones, smaller organizations can benefit from a more structured approach because it ensures that succession planning remains a priority. Although larger organizations may create depth charts with multiple potential successors for each leadership position,(5) a single identified successor is likely sufficient for medical practices.(11)

Step Three: Career Development and Training

Once high-potential individuals have been identified, managers should take an active role in planning career development.(5) Because experience plays a critical role in leadership and competency development,(15) leaders must identify opportunities for their staff to learn and develop each ability.(9,25)

Where needed, and within budgetary constraints, external training and coaching for leadership development can be pursued(25); external curricula present valuable learning opportunities.(5) However, this endeavor can be resource intensive,(19) which makes this methodology more appropriate for larger organizations with larger budgets than for smaller ones with resource constraints. In-house mentoring and job-shadowing have no direct financial costs(25) and can be used successfully by small organizations. Supported on-the-job learning, also known as experiential learning, is viable in any organization, but particularly in small organizations.(9) Although leadership mentoring is less common in physician practices, it has been well recognized in the business world and should be applied to medical practices.(11)

Step Four: Regular Monitoring and Reassessment

Succession planning is not a process that should only happen once, nor should organizations expect it to be. Instead, succession planning must be regularly engaged in and refined each time.(12) After the initial identification process, employees should be evaluated on a continual basis.(5,17)

Rothwell(12) noted that this process is sometimes tied with annual performance appraisals, whereas Lee and Herring(5) recommend that leadership evaluation be kept distinct and separate from the performance appraisal process to ensure adequate attention. However, Lee and Herring noted that there is no clear consensus in the literature as to whether or not leadership potential should be appraised at a different time than performance reviews; further, they also noted that many organizations perform both concurrently to maximize efficiency. However, Lee and Herring primarily discussed power structures present in large organizations rather than small ones. Given that smaller organizations typically have fewer resources than larger ones, it seems equally reasonable for SMEs to conduct both processes at the same time.

Regular evaluation allows leaders to assess and direct career development for their staff.

Regardless of whether or not organizations choose to use a different evaluation cycle for performance appraisal and leadership evaluation, regular assessment is valuable. Regular evaluation allows leaders to assess and direct career development for their staff.(12) As competencies are achieved, employees can be promoted or assessed for higher potential leadership skills. In this way, a strong leadership pipeline can be developed even within a mid-sized medical practice.(11)

Conclusion

Throughout the literature, succession planning is widely recognized as a beneficial practice that promotes organizational longevity and stability. In both large and small organizations, every leader eventually does leave his or her position; to thrive, medical practices must confront this reality and deal with it proactively by developing internal talent before it is needed. Succession planning in large healthcare organizations has expanded in the past decade, but this trend seems unlikely to have filtered down to smaller healthcare entities. This remains unstudied in scholarly literature, and given the growing prevalence of larger physician practices, this gap in the literature should be addressed in future research.

Succession planning is beneficial for many organizations, and it seems reasonable to conclude that these benefits can be realized in physician practices as well. Failure to develop the talent that SMEs already possess forfeits a potential competitive advantage. In an increasingly competitive and turbulent healthcare environment, smaller health entities must make succession planning a priority, because they are just as vulnerable to loss of key leaders as larger organizations, if not more so.

References

1. Durst S, Wilhelm S. Knowledge management and succession planning in SMEs. J Knowl Manag. 2012;16:637-649. doi:10.1108/13673271211246194.

2. Collins SK, McKinnies R, Lieneck C, Watts S. A trend analysis of succession planning in health care as perceived by Chief Executive Officers in US hospitals. Health Care Manag (Frederick). 2016;35:333-339. doi:10.1097/HCM.0000000000000126.

3. Carriere BK, Muise M, Cummings G, Newburn-Cook C. Healthcare succession planning: an integrative review. J Nurs Adm. 2009;39:548-555. doi:10.1097/NNA.0b013e3181c18010.

4. Fibuch E, Van Way C III. Succession planning in health care organizations. Physician Exec J. 2012;38(5):44-47.

5. Lee B, Herring J. Growing Leaders in Healthcare: Lessons from the Corporate World. Chicago, IL: Health Administration Press; 2009.

6. Patidar N, Gupta S, Azbik G, Weech-Maldonado R. Succession planning and financial performance: does competition matter? J Healthc Manag. 2016;61:215-227.

7. McAlearney AS. Executive leadership development in U.S. health systems. J Healthc Manag. 2010;55:206-22-4.

8. Reda J, Wert J. Internal vs. external candidates for CEO succession. Corp Board. 2013;34(203):1-6.

9. George E. 5 steps to planning for internal successors in a small business environment. J Financ Plan. 2013;26(8):21-23.

10. Ip B, Jacobs G. Business succession planning: a review of the evidence. J Small Bus Enterp Dev. 2006;13sd:326-350. doi:10.1108/14626000610680235.

11. Donner EM, Gridley D, Ulreich S, Bluth EI. Succession planning and management: the backbone of the radiology group’s future. J Am Coll Radiol. 2016;14(1):309-315. doi:10.1016/j.jacr.2016.08.006.

12. Rothwell W. Effective Succession Planning: Ensuring Leadership Continuity and Building Talent From Within. 4th ed. New York, NY: Amacom; 2010.

13. Motwani J, Levenburg N, Schwarz T, Blankson C. Succession planning in SMEs: an empirical analysis. Int Small Bus J. 2006;24:471-495. doi:10.1177/0266242606067270.

14. Table of Small Business Size Standards Matched to North American Industry Classification System Codes. www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf . Published 2016. Accessed September 17, 2016.

15. Capuano TA. Achieving succession planning and implementation: one healthcare network’s story. Healthc Manag Forum. 2013;26(3):136-144. doi:10.1016/j.hcmf.2013.06.003.

16. McDonough J. Is the fate of the ACA settled or not? Milbank Q. 2016;94(1):13-17. doi:10.1111/1468-0009.12173.

17. Kim TH. Succession planning in hospitals and the association with organizational performance. Nurs Econ. 2012;30(1):14-20.

18. Gunasekaran A, Rai BK, Griffin M. Resilience and competitiveness of small and medium size enterprises: an empirical research. Int J Prod Res. 2011;49:5489-5509. doi:10.1080/00207543.2011.563831.

19. Heaton N, McCracken M, Harrison J. Graduate recruitment and development. Education + Training. 2008;50:276-288. doi:10.1108/00400910810880524.

20. Ensure the future of your practice through early succession planning. J Oncol Pract. 2009;5:136-138. doi:10.1200/JOP.0932505.

21. Campbell J. Succession planning for private practices. Med Econ. 2016;93(12):39-40.

22. Huff C. Done recruiting? Start retaining. Trustee. 2014;67(1):8-12.

23. Simons A, Muehler T. Valuation offers a key to success and succession. Med Econ. 2012;89(21):22-34.

24. Muhlestein D, Smith N. Physician consolidation: rapid movement from small to large group practices, 2013-15. Health Aff (Millwood). 2016;35:1638-1642. doi:10.1377/hlthaff.2016.0130.

25. Robinson-Walker C. Succession planning: moving the dial from “should” to “must.” Nurs Adm Q. 2013;37(1):37-43. doi:10.1097/NAQ.0b013e3182751622.

26. Fathi M, Wilson E, Cheokas G. Strategies in hiring and development processes in small and large companies. Int J Acad Bus World. 2011;5(2):29-34.

27. Garavan T, Watson S, Carbery R, O’Brien F. The antecedents of leadership development practices in SMEs: the influence of HRM strategy and practice. Int Small Bus J. 2016;34:870-890. doi:10.1177/0266242615594215.