Academic journal article Journal of Healthcare Management

Succession Planning and Financial Performance: Does Competition Matter?/PRACTITIONER APPLICATION

Academic journal article Journal of Healthcare Management

Succession Planning and Financial Performance: Does Competition Matter?/PRACTITIONER APPLICATION

Article excerpt

INTRODUCTION

Leadership practices of healthcare managers are associated with financial, operational, and clinical performance (Squazzo, 2010). Several studies have established the importance of effective leadership in ensuring high organizational and financial performance (Carriere, Muise, Cummings, & Newburn-Cook, 2009; Collins, 2009; Garman, & Tyler, 2004; Ip & Jacobs, 2006; Karaevli & Hall, 2003).

Succession planning has been defined as the process by which one or more successors are identified for key positions, development activities are planned for the identified successors, or both (Hirsh, 2000; Ip & Jacobs, 2006). Succession planning allows organizations to build and retain their intellectual capital by formally identifying, educating, mentoring, and coaching employees who have demonstrated the qualities and skills necessary to become effective leaders. In addition, it encourages their advancement by identifying and preparing potential candidates to assume leadership roles in the future (Carriere et al., 2009; Garman & Glawe, 2004; Rothwell, 2002a, 2002b).

Succession planning offers organizations a way to ensure the availability of qualified candidates who are ready to move into leadership positions as needed (Bonczek & Woodard, 2006; Carriere et al., 2009; Schmalzried & Fallon, 2007). The CEO turnover rate in healthcare increased from 14% in 2005 to 18% in 2014; thus, hospitals need to prepare leaders who can facilitate a smooth transition (American College of Healthcare Executives, 2015).

Reports in the literature suggest that succession planning results in better postsuccession business performance (Collins & Collins, 2007; Ip & Jacobs, 2006; Zhang & Rajagopalan, 2004) and is associated with higher motivation, improved productivity, and greater employee loyalty, all of which are crucial to organizational performance (Kim, 2012). Moreover, having ready successors, especially in tight labor markets, reduces recruitment and orientation expenses, maintains business continuity during turnover, and allows for quick responses to market demands (Bolton, 2004).

Although the business literature has focused on the association between succession planning and organizational performance, this relationship has not been explored to the same extent in the context of healthcare. Furthermore, to the best of our knowledge, the only study that examined this relationship used 1-year data with a cross-sectional study design (Kim, 2012). The cross-sectional design is limited in its usefulness because it does not account for organizationaland time-related variations. Moreover, no study, to our knowledge, has explored the impact of competition on this association. Given the highly dynamic and competitive nature of healthcare, competition could significantly influence the strategies used by hospitals to maintain their competitive advantage. Succession planning likely is an important part of this basket of strategies.

The purpose of this study was to examine the association between succession planning and the financial performance of acute care hospitals, specifically focusing on the difference in strength of this association for hospitals located in competitive versus monopolistic markets. We also address the drawbacks of using a cross-sectional design by using data for 5 years and a panel design, which accounts for time- and firm-specific variations. We also use the resource-based view (RBV) of the firm to develop and analyze the hypotheses (Barney, 1991).

Hospitals and Succession Planning

Healthcare is facing a turbulent environment because of various factors such as increased competition, changes in reimbursement, and increasing pressure to implement health information technology. These factors, coupled with the high CEO turnover in hospitals, may lead to organizational instability, which, in turn, has increased the need to cultivate leaders who can successfully address these challenges (Carriere et al. …

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