Human resource management and private equity in a hospital alone BOS AND PAUL BOSELIEIntroduction This case focuses

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Human resource management and private equity in a hospital alone BOS AND PAUL BOSELIEIntroduction This case focuses on the impact ofprivate equity (PE) interventions on human resource management (HRM) in ahospital. We first set the stage about PE and HRM and then turn to the case.Private equity firm A private equity firm (PEF) invests money in organisationsnot quoted on a stock market in exchange for a periodic management fee and ashare in profits. Typically, within three to seven years the firms sell their investment (Robbins et al., 2008). PEFs earn the sum of the capital gain on resale and the operating profit realized meanwhile. PEFs roughly execute two strategies: an upward or a downward strategy (Wright and Bruining, 2008).
The upward strategy represents additional investments in the organization because of untapped resources that can contribute to organizational success. The HRM implications might be recruitment and selection of new employees and substantial training and development. The downward strategy represents cost reduction strategies. The HRM implications might be cutting employee benefits and performance-related pay linked to financial performance. Human resource management HRM involves management decisions related to policies and practices which together shape the employment relationship and are aimed at achieving individual, organizational, and societal goals (Boselie, 2010). This definition builds on a continental European perspective in which multiple stakeholders are taken into account, such as trade unions. This is also a characteristic of dutch society (Paauwe, 2004). Another key characteristic of the Dutch context is the impact of institutional mechanisms (i.e. labor legislation) on HRM(Paauwe and Boselie, 2003). The incorporation of multiple stakeholders and contextual factors in studying HRM therefore makes sense. Dominant Anglo-SaxonHRM perspectives tend to take a more unitarist view focused on shareholdervalue and include a limited number of stakeholders. PEFs tend to embraceAnglo-Saxon principles. This approach is very relevant in the context ofsemipublic organisations that differ in some respects from the private sector.First, public service organisations are in many cases partly financed by publicfunds. Second, services delivered by these organizations are seen as essential services, which also focus on public values such as access and transparency. Finally, public service workers are often seen as being motivated by contributing to society and not by financial aspects (Vandenabeele, 2007). The central question in this case study is, therefore: What is the impact of the intervention on human resource management in semi-public organizations?Sub-questions that are linked to the central research question are:
• What is the actual involvement and participation in decisions making of different stakeholders?
• What is the potential impact of PE on HRM practices?
• What is the potential impact of PE on HRM outcomes?
off. In the actual transition of ownership, the works council’s trust in top management supports creating the new deal with the PEF. Much to everybody's surprise, the first 12 months after the take-over nothing changes. Then one of the board members makes use of an early retirement arrangement. The vacancy is filled by a top manager connected to the PEF. From then on, things start to change rapidly. A new performance management system, based on GeneralElectric’s Six Sigma system, is introduced to increase efficiency, improve service quality and stimulate innovation. The HR practices linked to this new performance system include:
• training and development of nurses aimed at improving productivity (more clients per hour) and increasing customer satisfaction scores;
• individual and team scorecards with weekly and monthly outcome measures such as customer satisfaction, employee absence rates, productivity outcomes and peer evaluations of job performance;
• bonuses for excellent teams up to one additional month’s pay for every team member. At the same time, some major reorganizations are planned to make drastic cutbacks:
• all hospital volunteers are dismissed because in fact they are old and need a lot of care themselves, which distracts the medical professionals from their patients;
• the level of middle management is removed. The board now directly speaks with medical professionals;
• new and financially attractive forms of medical service are introduced, such as an influenza clinic and a stop smoking clinic;
• contracts with interim managers and external advisors are terminated;
• temporary contracts are terminated and those workers can only continue working for the hospital when they work for a special flex company that employ contingent workers in healthcare;
• multiple disciplines within the hospital are labeled as non-core business activities and are outsourced.
Conclusion The PE intervention has led to improved organizational performance with regard to productivity and service quality levels. After six years a deficit €4.3 million is turned into an annual profit of around €5 million. The hospital jumped from place 99 in 2007 to 49 in 2011 in the Dutch hospital ranking
1 The hospital executed an intentional strategy of involving different stakeholders involved in the early phases, which fits the European stakeholder perspective and turns out to be a good strategy when the deal is actually made.
2 Concerning HRM practices, goal setting through performance management has become a central theme. The new performance management system clarifies the linkage between organizational goals, team goals, and individual employee goals. The HR function and its HR professionals have played an important role in the implementation and communication of the new performance management system.
3 The HRM outcomes are not clear yet. Employee satisfaction levels from the early employee surveys still show moderate scores. Employees appear reasonably satisfied with their job but less happy with their organizations. The general employee trust in management is still relatively low. Many good healthcare workers have left the organization.
Lessons learned The case study shows the relevance of different phases in the process of organizational change related to a PE intervention. It also reveals the importance of dynamics and the notion of time: organizational challenges are in a state of flux. In this case, upward, as well as downward strategies, are executed; each strategy needs specific HR interventions. This also shows us the relevance of both contents and underlying processes related to HRM issues. TheHRM discipline is often implicitly focused on the content of static issues. This PE intervention highlights the impact of processes and dynamics. The case study also emphasizes the role of top management in the change process. The roadshows are important for stressing leadership support of the organizational changes made and for employees’ trust in the strategic decisions being made. The involvement of works councils and client councils paid off in the later stage of the private equity process. Finally, the case highlights the relevance of perceptions and sentiments of those involved. Emotions, feelings of insecurity, employee distrust in management, turnover intentions, dissatisfaction and low commitment levels are partly inevitable in times of major organizational change. HRM can contribute to decrease these negative attitudes and perceptions with an active role of the HR function and its professionals in PE interventions.
Questions
1 What are the advantages and disadvantages of the works council and client council involvement at an early stage of a PE intervention from the top management perspective and the individual employee perspective?
2 What kind of HR policies and practices can be applied to retain valuable employees during a process of a major organizational change?
3 Why is it important that the two board members actively participate in a roadshow in which they personally explain the PE situation?
4 What is the impact of a General Electric-inspired performance management system on nurses and medical specialists in a hospital?
5 How does the new performance management affect organizational commitment, occupational commitment, and team commitment of employees within the hospital?
6 What is the impact of outsourcing disciplines on employees who are being outsourced and employees who may stay?
7 What kind of competencies do HR professionals need for adding value to the organizational change process caused by a PE intervention?
8 What kind of concrete HR practices can be applied to minimize the negative effects of a PE intervention on employee attitudes and perceptions? Explain why.