Why we sold the franchise

Turbulence

Almost 12 months since my last entry.

I find myself on a plane headed back to Maryland after meeting with my partners in SoCal about my short- and long-term plans now that the sale of Doctors Express has been finalized.  We announced the sale of the franchise business to American Family Care (AFC), based in Birmingham, AL a few weeks ago.

What took me away from doing what I love with and near the people I love in the place I love?  One of my best friends and Ensign partner, MikeD, started a new venture within the org. in a new sector of healthcare – urgent care.  He had already brought on a couple urgent care veterans to accelerate his learning curve as he planned to build several centers de novo.  Quickly after the venture got off the ground, their plans expanded into a couple new paths including the acquisition of the only urgent care franchise in the country – Doctors Express, based in Maryland.  Mike asked me to lead that business and they made it worth my bet.

Personally, it was a high risk/high reward proposition.  Much to my surprise (and the surprise of my family and friends and colleagues) my wife and I decided to go for it after just 4 days.

By the time I could transition my role to “the upgrade” BHulse, my new partners were already underway with Doctors Express.  10 months after I joined … at our annual conference in March in Vegas, I told the franchisees that the best word that I could think of to describe the last 12 months is TURBULENT.  Turbulent because even though there were bumps along the way, the plane kept moving forward and the system made huge improvements in terms of number of centers, patient count, and revenue.  2013 is definitely poised to continue its upward trajectory.

So why sell?

Good To Great

You have to understand Ensign’s culture to understand the answer.  The book Good to Great teaches a lot of the same values and strategies that have been part of the Ensign Way for years …

“The pivot point in Good to Great is the Hedgehog Concept. The essence of a Hedgehog Concept is to attain piercing clarity about how to produce the best long-term results, and then exercising the relentless discipline to say, “No thank you” to opportunities that fail the hedgehog test. When we examined the Hedgehog Concepts of the good-to-great companies, we found they reflected deep understanding of three intersecting circles: 1) what you are deeply passionate about, 2) what you can be the best in the world at, and 3) what best drives your economic engine.” (source)

hedgehog and fox

Mike and I (both 11 years with Ensign-related businesses) concluded that, in spite of the promising future for the Doctors Express franchise, being a franchisor was a significant departure from our hedgehog.  I found myself in the peculiar position of recommending that we sell the business I lead – making my future uncertain – b/c I believed it was the 1) right thing for Ensign and 2) the right thing for the franchisees.

A cornerstone to the culture at Ensign is the independent/interdependent nature of the facilities, agencies, and companies.  Franchising requires strong (sometimes rigid) corporate control to retain brand standards among franchisees who bring a vast range of values, motives, and competencies to the system.  At Ensign, the word “corporate” is a ‘bad word.’  I constantly wrestled with the misfit between my/our approach/culture and the approach/culture a franchise system requires.

square peg round hole

Fortunately, we became acquainted with AFC and quickly saw their huge corp. infrastructure and decades of urgent care experience AND TRADITIONAL CENTRALIZED CORPORATE structure to be a better fit for franchising.  Could we have continued the upward ramp of the last 12 months?  Yes.  No doubt.  I think many, if not most, organizations are driven principally by the numbers.  In our case, no matter how pollyannish this may sound to outsiders, Ensign’s success is largely attributed to our hedgehog-based discipline to say no to seemingly great financial opportunities that are only attractive because of the numbers but do not fit with who and what we are.

I admire many of the franchisees and staff I worked closely with and I will be cheering AFC and Doctors Express on for years to come.

Gratefully, I will be returning to what I know and love: senior care/skilled nursing. In the coming weeks & months I’ll be writing about lessons learned 1) at DRX and 2) from returning to skilled nursing.  Good to be back …

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McKnight’s Guest Column

Guest Column @ McKnight’s

McKnight’s is a long-term care industry magazine that I’ve read for years.  Several months ago, I read on their site the words of an administrator who expressed a wish for more empowerment at the facility level.  I contacted the Editor of McKnight’s to see if I could contribute an article about my company since our business model is exactly what that administrator was looking for (empowered, decentralized, entrepreneurial).  Instead of talking about my company, The Ensign Group, he invited me to talk about the principles behind the different corporate structures.

Thank you to McKnight’s Jim Berklan for the opportunity.  I’ve received a lot of positive feedback from the piece.  Here it is …

What the long-term care world needs now

Dave Sedgwick
April 27 2010

The Centers for Medicare & Medicaid Services’ shift to a prospective payment system in 1998 sent shock waves through the industry and claimed the financial lives of many prominent long-term care companies.

The current combination of recession, Medicare cuts, RUGS IV, MDS 3.0, state budget crises, QIS, RAC, and the unknowable final shape of healthcare reform have today’s leaders feeling déjà vu.

What do long-term care companies need in order to avoid last decade’s casualties? Here are a few very important things:

Culture

An organization’s culture—its structure and values—is the single most important factor for overcoming acute challenges and for transforming the industry one facility at a time.

Centralization vs. decentralization

Speaking generally, there are two types of corporate structures: centralized and decentralized.  The most prevalent structure in long-term care is the centralized model. To be blunt, the primary need for a controlling, top-down, large corporate bureaucracy is to make up for incompetence at the facility level.

If this is not so, then why pay for all of those corporate puppeteers?

Imagine that your best regional and corporate nurse consultant led each and every facility in your company. Would you need the same amount of corporate overhead (divisionals, regionals, consultants, VPs, executive VPs, senior executive supreme VPs, etc.)?

Don’t get me wrong. I’m not saying that having better leaders at the facility means no support is needed. I’m also not saying there aren’t great administrators in traditional corporate settings. But I am saying that if you hope to attract a different breed of administrator and director of nursing, you have to cut the puppet strings—empowering the facility leaders to lead.

A decentralized model attracts the type of leader who is entrepreneurial and innovative, and has an ownership mentality. When the puppet strings are cut, facility leaders no longer say, “I have to check with corporate.” They own their problems and solutions. When major tests to a market or an industry happen, a decentralized organization has many creative partners attacking the problem in the trenches instead of a small handful of “know-it-alls” at corporate.

A decentralized model also attracts the type of support people who believe in the creativity and responsibility of local leaders and love to help them grow.

One of the main arguments against decentralization is that it is too risky—clinically and financially. The centralized mantra is “Thou shalt do things our way” in order to ensure “things” are done right. To avoid risk, decisions are made at the corporate level: vendor contracts, hiring, firing, compensation, policies, forms, etc.

The trade-off for operating that way, of course, is that you get a culture that attracts “employees” instead of “owners” and you promote the “all-stars” out of the facilities where our staff and residents need them most.

In order to mitigate the inherent risk of decentralization, a company must have deep-rooted shared values among its facility leaders.

Values

Without a fanatical commitment to core values, a decentralized structure is too risky. But if a decentralized company hires, trains, and measures based on shared values, it has the potential to outperform its centralized competitors because it has infused top talent throughout the company and where it’s needed most.

Almost every company has a written culture statement (mission, values, motto, etc.) But, the difference between those that will be able to overcome major tests and those that won’t will be how real those values are to the facility leaders themselves. Too often, mission-type statements collect dust as decorations.

The structure will shape the true values and feel of a company more than anything. When shocks to the industry hit, our companies’ culture (structure & values) will be tested.

The testing of Johnson & Johnson

One of the prime examples of a decentralized company’s culture leading it through crisis is Johnson & Johnson. In their 1981 annual report, they state:

“Johnson & Johnson is not one company but many  . . . The largest has 6,300 employees; the smallest, at year-end had six. . . .

“Whatever their size or location, they share a commitment to meeting the special needs of a well-defined customer. In doing so, they create a wide variety of innovative ways to successfully run their businesses.

“We feel that the secret to liberating that productivity is decentralization— granting each company sufficient autonomy to conduct its business without unnecessary constraints.  In short, we believe decentralization = creativity = productivity.”1

Do we see companies in long-term care that are structured that way?  Rarely. But, therein lies the key to both attracting and retaining a different breed of facility leader.

These statements by J&J were soon put to an extraordinary test.

In 1982, cyanide-laced Tylenol pills killed seven people in a few days in the Chicago area. J&J’s reaction was extraordinary. In spite of requests from officials to not recall the product, J&J called for a nationwide recall of 31 million bottles with a retail value of $100 million. Their market share went from 35% to 8%. One month later, they reintroduced capsules in a new, triple-sealed package, and within several years, Tylenol had reclaimed its top spot in the market.

Speaking in 1983 about that major crisis, James Burke, J&J CEO from 1976 to 1989, said the following:

“I do not think we could have done what we did with Tylenol if we hadn’t all gone through the process of challenging ourselves and committing ourselves to the [culture]. We had dozens of people making hundreds of decisions and all on the fly. And they had to make them as wisely as they knew how.

“And the reason they made them as well as they did is they knew what the set of beliefs that the institution they worked for were.  So they made them based on that set of beliefs and we made very, very few mistakes…. “2

Creating new cultures

What lessons can we learn from recent long-term care history and companies like J&J? In order to be prepared for the significant tests ahead, we need to have efficient, nimble, talented organizations fanatically committed to its core values.

Companies with centralized, top-down, bloated bureaucracies needing to justify their position and authority are slower to react to the shockwaves that will come.

Not only will a decentralized organization of many owners and partners come up with better ideas than a centralized few, but it also will be able to act quickly, like J&J.

Empowering the field and eliminating bloated bureaucracy is for many an impossible pill to swallow. Yet, if you were to ask the dozens of beaten companies from the late 1990s if they would try that medicine if given the chance, I bet they would.

1 Harvard Business School, Case Study: Johnson & Johnson (A): Philosophy & Culture, pg. 3

2 Video, Philosophy & Culture, A Question & Answer Session With Advanced Management Program Participants at Harvard University, December 1983

Dave Sedgwick is vice president of organizational development for The Ensign Group. His healthcare leadership blog can be found at https://worldclasscare.wordpress.com.