When two of the state’s largest health-sector employers, Humana Inc. and Jewish Hospital and St. Mary’s HealthCare (JHSMH), announced staff layoffs just weeks apart, it went almost unnoticed as just one more piece of evidence that the recession economists had told us was over was, in fact, not over.
But with both companies, something deeper was going on. Humana didn’t simply announce 2,500 layoffs from its 10,000-member workforce, they also announced 1,100 new jobs would be created, for a net job loss of 1,400.
JHSMH’s announcement was a bit more complex, as it involved workers contracted through third-party vendors, as well as cuts due to attrition. The hospital company announced it was outsourcing 250 foodservice and housekeeping workers under an agreement with Aramark. Under this agreement, 250 additional workers contracted by two other vendors would become Aramark employees. Days later, JHSMH announced an additional (and separate) cut of 500 more jobs across the organization through a combination of attrition and layoffs.
In both cases, the companies had seemed to almost do the miraculous. One was eliminating jobs while creating an almost equal amount of new opportunities, while the other was saving money by bringing in a third-party vendor, an almost counter-intuitive move.
Actually, both companies were doing what experts say has become common during this recession’s layoffs: re-engineering their processes to achieve greater efficiency, lower costs and higher productivity, without compromising customer service.
Examining business processes
Although layoffs have become commonplace during the recession, experts say they are part of a predictable boom/bust cycle most businesses undergo throughout their lifespans.
“You’re always wanting to toss out the things that don’t need to be done,” said Joe Labianca, an associate professor of management with the University of Kentucky’s Gatton College of Business and Economics. “In times of crisis, the process is accelerated. Absolutely, it can lead (a company) to being more productive.”
“During good times, companies get fat,” said Michael Bechara, managing director of Granite Consulting Group Inc., a Brewster, N.Y.-based management consulting firm. “They add staff, they add costs, they increase marketing budgets. Things that aren’t absolutely necessary end up being a part of the company’s costs.”
The staff bloat is not always noticeable until a business faces pressure to cut costs, which often occurs during a recession.
“I think the growing economy and revenues were covering up a lot of poor business practices and delivery systems,“ said Don Vanpool, owner of Vanpool Consulting, a Waukesha, Wis.-based business process and organization adviser. “During the recession, with the credit crunch and lower revenues, the sins were becoming more visible.”
Although a typical reaction of many businesses facing a tough economy is to either trim the payroll or try to increase sales or market share, consultants advise examining your business processes first, before you look at sales or infrastructure.
The Six Sigma management strategy developed in the 1980s remains effective for many. Six Sigma provides a discipline framework for examining business processes, said Vanpool, who has a U.S. Army background, a University of Chicago MBA and worked for years with GE Capital. In a nutshell, Six Sigma advises looking at your product from the customer’s point of view. Business processes typically include everything from product development and manufacturing to sales and delivery to the customer, as well as the generation of cash back into the business.
“Anything a customer won’t pay you to do is not a value-add,” Vanpool said. “The more you can eliminate those things from your system, the more efficient you are, which allows you to be more competitive in the marketplace because you can be more competitive on price.”
Two recent case studies
Both Humana and JHSMH (either directly or indirectly) blame the recession for their layoffs.
“In recent years, Humana’s medical (insurance) membership has dropped,“ said Jim Turner, Humana’s director of media relations. “A significant contributing factor in that decline is the employment losses experienced by Humana customer groups.”
Tom Gessel, a senior vice president with JHSMH, pointed to unemployed patients who cannot afford insurance but still require care.
“Over the last seven years, uncompensated care has doubled within our organization,” Gessel said. “It’s been a pretty dramatic shift nationally, and we’re seeing that shift locally in terms of the number of people who are unemployed and don’t have employer-sponsored insurance.”
Companies facing economic pressure often look to downsize, although a tougher business climate does not always signal that there is less work to be done. In Humana’s case, there was a business reduction (fewer insurance customers) behind its choice to downsize. For JHSMH, the opposite was true: There were more (uninsured) customers.
To cut costs, companies can orchestrate layoffs in one of two ways, Bechara explained. A head-count-driven layoff means a company can arbitrarily state it wants to cut a certain number of workers from the payroll.
“Clearly, the better way is to look at employees’ functions, salary and what they’re contributing, with the goal of cutting (a specific dollar amount) off the payroll,” Bechara said.
Both Humana and JHSMH chose to make dollar-based layoffs after analyzing their companies for workforce efficiency. Turner said Humana’s downsizing of 2,500 employees was part of an overall strategy to align its costs with revenue and current membership levels while cutting administrative expenses by $200 million a year.
JHSMH undertook a six-month process to examine ways to increase efficiency and cut costs by combining services across the entire organization, Gessel said. JHSMH includes Jewish Hospital, Sts. Mary and Elizabeth Hospital, Frazier Rehab Center, in-patient mental health facility Our Lady of Peace plus several healthcare facilities in north-central Kentucky.
“There were a lot of areas within our organization where we had not gone to standardized approaches to providing support to our clinical staff,” Gessel said. “We wanted to see if we could find vendor partners that could provide better support in foodservice, nutrition and environmental services.”
JHSMH issued a request for proposal (RFP) that drew bids from three vendors, including Aramark Corp., a company that already had a business relationship with JHSMH. Wellspring Partners LTD (now a part of Chicago-based Huron Consulting) assisted with the RFP processes. Citing confidentiality concerns, Gessel declined to disclose the names of the other bidders or the amount the system stands to save from outsourcing foodservice and housekeeping functions.
According to Gessel, Aramark stood out because it has provided similar services to 1,000 other hospitals and nursing homes across the country. Gessel specifically cited Aramark’s expertise with a room-service style “meals-on-demand” program for patients, plus best practices training for pest-control procedures, as competitive advantages.
Aramark spokesman Chris Collom said JHSMH committee members were swayed when they visited another client, St. Vincent’s Hospital in Indianapolis, and saw Aramark processes in action.
An evaluation of processes likewise played a role in Humana’s decision to eliminate staff.
“The workforce reduction is intended to create a more efficient, agile infrastructure while providing the resources required to invest in new growth opportunities,” Turner explained.
Although Humana is eliminating 2,500 positions, the company is adding 1,100, primarily in medical cost-containment, pharmacy management and specialty-benefit products, Turner said.
“Already, more than 100 associates whose positions are being eliminated are actively interviewing for (the newly created) positions,” he said.
“We’ve made sure all our team members are offered employment,” Gessel said. “They will (however) have to go through the same pre-employment process (with Aramark) as they would with any employer.”
Both Humana and JHSMH reported that the keys to managing employee perceptions of the layoff include transparency and frequent communication.
“We tried to use every vehicle we could, including face-to-face meetings, CEO forums, memos, newsletters, e-mails,” Gessel said. “Not everyone reads e-mail; some people like a paper publication they can hold in their hands.”
“Carrying out the workforce reduction gradually over the course of the year, rather than all at once, will enable the company to adapt,” Turner said. “Also, we’ll rely on attrition wherever possible, which will further enable the company to adjust.”