7s mckinsey and Competing Values Framework

Why do you think the board chose Mr. Josephson over Mr. Larson for the CEO position?
( 1 page 275 words )
2. What challenges did Mr. Josephson face when he arrived at Centuria? How did he deal with them? ( 1 page 275 words )
3. Contrast the changes Mr. Josephson made at Centuria with those made by Mr. Roberts. Please be as specific .as you can. What aspects of the organization did the TUL Program affect, for example? How? What other aspects, ( 1 page 275 words )
if any, did Mr. Josephson address, and how?
4. How, if at all, have the cultural changes at Centuria prepared the organization for success in an environment with a high concentration of managed care? What obstacles remain? What challenges does Mr. Josephson face in overcoming them?( 1 page 275 words )
Centuria Health System
When I arrived at Centuria, the prevailing emotions among midlevel managers and senior VPs alike ranged
from fear to panic. In an organization unused to major change, people feared that I would come in and begin
“swinging the ax.” Moreover, Centuria was very protective of its fledgling new culture. The organization had
worked hard to change, and people were concerned that I would not understand or embrace the new culture and
the values.
The speaker was David Josephson, recently appointed CEO of Centuria Health System. He continued:
Over a period of three months, I interviewed 100 people—physicians, board members, community leaders,
managers—asking them for their opinions of Centuria’s strengths, weaknesses, and future direction. The interview
process gave me an opportunity not only to establish a personal connection with representative members
of all constituencies of the hospital community, but to begin to plant the seeds of a vision and a direction
for the hospital.
Now, some two years later, Mr. Josephson was assessing the changes he had made at Centuria,
and wondering if he had prepared the organization adequately for the challenges it was facing in a
managed care environment.
Centuria Health System, located in Northern California, was founded as Centuria Hospital during
California’s gold-rush days, by the wife of a successful prospector. The hospital grew steadily
over the years to its current size of 500+ beds, and was a regional teaching hospital. In addition,
during the past two years, Centuria had expanded its activities in response to the intense competition
and high penetration of managed care in the Northern California region. This expansion included
the development of an IPA-type HMO (called “Physician’s Health Plan, or PHP), a regional
cancer center, a regional pediatric center, an ambulatory services center, and an outpatient rehabilitation
center. Three years ago, in recognition of its increasingly diverse activities, it changed its
name to Centuria Health System.
Centuria had a staff of 570 physicians and 2,800 employees, and treated some 120,000 people
each year, serving an eight-county population of nearly one million. Prior to the major changes of
the past couple of years, it had been thought of, by members of the staff, Board, and town alike, as
“a sleeping giant.” Located in a mid-sized city, it had always been the major hospital, more than
twice the size of the next largest hospital in town, and had never known significant competition. The
cost-plus reimbursement environment that prevailed from 1965 to 1984 contributed to the sleepinggiant
image. During that era, there were no external pressures to contain costs or streamline operations.
Centuria’s employees were loyal—when you took a job at Centuria, you became part of “the
Centuria family,” and had every intention of staying on for the rest of your working days. The
prime example of Centuria longevity was Mr. Josephson’s predecessor, Christopher Roberts, who
had been at the hospital for 32 years, until he retired.
HBSP Product Number TCG143
In 1983, with the introduction of Medicare’s diagnostic-related-group (DRG) form of payment,
the sleeping giant received its first wake up call. Although its financial reserves from earlier
years cushioned the immediate impact of DRGs, by 1986 the financial problems were undeniable,
and in 1987, in response to heavy financial losses, Centuria implemented an across-the-board layoff
of 10% of its work force.
In 1998, a successful unionization drive by the nursing staff, in which a major issue was
“administration doesn’t care about us,” challenged the image of “the Centuria family.” At the
same time, the hospital was facing competition from a large multi-hospital chain that was making
inroads into the local market, and challenging Centuria’s traditional dominance. Some years later
Mr. Roberts announced that he would be retiring—the final and most profound signal that change
had come to Centuria.
Need for Cultural Change
Two years prior to his retirement, and in the midst of Centuria’s continuing financial difficulties,
Mr. Roberts began an effort to change the hospital’s culture from traditional, hierarchical, reactive,
and closed to team-based, aggressive and consumer-responsive. In the view of many employees,
this was no small task. As one vice president described the old culture:
Centuria was very much a traditional, top-down organization; things got done by “going through the
channels,” by “following the appropriate chain of command.” Communication was closed; the strategic plan
was not shared beyond the administrative offices on the second floor.
One department head assessed the impact of not knowing the strategic plan:
Departmental planning without knowledge of an overall strategic plan, was at best a hit-or-miss process. I
believed that somebody in administration had a plan, but it was a closely guarded secret. So you had to test
for it by putting forth a proposal, and inferring by how it was received whether it fit in with the plan. The
answer most often was “no, that’s not in the plan.”
Another department manager reflected on the frustration this created, and the resulting behavior:
Department managers were informed of decisions after they had been made, and we were expected to do as we
were told. Departments, in turn, were self-contained entities. You didn’t share information with other VPs;
information was shared only within the confines of your department. As a result, major groups kept to their
tasks: nurses did nursing, physicians practiced medicine, and administrators administered.
In addition, the relationship between the administration and the medical staff was very traditional.
As one physician explained:
There was no structure for physicians to express their needs and get them met. There was a “good old boy”
network—six to twelve docs who were able to meet with administration when they wanted, express their
needs, and get them met… For the rest of us, it was frustrating. For example, when it came to ordering a
$100,000 piece of equipment, a ´ doctor would never get an answer until the issue was pressed in a meeting.
Then one of the in-crowd would go off and see if he could get something done.
One longtime member of the nursing staff summed up the old culture and its conflicts:
The traditional culture was very paternalistic. On the one hand, the organization was nurturing: once you
came to Centuria, you would never lose your job; problems were swept under the rug. Yet at the same time,
there was a deep sense of insecurity, a feeling that your job might be gone in a minute. The bad news always
came from the second floor on Friday afternoons.
As a vice president pointed out, the hospital would not have survived under old culture:
Morale had reached an all-time low. The organization was at gridlock. There were barriers between departments
and a paralyzed decision-making process.
TCG143 • Centuria Health System 2 of 13
The Uncommon Leader Program
In response to these problems, Mr. Roberts contracted with a management firm to train its top
executives and managers in a program called “The Uncommon Leader,” or “TUL” for short. Mr.
Roberts hoped that the TUL program would loosen the place up, get people more aggressive, and
make the place more fun. The first wave of TUL training included all top executives and
managers—sixty people in all. The second wave, begun a year later, included 220 managers and
“informal leaders.”
With a standard program promoting “value-centered management” (see Exhibit 1), TUL had
an impact on the culture of Centuria far beyond what had been anticipated. In a symbolic rejection
of formality and hierarchy, no suits or ties were allowed in TUL training sessions. The trainees in
the first wave henceforth would be called “Associates”—a semantic change (complete with capital
“A”) that was a symbol of the new spirit of empowerment.
At TUL training sessions, groups made lists of what was wrong with the organization. Teams
were formed on the spot to tackle problems on the list; each team had thirty days to study its assigned
problem and come up with solutions. Some two hundred such groups were formed in all. A
Celebration Committee, formed with the sole purpose of “putting more ‘fun’ into the organization,”
planned hayrides, a Mexican party, and a beach party in the winter.
For most participants, The Uncommon Leader program was the first time that Centuria had undertaken
any kind of management training in a sophisticated way. A member of the second wave
reflected on the impact:
Forming project teams was a way of breaking down barriers between departments; of meeting people from
other departments; of seeing issues from other points of view. People made new friends; they had been coming
to work at the same place, in many cases for years, but they had never met one another on a social basis.
Suddenly, work was a fun place to be; problems could be solved by working together.
As one new “Associate” explained,
We had gotten religion. We were going to be more friendly. We were going to work in a more participative
management style. And we had these new values.
The New Values
The new values developed by the first wave of trainees were referred to by the acronym
“ESPRIT”—standing for Excellence, Service, People, Responsibility, Innovation, and Teamwork
(see Exhibit 2). The values became a standard for personal behavior—as well as a means for judging
the behavior of others. Indeed, Associates challenged one another openly and often for “not
living their ESPRIT values.” As one put it:
We could talk to one another about how a decision was consistent or inconsistent with the values. For example,
if a nurse had difficulty with a resident, the nurse could say, “It’s not okay that this doctor left his patient
in bed for ten hours when he could’ve been discharged.” It gave us a way to talk about behavior, and a way to
judge behaviors against the values. It was about being responsible, working toward quality, believing that
teamwork is better than individualism.
Overall Impact
The combination of the TUL program and the ESPRIT values had a major impact on the traditional
Centuria culture. As one new Associate described the change:
Instead of doing things “because that’s the way they’ve always been done,” people would ask, “is there a better
way to do this?” and form a team to find a better way.
Another commented on how TUL had changed the hierarchy of the decision-making process:
If you see something that isn’t good enough, you try to fix it on your level. That was unheard of before
TUL. In the past, you would tell your immediate supervisor, who told the department manager, who told the
VP, who told the Senior VP. After TUL, things were done so much quicker, and so much more efficiently, it
was unbelievable.
TCG143 • Centuria Health System 3 of 13
TUL also changed the nature of departmental interaction. Now, instead of staying within their
departmental walls, people became colleagues, problem-solvers and friends across the organization.
Traditional hierarchy—boss vs. employee—was replaced with a conviction that the customer was
everyone’s boss. As one Associate put it:
TUL taught me that I’m not a boss. “Boss” backwards is “double S-O-B.” That’s not what I want to be. I feel
more like a coach than a boss. I’m not afraid of helping out. I don’t believe in saying “no.” If our customers
ask for something, it needs to get done.
Instead of accepting the ways people treated others, the new message was that everyone, regardless
of rank, was empowered to judge others’ behavior according to the “ESPRIT values.”
The Changing of the Guard
Because of TUL, Mr. Roberts felt that he was leaving the hospital on a positive note. After
weathering financial problems, the organization was once again profitable. After recognizing the organizational
gridlock that had set in, he had ushered in a profound cultural change.
Following his retirement announcement, a search committee worked to select a new CEO. It
was clearly Mr. Roberts’ wish that his successor would be Anthony Larson, the recently promoted
chief operating officer. Mr. Larson was not only a well-respected longtime Centuria employee, but
more importantly, he was the person responsible for bringing TUL to Centuria. He had been instrumental
in articulating “the ESPRIT values,” and he was leading the development of the evolving
new culture.
Thus, when the board announced Mr. Josephson’s appointment as CEO, the news was a complete
shock. In the words of a Centuria nurse, “When they announced David’s appointment, you
could have heard a pin drop. You felt like you were at a funeral.”
Mr. Josephson had had a long and successful career in a variety of healthcare settings, including
hospitals that had gone through cultural transitions similar to the one at Centuria. Nevertheless,
he felt a need to better understand the new Centuria culture and values. His goal in undertaking the
100 interviews was to better understand the ways the organization had changed, the key elements of
the new culture, and the problems that he was facing. He commented:
People said that Centuria had always had what I call a traditional hospital culture. The environment was paternalistic;
management was fairly centralized; middle management was not empowered or developed to a very
mature state; the relationship between the hospital administration and the physicians was fairly polarized. The
physicians practiced medicine, the hospital administrators managed the hospital, and the two did not mix.
Physicians were not well informed of prospective actions. They felt like they were asked for their opinion after
the decision had been made, and they really resented that. There was no strategic plan that was circulated
widely; at best it was in the minds of one or two people. The Board was not being utilized to the degree they
While I recognized the positive change in culture that had begun with the TUL program, I could still see
much of the traditional culture. TUL had touched a relatively small group—280 managers, supervisors, and
informal leaders out of a possible 5,000 members of the Centuria community. Although this was a logical
first step, much work still needed to be done to bring remaining associates, physicians, volunteers, and board
members into the cultural change process.
For example, while the TUL program was basically a good one, and the “values” important ones to espouse,
I felt that it was crucial to take the lessons of TUL a step further. TUL participants had developed the
ESPRIT values, but they hadn’t clearly defined what those values meant in terms of behavior. A key question
needed to be asked. “If you believe in excellence, how should you behave?” Values are the basis of culture,
but behavior is the way you translate values into everyday life.
TUL had made things fun for people, where their professional lives had been boring in the past. People
started to enjoy, to celebrate. I wanted to take that one step further; I was trying to say to our team, “Let’s
celebrate successes.” Nevertheless, the transition to the new culture had not been without stresses and strains.
For example, when I arrived and began my interviews, I immediately got the feedback, “Why are you doing
this? Why don’t you just tell us what to do?”
TCG143 • Centuria Health System 4 of 13
New Directions
In addition to giving him a sense of TUL and ESPRIT, Mr. Josephson’s interviews had given
him some ideas of where he felt the hospital should be headed over the next several years. Some of
these new directions were the following:
• The organization had been focused on acute care; Josephson wanted to move toward meeting
the whole continuum of healthcare needs: health education and prevention, outpatient,
inpatient, home health care, and managed care.
• Centuria’s strength had always been in crisis management; believing that crisis should only
take up 5% of management time, Josephson wanted to move Centuria toward strategic planning.
He saw to it that the hospital’s strategic plan was widely distributed throughout the
• Centuria was proud of being the biggest hospital in town, but had become isolated in the
process. It had largely cut itself off from the larger health care community, as well as from
the nearby University of California Medical School. Josephson wanted to foster a spirit of
collaboration. Centuria’s relationship with the University had been polarized for many
years. His approach to the issue was to ask, “What is in the best interests of both organizations
and the community they serve?” and to proceed from there.
• In the absence of clearly articulated goals for staff members and written assessments of
progress towards achieving them, performance evaluations had been based on personality.
The prospect of moving toward performance-based evaluation was initially threatening to
Centuria employees; the great fear was that Josephson was going to “come in and chop
heads.” Josephson was confident that once people experienced accountability measures,
they would realize that there was far more security in accountability.
• Based upon the feedback Josephson received, the old culture appeared to have been
“passive-aggressive;” people were not used to dealing with open resolution of conflict.
The new culture would build consensus, with the understanding that to disagree was not to
risk one’s job.
• In the old culture, communication was guarded and little was put in writing; the new culture
would foster open communication. Josephson set the tone of open communication by instituting
a monthly CEO’s report to the Board and Medical Staff, openly reporting all the latest
information and news. Exhibit 3 contains excerpts from a recent report.
• In the old culture, with few exceptions, physicians were not included in governance and administrative
decision-making. Josephson created a planning task force to formulate a
“Physician Development Plan” to decide what the ideal relationship between the hospital
and the medical staff would be. The choice was among three options: complete separation
of physicians from administrators, physicians as customers of the hospital, and physicians
as partners with the hospital. The task force chose the third, with the result that more than
100 physicians began to serve on committees and planning task forces, volunteering their
time and participating actively.
More generally, Josephson put an emphasis on process. He commented on three particularly
difficult decisions he had made in this regard:
When I arrived, Centuria was in the midst of a “master facility plan,” without a strategic plan in place. I
called a halt to plans that were underway for a series of renovations and improvements to the facilities. I explained
that before you do a facility plan, you’ve got to have a program plan in place. I was fearful that we
were going to spend money renovating Area A for Purpose A, and later decided to move B to the same area.
People told me the doctors would beat me up if I held it up, but as it turned out everybody understood and, in
fact, supported this direction.
Similarly, I called a halt to any new advertising contracts. Centuria was signing contracts for radio and
TV—and there was no marketing plan. It was the right thing to do, but backwards. We needed to have someone
put our image out there, but we hadn’t decided what our image should be.
TCG143 • Centuria Health System 5 of 13
Perhaps the hardest change, though, was to get people to refocus. The old culture was “facility oriented,”
with an emphasis on outputs, such as the production of a certain number of x-rays, surgical procedures, or admissions.
I wanted to focus on people and programs, and shift from production to service. The key was to ask
the patient two questions: “Would you come back if you had to be hospitalized?” and “Would you recommend
Centuria Hospital to other people?”
Greater Clarity
In an effort to give more clarity and definition to the values developed in the TUL program, Josephson
undertook to have all managers develop clear definitions of the “ESPRIT values,” and to
articulate the specific behaviors that would be expected and that would be consistent with those values.
The results of this effort are contained in Exhibit 4.
In addition to operationalizing the values, one of Josephson’s major objectives was to bring
strategic planning to Cent Curia. Shortly after his cultural assessment, he asked each department to
develop a statement of mission, vision, goals, and objectives consistent with Centuria’s stated strategic
direction. Using the hospital’s strategic priorities for the year as a guide. Each department was
to ask “What can this department do to support the overall strategy for this year?”
Many Associates were skeptical at first. One explained why:
We all wondered to ourselves “are they going to do what they want anyway? Is this going to make more work
for me?” However, we found that the development of goals and objectives led us to think in new ways both
about the work of our departments, and ways that our departments could contribute to the overall goals of the
The results of the operationalization effort are contained in Exhibit 5.
Staff Reactions
Although Associates at Centuria had TUL and ESPRIT under their belts prior to Josephson’s
arrival, they, as well as physicians and board members, clearly were unprepared for the additional
cultural changes he brought to the institution. As one put it:
Being an Associate at Centuria under the “new culture” is far more demanding—of skills as well as time. Accountability
makes life at Centuria both more demanding and more satisfying.
Another agreed, although with some minor skepticism:
Some of us are impatient about the seemingly endless process of meetings and planning, especially when demands
outside our department leave us feeling more like business managers than healthcare givers. Nevertheless,
the overwhelming feeling is that the “new” Centuria” not only has values, but direction.
Similarly, a nurse explained:
The old way was easier. Front line people didn’t have to take any responsibility or ownership for decisions;
they could easily put blame somewhere else. You were told what to do, granted, but somebody else did it for
you. It didn’t take months and months of planning and meetings.
Even board members were feeling the heat. In the words of one:
We get articles Xeroxed to us, we get presentations in our meetings, critiques of books, recommendations of
what we ought to be reading.”
Perhaps the “toughest sell,” however, had been with the physicians, for whom the demands
had been both invigorating and taxing. As one said:
The new management style requires lots more time for everybody. On the one hand, you’re included in the
process; but on the other hand, you have to log the hours.
Another, who had practiced at Centuria for eighteen years, concurred, summing up the new
CEO’s management style:
He’s open, easily approachable, doesn’t surprise people, tells you what he thinks and what he wants, doesn’t
try to make judgments right away, and wants contribution from as many people as possible. He does make
certain that he illustrates the value of things. He never forgets an opportunity to reinforce the value and wisdom
of the last thing you did. He emphasizes a team approach to things, but sees to it that the leaders of
groups are well informed and skilled. If they lack skills, he helps them acquire them. He’s a workaholic. . .
When you’re walking out the door at ten o’clock at night, the odds are his light’s still going to be on.

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