Leading Beyond the Bottom Line

Leading Beyond the Bottom Line – A New Philosophy of Management

Roger Schenke

WHAT DOES IT MEAN TO be a physician executive? Are physician executives simply physicians with management training, or does being a physician itself make a distinguishable difference in the leadership or management of health care?

Having watched thousands of physician executives for more than 20 years, we know there are differences in the way physicians think about and approach organizational issues. In the past, we argued that those differences needed to be fixed, or more gently, that physicians needed new skills to be effective leaders and managers. That is true.

Physicians entering the world of management learned new skills and applied them in every facet of health care. But the physician executives we know express an uncertainty, an uneasiness, with the prevalent philosophy and practice of management. Something is not aligned with their sense of being a physician, with their sense of right and wrong, and with their values. In the past we would have said, “We can fix that. Take another dose of management. Think less like a physician.”

But if we continue to prescribe that remedy, we are afraid physician executives will look and sound more like non-physician executives. Equally important, if physician executives ‘take another dose of management and think less like a physician,” we will have missed an opportunity to take what is best in medicine and use it to provide a more ethical and moral standard for leadership and management in health care organizations.

No mission, no margin?

The chief executive officer of a Fortune 100 company expressed the standard and philosophy of management when he said, “My job is to increase the wealth of our stockholders. The rest is fluff.” It doesn’t really matter whether it’s a for-profit Fortune 100 company or a not-for-profit health care organization. Most managers know their rewards are based on “the bottom line,” despite all the rhetoric to the contrary. So, being rational human beings, managers behave accordingly.

Unfortunately, this leads them to defend their behavior with slogans like “no margin, no mission.” This means even the organization’s purpose can be subjugated to the bottom line. The problem is that it becomes the focus of our leadership and management. It’s easy to move from there to becoming a bottom line driven organization, explicitly or implicitly.

Let’s first agree that the financial health of an organization is critical to its survival and its ability to fulfill its purpose, but the trap is to focus on maximizing the bottom line. Should we maximize the bottom line at the expense of patient care? Which is more important? The traditional thinking says “No margin, no mission,” but if that is true, wouldn’t “No patients, no margin” also be true? These types of arguments invariably lead to the perennial cost-quality debates. As long as we continue to try to maximize one objective over another, we will never escape the limitations of linear logic.

Maximizing multiple objectives

What’s more important to a plant: sun, air, water or soil? We would probably say, “they are all equally important.” And so it is with the multiple objectives of all health care organizations and other types of businesses. The trap is to say that one is more important than another and then try to maximize that objective. If we maximize water for the plant, we’ll drown it. Sun, we’ll burn it. All must be maximized relative to each other–or optimized.

The principle is best illustrated in a socioeconomic model described by Vilfredo Pareto, a 19th Century Italian philosopher.

Interconnected objectives

Once we understand that these four objectives are not only related, but interconnected, we can see why trying to maximize only one or two is insufficient. The legitimate role of a leader is to manage in search of Pareto Optimum, or the maximum benefit for all four organizational objectives. Clearly, this is a tougher job than maximizing profits or just optimizing profits and patient care.

The Pareto Optimum of all four objectives will differ both among organizations and within an organization over time. After a drought, a plant will require more water than normal, Likewise, an organization that has traditionally focused its energy on maximizing the bottom line may temporarily shift its Pareto Optimum to another quadrant. But over time, distortions in the symmetry or balance of the objectives will have consequences for patients, employees, profits, and the community.

Some may say this philosophy is simply another form of stakeholder analysis or a 360[degrees] assessment. There is a difference. Assessments and analysis provide data or information. What one does with that data is guided or determined by a philosophy. Leading Beyond the Bottom Line is an example of a philosophy that guides or determines such action.


Earlier in this article we posed the question–what does it mean to be a physician executive? We would suggest that to be a physician executive is to be the practitioner, teacher, coach, and mentor for a new philosophy of leadership and management called Leading Beyond the Bottom Line. This philosophy leads an organization to attend in equal measure to the welfare of its patients, its financial health, the well-being of its employees, and the building of its community. An organization that we might call “The Optimal Organization.”

There will be those who say, “fine, noble ideas, but the reality is…” Their doubts and caution are real and must be respected. But if we can help them see that economic and institutional realities are not fixed constraints, and that they, as individuals are not victims of a reality, but the creators of it, together we can help to create a new reality for health care organizations.

RELATED ARTICLE: 1. The survival of the plant

First let’s use this model with the plant metaphor.

If we maximize water, we’ll drown the plant. If sun or light is maximized, we’ll scorch it.

For the plant to grow, it needs an optimal amount of both, not a maximum of either. The optimal benefit of water and sun lies at point C, which is known as Pareto Optimum.

But how about air? The right mixture of oxygen, nitrogen, and hydrogen must be present in sufficient amounts for the plant to flourish, in addition to the sun and water.

And nourishment or soil? The survival of the plant is dependent upon all four ingredients-all must be maximized relative to each other or optimized.

2. The health of the organization

Let’s change the model to represent organizational objectives, such as financial health” and “patient care” (as measured by physicians and patients).

Some may want to maximize “financial health,” others “patient care.” To maximize either will be dysfunctional for the organization in the long-term. To be effective, the leader looks for the point of maximum benefit-Pareto Optimum.

What about the employees? Don’t we, as managers, have an obligation for their well-being? Many successful organizations say, “Our employees are our most important resource. They should come first.” If we are forced to use linear logic, we would have to prioritize and maximize one objective over another. We would not care to say that employees are more important than patients, or that patients are more important than employees. Which is more important? Neither and both. Again, Pareto Optimum.

What about being a good neighbor in the community? Peter Drucker and others might argue that the business of a corporation must transcend its community. That is, the corporate leader’s obligations are to its stockholders, wherever they may be. As presumptuous as it is, we would argue that any health care organization must make a deep and continuing commitment to its geographic community. Not to do so would be to act like a leaf that doesn’t know that it’s part of a tree.

Is Health Care a Business?

Of course. But it is more than a business. Every company, every business in the world, is built around the basic, elemental transaction between itself and its customers. In health care, that transaction occurs between the provider and the patient–and it is profoundly different from the basic business transaction between a salesperson and a customer, a lawyer and a client, or a professor and a student. If that is not true, then let traditional business principles apply, including caveat emptor. No one I know, physicians or patients, employees or payers, will sit still for that. But if we continue to be bludgeoned into believing that health care is a business like any other, and stop there, then we must let caveat emptor prevail.

If there is any place where physicians and patients can rekindle an alliance, it’s around is the very real threat of the health care industry’s slide toward caveat emptor. A new set of principles is needed underpinned by a philosophy that:

1. Recognizes health care as a business and allows it to compete for capital, technology, and human resources.

2. Acknowledges the uniqueness of the basic transaction between physician and patient.

3. Appeals to the major stakeholders in health care-patients, physicians, employers, and payers.

I believe Leading Beyond the Bottom Line is a start.

–Roger Schenke

Driven by Fear

Many of us, at one point or another, have been in a “bottom line driven” organization. It’s not the accountability or the fiscal discipline that feels bad. It’s knowing, in many cases intuitively, that it is an organization driven by fear. Fear within its leaders. Some say it’s simply greed that drives its leaders. I would suggest, however, that “greed” is only one manifestation of fear. Fear of not making “enough” money. Fear of not being able to make judgements on anything but numbers. A fundamental fear of the world as it really is–changing, chaotic, and unpredictable. The fear of uncertainty and ambiguity leads many of us to want to appear as if we were in control.

Roger Schenke

Finding Pareto Optimum

Pareto Optimum was developed by Vilfredo Pareto (1848-1923) as a model to describe how a society allocated or distributed its resources. The Pareto Optimum principle is also used in conflict resolution and negotiation. For example, assume person A wants everything that is represented along the vertical axis and B wants what’s on the horizontal axis.

If A gets everything on the A axis, B will perceive an injustice and vice versa. All points lying between A and B are possible resolutions to the conflict, but, practically speaking, the points of most benefit lie along an arc between A and B. Both A and B perceive that the maximum benefit lies at point C or Pareto Optimum.

Roger Schenke is Executive Vice President of the American College of Physician Executives in Tampa, Florida. He can be reached by calling 800/562-8088 or via email at rschenke@acpe.org.

J. Richard Gaintner, MD, FACPE, is CEO of Shands HealthCare in Gainesville, Florida. He can be reached by calling 352/395-0421 or via email at gaintjr@shands.ufl.edu.

Martin E. Hickey, MD, MS, FACPE, is President and CEO of Lovelace Health Systems in Albuquerque, New Mexico. He can be reached by calling 505/262-3543 or via email at mehick@lovelace.com.

Robert H. Hodge, Jr., MD, CPE, FACPE, is Clinical Professor at the University of Missouri Health Sciences in Columbia. He can be reached by calling 573/884-0908 or via email at HodgeR@health.missouri.edu.

John M. Ludden, MD, CPE, FACPE, is the Director of the MD/MBA in Health Management program at Tufts University Medical School. He serves on the board of the National Committee for Quality Assurance and is past President of the American College of Physician Executives. He can be reached by calling 617/421-6219 or via email at healthcare@hidden.net.

Major General Leonard M. Randolph, Jr., MD, MS, FACS, CPE, FACPE, is Special Assistant to the Surgeon General at Bolling Airforce Base in Washington, D.C. He can be reached by calling 202/767-4767 or via email at Randy.Randolph@USAFSG.Bolling.af.mil.

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