There is a clear link between good management and better healthcare, but NHS managers' performance lags behind the private sector

Few would disagree that well-managed hospitals achieve better results. Yet there is little consensus about how strong an impact good management can have on hospital performance. New analysis conducted by McKinsey and the London School of Economics indicates a clear link between certain management practices on the one hand and better healthcare and higher hospital productivity on the other.

For the past five years we have been working with the LSE's centre for economic performance to understand the drivers of performance in industry. We took the same methodology and customised the approach for healthcare delivery.

We assessed 126 hospitals in the UK - 104 from the NHS and 22 private ones. The assessments involved interviewing 170 general managers and lead clinicians in cardiology and orthopaedics departments on the implementation of a number of proven management practices.

The interviews covered:

Lean operations A hospital's operational effectiveness, such as well-designed clinical pathways, clear protocols for admission and discharge, and standardising of supplies.

Performance management The creation and use of quality and productivity targets in managing operations, and tracking and reporting of results.

Talent management Recruitment, development, rewarding and retention of high performing staff.

We added clinical leadership as a fourth category. We hypothesised that services would be better run if their lead clinicians had clearly defined roles and the sense that they "owned" the services they ran.

Room for improvement

Interviewees were asked to describe how certain things worked at their hospital. We then compared their responses with our pre-defined assessment criteria and assigned a score from 1 (poor) to 5 (excellent).

As an example, one of the 27 dimensions examined was performance tracking. A best-practice hospital was defined as one that continually tracked and communicated a variety of key performance measures to all staff, using a range of visual management tools. In contrast, a hospital was judged poor at this if it only monitored a limited number of externally imposed metrics or communicated results only to hospital executives.

The research revealed clear room for improvement. Overall, NHS management practices lag well behind those of their private sector counterparts and of UK industry.

Among the 104 NHS hospitals assessed, overall management scores varied widely. The average score for these hospitals was fairly low, largely dragged down by the performance of several very poorly run hospitals. No NHS hospital scored above 4.

The NHS's average score significantly lagged behind the average scores for the private hospitals we surveyed and for both large and small British manufacturers.

We found NHS hospitals do much better in some areas than others. For example, their average score for lean operations was close to that for small manufacturers. The NHS's comparatively good score in this area reflects the strides that many hospitals have made in improving their operations through the use of best practice techniques, such as standardisation and process optimisation.

NHS hospitals scored less well on performance management and significantly below both private hospitals and small and large manufacturers on talent management. With the focus on performance management in the NHS, this may surprise some, but this study found private sector hospitals and the manufacturing sector are more robust and holistic in their management of performance - in all its aspects - than the NHS.

There is also a strong link between better management practices and external performance indicators. When we compared our scores of the hospitals we assessed with publicly available information on clinical quality and financial and operational performance, the correlation between the hospitals' overall management scores and their performance on externally reported metrics was very strong.

After grouping the hospitals in thirds, for example, we found that those with the highest management scores had the shortest average lengths of stay, the lowest readmission rates and the best performance in controlling healthcare acquired infection. These hospitals also had the best Healthcare Commission service quality and resource usage ratings, the highest levels of patient satisfaction and medical staff productivity and by far the strongest financial performance.

Several of our findings led us to conclude clinicians have an important role to play in improving both management and performance at NHS hospitals.

First, clinical leadership scores were indeed a potent predictor of a hospital's lean operations and performance management scores - the better the clinical leadership, the better the hospital did in these other areas. Moreover, the hospitals with high scores in all three areas tended to be the ones with the best results for clinical quality and productivity.

Second, better-managed hospitals employ a higher percentage of general managers with a clinical (medical, nursing or pharmacy) background. Clinically trained managers may be better able to understand the realities of how services are run.

Third, lead clinicians appear to be more realistic judges of a hospital's management practices than general managers without clinical training. We asked both groups to score their hospital's management practices on a scale of one to 10. The responses from managers were overly positive and correlated only weakly with our own assessment. By comparison, lead clinicians had a much more accurate understanding of their own hospital's management practices.

Deep knowledge

These results suggest many hospitals could benefit markedly by increasing the involvement of clinicians in hospital management and, in particular, management of their services. Clinicians have the deepest knowledge about what is and is not achievable when it comes to setting performance goals for patient care and, importantly, they can also act as role models.

At one hospital where we worked, a lead clinician firmly stated to his colleagues that there was no reason that his service's day-case rate could not be increased to 70 per cent. Within four weeks, the service had achieved this goal. At another hospital, one doctor stood up after reviewing an analysis of their patients' length of stay and acknowledged: "This is me - the bottom of the list. That is not good enough, and I will do better." As well as markedly reducing their patients' length of stay, they also inspired many colleagues to do likewise.

There was one area of hospital performance where clinical leadership had no impact: talent management. This may be because this is not something clinicians have been asked to lead on in the NHS. But it is an area that NHS hospitals need to address - talent management being the dimension in which they fall furthest below the standards of the private sector.

The private hospitals we surveyed outperformed their NHS counterparts in all aspects of talent management. Not surprisingly, they were better able to reward high performers, but they also were markedly stronger in their overall emphasis on talent management and their ability to retain top talent.

Retaining top talent is important for good hospital performance, but it does not mean that managers should be left in the same role for many years. In fact, that practice is an indicator of weak talent management and occurs when organisations do not actively remove poor performers to make possible promotions for lower-ranked high performers.

In fairness, NHS hospitals are markedly different from the private hospitals we surveyed. Nevertheless, there are several steps they could take to improve the way in which they manage their human resources and further improve their overall performance.

First, the hospitals' top executives should make talent management a high priority. At each hospital, the chief executive should identify the top 100 performers and then make sure that those people are recognised, developed and promoted.

Second, each hospital should adopt best practices in talent management from other sectors, including industry and private hospitals, and then apply those practices throughout the organisation. Active steps should be taken to develop high-potential employees and encourage strong performers to stay. Poor performers should be quickly transferred to less critical roles or, if necessary, removed altogether. The evaluation system should incentivise strong performance against clearly defined standards of what is seen to be good on a relatively small number of areas that are truly critical to performance.

Third, the hospitals should make an explicit effort to attract talent from other organisations so they can benefit from the experience outsiders have with good talent management practices. In this way, the NHS can create the role models and capabilities it needs to serve the public more effectively.