Beyond HR

Vic Buzachero's business-centered approach to human capital management and support of metrics and accountability at Scripps Health put him heads above others who are still doing HR the old way.

Saturday, June 16, 2012
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Vic Buzachero is not only worth knowing; he's worth emulating, if you're interested in reaching that next strategic plateau in human resources. He's the perfect combination of a fine gentleman and one of the top human resource executives in the profession today.

We first connected in the 1980s, when Buzachero was treading new ground by applying HR metrics at a medical center in the southeast United States. Over the years, we stayed in touch as he ran several different HR departments, worked in marketing and acquisitions, and managed a healthcare-consulting business.

Why am I telling you the Vic Buzachero story? Human resource people continually talk about becoming business partners to their CEOs and executive teams, and being invited to sit at the executive table. Buzachero is the quintessential example of a co-equal business partner.

For the past dozen years, he has occupied a position rarely held by chief human resource officers. Along with his CEO, Chris Van Gorder, and CFO, Richard Rothberger, he is a member of the top, three-person executive management team at Scripps Health in LaJolla, Calif.

To appreciate Buzachero's work, you have to know the state of Scripps Health in 2001, when he joined the company. Problems included:

* Significant operating losses in 2000 and 2001,

* A downturn in the stock market that led to losses in Scripps' investment portfolio,

* The $60-million acquisition of Scripps Clinic "with" a $2 million monthly operating loss,

* An interim physician-services agreement due to expire in 2002 with the physicians' expectations of higher payments, and

* Labor shortages requiring high-priced contingent staffing, and high turnover.

It was clear that a special approach to organizational turnaround had to be taken if long-term improvement was to be realized. This was no small feat at the nonprofit healthcare network, which includes five hospital campuses, more than 2,600 affiliated physicians, extensive outpatient are at 23 sites, home healthcare and associated support services.

Van Gorder, new to his post, needed a business leader -- not just a human resource specialist -- in the HR department. He saw human capital as a management asset that was being poorly utilized. Working with Rothberger and him,

Buzachero developed a high-performance workforce strategy that rests on three pillars: alignment, accountability and leadership (see chart). This is put into operation by a planning model that integrates monthly activities throughout the year.

Accordingly, they have developed a financial/human-performance-incentive system that pairs earnings before interest, taxes, depreciation and amortization with patient satisfaction. This has driven annual revenue from a loss of $14 million in 2001 to the current 2011 gain of $220 million.

On the human side, they measure general workforce satisfaction through their Great Place to Work Institute scores. The GPTW scores have increased steadily from 58 percent of Scripps employees rating the organization as a Great Place to Work in 2001 to 91 percent in 2010. Scripps is also listed on Fortune's Top 100 Places to Work for five consecutive years and No. 1 on AARP's 2011 Best Employers for Workers Over 50 list. 

Although many companies claim to have a business in which all employees are aligned with the organization's mission and philosophy, my experience over the past 50 years is that the connections break down rather quickly once the pressures of daily operations hit. Scripps avoids this with a deep systemic approach. There are consistent, real connections, point to point, throughout the management cycle.

Being Accountable

In 2002, manager accountability -- a central element in any sustainable system -- wasn't enforced at Scripps. Shortly after taking on his CHRO role, Buzachero quickly set up manager accountability to be the process it is today, measured on two axes.

One consists of performance reviews -- the annual performance-evaluation process riding on a cascade of management objectives. The second encompasses financial incentives that include the Management Incentive Program and the Employee Success-Sharing Program.

Buzachero supports accountability with more than 50 metrics, covering everything from basic headcount and first-year turnover to business measures such as premium pay per adjusted patient day and hospital net income per paid full-time employee.

Operating managers have constant access to this data so there are no surprises at operational review meetings. Lest you think this is too much like Big Brother, Buzachero points out that, if the numbers move in the wrong direction, there is support at corporate to help low performers improve.

"SWAT" teams of experts from the project-management office, finance, human resources, IT, supply chain and/or contracting support poor performers by focusing on weak areas and putting action plans in place to reverse negative trends.

Early on in the turnaround process, Buzachero commissioned a study to determine the effect Scripps' leaders had on employee performance and financial outcomes. As expected, effective leadership could be measured along several parameters.

For instance, parameters such as engagement of staff, managing for results and communications, among others, are found to correlate highly with low turnover, patient satisfaction, financial outcomes and employee satisfaction. Based on that data, a number of leadership-development programs were launched.

One of the most innovative programs is the CEO's Leadership Academy. Van Gorder personally runs a one-day-per-month development program for 25 managers. They meet over the course of one year, during which time Van Gorder discusses the culture he wants and shares how decisions are made.

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Other senior executives, including Buzachero, come in periodically to share their views, programs and initiatives. Improvement projects are assigned, completed and reported on. Now a volunteer alumni group has developed and meets to continually enrich the program.

Scripps' management philosophy also includes spreading effective practices across the organization. In mid-2010, the company pulled together the COOs of the operating units into a best-practices team.

Their mission was to canvas the organization for units or processes that could be substantially improved. Applying the knowledge gained in their previous positions, the team worked across the organization, standardizing effective practices and saving millions in operating costs.

The redesign of the corporate and operating structure and implementation of the new roles for the COOs were led and managed by Buzachero, along with implementing new change processes for operational changes and improvements. Buzachero-led initiatives included a productivity-improvement program that upgraded labor productivity by more than 3 percent systemwide on a $1 billion dollar payroll -- without resorting to layoffs.

Being a business man first, Buzachero looks beyond the HR function for opportunities to improve Scripps Health as a business organization. The following three examples show how he helped cut costs, reduce risk and save on corporate-borrowing expenses.

One case of cost savings was the standardization of employee coffee service. Scripps people enjoy free coffee and, historically, each unit was left to deliver it in whatever manner they chose. The team found that there was a best vendor and most cost-effective method for providing this service.

They standardized it across the organization by moving to one vendor systemwide with consistent products and service. This resulted in an annual savings of $400,000 without taking anything away from the employees.

A second case was the investment of $1,275,000 in an employee-wellness risk-reduction program that yielded a savings of $1,997,000. The Health and Wellness program included biometric testing, health-risk appraisals and wellness offerings in physical activity, diet, smoking cessation, etc., all of which produced savings in reduced healthcare costs through fewer healthcare claims paid.

Beyond typical HR concerns, Buzachero knows that bond-rating organizations base their rates, in part, on their view of the quality of leadership. Ratings are influenced by a record of stable leadership talent with performance that exceeds plan cycle after cycle.

Additionally, Scripps' status as one of the few nonunion employers in the industry and having no defined-benefit plan on the balance sheet (which would be underfunded due to the economic downturn) lead agencies to give it beneficial ratings. Clearly, more evidence that management of human capital can positively affect organizational costs and profitability.

In short, Buzachero has proven that human resources and human capital management can be a valuable contributor to sustained corporate performance.

Jac Fitz-enz is the founder and CEO of Human Capital Source, based in San Jose, Calif.

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