When Kip Hallman took the helm at InSight Health Corp., a diagnostic imaging service provider, he had his own diagnosis to do.
He watched the cash flow dive from about $100 million in fiscal 2005 when he joined the company to barely $40 million in fiscal 2008, which ended two months after he became president and CEO in April. He also saw fiscal 2007 revenue of $287 million drop to $265 million in fiscal 2008.
While the numbers dwindled, Hallman was in the field picking up clues that pointed out some underlying problems.
“When I was very new to the business, I’d be out traveling with one of our managers. I’d be talking with one of our partner radiology groups,” he says. “They get paid by us based on our collections, so one of them might say, ‘Gosh, you guys just don’t seem to collect as much money as you should for these services.’”
Other companies, for example, charge $100 for a product and receive $100. In health care, you may bill $100 and only see half of that. And at InSight, some of that was slipping through the cracks.
“It wasn’t clear why, but it was very clear that, for some reason or another, there were holes in our revenue cycle,” says Hallman, citing their fragmented revenue cycle management department as a possible culprit.
So while the symptoms weren’t all obvious, Hallman knew InSight was ailing. But he also knew the right treatment could bring it back to health.
“It was clear to me that there was a lot of low-hanging fruit there, and that if we just focused the right people and the right energy and put in place the right systems, that we would benefit significantly by that,” he says.Put your team in place
Leadership isn’t a solo gig for Hallman, who immediately started creating a team to help him identify and solve problems at the 1,700-employee company. Because he’d been with InSight three years by the time he took the role as president and CEO — first as executive vice president and then as interim COO — he’d already evaluated the key people.
But don’t overlook this step. Get to know the company’s leaders as well as potential leaders who may be rising through the ranks.
“The first thing one ought to do is to really spend time getting to know who the team is and what their capabilities are,” Hallman says. “Evaluate the strengths and weaknesses of the team you have in place.”
Hallman wanted honest, truth-seeking team players. But these weren’t arbitrary traits he dreamed up. He conducted an employee survey asking people to describe the current and ideal culture at InSight. He culled the responses into five main themes that became the company’s core values — and a yardstick to measure his management team by.
Problems may also reveal the skills you need to solve them. Hallman says a new leader’s first and second tasks — creating a team and identifying goals — should be simultaneous. You can’t achieve anything without the right people beside you, but you may not know what needs to be achieved without people pointing the way.
So as you work with existing managers to identify goals, consider the skills you’ll need to achieve them. Constantly align your initiatives with the abilities of your current work force.
By looking at those indicators of what the company needs and wants, you’ll more likely choose leaders who will mesh.
“The culture is ultimately made up of people. The only way you can get the culture you want is if you have the people in place that are willing to live and breathe that culture,” Hallman says. “You have to be very careful that you have people who behave in the way that you’re speaking.”
Only one of Hallman’s original seven direct reports is still in the same role, but he’s quick to point out that the ones who were let go left on good terms. Still, dismissing previous leaders can cause a stir, whether you promote familiar faces or bring in outsiders. The key to sidestepping controversy during personnel changes is candor.
“You have to be able to articulate why you’re making the change, and you have to be confident it’s the right thing to do,” he says. “I didn’t want to try to be sneaky about it. I was just very upfront: ‘This is what I’m doing. Here’s why.’ If you do that, I think it takes a lot of the drama out of it.”Identify problems
Hallman quotes Warren Buffett to explain the balance between your team and your goals.
Buffett said, “When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
But Hallman says the right team can improve a mediocre strategy. So as he was building his team, he was bouncing ideas off old and new employees alike.
“I tend to use the team I have, both the new people and existing people, and ask a lot of questions and challenge them to help me figure out what we can do better,” he says. “It was not a one-person show by any means.”
Rely on your management team, but don’t forget about the front lines. Employees who interact with customers, for example, can share valuable perspectives about the strengths and weaknesses of the company.
That means you have to build up their trust immediately so they’ll share their thoughts. Make yourself approachable by being responsive.
“It’s very important that people know that you’re just open to talking about anything and you’ll listen to them,” Hallman says. “I’m very, very anal about returning [phone calls and] e-mails from anybody in our organization. I will return it [the] same day, even if it’s late at night.”
You also have to get out of your office. Visit each location and chat with employees face to face. You have to play detective, following up on issues that employees raise.
“You wouldn’t have known if you just looked at our financial statements whether or not we were collecting everything we should collect,” Hallman says of one of the problems he identified. “It was really being out in the field listening to people. Not just listening and letting it drop; hearing somebody raise a concern and then following up on it: ‘Well, what do you mean by that?’”
But that’s not to say financial data isn’t a good place to start your search.
“Look for where you see large problems — where the large dollars flow, both on the expense side and the revenue side — and where you see erosion of revenue,” he says.
Look also at previous goals the company set and failed to achieve as well as problems that are common in your industry or similar companies.
Several years ago, for example, InSight identified that it wanted to condense its footprint. But it took awhile to complete the transactions to strengthen InSight’s position in certain markets. So when Hallman stepped in, it became his priority.
“I looked for where the problems were,” he says. “Where I saw big problems, I figured there were big opportunities.”Validate your hypotheses
If collecting your employees’ input is the first step to uncovering weaknesses in your company, the second step is validating their observations with facts.
“Once you think there’s a problem, then you’ve got to go deep into the data to prove that there really is or there isn’t,” Hallman says. “You’ve got to be careful about just taking anecdotes. But when you start hearing enough anecdotes and they all line up together, then I think it’s worth [investigating].”
Hallman looks to both financial and operational data to back up his hypotheses.
“It’s important that [data] be accurate, that it be timely and that it be granular enough that you can use it to really get to the answer of what’s going on,” Hallman says.
But data alone doesn’t do you much good if you can’t analyze it. So even though Hallman prefers the most up-to-date data possible, he likes to have previous figures for comparison. Having people that can question why the data is changing can mean the difference between data and information.
Data, for example, would be that your gross margin on a particular service is 42 percent. But the information is that it went down from 44 percent or up from 40 percent and why.
To get there, you have to ask questions.
“There are two things that help immensely,” Hallman says. “First is just putting talented persons on it. The second thing is you really have to have good data.”
Hallman also looks outside the organization to see what makes his peers successful. Not only can this suggest your soft spots, but it also offers solutions.
Hallman validated InSight’s previous goal of condensing their footprint by looking at successful industry competitors. The common thread was that they were all dense in a small number of markets.
“I looked at what’s going well for others, what’s not going so well for us and what’s going well for us in certain markets,” he says. “What are the common elements in those markets that we could try to bring to other places in the business?”Drive your initiatives
Thanks to old and new employees, internal and external benchmarks and lots of data, Hallman identified six initiatives he wanted InSight to tackle under his guidance. But articulating those wasn’t the hard part.
“It’s easy to communicate in an outbound way,” he says. “What’s difficult is ensuring that the message is received. It’s very difficult to know whether you’re getting through to 100 people or 1,000 people. So I have to rely on making sure that my team gets it and that they’re talking to their team. And hopefully their team gets it and those folks are pushing it out through the organization.”
Focus on your management team first. Because you keep closer and more frequent contact, you’ll have more opportunities to reiterate the goals to them.
Hallman meets with his team at least once a month. In those meetings, they review and update their individual goals for the quarter. He hands out sheets that list each one’s tasks next to the corresponding initiatives, visually aligning their short-term goals to the long-term vision.
“The mandate was set forth that if what you were doing didn’t some way or another drive one of these six initiatives, you probably should think twice about doing it,” Hallman says.
Of course, you risk losing that alignment in a game of telephone as the message trickles down. So as you communicate the goals to your direct reports, remind them that consistency is crucial.
While you depend on them to relay the message to their reports, do your part to keep it consistent by communicating to those managers yourself. For example, Hallman organizes a conference call with 100 of his managers to give them progress updates.
He also reaches out to the 150 or so employees at the corporate office by bringing lunch for small groups of them every couple of weeks. He reiterates the goals and answers questions while telling jokes to set an informal tone.
To touch the employees in the field — the majority of his work force — Hallman says that the secret is variety. The more ways you can get your message out, the more opportunities they have to pick it up. In addition to spending time at other locations, Hallman uses the company’s biweekly newsletter as a reminder.
Consider new ways technology can propel your message to employees more efficiently. Hallman is exploring the use of audio and video on the e-mail newsletter. He’s even contemplating tweeting quick updates on Twitter.
In your communication, repeat the goals as a reminder but also give examples of what you’re doing to achieve them, keeping employees updated throughout the journey.
By the end of Hallman’s first calendar year, InSight reduced denial rates by a third. EBITDA has also stabilized in the $40 million range since Hallman took over. The recently released fiscal third quarter EBITDA margins are at 18 percent, which are double last year’s third quarter results and even up from the previous 12-month margins, which were 14 percent.
“While we’re not out of the woods yet; we are clearly moving very rapidly in the right direction,” Hallman says.
How to reach: InSight Health Corp., (949) 282-6000 or www.insighthealth.com