Avoiding the Peter Principle

For those of you who are not familiar with this term, the Peter Principle is a managerial problem that occurs when an employee continuously gets promoted because of their ability to be successful in their current or previous roles until they reach a position that they are not qualified for and ultimately fail.  I call it a managerial problem because the fault does not lie with the employee, but rather management for promoting the employee to a position they were not qualified for.

Nobody wins in this scenario.  The employee loses their job and the company loses a good employee.  For example, if a company hires a secretary who performs her duties so well that she gets promoted to the office manager position.  As an office manager, she demonstrates enough skills to be considered for a senior manager position.  As a senior manager, she outperforms again, leading management to promote her to director, where she fails miserably and is relieved of her position and terminated.

This is an easy trap for any company to fall into because they naturally want to utilize their best employees in higher capacities but when an employee is moved up into a role where they cease to be competent, the company pays the price by either losing a good employee or keeping an employee in a role that they cannot perform well. 

Employers, business owners and managers must first realize that this concept exists and make a conscious effort to prevent it from happening.  Before promoting an employee, make sure that employee desires more than just the pay raise associated with the promotion.  Make sure they understand what the position encompasses.  Give them a trial period or possibly put them through a preliminary test before they are actually promoted and assume their new role.

Management must foresee complications with the promotion before they occur.  Ask the employee how they would handle certain situations and gauge their response.  As a prognosticator, a manager must realize the possibility that an employee might not be right for a particular promotion just because they have been previously competent in a lesser capacity.  Only put employees with managerial skills in managerial positions.  Make results the catalyst for promotion, not the employee’s efforts or desire.  You could also have an employee shadow their predecessor before actually assuming the role so you can see how they handle certain situations.

These suggestions may or may not be practical in your particular application and the reality is, the Peter Principle may be unpredictable at times.  Nevertheless, without certain measures in place, your company is more susceptible to experiencing the agony of putting a good employee in a bad situation that could cost your company money and cause problems.

Why Making Money is Bad for Business

For as illogical as this title may at first appear, by the end of this article, I hope it will make sense to you.  In fact, I might even be able to summarize it in one sentence:

High profits hide operational deficiencies.

When a company is successful and cash flow is not a problem, there is normally very little incentive to conduct internal control investigations or implement corrective action plans in an effort to make a business run more efficiently.  Money is coming in so why fix something that isn’t broke, right?  False bravado is one of the biggest mistakes a company can make.  In other words, portraying the financial stability of your company much more confidently than it actually is as a defense mechanism.

Positive change comes from chaos, not comfort.  When a company is in dire straits, solutions must be devised and skillfully executed in order to avoid catastrophe.  When revenue is high and numbers are up, management tends to become complacent and bureaucracies begin to form.  Healthy profits will almost undoubtedly mask the fact that operational deficits exist and therefore, little or nothing will be done to correct them.

I’m not suggesting that the solution to a successful business is to not make money.  I’m rather suggesting that when a company is profitable, particularly close attention must be made to ensure the presence of healthy budgets don’t disguise wasteful processes from developing.  This happens more often than most companies would care to admit and it’s a natural product of human laziness. 

When money is not a problem, the illusion of procedural compliance is present. Protocol is developed by management as a roadmap for employees to follow throughout the course of their workday.  A guide to keep them from having to wonder what course of action to take when performing their daily duties.  When the pressure of money problems don’t exist, managers tend to not enforce these procedural guidelines as rigorously, leaving employees to their own devices.

Some companies are guilty of this happening but they don’t even realize it.  Some of the most profitable companies are the biggest offenders of this.  The point is that their profit margins could be even higher if they were operating like a well-oiled machine.  The best way to prevent this from happening is to merely be aware that it could happen.  Don’t just meticulously hyper-analyze your operational systems when money is tight.  Pay close attention to them when profits are up in order to perpetuate your success.

Sometimes, management or the business owner is too close to the situation to see these operational deficiencies.  Another way to avoid falling into this trap is to hire a business consultant to analyze your systems from a different perspective.  For more information about obtaining this type of business analysis, call Ashlar Consulting Corporation at 305-849-9399 or visit www.AshlarConsultingCorp.com.

Keeping a Drug Treatment Center Profitable

The general public may think that drug rehabs are cash cows but to those of us who have run them or are currently running one, it’s more challenging that most people think.  Regarding the supply and demand issue, alcoholics and drug addicts are never in short supply.  However, finding ones that are receptive to treatment can be.  Strengthening relationships with law enforcement agencies that most likely provide the lion share of your referrals is crucial to keeping numbers up.  However, what if referrals, admissions and treatment sessions are steady but cash flow is a problem?  We may need to pop the hood and take a look inside to identify the problem and devise a solution.

The first thing to determine is whether you have negotiated high enough rates with the insurance companies you are contracted with.  Managed care companies have tried to, and have been successful at, driving the treatment fees down over the course of time.  Have they gone too far with your contracts?  Let’s find out.  It’s very easy to determine your bottom line.  Go to your financial statements and add up all of your operating expenses for a given period of time…let’s say last year.  Then divide that dollar amount by the number of treatment sessions your facility has provided for the same period of time.  That number is your breakeven point.  Therefore, your fees for service must be higher than that number. 

If your operating expenses exceed your revenue, you have a fundamental problem that must be resolved immediately to ensure the fiscal stability of your operation.  One solution is to try to cut expenses.  You may need to bring your bookkeeper and accountant into the room when doing this.  Although you may not want to sacrifice clinical care for financial profits, there may be plenty of other ways to trim your company’s fat.

If it’s been years since you first negotiated your contracts with insurance providers, it may be appropriate to revisit the possibility of renegotiating your rates.  Don’t expect this to come easy but if you push a little, you may get some of your payors to give in.

If you’ve analyzed the margins between your expenses and fees for service and they seem to check out, you could be experiencing an accounts receivables issue that is causing your cash flow problems.  In other words, your fees are fine but you’re not getting paid on time.  This can either be caused by the utilization review process that is played by most managed care companies.  If you don’t receive authorization for treatment prior to actually providing the services, you won’t get paid.  If preauthorization is not the issue, the insurance or managed care companies may be participating in stalling tactics and withholding your payments. 

Many insurance companies participate in these stalling tactics so that they can earn interest on your money.  Chances are, if they are withholding your payments, they are also withholding the payments of hundreds of other health care facilities across the country.  In some states, stalling tactics are illegal and punishable by late fees.  However, keep in mind that your relationship with HMOs can be compromised if you sick the attorney general’s office against them for violating these regulations.  A more strategic and diplomatic approach may need to be implemented.  Tread carefully when going up against the people who pay you. 

One of the hardest things about running a medical office is receiving payment on time from historically the worst payors on the planet.  Insurance companies know every trick in the book to delay your payments or avoid making them entirely.  Most insurance companies create policies intentionally complicated to specifically confused health care providers, hoping that they don’t have the staff that can decipher the convolution they’ve created.

One solution to this problem is outsourcing this function to a company that specializes in billing for behavior health services.  Most of them work on a contingency basis and their system may be more sophisticated than your internal billing department.  They also may have more manpower than your office does.  Remember that your company’s area of expertise is providing substance abuse treatment.  Their area of expertise is billing.

For more information on keeping a drug treatment center profitable, please call Ashlar Consulting Services at 305-849-9399 or visit www.AshlarConsultingCorp.com.