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Managing Organizational Growth during a Time of Downsizing
Over the past several years, a major source of revenue for a teaching hospital in the
northeast has been dissolved. The hospital received two million dollars from the state’s free care
pool to care for residents of the state who do not have health insurance. This situation changed
for the hospital on April 12, 2006 when legislation was passed that all residents of the state were
required to have health insurance. The state has stopped funding the free care pool in order to
reroute funds to the state’s insurance program for low income families. This paradigm shift
allowed low income residents to increase their medical options and choose where they receive
The hospital has been suffering since this legislation went into place and needs to refocus
its strategies to remain competitive. Due to this legislation, the hospital is facing a $500 million
deficit. The current President brought in an outside strategic planning consulting firm about a
year ago to make recommendations for the entire hospital. During the past year, the consultants
have recommended reorganizing departments throughout the hospital, reducing staff and hours in
central administration, stopping annual pay increases, implementing a hiring freeze for all
employees, closing one of the emergency rooms (ER), and shutting down some of the hospital’s
public programs. The changes being implemented throughout the hospital by the consulting firm
have challenged the core internal values of the hospital – managers are focusing on productivity
and spending with minimal concern for patient satisfaction. The following are the seven core
values, which drive the hospital’s mission and vision:
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Respect We will serve our patients and their families, physicians, staff and
communities with dignity.
Commitment We will integrate our public health, preventive, emergency and
rehabilitative programs with a full range of primary to tertiary medical
Diversity We will serve the ever-changing needs of our urban and suburban
populations, while honoring their ethnic, religious and cultural
Competence We will apply a high degree of medical, nursing and technical
management in a professional and accountable manner.
Education We will collaborate with schools and other institutions to support a
premier learning environment for all members of our community.
Research We will conduct research that will lead to major improvements in
health care and health status for all people, and further scientific
advances in medicine.
We will develop and participate in community-based and managed-
care programs that promote affordable, responsible and high-quality
CEO Leadership Style
Cheryl Sullivan’s leadership platform for the past 13 years has been to transform the
habits and aspirations of the institution by obtaining new talent. By bringing in new talent, the
culture of the organization began to shift because there were fresh thoughts and ideas being
generated. Also, Mrs. Sullivan formed leadership teams and encouraged people to bring her new
ideas for the hospital. She would review these suggestions and determine which ones the hospital
would implement. Her goal by forming these leadership teams was to connect people together to
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help disseminate the tacit knowledge they held in hopes of discovering fresh ideas to rejuvenate
Cheryl Sullivan, President and CEO, called an early morning meeting for all department
heads to announce additional recommendations from the consultants which will be implemented
hospital wide and lay out expectations from her and the Board of Directors. She discussed the
financial crisis the hospital has been facing for the past year and that she wanted everyone to
help get the hospital’s financial situation turned around. The following excerpt came from her
The hospital is considering further consolidation of services, aligning
service supply and demand, and strengthening our team-based care model.
The intent of the proposal is to allow the hospital to better respond to
fluctuation in patient volumes and eliminate redundant services. The
proposal reflects our overall goals to staff to demand, improve operational
efficiency, and enhance our high standards of care and patient safety.
As you know, the hospital is working on many fronts to address a
challenging financial situation. We are working hard to control supply,
drug and other expenses; to improve a range of processes; and to be paid
fairly for the care we provide. Within this context, however, it is important
that our services be right-sized to reflect patient demand; that we are
delivering efficient care that patients need—no more and no less; that we
do everything we can to cost less while generating more revenue; and that
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we optimize our team-based care models to improve quality and patient
That is the goal of the proposal we are currently considering.
Unfortunately, if we move forward, it would mean a reduction in workforce
across disciplines. The specific number of positions that would be affected
will not be known for several weeks until contractual processes are
completed. Adjusting our models of care delivery is an important element in
ensuring we have the flexibility to operate as efficiently and effectively as
possible and to preserve the hospital’s mission and future at a time of
financial deficits caused by reduced reimbursement rates.
At the end of the meeting, Sullivan announced that every department needed to reduce their
upcoming fiscal year budget by a minimum of ten percent and increase their patient base by 20
percent over the next six months. Sullivan had given each department one month to develop a
strategic plan for implementing these changes. If any department was not able to do so, the
consultants would implement a mandatory strategic plan for that department.
Department of Psychiatry
Over the years, the Department of Psychiatry had provided an array of services, which
Individual and group therapy
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The department had four major divisions:
Center for Refugee Health and Human Services
Center for Multicultural Training in Psychology
Recover Leaning Center
Jail Diversion Program
The employees of the Department of Psychiatry had the following mission statement:
Patient care that is compassionate, appropriate, and effective for the treatment of health
problems and promotion of health.
Provide trainees and faculty with the latest medical knowledge about established and
evolving biomedical, clinical, cognate sciences and the application of this knowledge to
Emphasize practice-based learning and improvement that involves investigation and
evaluation of the faculty’s and trainees’ own patient care, appraisal and assimilation of
scientific evidence, and improvements in patient care.
Develop interpersonal and communication skills that result in effective information
exchange and teaming with patient, their families, and other health professional.
Emphasize professionalism, as manifested through a commitment to carrying out
professional responsibilities, adherence to principles, and sensitivity to a diverse
Develop skills in systems-based practice, as manifested by actions that demonstrate an
awareness and responsiveness to the larger context and system of health care and the
ability to effectively call on system resource to provide care that is of optimal value.
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There are four major goals with guide the Department of Psychiatry.
Train medical students in the clinical concepts necessary to facilitate effective doctor-
patient interactions, as well as implement the finest educational programs for mental
health trainees of all disciplines. To teach them to recognize, diagnose, and treat patients
suffering with mental illness across a variety of health care settings.
Perform basic and clinical research relevant to the understanding and development of
new treatments for patients with mental illness. Our goal is to advance and deepen our
understanding of the causes of psychiatric illnesses to facilitate the development of more
effective diagnostic, treatment, and prevention strategies for a wide array of psychiatric
Train a new generation of psychiatrists, psychologists, and other mental health providers
by providing them with didactic and clinical experiences developed by expert faculty.
Provide exceptional clinical care without exception to patients of all ages and
backgrounds using therapeutic modalities most appropriate to the patients’ needs and
provided by specialists in the field and by trainees under the supervision of outstanding
practitioners and teachers.
The Department of Psychiatry had been hardest hit by these financial changes over the
years. The department received additional external funding directly from the state which was
reduced. As a result, the department had to shut down in-patient units, such as, the IRTP which
provided psychiatric care to teenagers. They had to reduce the amount of emergency psychiatric
care they provided because their emergency services budget was reduced by 25%. Lastly, the
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department’s out-patient base decreased by over 30% because a majority of their patients
received free care and these patients now received treatment closer to their homes.
The change the department had already undergone does not reflect the changes being
asked of them by the hospital’s senior management. Their budget is going to be reduced by
another 10%, and they have to increase their patient base by 20%. The culture within the
department had transformed and employees are concerned about making the wrong decisions.
There are many conflicts and challenges surfacing between all levels of management and
employees. Employees are fearful of loosing their jobs. The department is suffering from high
turnover and loss of morale.
Leon, the administrative director for the department of psychiatry, returned from the
meeting and felt like the weight of the world was on his shoulders. He was overwhelmed by the
morning’s announcement and not sure how to proceed. His first call was to the Chairman of the
department. The Chairman was not overly concerned by what Leon told him, and left the
decision up to Leon. Leon then spoke with two of his colleagues. The first person he spoke with
was Rita, the Chairperson for Clinical Services. This is what she had to say:
“I am concerned that the clinical staff is already working to capacity and will not
be able to absorb any more patients. If this change is forced upon the staff, I am
worried there will be an increase in absenteeism and turnover.”
Later in the day, Leon spoke with Garo, the Director for Quality Assurance. This is what he had
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“Wow, Leon; you are in a position. I am not sure what I would do if I were in
your shoes. How will this impact me? You know I will retire next year. I want to
make sure I am still on track.”
Leon quickly realized he will need to make the tough decisions by himself. He had to come up
with a strategic plan to present to senior management by the end of the month. As he thought
about the additional changes the department would face, he reflected upon some of the many
issues the department had already struggled through over the past year.
Center for Refugee Health and Human Services
The Center for Refugee Health and Human Service (CRHHR) had always been a division
within the Department of Psychiatry. The mission of the center was to provide comprehensive
and holistic health care for refugees and survivors of torture and related trauma, coordinated with
legal aid and social services. The center provided services to approximately 100 refugees per
year. The center also existed to educate and train agencies and professionals, who served this
patient population, to advocate for the promotion of health and human rights in the United States
and worldwide. They also existed to conduct clinical, epidemiological, and legal research for the
better understanding and promotion of health and quality of life for survivors of torture and
Tanya , the Director of CRHHR, has three full time employees that work for her.
CRHHR relies 100% on grant funds, and she has lost over 40% of the funding in the past few
years. As a result, Tanya had to lay off one of her social workers, Dana. The Department of
Psychiatry supplied CRHHR with bridge funding for that year. During that year, Tanya had to
find additional funding otherwise CRHHR would be shut down. The emotional stress took its toll
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on Tanya, and she went out on medical leave for three months. Tanya did return to work, but her
project manager Erica gave her two weeks notice when Tanya returned. Erica said:
“Tanya, I am sorry to do this to you on such short notice. However, the
environment is too unstable. I have found a position which will provide me with
more job security. The culture here has changed so much over the last few years.
We used to all work together and had fun, but there is so much competition and
back stabbing now. Since Dana left, the workload has become unbearable. I
understood that we need to do more with less now, but I cannot maintain the long
nights and work on the weekends. It is taking time away from my family and they
need my full attention when I am home.”
Center for Multicultural Training in Psychology
The Center for Multicultural Training in Psychology (CMTP) began in 1972 and has
more than 250 alumni in its network. Six to twelve interns are selected each year from an
applicant pool that is national and international. The pre-doctoral psychology training program of
CMTP has been fully accredited by the American Psychological Association since 1986. The
services of CMTP have historically been provided primarily to a racially and ethnically diverse,
urban, poor population. This target population is at increased risk for mental health problems,
substance abuse disorders and poorer health outcomes. Currently, CMTP provides services (i.e.
assessment/diagnosis, counseling, referral, training, and consultation) to more than 15
community-based organizations throughout the city ranging from community health centers
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(providing health, substance abuse and mental health services), to houses of worship, and
recreation centers. Multicultural, multiethnic and multilingual doctoral-level, licensed
psychologists, psychology interns and psychiatrists comprise the staff of CMTP.
Over the past six years, CMTP has faced significant funding cuts from the state for their
program. These cuts have resulted in a reduction of the number of interns they can except into
their program each year. In the past, they accepted 6-12 interns and now they are only accepting
4-6 interns. These cuts have also resulted in a reduction of staff. CMTP has two office managers,
and now they only have one office manager. The office manager has changed every year for the
past three years. The turnover from this position has changed the dynamics in the CMTP. The
previous office managers had been in the position for over ten years, which built a level of trust
and communication. Due to the personnel changes, there has been a breakdown in
communication and trust.
The Director of the CMTP, Steve, feels he needs to take-on more responsibility and
cannot rely as much on his office manager, Kim. This is what Steve said about the dynamics in
“In the past, I had a bond with my office managers and trusted them beyond the
scope of their job. Everyone behaved as a family and was more than colleagues. I
do not have the same level of confidence with the current personnel because we
have not had the time together to form strong relationships. With the turnover
rate in this position being so high, it is hard to devote a lot of resources to them.”
This relationship change and funding reduction has taken its toll on Steve. To maintain his APA
accredited program, Steve needs to find additional funding. He has been working with other
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organizations to gain funding support for his interns. This tactic has been unreliable because the
support usually is only for a one-year term intern. In the past, his support has been for several
interns over several years. He has also noticed a decline in applicants. In the past, CMTP would
receive 200-300 applications and would interview 50-60 candidates. Now, he receives a little
over 100 applications and only interviews 23-30 applicants. Steve has never felt this level of
stress and pressure. He feels he has the potential of losing his entire program. This stress has
caused him to take several short term sick leaves. In the past, he only took 2-3 sick days on
average per year. Now he is taking 2-3 weeks of sick time per year. Also, he is not able to
recover as quickly from his illnesses due to stress.
CMTP depends on its consultants to help train the interns. However, due to the financial
changes the CMTP, consultants do not have any funding, but there services are still required. The
department has agreed to provide bridge funding for the consultants, but they need to bring in
revenue for the department. Leon met with the consultants to explain this situation for Steve, and
this is what Leon told the consultants
“As you all know, the department has been going through some financially tough
times, which has impacted your areas. There is currently no funding to pay your
consultation fees. The department has agreed to provide bridge funding, but we
need to have additional revenue to offset this expense. This means that you will
need to consider the types of patients you see with the interns. We need to make
sure that they all have insurance, and we are billing for the maximum amounts. I
know this places a greater burden on you because there is greater focus on
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revenue then teaching. However, please remember that this is necessary to keep
your programs going, and that is the main goal for the future.”
Some of the consultants have agreed to Leon’s request, but others have left the program after 20
years. This situation has hurt the interns because the CMTP has lost a valuable talent pool for
their learning. The consultants who have stayed have become competitive with one another
rather than working as a team. Some of the consultants even went as far as trying to access the
personnel files of other consultants to compare their payment amounts. Due to this problem, the
Director has had to change the locks in the offices and has lock-up the personnel files so only
two individuals have access. If anyone needs access to these rooms, they have to get it when
someone is in the office or they have to make an appointment. This change has created an
atmosphere of mistrust.
A number of employees at the hospital are protected by the union, which includes the
nurses and some administrative employees within the Department of Psychiatry. When Sara, a
nurse in the Department of Psychiatry, heard about the pay increase freeze, she took the
information to her union representative, Carl. Carl said he would file a formal complaint because
this violates their union contract. When this complaint was brought to Sullivan’s attention, she
immediately sent out an email and posted a message on the HR site that anyone who was a
member of this union would receive their pay increase.
This announcement caused tremendous conflict within the department. Christine who had
been with the department for more than 20 years did not think it was fair that she would not get a
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pay increase while her colleague, Kim, who only worked here for a year, would get an increase.
Christine approached her supervisor, Mary, and this is what she said:
“Mary, I do not think it is fair that Kim is getting her pay increase, and I won’t
get an increaset. I have been working here for over 20 years. Kim has only
worked here for a year.”
Mary responded to Christine by saying:
“Christine, I know this is difficult; however, Kim’s position is a union position.
The union has negotiated this contract with the hospital. I know it does not seem
fair, and I apologize, but this is out of my control.”
Christine went back to work but was angry with the outcome of the conversation.
Over the coming weeks, Christine kept track of her colleague’s actions and time. When
she felt she had enough information about her colleague, she went to HR. The level of
professional jealousy was beginning to impact productivity. She explained to HR that her
colleague had been taking unapproved breaks, leaving early, and coming to work late. The HR
representative told Christine she would look into it. The HR representative called Leon and
spoke with him about her conversation with Christine. He told her he would look into it. Leon
called Christine’s manager, Mary, and apprised her of the situation. After speaking with her, it
became clear that Christine was trying to create an issue were one did not exist because she was
angry. However, now that HR was involved, they would have to come up with a resolution. Leon
and HR determined the best course of action was to install a time clock so employees would
have to punch in and out. They implemented the time clock and employees in this area became
angry and blamed Christine. As a result, Kim requested a transfer and because she was part of
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the Union, she was able to bump someone out of a comparable position. This individual ended
up losing their job.
Within each department in the hospital, there is a general administration area which
handles accounting, finance, billing, scheduling and so on. These departments then report to
central administration for the entire hospital.
Due to the major changes within the department over the past year, the organizational
hierarchy has been shifted. Employees are reporting to managers, which they have never worked
for in the past. The research area has been rolled under the head of the finance area. The
individuals working in the research area have been there for ten to fifteen years and have strong
bonds with their previous manager. The new manager, Kevin, does not understand research and
began changing the policies for the area immediately so they are aligned with the rest of finance.
One of the new policies stated that an employee could not take time off without a thirty day prior
approval. Nick approached Kevin immediately when he read this new policy, and this is what he
“Kevin, I just read the policy about vacation time. I am hoping this policy applies
for new unapproved vacations and not vacations that were already approved. As
you are aware, my wife and I had a baby recently and her maternity leave is
coming to an end. I had been planning to take Tuesday and Thursdays off for the
next month. I wanted to make sure this was still going to be ok.”
Kevin’s response was:
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“Everyone in this area has to follow the policies. I cannot make an exception for
one employee and not the rest. It would just not be fair. However, I do understand
that this vacation time had prior approval. You may take the time as planned but
on the days you are here, I would like you to stay late to ensure our productivity
does not decrease. As you know, we are under scrutiny by the hospital’s senior
management and everyone needs to pull their own weight.”
Nick was furious about Kevin’s response and went to speak with a colleague, Sarah, and this is
what he said to her:
“Can you believe our new manager? He has guts coming in here and just trying
to change everything around without getting to know us first or seeing how we do
our jobs. He actually told me I need to pull my own weight!!! I don’t get paid
enough for this crap. I saw a few positions open at other hospitals so I am going
to begin looking for a new job, and they pay more too.”
The Family Medical Leave Act stipulates that a hospital has to provide areas for women
to breast feed when they return back to work. Shelly will be going on maternity leave in a few
months and knows she has to come back to work right after it is over. She was planning on
staying home longer but she fears she will lose her job if she does not return right away. She
asked Kevin about a place for her to breast feed and he said he did not know of a location, but he
would tint her office window and she could stay right in her office. Shelly was furious and went
to HR to speak with her HR representative, Tina. Tina stated:
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“I am sorry to hear you are having trouble Shelly; however, the law only reads
that a space needs to be provided, which is not a bathroom. If Kevin feels your
office is private enough, then he has not broken the law. I do understand that this
proposition may be uncomfortable for you, but I would suggest you work this out
Shelly left the meeting with Tina feeling aggravated. She knew Tina would not speak with
Kevin. She had been looking at another job a few months ago but did not feel it was time to
make a career change with the baby coming. However, she felt differently now. She called the
other company and they were still looking and interested. Over the course of the coming weeks,
she made her plans to leave. She went into Kevin’s office to hand him her resignation letter.
When he asked why she was leaving, she stated:
“I do not believe you care about employees or their well-being. Your only focus is
on the bottom line and having us produce like machines. I do understand the
hospital is facing tough times but we are still human beings with basic needs, and
I believe everyone here has lost sight of that, including you.”
Kevin sent out an email to the administrative staff in psychiatry letting them know that
senior management was requesting that the department begin measuring productivity. This
request would be done by maintaining a daily log which needed to be emailed to him before they
go home at the end of the day. This request did not go over well with the staff. Danielle had been
with the billing area for the past six years. She did not understand why she needed to record her
daily progress. After, submitting this log for two weeks, Kevin sent her email, which stated:
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“I noticed on your productivity log that you are taking an hour for lunch every
day. The department policy only allows for a 30 minute lunch and a fifteen
minute break in the morning and in the afternoon. This cannot be combined.
Having you out of the office for one hour straight causes productivity to decrease.
Please stop this immediately.”
Danielle, had no idea how to respond to this email. She had never been told she was doing
anything wrong and all her reviews have been positive. Based on what some of her friends from
other departments have told her, it appeared it was only going to get worse before it got better.
Later that day, she gave Kevin her two weeks’ notice. When he asked her what she was going to
do, she stated:
“I am going to work for my parent’s business until I find something else. At least
there, I will be treated with respect.”
Later that day, Kevin sent Kim and email which stated:
“I know we have been allowing you to work from home so you could go back to
school. However, we have no guarantee that you are working the hours you are
reporting. You will either need to begin working your hour’s onsite or we will
have to let you go.”
Kim did not know what to do. She knew she could not be on-site but she also knew she
needed the health insurance. She was upset that they did not trust her. She had never
missed running a report and was always available when they called her. So many people
in her area were leaving, and she did not know how the dynamics would continue to
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change. She agreed to come on-site, but she knew she would have to begin looking for
something else. As soon as she finds something else, she will leave.
Throughout the remainder of the month, Leon had to come up with a plan to present to
Sullivan, the consultants, and the Board of Directors. He knows that the underlying message will
have to focus on teamwork because everyone will have to do more with less, which will only
work if everyone is working together. The advantage to autonomy and self-managing teams is
the ability to change and as the hospital grows and the structure changes, employees will be able
to adapt more efficiently reducing the loss of time and resources (Langfred, 2007). Self-
managing teams also structure themselves so they can build trust and commitment among team
members. By building trust, lasting relationships are constructed, which results in greater
commitment to the hospital in the long term (Krishnan, 2001). Teams also create social
structures based on trust, which results in higher levels of productivity over the long-term.
Productivity is increased by sharing knowledge and promoting creativity, which will help the
hospital remain competitive in the future (Cunha & Louro, 2000). Table one is a detailed list of
recommendations Leon will present at the end of the month for the Department of Psychiatry.
See Appendix A for a detailed strategic plan, which was presented.
Budget Reduction Recommendations (10% reduction)
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A. In the general administration areas, there will only be one administrative assistant. This
will result in the reduction of 2 Full Time Equivalents (FTEs) and a cost savings of
B. The doctors in our department are part of the family practice plan so they are impacted
by the hospital wide pay increase freeze. In addition, all doctors in the family practice
plan will receive a 10% salary reduction. This cut will result in a $100,000 cost savings.
C. There will be four staff members which will decrease their hours from 40 per week to
24 per week. This will result in a $128,000 cost savings.
D. The Department of Psychiatry has three service programs with the state. Each program
is subsidized by the department (Program 1 – $60,000; Program 2 – $20,000; Program 3;
$80,000). The department will no longer subsidize these programs which will result in
$160,000 cost savings.
Patient Base (20% Increase)
A. The goal of increasing the patient’s base is to increase revenue for the department.
Currently, our denial rate (the amount of claims denied by the insurance company) is at
20%, which corresponds to about $100,000 in revenue per month. The department has
analyzed its denial reasons and the primary reason is late billing or late corrections to
claims. There is an outside firm who is currently doing the department’s billing. The
department will begin working with them to bring this part of the billing back in-house.
Current department staff will do the billing. The billing that is currently in-house only
has a 5% denial rate. This should improve our monthly revenue stream.
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B. The doctors who are part of the family practice plan will see three additional patients
per week. Each patient generates revenue of $150-300 per visit. Using an average of
$225 per patient, this change will bring in approximately $350,000 in increased
C. The Chairman of the department has purchased a new piece of equipment for
Transcranial Magnetic Stimulation (TMS). He was able to secure grant funding for this
purchase. This grant will allow the department to provide cutting edge psychiatric
services to our patients. This piece of equipment will increase out patient base by
approximately 10% and the current reimbursement rate per patient is $375.
The success of implementing this proposal lies with senior management’s approval. The
current leaders will be the catalyst for change and employees will be looking to them for
guidance. Leon is now awaiting approval of his plan by the Department of Psychiatry along with
all the other department heads. He spoke with some of his counter parts in other departments and
they all had trouble making these tough decisions. The fate of the hospital now lies with senior
management and how their vision aligns with the strategic proposals presented to them. The
entire hospital is now in a holding pattern until they receive permission to implement their plans.
While they are waiting, managers are beginning to think about the implementation stage of their
plans and how they will communicate the additional changes to their employees.
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Case Study Questions
Question 1: What is the situation—what do you actually know about it from reading the case?
Question 2: What issues are at stake? What problem(s) need to be solved?
Question 3: How should Leon communicate this strategic plan to the employees within the
Department of Psychiatry?
Question 4: What level of involvement did HR have in this plan? What HR implications does
this plan have? How would better alignment with HR help to mitigate these issues?
Question 5: How is Leon going to reduce turnover in his department during this time of
change? Why is reducing turnover critical to the successfulness of the department? What HR
implications does this action have?
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