Background: Spearheaded by the industry”s transition from volume- to value-based care, the health care reform movement has spurred both unprecedented challenges and opportunities for developing more effective and sustainable health care delivery organizations. Whereas the formidable challenges of leading hospitals and health systems have been widely discussed, including reimbursement degradation, the rapidly aging workforce, and the imminent wave of executive retirements, the opportunity to leverage succession management and talent development capabilities to overcome these challenges has been largely overlooked. Purpose: To address this key research and practice need, this multiphase study develops and validates an assessment of succession management practices for health care organizations. Methodology: Utilizing data collected from two national samples of hospital organizations, the results provide a 32-item succession management assessment comprising seven distinct sets of succession management practices. Results: The results indicate that succession management practices are strongly associated with multiple hospital performance metrics, including patient satisfaction and Medicare Spending per Beneficiary, leadership bench strength, and internal/external placement rate for executive level positions. Practice Implications: The author concludes this article with a discussion of several practical implications for health care executives and boards, including employing the succession management assessment for diagnosing development opportunities, benchmarking succession planning and talent development practices against similar hospitals or health systems, and elevating the profile of succession management as a strategic priority in today”s increasingly uncertain health care landscape.

356 OctoberYDecember & 2019

Examining the impact of succession
management practices on organizational
performance: A national study of
U.S. hospitals

Kevin S. Groves

Background: Spearheaded by the industry”s transition from volume- to value-based care, the health care reform
movement has spurred both unprecedented challenges and opportunities for developing more effective and
sustainable health care delivery organizations. Whereas the formidable challenges of leading hospitals and health
systems have been widely discussed, including reimbursement degradation, the rapidly aging workforce, and the
imminent wave of executive retirements, the opportunity to leverage succession management and talent
development capabilities to overcome these challenges has been largely overlooked.
Purpose: To address this key research and practice need, this multiphase study develops and validates an
assessment of succession management practices for health care organizations.
Methodology: Utilizing data collected from two national samples of hospital organizations, the results provide a
32-item succession management assessment comprising seven distinct sets of succession management practices.
Results: The results indicate that succession management practices are strongly associated with multiple hospital
performance metrics, including patient satisfaction and Medicare Spending per Beneficiary, leadership bench
strength, and internal/external placement rate for executive level positions.
Practice Implications: The author concludes this article with a discussion of several practical implications for health
care executives and boards, including employing the succession management assessment for diagnosing
development opportunities, benchmarking succession planning and talent development practices against similar
hospitals or health systems, and elevating the profile of succession management as a strategic priority in today”s
increasingly uncertain health care landscape.

T
he hospital executive teams charged with leading
our nation”s $2.9 trillion health care industry
currently face a long list of daunting challenges,

including the accelerating transition from volume- to

Key words: executive development, health care leadership,
hospital performance, succession planning

Kevin S. Groves, PhD, Associate Professor of Management, Graziadio
School of and Management, Pepperdine University, Los Angeles,
California. E-mail: [email protected].

The author has disclosed that he has no significant relationships with, or
financial interest in, any commercial companies pertaining to this article.

DOI: 10.1097/HMR.0000000000000176

Health Care Manage Rev, 2019, 44(4), 356Y365
Copyright B 2017 Wolters Kluwer Health, Inc. All rights reserved.

value-based medical care, reimbursement degradation, and
massive workforce demographic shifts, such as the looming
retirement wave across key talent pools. With approxi-
mately 75% of health care CEOs anticipating retirement in
the next 10 years (Darnell & Noland, 2012), hospitals and
health systems with underdeveloped or nonexistent suc-
cession management practices incur incredibly high costs
and instability across leadership teams. Given the uncer-
tainty of the health care environment and limited organi-
zational resourcesVfinancial, know-how, and executive
team attentionVthe normative case for investing in leader-
ship development and succession planning practices is
insufficient. The talent management approach, defined as
the integrated system of strategies, policies, and programs
designed to identify, develop, deploy, and retain leadership
talent to achieve strategic objectives and meet future

Copyright © 2019 Wolters Kluwer Health, Inc. All rights reserved.

mailto:[email protected]

357 Succession Management

business needs (Silzer & Dowell, 2010), seeks to ensure
hospital organizations of a sufficient supply of capable
leaders to achieve strategic objectives.

The purpose of this multiphase study was to examine the
impact of succession management practices on hospital
performance metrics in the current era of value-based
medical care. With the notable exceptions of pioneering
research by Garman and Tyler (2007) and, more recently,
Patidar, Gupta, Azbik, and Weech-Maldonado (2016) and
Kim (2012), the research literature lacks empirical studies
that assess the impact of succession management practices
on hospital performance metrics. This study seeks to address
the following critical gaps in the health care research
literature. First, this study examines the quality and depth of
succession management practices across two national
samples of U.S. hospitals. Second, this study assesses the
impact of succession management practices on patient
satisfaction (Hospital Consumer Assessment of Healthcare
Providers and Systems Survey scores) and Medicare
Spending per Beneficiary (MSPB-1). Finally, this study
measures the relationship between succession management
practices and several metrics that indicate the depth and
quality of a hospital”s leadership talent, leadership bench
strength, internal/external executive placement rate, and
executive turnover.

Alarming Succession Management Trends
in Health Care

Several troubling health care industry trends are intensi-
fying the business case for succession management capabi-
lities in hospitals and health systems. The convergence of
several critical trends has created a sort of Bperfect storm[
for the $2.9 trillion health care industry, which represents
approximately 18% of gross domestic product (Health
Research Institute, 2015). For health care executive teams,
these trends paint a vivid picture of the high costs and risks
associated with underdeveloped succession management
and talent development practices. The IBM Institute for
Value and Human Capital Institute (Ringo,
Schweyer, DeMarco, Jones, & Lesser, 2008) concluded
that, by comparison with other industries, the health care
industry is BIa laggard in developing human resource and
talent management innovations. Hospitals and health
systems have devoted too little time to creating a legacy of
leadershipImany have no formal plans to identify and
develop individuals for future roles, nor do they have a
transition strategy should leaders make a planned or
unplanned departure[ (Schweyer, 2009, p. 10). In a sobering
analysis of the IBM/Human Capital Institute research
findings, Schweyer (2009) offers the following conclusion:

The healthcare industry may be unique in the
enormity of the talent challenges that confront it.
If there ever were a Bperfect storm[ related to talent

management, it is most acute in healthcare. While
it is true that the aging population restricts talent
for all industries, it is only in healthcare and life
sciences that it so profoundly impacts demand at
the same time. (p. 13)

Recent survey results confirm the overall lack of pre-
paredness across hospital organizations for the expected
surge in executive team transitions due to workforce demo-
graphic shifts. The results of a 2014 American College of
Healthcare Executives (ACHE) survey of community
hospital CEOs indicate that only 52% of hospitals routinely
conduct succession planning for the CEO position
(Healthcare Executive, 2014). The 2014 ACHE survey
results also show that only 43% of the responding CEOs
had one or more successors identified for their positions.
Mirroring the increasing complexity of the health care
industry and the challenges posed to senior leadership
teams, hospital CEO turnover remains historically high
with daunting projections of a surge in CEO transitions
over the next 10 years. An ACHE annual survey of hospital
CEO turnover reported an elevated hospital CEO turnover
rate since 2009 (ACHE, 2016). Hospital CEO turnover
was 18% in 2015 and a range of 16%Y18% over the last
7 years (2009Y2015). Underscoring the implications of
these trends, ACHE”s President and CEO, Deborah Bowen,
identifies succession management capability as a funda-
mental need for today”s health care organizations. BThe
high level of change taking place in hospital C-suites
underscores the importance of organizations having well-
developed succession plans to ensure success in today”s
environment,[ says Bowen (ACHE, 2016).

Conceptual Framework and Hypotheses

The conceptual framework guiding this study is the resource-
based view of the firm (RBV). Originally developed by
Wernerfelt (1984) and subsequently extended by other
scholars (e.g., Barney, 1991; Wright, Dunford, & Snell,
2001), RBV theory postulates that an organization”s
sustained competitive advantage derives from a range of
resources and capabilities that (a) it controls, (b) are valu-
able and rare, and (c) cannot be imitated or substituted
(Barney, 1991). The RBV theory proposes that internal
resources and capabilities, including senior leadership talent
(Hitt, Biermant, Shimizu, & Kochar, 2001) and strategic
human resource (HR) management (Wright et al., 2001),
are fundamental drivers of a firm”s strategic direction and
ability to achieve efficient and effective performance out-
comes. A firm”s ability to select, onboard, develop, and
retain executive talent represents a key source of HR capital
that is difficult to substitute or imitate by competing
organizations. Overall, RBV theory and research clearly
identify effective senior leadership and the internal human
capital capabilities that allow a firm to identify and develop

Copyright © 2019 Wolters Kluwer Health, Inc. All rights reserved.

358 Health Care Management Review OctoberYDecember & 2019

leadership talent, as key sources of competitive advantage
(Finkelstein & Hambrick, 1996). Given that hospital
organizations operate in a highly dynamic business environ-
ment marked by unprecedented reimbursement changes,
the ability of senior leadership teams to effectively utilize
firm resources to drive clinical and operational performance
represents a sustainable competitive advantage (Kim &
Thompson, 2012).

Succession management has been defined as the formal
processes through which successors are identified for key
leadership positions and development activities are plan-
ned and executed for the identified successors (Garman &
Tyler, 2007; Ip & Jacobs, 2006). The succession manage-
ment process includes both leadership assessment activities
aimed at evaluating employees” potential to advance in the
organization as well as planned development activities to
groom high-potential employees for vacancies in leadership
positions such as mentoring, coaching, multisource or 360-
leadership assessment, internal executive leadership devel-
opment programs, team-based action learning projects, and
job rotations (Groves, 2011; McAlearney, 2010). The
theoretical and empirical research findings to date indicate
that strong succession management practices have the
potential for strong impact on key hospital performance
outcomes (Groves, 2015; Kim, 2012; Kim & Thompson,
2012; Patidar et al., 2016). Prior research indicates that
succession management practices limit the instability and
inertia that often accompanies unexpected vacancies in top
leadership positions (Patidar et al., 2016). The absence of a
robust succession management process can increase the
likelihood of organizational inertia and leadership turbu-
lence that negatively impact organizational performance
outcomes. For example, an ACHE-sponsored study (Khaliq,
Walston, & Thompson, 2006) concluded that hospital CEO
turnover spurred incredibly high turnover of senior
leadership team members within 1 year of the CEO”s
departure, including 77% of chief medical officers, 52% of
chief operating officers, and 42% of chief financial officers.
Hospital CEO turnover and consequential departures among
the senior leadership team contribute to an organizational
inertia that halts advances in patient care and quality.
Overall, the turnover of top leadership team members not
only is costlyVconservatively estimated at $1.5 million for
the departure of a hospital CEO (Thrall, 2008)Vbut also
creates a void in the hospital”s strategic direction while
diminishing the hospital”s ability to maintain high levels of
patient care.

Additional key benefits of strong succession manage-
ment practices are the enhanced individual and organiza-
tional performance outcomes associated with internal
successors to key leadership positions. Once identified via
high-potential assessment processes, internal successors
for key leadership roles benefit from on-the-job training,
mentoring, job shadowing, and other learning activities
that allow leadership talent to gain value experience

performing executive level duties before assuming top
leadership roles (McAlearney, 2010). The performance
benefits of succession management practices are partic-
ularly salient in health care organizations given the impact
of clinical leadership roles on hospital performance out-
comes. Hospital organizations that execute robust succes-
sion management practices, including planned transitions
in both administrative and clinical leadership roles, cul-
tivate a climate of stability that allows frontline staff to
maintain their focus on hospital operations and patient care
outcomes (Garman & Tyler, 2007). On the basis of the
research findings discussed above, the following hypotheses
are presented:

Hypothesis 1: Hospitals that utilize succession manage-
ment practices are more likely to show higher patient
satisfaction scores.

Hypothesis 2: Hospitals that utilize succession manage-
ment practices are more likely to show greater operational
efficiency measures.

Prior research findings also suggest that leaders who are
developed and promoted from within the organization (a)
are higher performers and (b) generate higher levels of
organizational performance compared with externally
sourced leaders (Collins & Collins, 2007). Numerous
studies of CEO successors placed into their roles across
various types of selection methods (e.g., promotion,
external placement) illustrate the many benefits of promot-
ing internal candidates. According to Zhang and Rajagopalan
(2010), internal candidates who had been identified and
purposely developed for the CEO position are far more
effective in their CEO roles compared with both outside
successors and internal candidates who were selected via a
Bhorse race[ that pits multiple insiders for the CEO
position. A Booz & Company analysis of multiple industries
conducted by Favaro, Karlsson, and Neilson (2010) showed
that, compared with external CEO candidates, internal
CEO candidates (a) delivered significantly higher market-
adjusted shareholder returns, (b) remained in their CEO
roles for 2 years longer, and (c) were substantially less likely
to be involuntarily terminated. The many benefits of
developing internal leadership talent for CEO successions
extend to health care organizations, as top performing
hospitals are 35% more likely to promote an insider CEO
compared with hospitals with average performance on
clinical and financial outcomes (Wilson, 2005).

Health care organizations with formal succession manage-
ment practices also benefit from greater staff engagement
and productivity and reduced voluntary turnover (Darnell
& Noland, 2012; Kim, 2012). The presence of high-quality
succession management practices, including robust annual
talent review sessions (Rothwell, 2016) and organization-
wide executive development programs or Bleadership acad-
emies[ (McAlearney, 2010), signals the organization”s

Copyright © 2019 Wolters Kluwer Health, Inc. All rights reserved.

359 Succession Management

strong commitment to the development and career ad-
vancement of executives and high-potential leaders. Or-
ganizations with strong succession management practices
cultivate a strong culture of leadership development that
enforces process transparency and avoids heir apparent
designations or Breplacement planning[ approaches that
simply fill open executive positions with the immediate
direct reports. Executives are less likely to voluntarily separate
from an organization that makes significant investments in
the identification and development of internal leadership
talent while maintaining a culture of openness and trans-
parency concerning access to critical development and
advancement opportunities (Zhang & Rajagopalan, 2010).
Organizations with robust leadership assessment and devel-
opment practices also benefit from much stronger leader-
ship bench strength (percentage of key leadership positions
with Bready now[ internal candidates; Leonard & Krider,
2014), lower annual turnover (Huselid, 1995), and higher
leader and employee engagement (Leonard & Krider, 2014).
Organizations with deep leadership bench strength also
benefit from significantly lower costs associated with the
recruitment, onboarding, and training of external candi-
dates, particularly for specialized leadership roles in hospital
settings (Bolton & Roy, 2004). On the basis of the research
findings summarized above, the following hypotheses are
presented:

Hypothesis 3: Hospitals that utilize succession manage-
ment practices are more likely to show deeper bench strength
for key leadership positions.

Hypothesis 4: Hospitals that utilize succession management
practices are more likely to promote internal candidates into
key leadership positions than external candidates.

Hypothesis 5: Hospitals that utilize succession management
practices are more likely to retain executive level staff.

Methods

Research Design

Overall, this article presents a two-phased research project
that drew from several qualitative and quantitative data
sources over the course of 3 years (2014Y2016). The first
phase of the study (Phase 1) consisted of developing an
original assessment tool that measures succession man-
agement practices (Bsuccession management assessment[
[SMA] hereafter) for health care settings. Phase 1 involved
the construction of a model and corresponding assessment
of succession management practices based on prior research
findings, semistructured interviews with subject matter
experts in hospital organizations, and a 2015 survey of
hospital organizations. Phase 2 consisted of cross-validating
the SMA tool via a 2016 survey of hospital organizations

that also included analysis of multiple hospital performance
and executive workforce metrics. The hypothesized model
of succession management practices, hospital performance
outcomes, and executive talent management metrics is
presented in Figure 1.

Phase 1: Developing an SMA

Given this study”s focus on succession management, two
existing models of succession management practices in
health care were identified for review (Garman & Tyler,
2007; Groves, 2011, 2015). Each of these models specifies
both talent assessment practices, including processes for
identifying or assessing high-potential leaders and succes-
sors for key positions as well as formal processes for
socializing and developing successors for such roles. As an
initial step, these two models were utilized to create an
original list of 45 Likert-type scale items that measure the
frequency of succession management practices (5 = always,
4 = usually, 3 = sometimes, 2 = rarely, and 1 = not at all). This
initial list of items was presented to a 15-person inde-
pendent panel of subject matter experts who specialize in
health care or are employed in hospital organizations,
which included senior HR executives, executive devel-
opment and search consultants, and academics. The
panel was asked to provide feedback, item revisions or
additions, suggestions to improve item clarity, and their
assessment of the items” face validity. On the basis of the
panel”s feedback, the original list of items was revised to
40 items to promote clarity and eliminate redundancy.

Sample. A national sample of hospital organizations
was identified for testing the 40-item SMA. The sample
consisted of senior HR professionals (chief HR officers,
senior vice-presidents, vice-presidents) at national and
regional hospital systems. Hospital systems were targeted for
participation in the study given recent research showing
that hospital size and system affiliation are positively
associated with succession management activities (Kim &
Thompson, 2012). The sample for Phase 1 was specified
according to Modern Healthcare”s list of (a) the top 200
largest systems by annual revenue and (b) the top 200
integrated health systems. After obtaining the names and
email addresses of the top HR officers at each organization
via the American Hospital Association, an email invitation
with a survey link was sent to the sample in March 2015.
Because of invalid email addresses and outdated records
(e.g., retirements), the final survey sample size was 366.
Overall, 142 executives completed the survey on behalf of
their respective health system for a 38.8% response rate.
The sample consisted of 51% nonprofit organizations (n =
72) with a mean of 18,811 employees as measured by the
number of full-time equivalent employees. The mean net
patient revenue for Fiscal year 2014 was $3.70 billion,
whereas the average number of medical centers was 8.87.

Copyright © 2019 Wolters Kluwer Health, Inc. All rights reserved.

360 Health Care Management Review OctoberYDecember & 2019

Figure 1

Hypothesized model of succession management practices, hospital performance outcomes, and
executive workforce metrics

Notes: Solid lines indicate that Hypotheses 1-4 received strong support; the dashed line indicates that Hypothesis 5 was not supported by the study results.

Most survey respondents consisted of chief HR officers (n =
61, 43%) and vice-presidents of HR (n = 43, 30%).

Analysis and Results. Given that the SMA”s psychometric
properties and multidimensionality had not been established,
the factor structure of the instrument was evaluated using
exploratory factory analysis. The factor structure of the
SMA was determined based on eigenvalues of greater than
1 and solutions that explain approximately 60% of the total
variance (Hair, Anderson, Tatham, & Black, 1998).
Principal component analysis was used for factor extrac-
tion, and the varimax rotation method was utilized to
transform the final factor solution into a simple solution.
The exploratory factory analysis results revealed a clear
seven-factor solution from the principal component anal-
ysis, as evidenced by (a) significant change in the extracted
eigenvalues at seven and eight factors and (b) significant
improvement in the total percentage of explained variance.
Following Gorsuch”s (1983) guidelines, the following cri-
teria were utilized to evaluate whether an item sufficiently
represented a given factor: (a) a factor loading of greater
than 0.45, (b) item cross-loadings on other factors that were
less than 0.30, and (c) the theoretical contribution of the
item to the model of succession management practices
(Garman & Tyler, 2007; Groves, 2011). The eigenvalues
across the seven factors ranged from 1.99 to 6.39, which
collectively explained 69.51% of the total variance. Over-
all, 32 items representing seven factors met all three of these
criteria and were retained for further analysis.

The first factor (top management team engagement)
contained six items and generally reflected the extent to which
the senior leadership team formally describes succession
management as a strategic priority and actively participates
in leadership development and succession planning pro-
cesses. A sample item included BThe senior leadership team
describes succession management as a strategic priority.[
The second factor (performance feedback practices) included
five items and reflected the quality and consistency of per-
formance feedback provided to high-potential leaders and
successors. A sample item included BManagers annually
receive 360-degree feedback that is development-based.[
The third factor, talent assessment practices, also contained
five items that described the formal processes through which
high-potential leaders and successors to critical leadership
roles are identified via standardized assessment instruments,
nine-box grids, and other tools. A sample item included
BFormal assessments (e.g., nine-box tools) are utilized to plot
employees in key positions according to job performance and
leadership potential.[ The fourth factor (leadership devel-
opment culture) contained five items that describe an
organizational culture that values fairness, enforces transpar-
ency, and seeks to maximize employees” leadership potential.
A sample item included BManagers are trained to formally
communicate high potential designations to employees.[

Role-based leadership development, the fifth factor, was rep-
resented by four items that describe the range and quality of
leadership development experiences assigned to high-potential
leaders across management levels, including job rotations,

Copyright © 2019 Wolters Kluwer Health, Inc. All rights reserved.

361 Succession Management

action learning projects, and assignment-based learning pro-
jects. A sample item included BOur organization encourages
managers to Frelease_ high potential employees for develop-
mental assignments elsewhere in the hospital or across our
health system.[ The sixth factor (selection and onboarding)
contained four items and generally reflected the quality and
depth of practices aimed at selecting and socializing leaders
into leadership positions. A sample item included BEmployees
promoted into managerial positions or roles that are new to
our organization complete a formal onboarding program.[
Finally, the seventh factor (succession management return
on investment [ROI]) included three items that describe uti-
lizing clear metrics and ROI analyses to evaluate succes-
sion management practices and ensure such outcomes are
reviewed by the governing board, leadership teams, and
other key stakeholders. A sample item included BOur
organization”s talent management metrics are reviewed by
the governing board.[

The means, standard deviations, reliability coefficients,
and intercorrelations among the seven factors are presented
in Table 1. The SMA showed acceptable internal reliability
as evidenced by Cronbach”s alpha coefficients that exceeded
.70 across all seven dimensions. The intercorrelations among
the seven dimensions ranged from .22 (p G .05) to .43 (p G
.01), which indicates that the seven factors are each posi-
tively related to the succession management while not
showing redundancy via high covariance. Overall, hospital
organizations report utilizing top management team engage-
ment (mean = 3.75) and succession management ROI
(mean = 3.70) most frequently, whereas role-based leadership
development (mean = 2.86) and selection and onboarding
practices (mean = 2.93) were the least utilized succession
management practices.

Phase 2: Validating the SMA

Sample. A follow-up survey (Phase 2) was conducted
with a second independent sample of hospital organizations

to cross-validate the Phase 1 results and test the hypotheses.
Utilizing the same sampling process as Phase 1, the Phase 2
survey included the SMA and an additional section of
questions pertaining to several operational and workforce
performance metrics. Because of invalid email addresses
and outdated records (e.g., retirements), the final survey
sample size was 376. Overall, 133 executives completed the
survey on behalf of their respective health system for a
response rate of 35.4%. The sample consisted of 64% (n =
85) not-for-profit health systems, a mean of 16,714 full-
time equivalent employees, and a mean of 10.35 medical
centers. The mean net patient revenue for Fiscal year
2015 was $2.58 billion. Most survey respondents consisted
of chief HR officers (29%, n = 39), vice-presidents of
HR (20%, n = 27), and chief administrative officers (16%,
n = 21).

Measures. Succession management assessment. The survey
respondents completed the 32-item SMA developed in
Phase 1. The Cronbach”s reliability estimates for the six
SMA dimensions ranged from .76 (selection and onboarding
practices) to .87 (leadership development culture).

Hospital performance measures. Five hospital perfor-
mance metrics were selected to test the SMA”s predictive
validity. The first two metrics, patient satisfaction and
MSPB, are hospital performance outcomes provided by
the Centers for Medicare and Medicaid Services (CMS).
Patient satisfaction was assessed by the 10-item Hospital
Consumer Assessment of Healthcare Providers and Sys-
tems Survey. MSPB assesses the cost to Medicare for ser-
vices performed by hospitals during a Medicare episode or
covered health care service. Assessed as the ratio of a given
hospital”s MSPB to the weighted median MSPB across all
hospitals, the MSPB metric captures the efficiency with
which health care services are provided to Medicare pa-
tients relative to the efficiency of the national median hos-
pital during a given performance period. A hospital with an
MSPB ratio of less than 1 is providing more efficient care at a

Table 1

Succession management assessment descriptive statistics and correlations (Phase 1)

Mean (SD) 1 2 3 4 5 6 7

1. Top management team …