When Outsourcing Goes Awry Q1. What went wrong?

A1. The case briefly talks about Grant Newman, the chief executive officer of Regional Medical Centre (RMC) deciding to outsource the anesthesia group of the hospital to a contract management company named Physicians Development Services (PDS). However, things take a nasty turn when issues crop up between the PDS and the group of five anesthesiologists it had hired, mainly due to a financial mess, and mismanagement by the contract agency. This leads to the anesthesiologists getting together to directly confront Newman and give him an ultimatum, whose non-fulfillment of terms would mean that RMC would be left with no surgical services as the group was threatening to leave. After analyzing the situation, the following issues went wrong according to me: 1.

Taking PDS and Barry Doane to be the one and the same: Dr. Barry Doane, the cofounder of PDS, had been on RMCs staff for many years and had developed a quality reputation as a topnotch physician. It was this reputation as a doctor that had helped PDS attract new clients. Newman, having observed his colleagues reputation at close quarters, decided to trust Doane as a good leader and manager of his organization as well rather than see the potential weaknesses that the RMC could face by hiring PDS. Newmans trust was based on wrong parameters.

2.

Lack of appropriate contingency and performance measures with respect to contracts: The contracts were poorly thought of and conceptualized, leaving Newman with little or no room to take effective steps should any crisis occur. A good exit strategy was conspicuous by its absence. As the group of anesthesiologists was only contracted with PDS, any mismanagement or instances of financial fraud like bouncing of cheques were directly going to effect the anesthesiologists group, which would have a direct impact on RMC due to the importance of those group of people in provision of medical facilities. Similarly, PDSs terms of contract with RMC had forbidden RMC to interfere between the anesthesiologists and PDS, thus blocking RMC from even trying to sort out the any issues, if any arose. Neither was there any accountability by PDS in terms of its services mentioned in the contract, despite all the tall claims made by Doane in his brief to Newman. The two contracts should not have been completely independent.

3.

Outsourcing a core process: The group of anesthesiologists is very central to a hospitals core activity of treating its patients. It forms a backbone of all the surgeries and related services that a hospital conducts, and can make or break a hospitals reputation. Leaving of anesthesiologists would have led to shutdown of OPD, operating rooms and the obstetrics units- a core competency of any hospital. It is always advisable that such service capability is developed inhouse by the hospital through offering better incentives, giving superior training and giving good

benefits. Outsourcing such a critical service would have had its pros and cons, and RMC hence should have had been even more careful while signing the contract. 4. Poor problem resolution skills of Jacques and his team: Dr. Jacques, the chief of anesthesia services should have been pro-active in resolving the minor conflicts that had begun to arise much earlier, before the problem took a serious turn. Despite the paychecks starting to arrive late and bouncing for three months in the second year, the group did not take up the issue with PDS. Adequate care should have been taken to ensure take whatever may be the case, the contract between the group and PDS is not allowed to expire, as that would only cause problems to Dr. Jacquess group, and subsequently RMC, without affecting PDS. Frequent interaction between anesthesiologists and PDS could have ensured that their relationship did not continue to deteriorate. Rumours rather than concrete evidences were being taken as the gospel truth by the anesthesiologists as well, first being the bankruptcy of PDS and second the financial fraud by them. Q2. What should Newman do? A2. Newman should try to take one of the following steps to handle the situation: Hire Dr. Jacquess Team: The expiry of contract between the anesthesiologists and PDS has meant that RMC is already experiencing reduced in-patient days, which was hampering its reputation and stake in the competitive landscape. This consequence becomes a breach of contract signed between RMC and PDS as PDS has failed to love up to its promises of help RMC maintain the highest level of physician services. Thus Newman can now effectively negotiate with PDC (as he has the bargaining power now) and hire all the anesthesiologists ifor a much reduced fee than $120 000 mentioned in the contract between PDS and RMC. Furthermore, it could be clearly seen that Dr. Jacques and his team were dedicated to their profession, as they continued to provide services to the hospital in spite of their contract having expired 3 months earlier. Even when the situation becomes critical, Dr. Jacques and his team gives a weeks time to Newman to either come up with the resolution or see them leave. Hiring such a group would only help the hospital in the long run as they can then build the necessary expertise with the existing group and hire more young recruits by good word-ofmouth advertisement and banking on Dr Jacquess excellent reputation. Taking a side with the anesthesiologists should not hamper RMCs relations with other contractual companies as PDS was in any case going down, and the medical community would take that as an evidence of establishing the fault with PDS rather than RMC.