J Clin Pathol 1991;44:793-797

Occasional articles

Good laboratory management:an Anglo-American perspectiveJ Stuart, J M Hicks

IntroductionGood laboratory management is an increas-ingly important component of good laboratorypractice. In the United Kingdom, however,the application of management techniques tolaboratory practice has "lagged behind thescience", according to a review of pathologyservices by the Audit Commission.' Britishlaboratories would therefore seem to be at a

disadvantage in responding to the April 1991reorganisation of the National Health Service(NHS) which involves the creation of an

internal market in which hospitals and theirlaboratories now compete with one another tosell their services to district health authorities,family practitioners, and other hospitals.

In the United States of America man-

agement upheaval is also affecting laboratorymedicine. Laboratories are now viewed as

cost centres rather than revenue-generatingcentres and are expected to make efficiencysavings to stay within a fixed budget; some

directors have effectively lost control of theirbudgets to hospital administrators. TheUnited States Congress has also proposedfederal standards (Clinical LaboratoryImprovement Amendments of 1988)2 forcertification of all laboratories, includingphysicians' office laboratories, that may resultin the transfer of much near-patient testing tocentralised laboratories. The budgetary andother managerial implications could be con-

siderable.British laboratories are now likely to

acquire some of the problems of the market-orientated American system and will have tostrengthen the management role of thelaboratory director; this has already happenedin the United States of America.

In this review we give a personal perspec-

tive on selected issues (table 1) that contributeto good laboratory management in both coun-

tries. We recognise that other managementapproaches to these issues can be equallyvalid.

training courses and publications3 of nationalorganisations such as the American Collegeof Health Care Executives, the AmericanCollege of Physician Executives, and theClinical Laboratory Management Association.

In contrast, clinical pathologists in theUnited Kingdom over the past 30 years havespecialised in the single disciplines oflaboratory medicine and there is no traditionof the multidisciplinary director oflaboratories. Training in laboratory man-

agement for most doctors has been minimal;the British Association of Medical Managers,affiliated to the American College of PhysicianExecutives, was not formed until 1991. TheBritish government has recently encourageddoctors, including pathologists, to becomemore involved in management which has ledto "the unhappy spectacle of doctors, whomay have trained for 20 years to becomeskilled at jobs they enjoy, trying to turn them-selves into managers overnight".4

It is clearly essential that pathologistsacquire managerial as well as professionalskills for the direction of their departmentsand that technologists similarly acquire theskills required to become laboratory adminis-trators/managers. This greater emphasis on

management skills is becoming a feature ofmany branches of medicine. A review of theadministrative activity of American physicianssince 1977 has shown that an increasingproportion of senior physicians have adoptedmanagement as a primary activity and thatmore younger physicians have engaged inmanagement as a secondary or tertiaryactivlty.

Strategic management"If you don't know where you're going you'llend up somewhere else" is a familiar aphor-ism. Strategic planning is concerned with themedium and long term direction of thelaboratory and strategic management includes

Department ofHaematology, MedicalSchool, University ofBirmingham,Birmingham B15 2TTJ StuartDepartment ofLaboratory Medicine,Children's Hospital,Washington DC, USAJ M HicksCorrespondence to:Professor J Stuart

Accepted for publication29 May 1991

The need for management skillsIn the United States of America there is an

established tradition of the multidisciplinarydirector as head of all laboratory medicine,although anatomical (histo) pathology issometimes separated from clinical pathology(the other pathology disciplines). In general,directors are supported by one or more full-time laboratory administrators who are

usually medical laboratory technologists withsubsequent training in management. Bothdirectors and administrators benefit from the

Table 1 Selected management issues in laboratorymedicine

* The need for management skills* Strategic management* Managing change* Negotiation skills* Time management* Avoiding unproductive meetings* Performance appraisal* Where should laboratories be located?* Timeliness of reporting results* Financial management

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Table 2 Stages of strategic planning

Stages Definition

1 Analyse the environment Assess external factors, such asnew government legislation

Assess internal factors, such ascapability of staff to respondto environmental change

2 Plan the direction Define the role or purpose(mission statement) of thelaboratory

Identify the future direction todifferentiate the laboratoryfrom competitors

3 Plan the strategy Formulate strategic optionsand rank them according tovalue and feasibility. Selectthe option most likely toachieve the objectives of thelaboratory

4 Implement the strategy Make day-to-day operationalchanges according to anagreed timetable

the implementation as well as the formulationof strategy.

In the United States of America govern-ment initiatives such as Clinical LaboratoryImprovement Amendments of 19882 andDiagnosis-Related Groups6 have made itessential for laboratory directors to planstrategically. Strategic planning does notoccur spontaneously as day-to-day short termconcerns tend to prevail and we have limitedtime to devote to any activity that is notdirectly concerned with processing the day'sworkload. A strategic plan is essentialbecause, without one, hospital administrationwill not take a director seriously andlaboratory staff will not know what is expectedof them and will tend to resist change. Withan agreed plan, the director has a powerfullever both to implement change and to resistexternal pressures, financial and otherwise.Texts on strategic management7 highlight

four main stages of planning (table 2). Thesestages should be part of a three to five yearstrategic plan with specific goals and objectivesthat will focus the laboratory effort in a pur-poseful way. If the strategy were, for example,to provide a fast results service to generalpractitioners, an obvious objective would beto provide each user with a computer terminaland thus link them to the laboratory database.

Table 3 Steps requiredfor managing change

Steps Definition

1 Establish the need for Recognise environmental andchange other factors affecting the

laboratory2 Identify the stakeholders Who will be affected most?3 Gain participation and Delineate who is responsible,

involvement accountable, or needs to beconsulted. Involve them all

4 Be flexible Stakeholders may well improveon the plan; embrace a betteralternative rather than beseen to be "right"

5 Reinforce the change Do this by encouragement;laggards will follow theenthusiasts

6 Monitor performance Agree on standards ofperformance and milestones;then follow up

7 Communicate the change Explain reasons for the change

The strategy should be reviewed regularlyto ensure that it adapts to changes in theenvironment. Governmental political change,in particular, often makes it necessary tomodify a strategic plan.

Managing changeThe management of change is a particularlydifficult issue8 as "the innovator makesenemies of all those who prospered underthe old order, and only lukewarm support isforthcoming from those who would prosperunder the new".' While there may be generalacceptance of a laboratory strategic plan andeven of the objectives required to implementthe strategy, when people have to change theirwork habits or reduce their staff or budgetthen difficulties arise. By this stage, however,the groundwork should have been completed:more good strategies fail because ofinadequate preparation for change than forany other reason.Managing change requires a series of steps

introduced in sequence (table 3) and is achallenge to good leadership. Communicationis a particularly important component. Eventhough laboratory staff may have participatedactively in earlier planning stages, the finalplan still requires to be communicated withcare as people often fail to appreciate all theimplications of change until they see the fullpicture. Very seldom does change incorporatesuch an elegant solution to the previousproblem that all stakeholders readily embracethe change; someone always feels that theyhave been placed at a disadvantage. Theydeserve to be told of the reasons for thedecision.Communication of major change to a large

department is best achieved by the combina-tion of a briefing document, so that everyone isgiven the same message, plus team briefing'011to provide the background and further detailthat no document alone can convey. If thedirector does not initiate team briefing thenthose who oppose the change will do it via thegrapevine and from their own perspective.

People often find it difficult to accept change.Part of the communication process is toexplain that their concerns and input weretaken into account when the decision wasmade. A department can go in one directiononly at a time and the purpose of communica-tion is to say what that direction is and whythe choice was niade.

Negotiation skillsGood negotiation benefits both parties (awin:win situation). Poor negotiation oftendeteriorates into positional bargaining with oneside trying to benefit at the expense ofthe other.Each side first commits itself to an extremeposition which it then defends to minimise anyconcession. When one party pushes, the otherhardens its position; it becomes a contest ofwill.

In good negotiation a strategy of mutualproblem solving is often used.'2 The legitimate

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concerns of both parties are addressed and aseries of options then generated as a means ofsolving what should be seen as a joint problem.Each party should be concerned to some extentwith the outcome for the other as well as foritself. The act of developing new options, fromwhich one has to choose, often results in mutualgain. If the cake has to be divided unequally,then it benefits both sides ifthe cake is enlarged.Mutual problem solving is a useful approach

for a director of laboratories when in negotia-tion with hospital administration. For majorissues it is preferable that hospital managersnegotiate with a single director of laboratoriesrather than with several heads of subsections. Anecessary proviso is that the director andsubsection heads have agreed a strategic planbeforehand.

Time managementDoctors are not always good managers of time.Many allow themselves to become overcom-mitted and require an extended day and week-end to cope with work that cannot be accom-modated within normal laboratory hours.More effective use of time with a focus onselected tasks of high priority will generallyreduce stress and increase overall productivity.Doctors who take on a laboratory directorateshould therefore look for things to stop doing,or do in a different way, to create capacity for thenew task. There must be an acceptance that onecannot do everything well and that one's ownplanned goals should have priority. In thewords of Peter Drucker, "the first step towardeffectiveness is to decide what are the rightthings to do. Efficiency, which is doing thingsright, is irrelevant until you work on the rightthings"." Directors should avoid taking oncommitments that do not match their personalgoals or the strategic plan of the department.Team building and delegation are crucial to

the effectiveness of the laboratory directorate.Delegation of authority should be given alongwith the delegated task but, if responsibility forthe outcome has to be retained, then purposefulmonitoring of agreed milestones, rather thanoccasional vague enquiries as to progress, isessential.

Avoiding unproductive meetingsExperience of unproductive committee meet-ings in medicine is widespread and they areoften perceived as obstacles to action. Part ofthe problem is that committees become estab-lished, do not have specific objectives, and relyon a consensus for decision-making. Evenwhen decisions are made, the chairman may nothave the executive power to implement anyagreed change and a higher authority has to beconsulted.

Laboratory directorates require fewstatutory committees although in the UnitedStates of America, monthly departmentalmeetings for quality assurance and audit pur-poses are necessary for accreditation. Mostother committees can be replaced by task forcescomprising a leader, less than 10 members, and

a life-span of up to three to four months inwhich a specific task has to be completed.'4 Theleader need not be the most senior member ofthe group but should have the time and deter-mination to complete the task. The group canusefully comprise a mixture of different gradesof staff. Almost any laboratory problem can bethe subject of a task force but the task must bedefined clearly-for example, a rapid resultsservice for general practitioners-and beachievable by the group within the allottedtime-scale. A great advantage is that, on com-pletion of the task, the group is disbanded; itsmembers are then able to contribute to othertask forces.

If conventional committees are retained theyshould have as small a membership as possible,there should be a structured agenda thatindicates the purpose ofeach item (for informa-tion, for discussion, for decision), and the timeallocated. There should be clear identificationof those members responsible for thepreparatory work before the meeting and thoseresponsible for action after it.

Performance appraisalThe level of commitment of those who work inhealth care and other non-profit organisations ishigh," and perhaps because of this we are lessgood at dealing with the occasional person whoseems to be rowing in the opposite direction.There has been renewed interest in the value ofperformance appraisal, partly because of thenumber of legal suits in the United States ofAmerica charging wrongful dismissal; many ofthese suits have been won.'5 If performanceappraisals are done effectively they can alsocause positive behaviour to be reinforced andnegative behaviour to be modified.For performance appraisal to be meaningful

it is important to set detailed criteria related tothe specific job requirements of the individualconcerned (table 4). This means that theappraisal becomes objective rather than subjec-tive. Every employee should know what theyare supposed to do (job description), how wellthey are supposed to do it (standard of perfor-mance), and how they are performing(appraisal). It is important to maintain records,albeit informal, of both positive and negativeperformance. This provides two importantelements: firstly, the employee, who may beevaluated annually, is not judged solely onrecent behaviour; and, secondly, it providesdocumentation that can be referred to in anydispute over performance.Feedback on good or poor performance

should be provided on an ongoing basis.Appraisals should provide the employee withan evaluation of how well they are carrying outthe requirements of their job description and awell handled performance appraisal interviewcan have lasting value in providing a focus onpriorities to fulfil career goals and other ambi-tions."Performance appraisal has been applied in

the United States of America for over a decadeand was not originally linked to salary.'7 Nowthe "pay for performance" approach is being

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Table 4 Steps in a performance evaluation programme

1 Prepare performance requirements; be specific as to how wellyou expect the employee to do each aspect of the work inrelation to a desired standard. Performance criteria for atechnologist might include quality (accuracy with whichassignments are completed), productivity, dependability,job knowledge, adherence to departmental policies andprocedures, ability to work in a team, professionalappearance, and ability to relate to patients and clinicians

2 Discuss the performance requirements with the employeeand then adjust them if necessary

3 Evaluate the employee's performance against therequirements on an on-going basis and give regularfeedback. A rating scale (1 to 5) can provide a usefulmeasure of performance

4 Discuss the overall evaluation with the employee whoshould be given a copy of the performance record

5 Take appropriate action to modity suboptimal perfornanceand build on the employee's strengths

6 Assess your own performance; have you contributednegatively or positively to the employee's performance?

tried; employees are ranked numerically accor-ding to their performance against set criteriarelated to their job description. An outstandingranking could, for example, result in a 6%increase in pay; a good or a satisfactory rankingwould result in a 5% or 4% increase, respec-tively. This approach is seen to provide anincentive to the employee.

Where should laboratories be located?A long-standing dilemma is the extent to whichneighbouring hospitals should rationalisespecialist tests between their laboratories orindeed centralise most tests, except for emer-

gency work, into one core laboratory. Theperceived benefit is to avoid costly duplicationof laboratories, each of which provides a com-prehensive service. Within individual hospitalsthere is a parallel debate over decentralisationof laboratories into satellites that provide near-patient testing in ward areas or outpatientclinics.8 19 In the United States of America theJoint Commission on Accreditation of HealthCare Organizations20 clearly places the respon-sibility for management of all laboratoryservices, including satellite laboratories, withthe Director of Clinical Laboratories.

Financial issues tend to dominate in thedebate over centralisation of laboratoryservices as duplication of equipment and per-sonnel can be avoided. It may, however, be costeffective to staff and equip satellite blood gaslaboratories in intensive care areas, includingthose in neonatal units. Other issues thatinfluence the management decision includegovernmental legislation,2 laboratory ac-creditation, and the availability of pneumatictube and other systems for rapid delivery ofspecimens to a centralised laboratory.

In the United Kingdom the Audit Commis-sion has stated that laboratories in neighbour-ing hospitals could work together as a consor-tium, pooling resources and effectively operat-ing as one interhospital service.' This is lesslikely to happen in the United States ofAmerica where most hospitals are private andrun as competitive businesses. In the UnitedKingdom the 1991 introduction of an internalmarket of competing hospitals may have thesame effect and, if so, the costly duplication of

laboratories, each providing a comprehensiveservice, would prevail. Laboratories in theUnited Kingdom are underfunded, however,and quality will not be maintained unless thereis rationalisation. Thus the benefits ofbringingtogether a critical mass of skilled staff in a wellequipped core laboratory, or at least ofworkingtogether as a consortium, are seen to be over-whelming.

Timeliness of reporting resultsHospital laboratories have led the control ofanalytical quality. Not all laboratories,however, have control over the pre- and post-analytical phases of testing, and laboratorymanagement should now be addressing qualityissues in these areas. A rapid assay time withinthe laboratory serves no useful purpose if thelaboratory cannot ensure rapid collection andtransit ofblood specimens to the laboratory andrapid return of results to the clinician. Thetimeliness of laboratory testing in relation tothe needs of the customer (both patient andclinician) is an increasingly important issuewhich is directly related to the debate oversatellite laboratories nearer the patient.

Standards for timeliness should be estab-lished and notified to clinicians. For example,an emergency or urgent (stat) result for aroutine test would be reported within 20 to 30minutes of receiving the specimen in thelaboratory whereas a non-urgent result wouldbe reported within three hours. Response timesvary widely among hospitals, and laboratoriesare now addressing such differences as animportant quality issue. Response timesprovide a good parameter for audit oflaboratory performance. It is becoming lessacceptable to batch incoming work to fit alaboratory's preferred timetable, based on afixed workforce working conventional hours.Flexible working or the use ofpart-time stafftomatch peak workload can be cost effective as thenumber of whole-time staff is not then deter-mined by peak workload.

Financial managementAttempts at controlling laboratory costs arehampered by the poor quality of financialsupport that is available to most laboratoriesoutside the United States of America. Only alarge consortium of laboratories can justify adedicated financial adviser, others have to relyon the financial services offered by the financedepartment of a hospital or health authority.Interhospital comparison of laboratory costs isalso unreliable as it depends on how laboratoryfixed costs and hospital indirect costs areallocated; this process is subjective.

Laboratories have relatively high fixed costsand conventional strategies to reduce theirvariable costs have yielded only minor savings,say around 5% of revenue. Such savings havebeen achieved by increasing automation,improving data processing, changing the skillmix of staff, or cross-training staff to work inmore than one discipline. Savings in excess of10% usually require the amalgamation of

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laboratories to achieve economies of scale andreduce the fixed costs of staff and equipment.Controlling clinician demand has rarelyworked for long enough to allow sufficientreduction in staffto achieve major savings, but arecent attempt at clinician education hasachieved a sustained reduction in workload.2'Computer based requesting protocols forordering laboratory tests' 22 have considerablepotential for managing demand.Equipment replacement is another unsatis-

factory aspect of laboratory budgeting.Usually, equipment is allocated from a hospitalrather than a laboratory budget, and fewlaboratories include capital equipmentreplacement in their test costs. This can bedone relatively easily as a function of workloadunits. An important point is to depreciate theequipment over a lifespan that is determined bythe laboratory (supported by American Hos-pital Association guidelines in the UnitedStates ofAmerica) rather than by an accountantin the finance department. The economic costof replacement, incorporating the annualincremental cost of new technology, must becalculated.The trend to leasing rather than purchasing

equipment is extending outside the UnitedStates of America. Although leasing is moreexpensive, it can be a justifiable alternativewhen there is uncertainty over instrumentperformance or when technology changesrapidly; computer technology is an example.Income generation to increase volume and

thereby use "spare" capacity is a dubiousstrategy if there is a parallel plan to lower fixedcosts by decreasing the size of a laboratory.While a small amount of income is relativelyeasy to generate, larger targets may require acostly marketing effort. It is also relatively easyto overload fixed capacity so that an increase infixed costs (staff and equipment) is required todeal with the increasing workload. Success-ful income generation therefore requires acarefully calculated business plan.

ConclusionThis review has taken an Anglo-Americanviewpoint of good laboratory managementbecause many feel that the current NHSreforms, with the creation of a competitivemarket, will cause British medicine to acquiresome of the problems of American practice.Changes in legislation within the EuropeanEconomic Community will also have aprofound effect on the management of Britishlaboratories. Perhaps the most intriguing issueis the extent to which the individual disciplineswithin laboratory medicine will come together.In Britain these disciplines are managedseparately; in several other European countriesclinical biochemistry and haematology, or all ofclinical pathology, may be combined. Manyrecognise the potential advantage in bringingthe disciplines closer together not only forEuropean harmonisation but also for the benefitof scientific collaboration within laboratorymedicine.Much good laboratory management is com-

mon sense and any head of department can

identify with the issues raised in this review.Their implementation in sufficient depth tomake a difference to the way in which alaboratory runs is the critical issue and thistakes time, planning, and determination. Thisreview has merely highlighted some currentissues. Guidance in more depth is provided bythe bibliography and by the activities of thefollowing national bodies:American College of Health Care ExecutivesPO Box 95639ChicagoIL 60694USAAmerican College of Physician ExecutivesSuite 2004890 West Kennedy BoulevardTampaFL 33609-2575USA

British Association of Medical ManagersBarnes HospitalKingswayCheadleCheshire SK8 2NYUK

Clinical Laboratory Management Associa-tion

195 West Lancaster AvenuePaoliPA 19301USA

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