In the News
Social architect
How Joseph Caruncho built a culture that keeps Preferred Care Partners on the cutting edge of its industry
By Mike Cottrill
This article appeared in the October 2007 Miami Edition of
Smart Business - The Management Journal for Corporate Growth
A recent meeting about payroll at Preferred Care Partners Inc. had an unusually heated feeling and an unusually heated guest.
The Caruncho file
Born: Cuba, 1958
Education: Finance degree, Florida International University; Juris Doctor degree, Nova Southeastern University
First job: My father, we came from Cuba in 1962, and he was a master wood craftsman, and he went to work for a local company and eight years later, when the owner retired, he sold the company to my dad, and I went to work with him. I started out driving the truck, and then moved into the office, and within a couple of years, I was kind of running that company. We expanded and tripled the size of the company, so that was a great training ground. That probably sparked the entrepreneurial bug. Seeing that he did that, overcoming the language barrier and everything in just eight years, that was kind of inspiring.
Person you admire most in business: I had the good fortune to have great mentors when I was practicing — a couple of guys in particular that just started from scratch, and I saw those Cinderella stories. One that comes to mind is Richard Scott, who started what was then Columbia Hospital Corp. [now Columbia/HCA]. He started that as a 34-year-old lawyer from Texas, and I had the privilege of representing him when he came to Florida and got to know him, and he was just a straight arrow, hard worker and visionary. He took a huge risk. He started that company with a mortgage on his house and ended up growing it to over $20 billion a year, and he's the one that told me, 'Joe, if you ever see an opportunity like this, a chance to make a fundamental change in an industry, do it.' We had talked about how exciting it was to do an entrepreneurial-type thing, and he was pretty much the inspiration to make the leap from practicing law to business because he had done it very well.
As the Medicare health plan alternative company swelled to nearly 300 employees, there was a debate about whether to implement a timecard system. Joseph L. Caruncho, the company's CEO, sat through the meeting and argued against the timecards over and over. He realized it was odd for the CEO to be making such a fuss over timecards, but a bigger issue was at stake: As Preferred grew from $6 million in revenue in 2002 in revenue its first year in business to $278 million in 2006, it was getting harder to keep the company culture that Caruncho and his partner, Orlando Lopez-Fernandez Jr., started with.
"Some people looked at me like, 'What the heck is Joe doing here?'" Caruncho says of the meeting. "But, I wanted to drive the point home that we didn't want to go from a small family to people feeling like they have to watch a clock. We needed to keep track of time, but wanted to do it in a way where people didn't feel like they were working in a factory where they had to punch in at an exact minute on a time clock."
Caruncho knows that the margin for error in the health care business is small because he got into the business after seeing HMOs that simply didn't do a good job implementing managed care. So, while HMOs were bringing in record numbers of members, they were losing them at the same rate. By trying to be a different kind of health care provider that depends on an infrastructure based on contracting directly with Medicare while keeping in regular contact with members, Caruncho realized he would have to have employees tied tightly to the core philosophy of the company. To do that, he wanted everyone at Preferred on the same page through an energized and caring culture.
"I'm terrified of bureaucracy," Caruncho says. "When you go from zero employees to 300, you have to challenge every new process. We've trained everybody on the management team to ask, 'Do we really need that?' Or, 'What's the least intrusive way to do it?' My favorite line is every great bureaucracy started with, 'Hey, we're bigger now, we can't do it loosey-goosey like we used to, we need processes.' That's how it starts, a legitimate first step, and it can be a slippery slope if you don't challenge everything."
Focusing on culture, Caruncho uses the positive feel at his company to keep a fresh approach to the health care business by reinventing the company every year and making sure that his employees are rewarded for their efforts. As a result, billings for 2007 will push Preferred's revenue to $330 million.
Build your culture
"People talk about culture, but I like to think of it as social architecture because architecture is something you create," Caruncho says. "Culture is a result; it can be good or bad, but architecture you can design in the way you like."
For Caruncho, that means he has to keep an eye on those bureaucratic endeavors that scare him so much. Knowing that a negative change in office demeanor can slow business plans, he often jumps into any conversation regarding company culture and plays the devil's advocate ? if not because he feels he needs to, then because he feels it sets a tone for how precious culture is to the company.
"I will sit in a meeting where all the directors are and jump in on different issues and recognize folks that support our culture," he says. "It seems like such a minute thing, but it conveys a certain message. My management team knows that any time anyone brings up something that might lead to the wrong kind of culture, I'm going to be challenging it because that's how you keep that design."
Part of that design is staffing up the management team to be ready for growth, and then filling in new team members around those core philosophies. Growing from a start-up staff of less than 30, Caruncho realized that Preferred would have to grow carefully to maintain its strong staffing structure. Preferred started to overfill management positions, inoculating leaders to the company culture, before staffing out the rest of the positions. The result was a temporary explosion in management numbers but a healthier growth pattern for the company.
"We overstaffed from a management standpoint early on because we wanted to make sure that all the key positions, all the way down to directors, were sized for as much growth as we wanted to take on," Caruncho says. "Once we did that, the staffing becomes much easier because we know that if we add 3,000 members, that we need X number of additional member service folks. We staff up that way on ratios to make sure those folks don't spread too thin. We've always had the philosophy that we wanted our employees working at 80 percent of capacity, not 120, so they're not treading water, and they can focus on being creative."
Keep a fresh mindset
Part of the creative energy that resonates at Preferred is Caruncho's belief in keeping the company's perspective fresh. From Preferred's place as the first health plan provider of its type in Florida to the way it staffs, Caruncho tries to keep the company ever-focused on new challenges.
"When we do start-up planning, we say, 'Listen, that was a great year for what the industry was, but who are we going to be this year with where the industry is heading?'" he says. "It's kind of the old Wayne Gretzky mentality of move to where the puck is going. That keeps that start-up mentality, and it keeps us fresh.
"If you look at the company, our business plan is the same, but the way we work toward that changes from year to year to keep up with the market. So whether it's keeping cost under control or growth or what have you, when you approach it fresh every year, and people feel like they are empowered to come up with new ideas, and they'll get the support to run with those creative ideas, you'll get amazing results."
That means that while Caruncho and his management team will take time to celebrate, they refuse to be complacent with any amount of success.
"One of the things we do is stop and celebrate what we just achieved," Caruncho says. "But, right after that, it's, 'OK, what's our next challenge?' That's critical not only to keep people excited for new challenges, but also to stay ahead of the field ? particularly in an industry that changes quickly."
Another way Preferred maintains a fresh approach is by keeping plenty of youthful energy around the office when it grows. Since Caruncho and Fernandez Jr. knew that they were doing something different in the health care field, they refused to hire typical HMO executives when they first started. Instead, they hired younger health professionals who didn't have the same experience but who were excited about the opportunity to do something innovative.
"I attribute our success in terms of growth and profitability to kind of staying cutting edge on that management team," Caruncho says. "It's an outgrowth from the fact that we had the ability to start out with a clean slate. We didn't want to go out and just hire experienced HMO folks, so I'd say about 80 percent of our directors are home-grown. They were young folks that knew health care but came in excited and were here at the creation of it, and they kind of drank the Kool-Aid, if you will."
As Preferred continues to grow, Caruncho implores his management team members to fill their staff with that same mentality. He tells them that the only way for them to push forward with new challenges is to scale growth by cloning that fresh perspective.
"We tell them through each level of the company, you need to focus on cloning yourself," Caruncho says. "Focus on helping them succeed, to the extent that you do that, they'll grow, and they'll carry you up. The only way you're going to clear your schedule to tackle new challenges is if you get your people trained so they know what we taught you."
Build employee buy-in
While Caruncho knows the culture of the company helps motivate his employees, he also knows that there have to be metrics and rewards to keep his staff tied to the strategic plan. That's why Preferred has a bonus program that is tied directly to the company's annual goals.
"We go by department and tell them, 'Here's what we've come up with, what the company wants to be, what does that mean in your day-in, day-out schedule and what your objectives are,'" Caruncho says. "We ask, 'How can you do things so when we measure it and string it all the way up, you are doing your part?' That makes people feel like they're making an impact."
Not only does tying their performance to the strategic plan give them the feeling that they are making an impact, it also gives them a clear direction on what has to be done to earn their bonus.
"Oversimplifying it, we said there are three things that we want to incentivize you for because it goes to the heart of our strategic plan," Caruncho says. "One of them is just on the metrics of what you do. The other one, for management, is how well you inspire your staff and communicate the strategic plan. The third one is how well do you work within the company, with your peers and with other departments. We've always told them that if one of the areas of the company wins and another loses, the company loses ? there's only one team and it's the whole company.
"The evaluation is, basically, 'how did you do on the criteria we set up for you last year? We've worked on the strategic plan for this year, let's have a conversation about what you are going to do to achieve our new goals and, based on those criteria, here's what your bonus is.'"
To match the clear-cut job descriptions that are woven into the strategic plan, Caruncho is sure to keep the bonus program similarly structured, ensuring that employees are aware of how the system works. By pooling a bit of the company's profits from the year before, Preferred lets employees know that they can earn upward of 25 to 35 percent of their base salary in bonus based on how they do on each of the three levels of criteria.
And while Caruncho knows you can't perfectly evaluate the performance of almost 300 employees, he is quick to point out that there are diagnostics to figure out how well employees are performing against the strategic plan.
"We permit internal job postings, and we've identified culture issues within a department by the fact that, all of the sudden, a lot of people in one department were trying to transfer out," Caruncho says.
"There's also dialogue that goes on all year long, so this does-n't just go away. We look to supervisors to tell us, 'Listen, soand-so has shown great leadership,' or, 'There is great morale in this department because so-and-so is building great leaders,' and it really is a discussion we get involved in so people know how important that is to us."
And if Caruncho is involved in the conversation, there's a good chance his employees know how important it is to him.
This article appeared in the Miami Edition of Smart Business - The Management Journal for Corporate Growth.
