In recent years, it has become increasingly important to improve efficiency and economic balance in hospitals. The department chairperson (or Chair) contends with a production function consisting of inputs and outcomes, rife with managerial constraints. These constraints can be reduced with proper management by diverting resources and activity. Lack of a proper management algorithm at the department level is a significant impediment to improving operational efficiency in hospitals without significant additional costs. In this work we aimed to develop and implement a management algorithm in a teaching hospital department, in order to improve performances and quality of care. From September 2012 to December 2017 we developed a novel management algorithm for a surgical department and implemented it in the Head and Neck Surgery Department at Rambam Medical Center, Haifa, Israel. Changes were made to the organization structure and the concept of service provision. We defined core measures reflecting operative actions and outcomes and identified actions that could affect these measures. Based on our analysis of outcomes we constructed a management intervention process that defines operative actions leading to improved performance. The result was over 400% improvement in the department’s outcome measures including quality, activity, and service. Analysis of data from the Israeli Ministry of Health revealed that the department’s ranking in performance measures and volume improved from no. 14 of 23 departments in Israel in 2011, to no. 1 in 2013, which was sustained through 2014–2016. Improvement in efficiency also translated to economic balance and transformation from deficit to profitability. If this algorithm is implemented in the rest of the system, it is expected to improve the function of the hospital as a whole. Our results have the potential to foster the development of a new organizational culture of measurement and improvement in the hospital, and subsequently in the entire health system.