Strategy and Balanced Scorecard

Chapter 4
Strategy and
the Balanced Scorecard

Healthcare Operations Management
2008 Health Administration Press. All rights reserved.
3
The Balanced Scorecard
What gets measured gets managed
4
Whats on Your Desk Today?
Urgent operating
problems
Employee
turnover
recruiting
Last years
initiative
This years new
initiative
40 e-mails
and 10 voice mails
Financial
performance
pressure
5
Traditional Management Tools
Financial
Reports:
P/L
Balance
Sheet
ROI-ROCE
Operating
Statistics
Strategic
Plan
6
The Theory of Management
Financial
Results
Operating
Statistics
Strategic
Plan
Operations
Management
Control
7
Traditional Management Tools
Created by different departments
Reviewed by different managers
Reviewed in different time frames
No connection to each other
8
The Problem
Poor linkage of strategic plan to operations
and expected financial results; strategies are
not actionable
Strategies are not linked to departmental,
team, and individual goals
Strategies are not linked to both long-term
and short-term resource allocation
Feedback is tactical, not strategic
(e.g., focuses on financial reporting only)
The resultpoor execution and long-term
outcomes
9
Kaplan and Norton
Study in 1990Measuring Performance in
Companies
Balance
Financial, customer, internal, innovation, and
learning
Short-term and long-term objectives
Financial and nonfinancial measures
Leading and lagging indicators
Internal and external performance
Aligning measures with strategy
Developing a theory of the company
10
Balanced Scorecard as a
Strategic Management System
Clarify and translate vision and strategy
Communicate and link strategic
objectives and measures
Plan, set targets, and align strategic
initiatives
Enhance strategic feedback and
learning
11
Balanced Scorecard in Healthcare
Highly complex environment
Multi-stakeholder leadership
Resists change
Catastrophic failure difficult to anticipate
Excellent strategic management tool
Use increasing in many healthcare
organizations
12
Elements of the Balanced
Scorecard
Mission and vision
Perspectives
Financial
Customer
Internal business process
Learning and growing
Linking measures to strategy
Structure and strategy
Strategic alignmenttop to bottom
Targets, resources, initiatives, and budgets
Feedback and the strategic learning process
13
Mission and Vision:
Some Balanced Scorecard Examples
Achieve financial strength
Develop reputation/brand
Grow the business
Be able to demonstrate operational excellence
Form strategic alliances, especially with
physicians
Develop IT infrastructure to improve continuity of
care
Source: Inamdar and Kaplan, Journal of Healthcare
Management, May/June 2002
14
The Four Perspectives
15
Financial Strategies
Grow
Revenue growth
Sustain
Profitability, ROI, ROCE
Harvest
Cash flow, working capital
Risk management
Diversity
16
Revenue Growth and Mix
New products (e.g., HP and 3M)
New applications for existing
products
New customers and markets
New relationshipspartnerships
New product and service mix
New prices
17
Cost ReductionProductivity
Increase revenue/employee
Reduce unit cost
Improve channel mixhow customers
use products or services (e.g., online
reservations for air travel)
Reduce overheadsales, marketing,
general and administrative
18
Asset Utilization
Investment Strategy
Manage working capital
Accounts payable
Inventory
Accounts receivable
Improve asset allocation
Sharing of IT, specialized equipment,
buildings
19
Risk Management
Through Diversity
Revenue sources
Market segments
Customers
Products
Asset allocations
20
CustomersMarket Segmentation
What is the key value proposition to be
delivered to the targeted market segment?
Healthcare market segment examples:
Patient with chronic illnesses (e.g., diabetes)
Obstetric care
Sports medicine
Cancer
Emergency care
21
Standard Measures
Market share
Customer retention
Customer acquisition
Customer satisfaction
Customer profitability

22
The Value Proposition
Product and service attributes
Low price, leading edge, or high performance, etc.
Time: quick, slow
Customer relationship
Customer intimate (e.g., Nordstrom) or not
(e.g., HP)
Integrated supply chain relationship
Image and reputation

23
Hospital Example
Market segment: pregnant women
ages 1835
Product attributes
Quick access
Warm, welcoming facilities
Customer relations
Strong relationships with nurses, midwifes, and
doctors
Image
High-quality care
Excellent referrals and transport for high risk

24
Internal Business Process
Create
Product/
Service
Identify
the
Market
Build
Product/
Service
Deliver
Service
Innovation
Operations
Process
Post-Sale
Services
25
Innovation
Identify the market
What benefits will customers value in
tomorrows market?
How can we innovate to deliver these
benefits?
Create the product
Basic research
Applied research
New product to market
26
Measures for
Product Development
Percentage of sales from new products
Percentage of sales from proprietary products
New product introductions
Time to develop new products
Time to break even
(development cost = accumulated profit)

27
Operations Process
Process optimization in a stable
environment
Statistical process control
Rapid prototyping
Six Sigma
Quality function deployment and Lean
Real-time simulation and control
28
Post-Sale Services
Warranty and repair
Billing and collection
Rapid reliable service contracts
Feedback on product performance to
drive improvement

29
Learn and Grow
Results
Staff
Competencies
Employee
Satisfaction
Employee
Productivity
Employee
Retention
Information Technology
and Data
Climate for
Actions
30
Measures of
Employee Satisfaction
Involvement with decisions
Recognition for doing a good job
Access to sufficient information to do the job
well
Active encouragement of creativity and
initiative
Support for staff-level functions
Overall satisfaction with the organization
31
Drivers of
Learning and Growing
Reskilling
Level and intensity of reskilling
Number of employees involved
Information systems capabilities
Motivation, empowerment, alignment
Suggestions and involvement in decisions
Team performance and rewards
Personal alignment and rewards
32
Linking Balanced Scorecard
Measures to Strategy
Cause-and-effect relationship
Outcomes and performance drivers
Link to financials
33
Cause-and-Effect Relationships
A strategy is set of hypotheses about cause
and effect (if, then statementse.g., If the
wait time in the emergency department is
lowered, then the patient will be more
satisfied.)
Every measure selected for a Balanced
Scorecard should be an element of a chain of
cause-and-effect relationships that
communicates the organizations strategy
34
Outcomes and
Performance Drivers
Outcome indicators
Lag
Tend to be generic
Examples: profitability, market share, customer
satisfaction
Performance drivers
Predict the future
Are specific to strategy
Examples: emergency room wait time, remodeling on
time lines
Need equal mix of both types
Suggested maximum is 5 per quadrant or 20
35
Link to Financials
Financial goals are topmost in Balanced
Scorecard
Each other strategy eventually needs to
link to financial goals
Causal pathways need to be clear and
quantitative, if possible
Some healthcare organizations make
the customer/patient topmost

36
Strategy Maps and Initiatives
Strategic method of execution
Set of linked initiatives
Can be small action or major project
If, then statements
Links to top quadrant results (finance, customer)
Initiatives can become formal project
Metrics
Leading
Lagging
Dates
37
Finance
Business
Processes
Learning and
Growth
Customers
General Balanced Scorecard
Provide employees
with skills, tools, and
motivation
Improve marketing
and customer
service
Improve
operations
Improve
financial
results
38
Finance
Business
Processes
Learning and
Growth
Customers
Emergency Department (ED) Balanced Scorecard
Learn Lean process improvement
tools:
Goal = complete by December 1
Measure market share:
Goal = 5% increase
Measure patient wait
time:
Goal: <30 minutes
Do project on patient flowmake
changes:
Goal = value stream increased by 30%
Increase net revenue of
ED product line:
Goal = 10%
39
Finance
Business
Processes
Learning and
Growth
Customers
Obstetric (OB) Service Balanced Scorecard
Customer service training:
Goal = complete by July 1
Measure market share:
Goal = 5% increase
Measure patient
satisfaction (facilities):
Goal: >90%
Remodel OB suite:
Goal = complete
by November 1
Increase net revenue of
OB product line:
Goal = 10%
Contract for emergency
transportation:
Goal = complete by
November 1

Begin tours and survey:
Goal = patient
satisfaction >90%

Measure patient satisfaction
(perceived clinical quality):
Goal: >90%
Measure patient
satisfaction (high touch):
Goal: >90%
40
Learning and
Growth
Customers
Rotated General Balanced Scorecard
Provide employees with
skills, tools, and
motivation
Improve availability of
financial resources
Improve
operations
Improved patient
results and
satisfaction
Finance
Business
Processes
41
Targets, Resources, Initiatives, and
Budgets
Set stretch targets
Identify strategic initiatives
Identify critical cross-organization
initiatives
Link to annual resource allocation and
budgets
Remember to maintain critical monitoring
systems for nonstrategic operations

42
Display Results Graphically
43

Sample BSCFinancial

0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
Revenue
Profitability
44

Sample BSCCustomer

0%
20%
40%
60%
80%
100%
120%
Customer Satisfaction
45
Sample BSCOperations
0%
5%
10%
15%
20%
25%
30%
35%
0
20
40
60
80
100
120
140
160
$0
$50
$100
$150
$200
$250
Fast-Track Admitting Percentage
Cost per Unit
Incremental New Admissions
46
Sample BSCLearn and Grow
82%
84%
86%
88%
90%
92%
94%
96%
98%
100%
102%
Six Sigma Training Scores
0%
20%
40%
60%
80%
100%
120%
Customer Service Training Scores
47
Project Selection (Niven)
Criteria Weight Project
A
Points
Project
A Score
Project
B
Points
Project
B
Score
Link to strategy 45% 7 3.15 1 0.45
Financial gain 15% 5 0.75 10 1.5
Project cost 10% 5 0.5 10 1.0
Key personnel
required
10% 8 0.8 10 1.0
Time to complete 10% 8 0.8 10 1.0
Affects other
projects
10% 3 0.3 10 1.0
Total 6.3 5. 95
48
Feedback and the Strategic
Learning Process
Clarifying vision
and strategy
Planning and
target setting
Strategic feedback
and learning
Communication and
linking strategy
49
Cascading Scorecards
Linking Directly or Influencing Higher-Level Scorecards
Increased patient
satisfaction
Higher brand
recognition
Clean and timely
bills
Corporate
Support
(IT)
Line
Department
(OB)

50
Does the Strategy Work?
Double loop learning
Can you achieve the initiatives goals (control
loop)?
If not, what other initiative can achieve the
strategic goals (secondary loop)?
Control loopweekly; strategic (secondary)
loopquarterly
Tools
Statistical tools (e.g., correlation analysis)
Anecdotal reporting
Peer review
Team review and problem solving
51
Implementation
Link scorecards at corporate and
departmental level
Use scorecards to communicate
strategy implementation
Link cross-departmentally
Link to budgets
Monitor all operating statisticsmay
be basis for new initiatives
End of Chapter 4

Strategy and Balanced Scorecard

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Strategy and Balanced Scorecard

Uploaded by

Copyright:

Available Formats

Chapter 4

You might also like