strategy and balanced scorecard

8/12/2019 Strategy and Balanced Scorecard

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Chapter 4

Strategy and

the Balanced Scorecard


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Healthcare Operations Management 2008 Health Administration Press. All rights reserved.

3

The Balanced Scorecard

What gets measured gets managed


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4

Whats on Your Desk Today?

Urgent operating

problems

Employee

turnover

recruiting

Last years

initiative

This years new

initiative

40 e-mailsand 10 voice mails

Financial

performance

pressure


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5

Traditional Management Tools

Financial

Reports:

P/L

BalanceSheet

ROI-ROCE

Operating

Statistics

Strategic

Plan


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6

The Theory of Management

FinancialResults

Operating

Statistics

StrategicPlan Operations

Management

Control


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7

Traditional Management Tools

Created by different departments

Reviewed by different managers

Reviewed in different time frames

No connection to each other


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The Problem

Poor linkage of strategic plan to operationsand expected financial results; strategies arenot 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


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Kaplan and Norton

Study in 1990Measuring Performance inCompanies

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


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10

Balanced Scorecard as aStrategic Management System

Clarify and translate vision and strategy

Communicate and link strategicobjectives and measures

Plan, set targets, and align strategic

initiatives Enhance strategic feedback and

learning


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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


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Elements of the BalancedScorecard

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


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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 HealthcareManagement, May/June 2002


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The Four Perspectives


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Financial Strategies

Grow

Revenue growth

Sustain

Profitability, ROI, ROCE

Harvest

Cash flow, working capital

Risk management

Diversity


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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


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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


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Asset Utilization

Investment Strategy Manage working capital

Accounts payable

Inventory

Accounts receivable

Improve asset allocation

Sharing of IT, specialized equipment,buildings


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Risk Management

Through Diversity Revenue sources

Market segments Customers

Products

Asset allocations


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CustomersMarket Segmentation

What is the key value proposition to bedelivered to the targeted market segment?

Healthcare market segment examples: Patient with chronic illnesses (e.g., diabetes)

Obstetric care

Sports medicine Cancer

Emergency care


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Standard Measures

Market share

Customer retention

Customer acquisition

Customer satisfaction

Customer profitability


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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


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Hospital Example

Market segment: pregnant womenages 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


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Internal Business Process

Create

Product/

Service

Identify

the

Market

Build

Product/

Service

Deliver

Service

Innovation

OperationsProcess

Post-Sale

Services


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Innovation

Identify the market

What benefits will customers value intomorrows market?

How can we innovate to deliver thesebenefits?

Create the product

Basic research

Applied research

New product to market


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Measures forProduct 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)


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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


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Post-Sale Services

Warranty and repair

Billing and collection Rapid reliable service contracts

Feedback on product performance to

drive improvement


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Learn and Grow

Results

Staff

Competencies

Employee

Satisfaction

Employee

Productivity

Employee

Retention

Information Technology

and DataClimate for

Actions


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Measures of

Employee Satisfaction Involvement with decisions

Recognition for doing a good job

Access to sufficient information to do the jobwell

Active encouragement of creativity andinitiative

Support for staff-level functions Overall satisfaction with the organization


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Drivers ofLearning 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


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Linking Balanced Scorecard

Measures to Strategy

Cause-and-effect relationship

Outcomes and performance drivers

Link to financials


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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 ofcause-and-effect relationships that

communicates the organizations strategy


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Outcomes andPerformance Drivers

Outcome indicators Lag

Tend to be generic

Examples: profitability, market share, customersatisfaction

Performance drivers Predict the future

Are specific to strategy

Examples: emergency room wait time, remodeling ontime lines

Need equal mix of both types

Suggested maximum is 5 per quadrant or 20


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Link to Financials

Financial goals are topmost in BalancedScorecard

Each other strategy eventually needs tolink to financial goals

Causal pathways need to be clear andquantitative, if possible

Some healthcare organizations makethe customer/patient topmost


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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


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Finance

BusinessProcesses

Learning andGrowth

Customers

General Balanced Scorecard

Provide employees

with skills, tools, and

motivation

Improve marketing

and customer

service

Improve

operations

Improve

financial

results


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Finance

BusinessProcesses

Learning andGrowth

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:


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Finance

BusinessProcesses

Learning andGrowth

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%

R d G l B l d S d


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Learning andGrowth

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

BusinessProcesses

Targets Resources Initiatives and


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Targets, Resources, Initiatives, andBudgets

Set stretch targets

Identify strategic initiatives

Identify critical cross-organizationinitiatives

Link to annual resource allocation and

budgets

Remember to maintain critical monitoring

systems for nonstrategic operations


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Display Results Graphically

Sa le BSC Fi a ial


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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

S l BSC C t


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Sample BSCCustomer

0%

20%

40%

60%

80%

100%

120%


Customer Satisfaction

Sample BSC Operations


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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

S l BSC L d G


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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

P j t S l ti


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Project Selection (Niven)

Criteria Weight Project

APoints

Project

A Score

Project

BPoints

Project

BScore

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

Feedback and the Strategic


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Feedback and the StrategicLearning Process

Clarifying vision

and strategy

Planning and

target setting

Strategic feedback

and learning

Communication and

linking strategy

C di S d


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Cascading ScorecardsLinking Directly or Influencing Higher-Level Scorecards

Increased patientsatisfaction

Higher brand

recognition

Clean and timelybills

Corporate

Support

(IT)

LineDepartment

(OB)


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Does the Strategy Work?

Double loop learning Can you achieve the initiatives goals (control

loop)?

If not, what other initiative can achieve thestrategic goals (secondary loop)?

Control loopweekly; strategic (secondary)loopquarterly

Tools

Statistical tools (e.g., correlation analysis) Anecdotal reporting

Peer review

Team review and problem solving


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Implementation

Link scorecards at corporate anddepartmental level

Use scorecards to communicate

strategy implementation

Link cross-departmentally

Link to budgets

Monitor all operating statisticsmaybe basis for new initiatives


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End of Chapter 4

strategy and balanced scorecard

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