Using the Balanced Scorecard to Build A Strategy-Focused Healthcare Organization

Balanced Scorecard Collaborative, Inc. • 55 Old Bedford Road • Lincoln, MA 01773 • Tel: 781.259.3737 • Fax: 781.259.3389 • bscol.com

Using the Balanced Scorecard to Build A Strategy-Focused Healthcare Organization

For more information, contact:

Kate O’Brien

781.402.1143

[email protected]

2©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference

Today’s Agenda

• Introduction to Balanced Scorecard Collaborative

• Overview of the Balanced Scorecard – Background and Concepts

• Case Example – Saint Mary’s/Duluth Clinic Health System

• Implementing the Balanced Scorecard At Your Hospital

• Questions and Answers

Introduction to Balanced Scorecard Collaborative


Execution of Strategy Has Become the Corporate Challenge of Our Times!

• “Strategy has never been more important” Business Week

• “Less than 10% of strategies effectively formulated are effectively executed”

Fortune Magazine

• “The problem is that our age’s fascination with strategy and vision feeds the mistaken belief that developing the right strategy will enable a company to rocket past competitors. In reality, strategy is less than half the battle. .. In the majority of cases – we estimate 70% – the real problem isn’t [bad strategy]…. It’s bad execution.”

Why CEO’s FailRam Charan and Geoffrey

Colvin Fortune (6/21/99)


Executing Strategy in the Healthcare Environment Is Even More Challenging

Hospitals need a clearly articulated strategy to effectively manage:

• Increasing competition, consolidation, and new healthcare delivery strategies

• Evolving regulatory standards and public policy

• Conflicting needs from clinicians, administrators, government and regulatory agencies, insurance providers, and boards

• Changing expectations of multiple “customer” groups (e.g., patients, referring physicians, payers)

BSCol Offers a Variety of Services to Achieve Our Mission

Conferences

Ensure Integrity

Publications

Design Communities

Best Practice Program

Support the Use

Standards & Certification

Partner Programs

Management Consulting

Training

Create Awareness

Enhance the

Approach

Our Mission:

“To facilitate the worldwide awareness, use, enhancement, and integrity of the Balanced

Scorecard as a value-added management process”


1992 1996 2000

Balanced Scorecard History

Measurement and

Reporting

Alignment and Communication

Enterprise-wide Strategic

Management

Articles in Harvard Business Review:

“The Balanced Scorecard — Measures that Drive Performance” January - February 1992

“Putting the Balanced Scorecard to Work” September - October 1993

“Using the Balanced Scorecard asa Strategic Management System” January - February 1996

1996 2000

Acceptance and Acclaim:

“The Balanced Scorecard” is translated into 18 languages

Selected by Harvard Business Review as one of the “most important management practices of the past 75 years.“


The Results are Widespread

1993 – $275 loss1998 – Top Quartile – $3b spin-off

Brown & Root Engineering (Rockwater)

Saint Mary’s/ Duluth Clinic Health System

Duke Children’s Hospital

Southern Citrus

CIGNA Property & Casualty Chemical Bank

ATT Canada

1993 – Losing money1996 – # 1 in Niche (growth &

profits)

1995 1998

Profits

1993 – X1998 – 20X

1995 – $300M loss1998 – Customer base doubles1999 – $7b spin-off

• Shipments on Spec• On Time Delivery• Rework• Absenteeism• Employee Turnover• Cost per Pound (¢)

70%89%

6%10%100

28.8

97%98%

2%1%31

18.9

Mobil US Marketing & Refining Competitive Rank (out of 7,profit)

19931995199619971998

#6#1#1#1#1

Measure % Improvement

Operating Margin 25

Family Satisfaction 11

Length of Stay 25

Readmission Rate 63

Measure Improvement

Operating Margin $18M since BSC implementation

Days in AR Decrease 16 days

Overall Hospital Point Satisfaction

15%

Overview of the Balanced Scorecard


Organizations Often Have A Gap Between Strategy and Action

Strategy Is a Step In a Continuum

MISSIONWhy we exist

VALUESWhat’s important to us

VISIONWhat we want to be

STRATEGYOur game plan

STRATEGIC OUTCOMES

SatisfiedSHAREHOLDERS

Delighted CUSTOMERS

Efficient and EffectivePROCESSES

Motivated & PreparedWORKFORCE


The Balanced Scorecard Is A Bridge To Close That Gap

Strategy Is a Step In a Continuum

MISSIONWhy we exist

VALUESWhat’s important to us

VISIONWhat we want to be

STRATEGYOur game plan

BALANCED SCORECARDImplementation & Focus

STRATEGIC INITIATIVESWhat we need to do

STRATEGIC OUTCOMES

SatisfiedSHAREHOLDERS

Delighted CUSTOMERS

Efficient and EffectivePROCESSES

Motivated & PreparedWORKFORCE

PERSONAL OBJECTIVESWhat I need to do


What Is a Balanced Scorecard?

At the highest level, the Balanced Scorecard isa framework that helps organizations put

strategy at the center of the organization bytranslating strategy into operational objectives

that drive both behavior and performance.


Measurement is the language that gives clarity to vague concepts

Measurement is used to communicate, not simply to control

Financial Perspective• Profitability• Growth • Shareholder Value

The Vision

Customer Perspective

• Price• Service• Quality

Internal Perspective

Learning and Growth• New Skills• Continuous Improvement

• Intellectual Assets

“If we succeed, how will we look to our shareholders?”

“To achieve our vision, what customer needs must we serve?”

“To satisfy our customers and shareholders, at which business processes must we excel?”

“To excel in our processes, what must our organization learn?”

• Cycle Time• Productivity• Cost

The Balanced Scorecard Provides a Four Perspective Framework to Translate Strategy Into Operational Terms


The Revenue Growth Strategy“Improve stability by broadening the sources of revenue from current customers”

The Productivity Strategy“Improve operating efficiency by shifting customers to more cost-effective channels of distribution”

Improve Returns

Improve Operating Efficiency

Broaden Revenue

Mix

Increase Customer

Confidence in Our Financial

Advice

IncreaseCustomer

Satisfaction Through Superior

Execution

IncreaseEmployee

Productivity

Access to Strategic

Information

Develop Strategic

Skills

Align Personal

Goals

FinancialPerspective

CustomerPerspective

InternalPerspective

Learning Perspective

Cross-Sell the Product

Line

Shift to Appropriate

Channel

Provide Rapid

Response

Develop New

Products

Minimize Problems

Understand Customer Segments

A Good Balanced Scorecard Strategy Map Tells the Story of Your Strategy


A Good Balanced Scorecard Tells the Story of Your Strategy Through A Set of Linked Cause and Effect Hypotheses

F1 - Improve ReturnsF2 - Broaden Revenue Mix

F3 - Reduce Cost Structure

C1 - Increase Customer Satisfaction With Our Products & People

C2 - Increase Satisfaction “After the Sale”

I1 - Understand Our CustomersI2 - Create Innovative Products

I3 - Cross-Sell Products

I4 - Shift Customers to Cost-Effective Channels

I5 - Minimize Operational Problems

I6 - Responsive Service

L1 - Develop Strategic SkillsL2 - Provide Strategic InfoL3 - Align Personal Goals

Return on Investment Revenue Growth

Deposit Service Cost Change

Share of Segment

Customer Retention

New Product Revenue

Cross-Sell Ratio

Channel Mix Change

Service Error Rate

Request Fulfillment Time

Employee Satisfaction Revenue per Employee

StrategicObjectives

Strategic Measurements

(Lag Indicators) (Lead Indicators)

Revenue Mix

Depth of Relation

Satisfaction Survey

Product Development Cycle

Hours with Customers

Strategic Job Coverage Ratio Strategic Info Availability Ratio Personal Goals Alignment (%)

Fin

an

cia

lC

us

tom

er

Inte

rna

lL

ear

nin

g


Objectives

• Fast ground turnaround

Statement of what strategy must achieve

and what’s critical to its

success

Target

• 30 Minutes• 90%

The level of performance

or rate of improvement

needed

• Cycle time optimization

Key action programs

required to achieve

objectives

InitiativeMeasurement

• On Ground Time• On-Time

Departure

How success in achieving the strategy

will be measured and

tracked

Strategic Theme: Operating Efficiency

ProfitabilityFinancial

Learning

Increase Revenue

Ground crew alignment

Lowest prices

Lower Costs

Customer

Internal

Fast ground turnaround

Strategy Map: Diagram of the cause-and-effect relationships between strategic objectives

Flight is on time

Theme Example from Southwest Airlines’ Balanced Scorecard


The Balanced Scorecard Supports a Complete Strategic Management System by Linking Long Term Strategy and Measures to More Tactical Planning & Budgeting

Objectives Milestones

• Promote ABC Culture Model

• Employee Satisfaction Survey

• Evaluate survey response

Inte

rnal

Lea

rnin

gC

ust

om

er

Accountable

• HR Committee

• $ xxxx

Resource Alloc.Targets InitiativesMeasuresThemes/ GoalsVisionMission

• Meet access expectations

• 3rd available appointment (% met)

• ‘02 xx%

• ‘03 xx%

• ‘04 xx%

• Access project

• Meet monthly target

• Deadline met

• Mkg. Team

• $ xxxx

AB

C H

ospi

tal S

yste

m w

ill p

rovi

de e

xcel

lent

ca

re in

our

sel

ecte

d sp

ecia

lty a

reas

whi

le

mai

ntai

ning

mar

gin

and

grow

ing

shar

e

Ser

ve th

e ne

eds

of p

atie

nts

exce

llent

ly

1.

Str

en

gth

en

inn

ova

tion

2.

Imp

rove

cu

sto

mer

sa

tisfa

ctio

n3

. A

ssu

re c

on

sist

en

t h

igh

qu

ality

4.

Pro

vid

e o

pe

ratio

na

l exc

elle

nce

Longer Term (3-5 year) View Shorter Term (Annual) View

Strategic Tactical

• % patient mix • ’02 = 39%

• ’03 = 40%

• ’04 = 41%

• Mix Margins Project

• Dept. Chairs• Complete by 2003

• $ xxxx• Assure optimum patient mix

• ‘02 xx%

• ‘03 xx%

• ‘04 xx%

Fin

anci

al• Grow

revenue from patient care

• % patient care revenue growth

• ‘02 xx%

• ‘03 xx%

• ‘04 xx%


Growth StrategyGrowth Strategy

Improve quality of revenue by understanding customer Improve quality of revenue by understanding customer needs and differentiating ourselves accordinglyneeds and differentiating ourselves accordingly..

Productivity StrategyProductivity Strategy

Maximize utilization of existing assets and integrate Maximize utilization of existing assets and integrate the business to reduce total delivered cost.the business to reduce total delivered cost.

Financial Financial PerspectivePerspective

Return on CapitalIncreased from 6% to 16%

Competitive Position(profitability)

From last (1993)to first (95, 96, 97, 98)

Volume GrowthExceeds industry by 2-2.5% annually

Reduce Cash ExpensesDown by 20%

Improve Cash FlowFrom -$500 M/Yr to +$700 M/Yr

Customer Customer PerspectivePerspective

Internal Internal PerspectivePerspective

Customer SatisfactionContinuous improvement for 3

consecutive years

Speedpass ActiveIncreasing at rate of

1M per year

Dealer Quality Perfect OrdersContinuous

improvement for 4 consecutive years

Learning & Learning & Growth Growth PerspectivePerspective

Quality Capacity Utilization Safety Lost work incidents

down from 150 to 30 per year

EnvironmentalNumber of incidents

reduced by 63%Continuous

improvement for 4 consecutive years

Annual value of lost yield reduced from

$175m to $50m

Strategic AwarenessAnnual employee survey shows awareness of

strategy increased from 20% to 80%

Product InnovationProduct Innovation Customer ManagementCustomer Management

Operational Excellence Good Neighbor

Motivated & Prepared WorkforceMotivated & Prepared Workforce

Continuous improvement for 4 consecutive years

The Mobil Story (US Marketing & Refining): 1993-1998

Case Study: St. Mary’s/Duluth Clinic Health

System


SMDC Health System Overview

Merged Several Organizations

• St. Mary’s Medical Center- 380 beds

• Miller Dwan Medical Center - 166 beds

• St. Mary’s Hospital of Superior - 55 beds

• Pine Medical Center- 30 acute beds, 86 skilled nursing beds

• 25 community clinics throughout northern Minnesota, Wisconsin, and Upper Michigan

Merged Cultures

• More than 4,000 employees

• 352 employed physicians representing 40 medical specialties

• Catholic and non-Catholic hospitals


SMDC Developed A Strategic Plan As A First Step As A Newly Merged Organization

• A very “comprehensive” plan – 350+ initiatives!

• People not clear on their roles to execute the strategy:

– Executive Leadership Team mired in operational fire-fighting and day-to-day details

– Board of Directors unfocused and confused about their role

– Management and employees did not understand the strategic direction of the organization

• Gradual decline of margin


The CEO Read The BSC Book And Decided To Implement SMDC’s BSC By Themselves

• Progress– Began tracking organizational performance on more than a

financial basis

• Pitfalls– Functioned primarily as a new kind of “dashboard report”

– Rather than a new way of running the organization, BSC became one more thing to do

FY1999 CORPORATE LEVEL BALANCED SCORECARD

Financial Customer Operational People TechnicalIndica-

torTar-get

FY99Final

Indica-tor

Target Stat-us

Indica-tor

Target Stat-us

Indica-tor

Target Stat-us

Indica-tor

Target Stat-us

AdjustedDischarges

23,890 23,592 PatientSatis-faction

Choose keyfocus areas

forimprove-

ment

C ArrangingCare

Determine outpatientphone model,conduct pilots

C CulturalDevelop-

ment

Completecommuni-

cationsstrategy

C QualityImprove-

ment

Implementsystem-widegovernance

structure

C

Encounters 912,188 892,243 EmployerSatis-faction

Completesurvey

develop-ment in CY

1999

CY Determine outpatientmodel for

registration &scheduling

C Completephysician

survey

C Completeexternal quality

report in CY1999

CY

Cost perAdjustedDischarge

6,964 7,535 HEDISIndicators

Selectindicators

fordevelop-ment plan

M ProvidingCare

Determine model forpatient delivery

system for clinicaldivisions

C Completeemployee

survey

C Meet or exceedstandards for

SMDCaccreditation

C

Cost perEncounter

215 252 Com-munityService

Completereporting

process andinventory

C Complete systemstrategy for

ambulatory surgery

C Completeplan to

maintainCatholic-

ity

C Informa-tion

Technol-ogy

Complete ITstrategic planin CY 1999

CY

OperatingMargin

2.0 1.3 Commun-ity Aware-

ness

Completesurvey inCY 1999

CY Docu-menting

andTracking

Care

Complete plan fordecentralized coding

and charge entry

C EmployeeRelationsStrategy

Accom-plish “pay

equity”

C Complete Y2Kcompliance by

12/99

CY

ExcessMargin

3.8 3.3 MarketShare

Completebaseline

C Innova-tion andProgramDevelop-

ment

Complete feasibilitystudy for a women’s

health center

C Synchro-nize

employeebenefits

C MedicalEducation

& Research

Completereport of

funded grantsand

publications

C

Days Cashon Hand

103.6 108.6 Complete plan for ageriatrics program

C FacilitiesPlanning

CompletePerkins & Will

plan

M

Days inAccounts

Receivable

77.7 82.8

Return onInvestment

3.4 2.9

“C” = task completed; “CY” = Calendar Year 1999 task; “M” = task modifiedFinance section: Target met; Target not met


The Strategy Map Evolved The BSC Process...and Drove SMDC Results

Value propositions provided clarity

Payers

OperationalExcellence

Specialty Care PatientsReferring Providers

Product Leadership

Primary CarePatients

CustomerIntimacy


The Strategy Map: Cause and Effect Relationships

• What will drive margins?– Managed growth in high margin

programs/service lines

• How?– Attract targeted patient population

through targeted referring physicians who value leading edge technology & expertise

• What will the internal focus be?– Ensure clinical excellence through

leading edge programs and techniques in focused specialty areas

– Align research priorities to support leading programs and stay out front in treatment methods

• Will our people be prepared to do that?

– Yes, with appropriate technology

– Yes, by recruiting critical expertise

Maximize High Margin

Opportunities

Strong Financial Base

FinancialFinancial

CustomerCustomerSpecialty Care Patients

Referring Providers

Leading EdgeTechnology

Leading EdgeExpertise

InternalInternal

Continually

DevelopClinical

ExcellenceDevelop Leading

Edge Programs/Techniques

Learning & GrowthLearning & Growth

Develop Critical Staffing

Resource Plans

Align ResearchPriorities

Implement Technologyto Support Processes

and Programs

Implement Managed

Growth

INTERNALTo satisfy our customers, at which operational processes must we excel?

Clearly communicate expectations and accountabilities aligned with

strategic priorities

Instill a Climate for Change Implement Technology

FINANCIALTo financially sustain our Mission, on what must we focus? Implement Managed

Growth

Vision:SMDC is a values-driven, integrated organization which will be recognized for excellence in

customer service, quality patient care, financial strength, andsupport of community health

Build a Strong Financial Base to Sustain our Mission and Achieve our Vision

CUSTOMERTo achieve our Vision, how should we appear to our customers?

Specialty Care Patients / Referring PhysiciansPrimary Care Patients Payers

FY 2002 Strategy Map

Easy Access

Deliver Cost Efficient Care

Develop state of the art techniques and programs

Strategic Program Development

Align research priorities with targeted growth areas

Implement technology to support internal processes

On-Time Service

Optimize Staff EfficiencyClinical Practice Management

Redesign operations for efficiency and effectiveness

Excellent servicePersonal

relationshipsLeading

edge technologyLeading

edge expertiseInnovativeprograms

Low costservice

Strive for Operational Excellence

Continually Develop Clinical Excellence

Provide Outstanding Customer Service

Instill a climate of pride in the organization &

commitment to the mission

Skill & Competency Development

Develop Critical Staffing Resource

Plans

Develop a Quality Mindset

LEARNING & GROWTH

How will we sustain our ability to change and improve?

Maximize High Margin, Market Opportunities 1


SMDC Ensured Alignment Between Their Planning Process and Balanced Scorecard Program

At budget time, the Executive Team:

• Revisits the strategy map to reaffirm strategic objectives

• Reviews measures to assure they are truly measuring progress against the objectives

• Sets targets for next fiscal year

• Develops and funds initiatives to deliver the targets


The Balanced Scorecard Introduced A New Era Of Accountability and Strategic Direction at SMDC

• Monthly executive leadership Strategic Operating Review meetings:

– review monthly performance indicators– discuss progress against initiative completion– majority of the meeting spent discussing strategic

issues

• VP-level weekly initiative progress meetings

• Line management and employees attend weekly management briefing meetings


SMDC Achieved Outstanding Results Using the Balanced Scorecard

• Aligned the entire organization through a common set of well understood objectives

• Created a platform for developing a single organizational culture

• Increased executive, management, and physician/staff accountability with clearly defined targets

• Utilized as an effective communication tool for governance, administration, management, and employees

• $20 million dollar financial turnaround and return to profitability

Implementing the Balanced Scorecard At Your Hospital


BSCol Offers The Brand, Know-How, and Proven Track Record To Help Organizations Achieve Results

Conferences

Ensure Integrity

Publications

Design Communities

Best Practice Program

Support the Use

Standards & Certification

Partner Programs

Management Consulting

Training

Create Awareness

Enhance the

Approach


Rapid Deployment Case Study: Major Federal Organization

Need

Approach

Benefits

•Definition of “Corporate” strategy

•Rapid roll-out and broad reach

•Develop internal capabilities to sustain momentum

•Develop Corporate Balanced Scorecard

•Define template for rolling out BSC

•Train subordinate units

•Streamline project management

•Quality checks

•Online education

•Clear guidance from Corporate

•Active involvement from client teams

•Rapid deployment with minimal resources

•Quality control


To Learn More About The Balanced Scorecard, Join BSC Online at www.bscol.com

Benefits

• Educate yourself on the Balanced Scorecard

• Learn from Best Practice Companies

• Keep informed of cutting edge thinking from the experts

What you get

• Balanced Scorecard e-learning modules by Dave Norton

• Multi-media cases featuring our Hall of Fame success stories

• Free Monthly Netconferences addressing BSC issues

• Answers to Frequently Asked Questions

• A monthly e-mail briefing from Drs. Kaplan and Norton

Questions and Comments

Documents

Using the Balanced Scorecard to Build A Strategy-Focused Healthcare Organization