Using the Balanced Scorecard to
Build A Strategy-Focused
Healthcare Organization
For more information, contact:
Kate O’Brien
781.402.1143
Kobrien@bscol.com
Balanced Scorecard Collaborative, Inc. • 55 Old Bedford Road • Lincoln, MA 01773 • Tel: 781.259.3737 • Fax: 781.259.3389 • bscol.com
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
2002 Arizona Rural Hospital Flexibility Program Conference
©2002 Balanced Scorecard Collaborative, Inc.
2
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 Fail
Ram Charan and Geoffrey Colvin
Fortune (6/21/99)
2002 Arizona Rural Hospital Flexibility Program Conference
©2002 Balanced Scorecard Collaborative, Inc.
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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)
2002 Arizona Rural Hospital Flexibility Program Conference
©2002 Balanced Scorecard Collaborative, Inc.
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BSCol Offers a Variety of Services to Achieve Our
Mission
Our Mission:
“To facilitate the worldwide awareness, use, enhancement, and integrity of the Balanced
Scorecard as a value-added management process”
Conferences
Publications
Create
Awareness
Standards &
Certification
Management
Consulting
Ensure
Integrity
Support
the Use
Partner
Programs
Training
Design
Communities
Enhance
the
Approach
Best
Practice
Program
Balanced Scorecard History
Measurement
and
Reporting
1992


2000
1996
Articles in Harvard Business Review:

Enterprise-wide
Strategic
Management
Alignment and
Communication
Acceptance and Acclaim:
“The Balanced Scorecard —
Measures that Drive Performance”
January - February 1992
 “The Balanced
“Putting the Balanced Scorecard to
Work” September - October 1993
 Selected by Harvard
Scorecard” is translated
into 18 languages
“Using the Balanced Scorecard as
a Strategic Management System”
January - February 1996
1996
2002 Arizona Rural Hospital Flexibility Program Conference
Business Review as
one of the “most
important management
practices of the past 75
years.“
©2002 Balanced Scorecard Collaborative, Inc.
2000
7
The Results are Widespread
CIGNA Property & Casualty
1993
1998
–
–
–
Chemical Bank
$275 loss
Top Quartile
$3b spin-off
Profits
1993
1998
Brown & Root Engineering (Rockwater)
1993
1996
–
–
X
20X
ATT Canada
Losing money
# 1 in Niche (growth & profits)
Saint Mary’s/ Duluth Clinic Health System
–
–
1995
1998
1999
–
–
–
$300M loss
Customer base doubles
$7b spin-off
Southern Citrus
1995
Measure
Improvement
Operating Margin
$18M since BSC implementation
Days in AR
Decrease 16 days
Overall Hospital Point
Satisfaction
15%
Duke Children’s Hospital
Measure
•
•
•
•
•
•
Shipments on Spec
On Time Delivery
Rework
Absenteeism
Employee Turnover
Cost per Pound (¢)
25
Family Satisfaction
11
Length of Stay
25
Readmission Rate
63
97%
98%
2%
1%
31
18.9
Mobil US Marketing & Refining
Competitive Rank (out of 7,profit)
% Improvement
Operating Margin
70%
89%
6%
10%
100
28.8
1998
2002 Arizona Rural Hospital Flexibility Program Conference
1993
1995
1996
1997
1998
©2002 Balanced Scorecard Collaborative, Inc.
#6
#1
#1
#1
#1
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Overview of the Balanced
Scorecard
Organizations Often Have A Gap Between Strategy and
Action
Strategy Is a Step In a Continuum
MISSION
Why we exist
VALUES
What’s important to us
VISION
What we want to be
STRATEGY
Our game plan
STRATEGIC OUTCOMES
Satisfied
SHAREHOLDERS
2002 Arizona Rural Hospital Flexibility Program Conference
Delighted
CUSTOMERS
Efficient and Effective
PROCESSES
©2002 Balanced Scorecard Collaborative, Inc.
Motivated & Prepared
WORKFORCE
10
The Balanced Scorecard Is A Bridge To Close That Gap
Strategy Is a Step In a Continuum
MISSION
Why we exist
VALUES
What’s important to us
VISION
What we want to be
STRATEGY
Our game plan
BALANCED SCORECARD
Implementation & Focus
STRATEGIC INITIATIVES
What we need to do
PERSONAL OBJECTIVES
What I need to do
STRATEGIC OUTCOMES
Satisfied
SHAREHOLDERS
2002 Arizona Rural Hospital Flexibility Program Conference
Delighted
CUSTOMERS
Efficient and Effective
PROCESSES
©2002 Balanced Scorecard Collaborative, Inc.
Motivated & Prepared
WORKFORCE
11
What Is a Balanced Scorecard?
At the highest level, the Balanced Scorecard is
a framework that helps organizations put
strategy at the center of the organization by
translating strategy into operational objectives
that drive both behavior and performance.
2002 Arizona Rural Hospital Flexibility Program Conference
©2002 Balanced Scorecard Collaborative, Inc.
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The Balanced Scorecard Provides a Four Perspective
Framework to Translate Strategy Into Operational Terms
The Vision
Financial Perspective
“If we succeed,
how will we look to
our shareholders?”
 Measurement is the language
that gives clarity to vague
concepts
• Profitability
• Growth
• Shareholder
Value
Customer Perspective
“To achieve our
vision, what
customer needs
must we serve?”
• Price
• Service
• Quality
Internal Perspective
 Measurement is used to
communicate, not simply to
control
“To satisfy our
• Cycle Time
customers and
shareholders, at which • Productivity
• Cost
business processes
must we excel?”
Learning and Growth
“To excel in our
processes, what
must our
organization learn?”
2002 Arizona Rural Hospital Flexibility Program Conference
©2002 Balanced Scorecard Collaborative, Inc.
• New Skills
• Continuous
Improvement
• Intellectual
Assets
13
A Good Balanced Scorecard Strategy Map Tells the
Story of Your Strategy
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
Financial
Perspective
Improve
Operating
Efficiency
Broaden
Revenue
Mix
Increase
Customer
Confidence in
Our Financial
Advice
Increase
Customer
Satisfaction
Through Superior
Execution
Customer
Perspective
Internal
Perspective
Understand
Customer
Segments
Develop
New
Products
Cross-Sell
the Product
Line
Shift to
Appropriate
Channel
Increase
Employee
Productivity
Develop
Strategic
Skills
2002 Arizona Rural Hospital Flexibility Program Conference
Access to
Strategic
Information
Minimize
Problems
Provide
Rapid
Response
Learning
Perspective
Align
Personal
Goals
©2002 Balanced Scorecard Collaborative, Inc.
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A Good Balanced Scorecard Tells the Story of Your Strategy
Through A Set of Linked Cause and Effect Hypotheses
Strategic Measurements
Learning
Internal
Customer
Financial
Strategic
Objectives
(Lag Indicators)
(Lead Indicators)
F1 - Improve Returns
F2 - Broaden Revenue Mix
 Return on Investment
 Revenue Growth
F3 - Reduce Cost Structure
 Deposit Service Cost Change
C1 - Increase Customer
Satisfaction With Our
Products & People
 Share of Segment
 Depth of Relation
C2 - Increase Satisfaction “After
the Sale”
 Customer Retention
 Satisfaction Survey
I1 - Understand Our Customers
I2 - Create Innovative Products
 New Product Revenue
 Product Development Cycle
I3 - Cross-Sell Products
 Cross-Sell Ratio
 Hours with Customers
I4 - Shift Customers to CostEffective Channels
I5 - Minimize Operational
Problems
I6 - Responsive Service
 Channel Mix Change
L1 - Develop Strategic Skills
L2 - Provide Strategic Info
L3 - Align Personal Goals
2002 Arizona Rural Hospital Flexibility Program Conference
 Revenue Mix
 Service Error Rate
 Request Fulfillment Time
 Employee Satisfaction
 Revenue per Employee
 Strategic Job Coverage Ratio
 Strategic Info Availability Ratio
 Personal Goals Alignment (%)
©2002 Balanced Scorecard Collaborative, Inc.
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Theme Example from Southwest Airlines’ Balanced
Scorecard
Strategy Map: Diagram of the
cause-and-effect relationships
between strategic objectives
Strategic Theme:
Operating Efficiency
Financial
Profitability
Lower Costs
Increase
Revenue
Statement of
what strategy
must achieve
and what’s
critical to its
success
How success
in achieving
the strategy
will be
measured and
tracked
Objectives
Measurement
Target
• On Ground Time
• On-Time
• 30 Minutes
• 90%
The level of
performance
or rate of
improvement
needed
Key action
programs
required to
achieve
objectives
Customer
Flight
is on time
Lowest
prices
Internal
• Fast ground
Fast ground
turnaround
turnaround
Initiative
• Cycle time
optimization
Departure
Learning
Ground crew
alignment
2002 Arizona Rural Hospital Flexibility Program Conference
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The Balanced Scorecard Supports a Complete Strategic Management
System by Linking Long Term Strategy and Measures to More
Tactical Planning & Budgeting
Longer Term (3-5 year) View
Objectives
Customer Financial
Themes/ Goals
Grow
revenue
from patient
care
•
% patient
care revenue
growth
•
Meet access
expectations
•
3rd available
appointment
(% met)
Assure
optimum
patient mix
•
% patient mix
Internal
•
Promote
ABC Culture
Model
•
Employee
Satisfaction
Survey
Initiatives
Targets
Measures
•
•
Learning
1. Strengthen innovation
2. Improve customer satisfaction
3. Assure consistent high quality
4. Provide operational excellence
Vision
Serve the needs of patients excellently
ABC Hospital System will provide excellent
care in our selected specialty areas while
maintaining margin and growing share
Mission
Shorter Term (Annual) View
•
•
•
‘02 xx%
‘03 xx%
‘04 xx%
•
’02 = 39%
•
’03 = 40%
•
’04 = 41%
‘02 xx%
‘03 xx%
‘04 xx%
•
Access
project
•
Meet monthly
target
•
•
Mix Margins
Project
•
Complete by
2003
•
Evaluate
survey
response
•
Deadline
met
Resource Alloc.
•
•
•
$ xxxx
Dept. Chairs
•
$ xxxx
HR
Committee
•
$ xxxx
Mkg.
Team
Tactical
Strategic
2002 Arizona Rural Hospital Flexibility Program Conference
Accountable
‘02 xx%
‘03 xx%
‘04 xx%
•
•
•
•
•
•
Milestones
©2002 Balanced Scorecard Collaborative, Inc.
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The Mobil Story (US Marketing & Refining): 1993-1998
Productivity Strategy
Maximize utilization of existing assets and integrate
the business to reduce total delivered cost.
Growth Strategy
Improve quality of revenue by understanding customer
needs and differentiating ourselves accordingly.
Return on Capital
Financial
Perspective
Increased from 6% to 16%
Competitive Position
(profitability)
From last (1993)
to first (95, 96, 97, 98)
Customer
Perspective
Internal
Perspective
Volume Growth
Reduce Cash Expenses
Improve Cash Flow
Exceeds industry by 2-2.5% annually
Down by 20%
From -$500 M/Yr to +$700 M/Yr
Customer Satisfaction
Continuous improvement for 3
consecutive years
Product Innovation
Customer Management
Speedpass Active
Dealer Quality
Increasing at rate of
1M per year
Continuous
improvement for 4
consecutive years
Perfect Orders
Continuous
improvement for 4
consecutive years
Operational Excellence
Good Neighbor
Quality
Capacity Utilization
Safety
Environmental
Continuous
improvement for 4
consecutive years
Annual value of lost
yield reduced from
$175m to $50m
Lost work incidents
down from 150 to 30
per year
Number of incidents
reduced by 63%
Learning &
Growth
Perspective
2002 Arizona Rural Hospital Flexibility Program Conference
Motivated & Prepared Workforce
Strategic Awareness
Annual employee survey shows awareness of
strategy increased from 20% to 80%
©2002 Balanced Scorecard Collaborative, Inc.
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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
2002 Arizona Rural Hospital Flexibility Program Conference
Merged Cultures
• More than 4,000 employees
• 352 employed physicians
representing 40 medical
specialties
• Catholic and non-Catholic
hospitals
©2002 Balanced Scorecard Collaborative, Inc.
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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
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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
2002 Arizona Rural Hospital Flexibility Program Conference
©2002 Balanced Scorecard Collaborative, Inc.
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FY1999 CORPORATE LEVEL BALANCED SCORECARD
Financial
Customer
Operational
People
Technical
Indicator
Target
FY99
Final
Indicator
Target
Stat
-us
Indicator
Target
Stat
-us
Indicator
Target
Stat
-us
Indicator
Target
Status
Adjusted
Discharges
23,890
23,592
Patient
Satisfaction
Choose key
focus areas
for
improvement
Complete
survey
development in CY
1999
Select
indicators
for
development plan
Complete
reporting
process and
inventory
C
Arranging
Care
Determine outpatient
phone model,
conduct pilots
C
Cultural
Development
Complete
communications
strategy
C
Quality
Improvement
Implement
system-wide
governance
structure
C
Determine outpatient
model for
registration &
scheduling
C
Complete
physician
survey
C
Complete
external quality
report in CY
1999
CY
Determine model for
patient delivery
system for clinical
divisions
C
Complete
employee
survey
C
Meet or exceed
standards for
SMDC
accreditation
C
Complete system
strategy for
ambulatory surgery
C
C
Complete IT
strategic plan
in CY 1999
CY
Complete plan for
decentralized coding
and charge entry
C
Complete
plan to
maintain
Catholicity
Accomplish “pay
equity”
Complete Y2K
compliance by
12/99
CY
Complete feasibility
study for a women’s
health center
C
Synchronize
employee
benefits
C
Medical
Education
& Research
Complete
report of
funded grants
and
publications
C
Complete plan for a
geriatrics program
C
Facilities
Planning
Complete
Perkins & Will
plan
M
Encounters 912,188 892,243
Employer
Satisfaction
CY
Cost per
Adjusted
Discharge
6,964
7,535
HEDIS
Indicators
Cost per
Encounter
215
252
Community
Service
Operating
Margin
2.0
1.3
Community Awareness
Complete
survey in
CY 1999
CY
Excess
Margin
3.8
3.3
Market
Share
Complete
baseline
C
Days Cash
on Hand
103.6
108.6
Days in
Accounts
Receivable
Return on
Investment
77.7
82.8
3.4
2.9
M
Providing
Care
C
Documenting
and
Tracking
Care
Innovation and
Program
Development
Employee
Relations
Strategy
“C” = task completed; “CY” = Calendar Year 1999 task; “M” = task modified
Finance section: Target met; Target not met
Information
Technology
C
The Strategy Map Evolved The BSC Process...and Drove
SMDC Results
Value propositions provided clarity
Primary Care
Patients
Specialty Care
Patients
Referring
Providers
Payers
Customer
Intimacy
Product
Leadership
Operational
Excellence
2002 Arizona Rural Hospital Flexibility Program Conference
©2002 Balanced Scorecard Collaborative, Inc.
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The Strategy Map: Cause and Effect Relationships
•
What will drive margins?
–
•
How?
–
•
Attract targeted patient population
through targeted referring
physicians who value leading edge
technology & expertise
What will the internal focus be?
–
–
•
Managed growth in high margin
programs/service lines
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
2002 Arizona Rural Hospital Flexibility Program Conference
Financial
Implement
Managed
Growth
Maximize High
Margin
Opportunities
Customer
Strong Financial
Base
Specialty Care Patients
Referring Providers
Leading Edge
Technology
Internal
Develop
Leading
Edge
Programs/
Techniques
Leading Edge
Expertise
Continually
Develop
Clinical
Excellence
Align Research
Priorities
Learning & Growth
Implement
Technology
to Support
Processes
and Programs
©2002 Balanced Scorecard Collaborative, Inc.
Develop Critical
Staffing
Resource Plans
25
FY 2002 Strategy Map
Vision:
SMDC is a values-driven, integrated organization which will be recognized for excellence in
customer service, quality patient care, financial strength, and
support of community health
Build a Strong Financial Base to Sustain our
Mission and Achieve our Vision
Implement Managed
Growth
Deliver Cost Efficient Care
Maximize High Margin,
Market Opportunities 1
Specialty Care Patients / Referring
Physicians
Primary Care Patients
Personal
relationships
Excellent service
Leading
edge technology
Leading
edge expertise
Innovative
programs
Continually Develop Clinical
Excellence
Provide Outstanding
Customer Service
Payers
Strive for Operational
Excellence
Clinical Practice
Management
Easy Access
Align research priorities with
targeted growth areas
On-Time
Service
Low cost
service
Optimize Staff Efficiency
Redesign operations for
efficiency and
effectiveness
Develop state of the art
techniques and programs
Strategic Program
Development
Instill a Climate for Change
Clearly communicate expectations
and accountabilities aligned with
strategic priorities
Instill a climate of pride in
the organization &
commitment to the mission
Implement Technology
Implement technology to
support internal processes
Skill & Competency Development
Develop Critical
Staffing Resource
Plans
Develop a
Quality Mindset
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
2002 Arizona Rural Hospital Flexibility Program Conference
©2002 Balanced Scorecard Collaborative, Inc.
27
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
2002 Arizona Rural Hospital Flexibility Program Conference
©2002 Balanced Scorecard Collaborative, Inc.
28
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
2002 Arizona Rural Hospital Flexibility Program Conference
©2002 Balanced Scorecard Collaborative, Inc.
29
Implementing the Balanced
Scorecard At Your Hospital
BSCol Offers The Brand, Know-How, and Proven Track
Record To Help Organizations Achieve Results
Conferences
Publications
Create
Awareness
Standards &
Certification
Management
Consulting
Ensure
Integrity
Support
the Use
Partner
Programs
Training
Design
Communities
2002 Arizona Rural Hospital Flexibility Program Conference
Enhance
the
Approach
©2002 Balanced Scorecard Collaborative, Inc.
Best
Practice
Program
31
Rapid Deployment Case Study: Major Federal
Organization
Need
•Definition of “Corporate” strategy
•Rapid roll-out and broad reach
•Develop internal capabilities to sustain momentum
Approach
•Develop Corporate Balanced Scorecard
•Define template for rolling out BSC
•Train subordinate units
•Streamline project management
•Quality checks
•Online education
Benefits
•Clear guidance from Corporate
•Active involvement from client teams
•Rapid deployment with minimal resources
•Quality control
2002 Arizona Rural Hospital Flexibility Program Conference
©2002 Balanced Scorecard Collaborative, Inc.
32
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
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©2002 Balanced Scorecard Collaborative, Inc.
33
Questions and Comments