Why Implement The Balanced Scorecard In Healthcare Organizations?

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Many healthcare organizations struggle to link their strategy with their day-to-day operations. Fortunately, implementing a Balanced Scorecard can provide them with a sturdy mechanism to align their operations and personnel to their strategy and achieve superior results.


Why Implement The Balanced Scorecard In Healthcare Organizations? To achieve sustainable business and clinical competitiveness, healthcare organizations must be able to:

-     Clearly articulate their strategy and communicate strategic objectives to employees and external stakeholders such as patients & families, referring physicians, academia, and the community.

-     Establish the right set of strategic measures and targets, and understand the interdependencies and relationships across the portfolio of measures to avoid inappropriate decisions and behaviors.

-     Develop the appropriate operational key performance indicators (KPIs), dashboards, and data sources so that organizations can make better decisions faster.

-     Invest in the portfolio of strategic initiatives that will improve performance and mitigate risk.

This white paper outlines the opportunities and a path forward for each of these processes and mechanisms for helping healthcare organizations achieve results while managing risk. These processes do not represent quick fixes but rather improved ways of organizational thinking and behavior that enable sustainable benefits.

Clearly Articulate Strategy

Do you recognize the following organizational symptoms?

-     We do not have a clear growth strategy balanced with a clear efficiency strategy for our healthcare organization.

-     Our senior management isn’t clear about or aligned around our strategy, let alone our employees overall.

-     We have not thought about how various risk factors are likely to affect our strategy, so we don’t have a contingency plan.

-     We continue to suffer from conflicts between administration and clinicians, each appear to have conflicting needs rather than one integrated plan for success.

-     We cannot agree on who our “customers” are.

One reason that many healthcare organizations feel the pain of these symptoms is that they have not discovered a process to develop a “strategy from within” the organization. Instead, they outsource that strategy to third-party consultants who may understand healthcare market demographics, but cannot fully understand the unique cultural and customer dynamics of the organization. Many healthcare leaders also have not found a mechanism for “translating the strategy to operations” so that they can implement the strategy and know whether it is achieving the desired results.

The Balanced Scorecard framework, developed by Drs. Robert Kaplan and David Norton almost twenty years ago, was designed to “translate the strategy into operational terms”—in other words, to clearly link strategy with operations so that strategy becomes a living, useable mechanism for success. And yet, too many organizations have misunderstood the Balanced Scorecard as merely a narrow-purpose dashboard or measurement tool. While the framework clearly uses measurement as a powerful mechanism to clarify and track the direction and achievement of strategy, it first and foremost articulates and executes strategy so that everyone in an organization, from executives to clinicians to housekeeping, can contribute to results.

The Kaplan-Norton framework helps with the articulation of a healthcare organization’s strategy providing leadership with a logical “mental model” for conducting the critical dialogues necessary for strategy to be decided upon and tested. Since strategy is based on a set of choices about “where an organization is going” and “how it will get there,” it will only be effective if all the dots are connected. This requires a rigorous look at the various elements and tradeoffs, as framed within the Kaplan-Norton Strategic Perspectives (Financial, Customer, Process, and Learning & Growth).

-     Financial: Choices about specific sources and levels of growth, balanced with the need to focus on cost management and efficiencies.

-     Customer: A clear articulation of a healthcare organization’s unique value proposition and a dialog about how to resolve potential conflicts across the needs of various customers.

-     Process: Discussions about where to focus investment on process improvements that could result in tradeoffs between efficiency and patient quality or service levels.

-     Learning & Growth: Investment in employees and organizational culture as well as enabling technology

This unified “story of the strategy” provides the necessary “anchor” or “backbone” against which measures and targets can be set and actions can be taken through a strategically selected portfolio of initiatives. Risk is mitigated when strategy is managed as a portfolio rather than a collection of individual parts.

Strategic Theme: Establish the Right Set of Strategic Measures and Targets

Do you recognize the following symptoms?

-     We focus too heavily on financial measures, which give us information when it is too late to make corrections.

-     People get obsessed with optimizing one measure and forget the consequences in other areas of operations.

-     Every department and function has its own set of measures and targets; we have a very difficult time trying to consolidate anything.

Once a healthcare organization’s strategy has been clearly articulated and the strategic linkages across the Kaplan-Norton perspectives have been made clear, it is time to develop a set of related strategic measures and their accompanying targets that will provide a greater level of detail to clarify the meaning and intended focus of a strategic objective, means to track progress and a driver of behavior to ensure that the objective is achieved.

Objectives, Measures, Targets, and Initiatives

Just as with objectives, strategic measures must not be thought of in isolation but rather as a portfolio, with each driving certain behaviors that must be balanced by the others.

Any one measure can inadvertently lead to unprofitable or non-patient focused changes. In addition, the sheer number of measures that a leadership or management team can handle must be carefully managed. A portfolio of measures numbering fewer than 12-14 does not provide the appropriate level of information of causal relationships to effectively manage complex healthcare strategy, while a portfolio of more than 35-40 creates a lack of focus and chasing. Key to the effectiveness of the strategic measures portfolio is the inclusion of key risk indicators (KRIs). These are measures that provide leading indicators into the potential landmines. KRIs should be considered across all four Kaplan-Norton perspectives, just as other measures are.

Another key element to consider with the use of measures and targets is creating alignment across the enterprise. Historically, healthcare organizations have tended to lack cross departmental and cross-functional alignment, which prevents an organization from optimizing performance through learning, shared information, and process efficiencies. In addition, an increased focus on lead or driver measures enables organizations to focus on the source of problems early so that improvements in processes can be made across the organization before the problems lead to negative results.

Develop Operational KPIs, Dashboards, and Data Sources

Do you recognize the following organizational symptoms?

-     We do not have the right people focused on the right measures, KPIs, or data.

-     We have redundant, home-made reports and dashboards all over the organization—this lack of consistency is problematic for our finance team.

-     We do not have a mechanism to link strategy to the way we plan and budget.

-     It takes too much time to consolidate disparate measures and data into an enterprise view of our progress.

By design, individuals and teams at different levels of any healthcare organization are expected to focus on different activities and within different scopes of responsibility. However, while the level of focus and scope may differ, the need to continue to think about the portfolio of relevant objectives and measures still pertains.

Thus, even though the area of focus and level of specificity may change, the logic of managing to a portfolio of objectives, measures, and targets remains the same at all levels of the organization.

There is, however, one key difference on which to focus. The tools, technologies, and calendars used at different levels of the organization must each be customized to serve the needs of the roles involved.

A key to developing effective operational dashboards is the ability to objectively select the most strategic process objectives of a strategy that provide the greatest opportunity for revenue generation or cost efficiency, and to conduct process modeling (process decomposition) to determine their underlying drivers and the related KPIs. This is a critical activity that requires a high degree of objectivity by the right team of participants, and can result in enormous benefits in the ability to understand where value can be gained by process improvements that are tracked diligently.

In addition to problem solving, KPIs also provide valuable input for any healthcare organization in the monthly and annual planning process. Imagine the power of having planning tools that force organizations to look at planning, budgeting, and operational management through the lens of Kaplan-Norton’s four perspectives! Financial outcomes are really no more than the causal result of:

-     The right people with the right skills, cultural environment, and tools.

-     Optimizing the right set of clinical and operational processes.

-     Moving the dial on customer satisfaction (patient/family, physician, community).

Of course, while good data analytics will always require a capital and management time investment, the discipline of developing a multi-year Business Intelligence roadmap to support strategy, planning, and reporting is critical to the viability of healthcare operations, and will result in both focused investment and cost savings.

Invest in the Portfolio of Strategic Initiatives

Do you recognize the following organizational symptoms?

-     We have too many initiatives chasing too few budget dollars.

-     Our initiatives are often approved with no supporting business case, demonstration of value, or even a projected budget!

-     We have no objective process for selecting initiatives—the “squeaky wheel” often gets the budget.

-     We don’t know how to separate “strategic initiatives” from operational projects, so the budgeting process gets us all mixed up.

Many healthcare organizations seem to have a difficult time prioritizing and managing strategic resource allocation. Specifically, many healthcare systems have weak or non-existent processes to:

-     Inventory strategic initiatives and other projects

-     Map initiatives to the strategy

-     Prioritize initiatives using strategy-based criteria

-     Track progress of initiatives and their benefits (or lack thereof) with sustained discipline

-     Stop initiatives that are not making the grade

If strategic initiatives and, indeed, all resource allocation decisions, are not directly based on their contribution to the strategy, then there will be an increased risk of poor spending choices.

For healthcare, this often means the difference between a positive and a negative margin. One key element of success for the resource allocation process is developing an organizational understanding of the difference between allocating resources for strategic initiatives that drive the strategy forward for future success, and operational projects that allow business to run as usual or enable incremental improvements. Organizations that figure out this distinction are much better able to plan for the future while at the same time meeting quarterly budget requirements.

The Kaplan/Norton framework and methodology can be of enormous value for healthcare organizations in overcoming this resource allocation problem. It provides a time-tested mechanism to ensure that allocation is based on strategy, that it is objectively prioritized, and that results are diligently tracked.


What does this mean for the discipline of strategic and operational management? In a word, everything! First, if a healthcare organization can break down the silos and operate under the umbrella of one unified strategy in a language that is understood by all, with a common set of measures and KPIs, then the chance for both short-term and long-range success is dramatically increased. More specifically, the Kaplan-Norton framework provides a mechanism to streamline and unify strategic processes in a number of ways:

-     Common language means better understanding of processes, whether they be strategy development, strategic planning, operational planning and budgeting, or risk-based scenario planning.

-     A consistent and controlled set of strategic measures and operational KPIs means that ongoing planning, reporting, and risk management processes can be streamlined, enhanced, and more effective. If these processes are more accurate and timely, everyone wins.

-     The ability to objectively select and prioritize strategic initiatives and operational projects greatly increases the likelihood of achieving strategy while at the same time meeting budget requirements, thereby ensuring long term viability.

In summary, healthcare organizations should link their strategy to operations by following the Kaplan-Norton methodology to ensure that their strategy is realized, risk is minimized, and operations are optimized, all leading to the achievement of the greater healthcare mission. At TRISSA we can help you establish the necessary mechanisms to closely monitor your company’s risk exposure and implement a system to ensure that it is managed along with the strategy.

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Author: Trissa Strategy Consulting

Source: 2010, Palladium Group, Inc.