1 Balanced Scorecards: A Smart Approach to Performance Improvement WIPFLI.COMJuly 19, 2005Bob Stephen and Jill ZabelWipfli Health Care Practice
2 Our Session Objectives Understand the benefits of using the Balanced Scorecard.Discuss the process:ReadinessStrategy MapsScorecard DevelopmentCascadingUsing the ScorecardAdditional considerations
3 Introduction Balanced Scorecard 101 Readiness Case Study Next Steps AgendaIntroductionBalanced Scorecard 101ReadinessCase StudyNext StepsWrap-Up Q&A
4 IntroductionOur Experience20+ hospitals over the past 18 monthsWisconsin Office of Rural Health ProjectMississippi Delta ProjectOther state offices/ performance improvement networksSmall and rural hospitals are at the forefront of Balanced Scorecard adoption in healthcare
6 Prelude to the Balanced Scorecard Mission/VisionGoals/Objectives (what we want to do)Strategies (how we will do it)Measures (how we know we did it)Strategic Planning
7 Why isn’t completing a strategic plan enough? Based on research by Kaplan and Norton, 90% of allstrategies fail.“In the majority of cases – we estimate 70% – the realproblem isn’t [bad strategy but] … bad execution.”Fortune - Cover Story, June 1999“Why CEO’s Fail”Malcolm Baldrige National Quality Award Foundation survey:300 CEOs72% felt executing strategies was more important
8 Linking Strategy to Execution For many health care organizations, the strategy process ends with a written strategic plan. This helps explain why the majority of all strategies are never implemented.Typical BarriersTranslation - Strategy is not connected to operational or actionable issues.Measurement and Focus - The organization measures what they have—often financialand historical—rather than what drives strategyAND management spends too little time discussing strategy.Alignment - There is no direct link between overall strategy and- resource allocation.- key initiatives.- department or personal goals.Communication - The strategy is not communicated or shared with keystakeholders – employees, physicians, or communityContinuity - Strategy is an event, not an ongoing process.
9 Balanced ScorecardTranslates mission & strategy into a set of performance measures and strategically aligned objectives.Links strategies and outcomes.Four perspectives:FinancialCustomerInternal ProcessesLearning & Growth (Enabling Investments)
10 How Does the Balanced Scorecard Work? MissionWhy we existValuesWhat’s Important to UsVisionWhat We Want to BeStrategyHow We Achieve Our VisionStrategy MapTranslate the StrategyBalanced ScorecardMeasure and FocusTargets and InitiativesWhat We Need to DoCascading Scorecards and InitiativesWhat Our Teams and Departments Must DoPersonal ObjectivesWhat “I” Need to DoStrategic OutcomesFinancialViabilitySatisfied InternalAnd ExternalCustomersEffectiveProcessesEnablingInvestmentsAdapted from Strategy Maps, Kaplan and Norton, HBS Press 2004
11 Success depends on effort and a sound approach. BenefitsHospitals with successful Balanced Scorecard implementations should expect to see improvements in organizational performance – financial, quality, service.BUT, actual results will depend on each hospital’s situation (keep doors open, smooth transition)Initially, most benefits will be intangible (increased communication, focus, understanding of strategy).Success depends on effort and a sound approach.
12 Maximizing ValueThe Balanced Scorecard can drive dramatic performance improvement, but one recent study suggests that many BSC implementations (up to 50%!) do not meet expectations.Successful implementations:Have strong executive sponsorshipDevelop strategy maps with cause-and-effect linksStrong measuresTies to actionCommitment to management useWillingness to change
13 Readiness Readiness Lack of Barriers Do we have a strategy? Is leadership (CEO) on board?Do we understand what this is?Potential ValueIs there significant improvement opportunity (survey)?Is our strategy understood?How well do we use measurement?Are our actions aligned with strategy?Do we have a burning platform?
15 Case: County Community Hospital (CH) Situation Rural providerDepressed communityNo competitors for 25 mile radiusLarge competitors within commuting distanceInefficient processes (long ED Wait times)Staffing competition with large providersPossible integration with physician clinicAging plant and equipmentLack of management focus (“fires and homeruns”)Case study is a composite of several customer organizations.
16 Case: Customer Value Proposition and Strategic Themes Customer Intimacy: CH will satisfy its customers by providing access to the services required by the community. Members of the community will seek out CH because of our understanding of the unique needs of the population.Strategic ThemesProcess improvement/Make us more accessible (wait times, scheduling)/Do more with lessFocus on customer serviceCommunity focusEnsure quality and safetyDevelop the right partnerships with physicians and tertiary care centers – create a community gateway to servicesEnsure the right mix of services for the communityCultivate an “ownership” culture
17 Case: Building a Balanced Scorecard 1. Strategy Development2. Strategy MapSteering CommitteeSelect StrategiesDetermine Priorities“Blocking & Tackling”Reconvene Steering CommitteeEstablish Cause & Effect LinkageEstablish Objective Owners5. Continuous Review3. MeasuresNew Management MeetingCommunicationExtend to DepartmentsDefine Measures-Accountability-Targets-Sources4. InitiativesDefine & Prioritize InitiativesFinalize Scorecard
18 Case: Steering Committee Administrator (Executive Sponsor)Manager, Quality Improvement (Champion)CFOVP, NursingVP, Support ServicesDirector, ClinicsPrimary Care PhysicianBoard Trustee
19 Case: Submitted Strategic Objectives Lower days in A/RControl costsReduce employee turnoverReduce agency useClean the buildingRenovate 2nd floorReduce Emergency Department wait timesUpgrade radiologyReduce costsFocus on safetyImprove community reputationInvest in the quality programStop or slow out-migrationStart dialysis programImprove customer satisfactionRecruit internal medicine PCPsRe-start the urgent care programRenovate the operating roomsUpgrade OR equipmentDevelop an alliance with University HospitalThis list contains duplicates and initiatives—obvious duplicates are combined and initiatives were sent to a parking lot during the first meeting.
20 Objective Linking Process Case: Strategy Mapping ProcessObjective Linking ProcessTo link objectives to the map, a relativelysimple process is employed:The strategy map framework is displayed on a flip chart page.Objectives are placed on “Sticky” notes.Members stick notes to appropriate map location.Objectives are grouped.Total number is reduced as necessary to objectives.Each objective is assigned an owner with accountability (and responsibility for definition and naming).Although some of the map was pre-developed, the group activity was used to validate their strategic themes.
21 21 Strategic Vision Vision Financial Viability Customer Internal Financially, how do we support the hospital’s continued viability and investment in the future (ability to meet the vision)?Financial ViabilityGrowthEffectivenessAs customers of the hospital’s services, what are our expectations?CustomerPatientsPhysiciansCommunityWhat processes must we excel at to meet customer needs?InternalCustomerServiceProcess andProductivityMarketStrategiesServiceStrategiesPhysicianCollaborationQuality andSafetyCommunityFocusEnabling Investment(Employees)What type of culture, skills, training, and technology are required to support our processes?PeopleCultureInfrastructure21
22 22 Strategic Vision County Community Hospital will contribute to the the community by offering accessiblequality care tailored to the needs of our residents.Financial ViabilityIncreaseRevenueImprove OurCost PositionCustomerProvide PatientAccess andServiceEnsure PhysicianSatisfaction WithAccess and Qualityof ServicesRemain aCommunityAssetInternalAchieveOrganizationalCommitment toServicesDevelop Strong PCP& Referral PartnershipsProcess Improvement:Efficiency/AccessExceed Quality& Safety StandardsMatch OurServices toCommunity NeedEnsure communityfocusEmployees & InvestmentRecruit and Retainthe Right Employeesand PhysiciansEstablish an“Ownership” CultureEnsure the Facilityand Technology MeetRequirements22
23 Case: PrioritizationPrioritization is used for validation, communication, and focus.Process employed:All divide 100 points among 4 perspectives.Divide 100 points among objectives in each perspective.Scores are averaged and discussed (simple voting could also be used).
24 Case: MeasuresEach objective owner was asked to identify at least 2 measures for each objective. Other participants provided input as well. (Measure Inventory)Steering committee met to identify measures for each objective.Rules Employed:Selected measures that exist currently or are based on existing information.Measures must balance leading and lagging indicators.Objectives are assigned 1 or 2 measures unless the steering committee agrees on more.Measures must be defined and documented (Including Targets and Alarms).Each measure is assigned an owner.
25 Case: Measure Definition Process Improvement: Look for measures that indicate drivers of performance or reflect direct improvement from high importance initiatives.Considered: Number of PI projects, PI results for highest profile projects (ER), Percent of departments with PI plansSelected: Results for ER project (Wait time)Next Step: Assign accountability, define, and set targets/alarms
26 Case: InitiativesA list of all current and proposed initiatives is developed prior to the third Steering Committee meeting.Each objective/measure owner is asked to identify initiatives associated with their objective (or with an anticipated impact on measures). Initiatives selected should help the measure become or stay “green”.Steering Committee “approves” initiatives for objectives with the highest priority (as appropriate).Remaining objectives have initiatives assigned by the owner. These will be discussed as appropriate.The initiatives are used to populate the first draft scorecard.
28 Use the scorecard – keep it up to date Case: Next StepsUse the scorecard – keep it up to dateRestructure management meetings – the scorecard is the agendaCommunicate to all stakeholdersStart to “cascade” to departments (5 priorities)
29 Case: New Management Meeting – Sample Agenda Review changes and prioritiesPriority initiativesRecent changes (Red and Green)Current business grouped by:Financial ViabilityCustomerInternal ProcessesEnabling InvestmentsChanges to ScorecardCommunication
30 Case: Roll-OutThe scorecard is introduced to key stakeholders once the steering committee is ready:Managers receive education during manager meetings (month 4)Management brings the scorecard to employees and physicians at scheduled meetings (month 6)The high-level scorecard is posted outside the employee entrance to the cafeteria. (month 6)The Board begins to see the BSC in month 9.
31 Case: CascadingCascading is the process of creating scorecards (linked to the hospital scorecard) at lower levels of the organization.Cascading should begin once the high-level scorecard is running smoothly.Avoid overwhelming the organization – start with pilots or a limited cascaded scorecard.
32 Example: For each critical strategy… Case: Cascading Starts in Month 9Example: For each critical strategy…LevelGoal/StrategyHospitalGoal: Process ImprovementNursing Care/ERReduce ER Wait times(See example)Strategic thinking exercise should, in part, employ the use of scenariosScenarios - "What if" occurs- how will we want to be positioned (proactive)- what will be out response (reactive)HousekeepingImprove room turnaround times
33 Employees & Investment WEIGHTINGMeasuresInitiativesOwnerStatus10%ER VisitsDaily ReportingCFOTBDAgency CostDON15%Wait Time OutliersER Task ForceCommunication planDir. ER40%Triage TimeUrgent Care ImplementationAdmit TimeBed Task ForceCEO25%% People TrainedBPR ProjectPI CoordinatorAbsentee RateCulture TrainingDir. HRStrategic VisionMetro Northeast Hospital will contribute to theRevitalization of the community by offeringAccessible quality care tailored to theneeds of our residents.Financial SurvivalIncreaseRevenueImprove ourCost PositionCustomerProvide patientAccess andServiceInternalProcess Improvement:Efficiency/AccessEmployees & InvestmentEstablish an“Ownership” Culture
34 Building a Balanced Scorecard 1. Strategy Development2. Strategy MapSteering CommitteeSelect StrategiesDetermine Priorities“Blocking & Tackling”Reconvene Steering CommitteeEstablish Cause & Effect LinkageEstablish Objective Owners5. Continuous Review3. MeasuresNew Management MeetingCommunicationExtend to DepartmentsDefine Measures-Accountability-Targets-Sources4. InitiativesDefine & Prioritize InitiativesFinalize Scorecard
35 Strategy Mapping: Checklist What are the critical steps involved with strategy mapping?Steering Committee (5-8 members)Pre-WorkReading (introduction to Balanced Scorecard and Strategy Maps)Review the strategy and develop/refine customer value propositionsDevelop a draft strategy map framework (or use the template)Solicit top 5-10 strategic objectives from each participantThe MeetingPlan on 6 hoursStart with educationConfirm the strategy map frameworkDefine customer value propositionsPlace objectives on the mapGroup and define objectivesPrioritize perspectives and objectivesAssign owners for each objective
36 Strategy Mapping: Tips Objectives should be high-level; consolidate detailed objectives where possible.The total number of objectives should be between 12 and 18.Start with good customer value propositions.When finished look for gaps (objectives that have no links to/from other objectives).Language is important—make sure the map uses language consistent with the hospital.Each objective must have an owner responsible for its definition and identification of draft measures.Prepare to have 2 strategy maps—one for communication and one for the Balanced Scorecard development.
37 Measurement and Initiatives: Checklist What Are the Critical Steps Involved in Selecting Measures and Initiatives?Pre-WorkStrategy map confirmationDefine the objectivesIdentify possible measures – or inventory existing measuresIdentify existing and proposed hospital-wide initiativesThe Meeting(s)Plan on 4-6 hours for measures and up to 4 hours for initiativesStart with education (measures, targets, and alarms)Select 1-2 measures for each objectiveIdentify frequency, source, and owner of each measureDefine measures (measure dictionary)For prioritized objectives, identify initiatives that will move the measure to green (or keep it there) – as time permits, identify assign initiatives to other important objectivesDefine initiativesIt is better to have a measure that tells 60% of a story than no measure at all.
38 Initiative Selection: Measures - TipsMeasure Selection and Definition:1 – 2 measures per objectiveMeasures are fluidBalance Lead (drivers) and Lag (outcomes)Financial (Mostly Lagging)Customer (Mostly Lagging)Internal (Mostly Leading)Enabling Investment (Mostly Leading)Look for ease of collection (existing)Initiative Selection:Not every objective in the financial and customer perspectives will have an initiativeAn initiative may link to more than one objective
39 Management Team Adoption What Comes Next?Management Team AdoptionCommunicationCascadingTechnology
40 What Comes Next: Roll-Out (communication) Communication is vital in the roll-out of the BalancedScorecard. It is helpful to set targets:When do we share the scorecard with managers? Employees? Physicians?What settings are most appropriate?When is the appropriate time to bring the scorecard to Board meetings?It is often beneficial to wait 3 to 6 months before starting to bring the scorecard to stakeholders.This provides time to work out the process and become fully engaged.
41 What Comes Next: Cascading Cascading is the process of creating scorecards (linked to the hospital scorecard) at lower levels of the organization.Cascading should begin once the high-level scorecard is running smoothly.Avoid overwhelming the organization—start with pilots or a limited cascaded scorecard.
42 What Comes Next: Cascading Options Of the cascading options available, three should be considered.4 Objective CascadingCascade the top objective in each perspectiveHave each department develop linked objectives and measuresExpand or change as necessaryService Line CascadingCascade one service lineConvene multi-department teamMap processesCreate strategy map and scorecardAdd 1 -2 more servicesCascade departments based on service linesDepartment CascadingFully Cascade 2 departments (clinical, non-clinical)Full strategy map and scorecard developedSet schedule to bring on additional departmentsEasiest to implementFastest resultsGreatest potential valueFits Kaplan/Norton Model
43 What Comes Next: Technology Technology can be a distraction if pursued too early.Most hospitals will be able to effectively use Excel-based scorecards. These tools allow for a high level of sophistication.For those hospitals ready for large-scale cascading, a technology solution can be beneficial. Benefits are most visible to those with an existing scorecard.Many off-the-shelf solutions exist—these can provide easier scorecard maintenance and support collaboration.One certified solution, QPR Scorecard, is being demonstrated in the solution center.
44 Wrap-UpThe Balanced Scorecard is a powerful management tool to help execute strategy.There are three steps in the Balanced Scorecard building process:Translate the strategy into a strategy map.Select measures.Prioritize and define initiatives.For greater effectiveness, keep the process simple.The scorecard building process is just the beginning.
45 Wrap-Up: Check-List Leadership buy-in is critical Strategy must exist Provide education before startingStrategy translation is the foundation of a successful scorecardChoose appropriate measures that tell the strategy story (even if only 60%!)Get to green: initiatives are essentialThe hard (and valuable) work is just beginning once the scorecard is createdCascading should begin once the high-level scorecard is operationalInitial benefits are often intangible (but valuable!)Keep it simple
46 Wrap-Up: ResourcesBalanced Scorecard Step-by-Step, Paul Niven, 2002, John Wiley & Sons (He has two other good books available)Performance Drivers, Olive, Roy, and Wetter, 1997, John Wiley & SonsThe Strategy Focused Organization, Kaplan and Norton, 2001, Harvard Business School Press