1. Using the Balanced Scorecard to Build A Strategy-Focused Healthcare Organization
For more information, contact:
Kate O’Brien

2. 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

3. Introduction to Balanced Scorecard Collaborative

4. 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)

5. 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)

6. BSCol Offers a Variety of Services to Achieve Our Mission
“To facilitate the worldwide awareness, use, enhancement, and integrity of the Balanced Scorecard as a value-added management process”
Conferences
Ensure Integrity
Publications
Design Communities
Best Practice Program
Support the Use
Standards & Certification
Partner Programs
Management Consulting
Training
Create Awareness
Enhance the Approach

7. Balanced Scorecard History
Measurement and Reporting
Enterprise-wide Strategic Management
Alignment and Communication
1992
1996
2000
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 as a 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.“

8. The Results are Widespread
CIGNA Property & Casualty
Chemical Bank
1993 – $275 loss
1998 – Top Quartile
– $3b spin-off
Profits
1993 – X
1998 – 20X
Brown & Root Engineering (Rockwater)
ATT Canada
1993 – Losing money
1996 – # 1 in Niche (growth & profits)
1995 – $300M loss
1998 – Customer base doubles
1999 – $7b spin-off
Saint Mary’s/ Duluth Clinic Health System
Southern Citrus
1995
1998
Measure
Improvement
Operating Margin
$18M since BSC implementation
Days in AR
Decrease 16 days
Overall Hospital Point Satisfaction
15%
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
Duke Children’s Hospital
Mobil US Marketing & Refining
Measure
% Improvement
Operating Margin 25
Family Satisfaction 11
Length of Stay
Readmission Rate 63
Competitive Rank (out of 7,profit)
1993
1995
1996
1997
1998 #6 #1

9. Overview of the Balanced Scorecard

10. 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
(11) Does a strategic focus make sense in a tactical business world?
STRATEGIC OUTCOMES
Satisfied SHAREHOLDERS
Delighted CUSTOMERS
Efficient and Effective PROCESSES
Motivated & Prepared WORKFORCE

11. 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
STRATEGIC OUTCOMES
Satisfied SHAREHOLDERS
Delighted CUSTOMERS
Efficient and Effective PROCESSES
Motivated & Prepared WORKFORCE
PERSONAL OBJECTIVES
What I need to do
(11) Does a strategic focus make sense in a tactical business world?

12. 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.

13. The Balanced Scorecard Provides a Four Perspective Framework to Translate Strategy Into Operational Terms
The Vision
Financial Perspective
Profitability
Growth
Shareholder Value
“If we succeed, how will we look to our shareholders?”
Customer Perspective
Measurement is the language that gives clarity to vague concepts
Measurement is used to communicate, not simply to control
“To achieve our vision, what customer needs must we serve?”
Price
Service
Quality
Internal Perspective
“To satisfy our customers and shareholders, at which business processes must we excel?”
Cycle Time
Productivity
Cost
Learning and Growth
New Skills
Continuous Improvement
Intellectual Assets
“To excel in our processes, what must our organization learn?”

14. The Revenue Growth Strategy The Productivity Strategy
A Good Balanced Scorecard Strategy Map Tells the Story of Your Strategy
The Revenue Growth Strategy
The Productivity Strategy
“Improve stability by broadening the sources of revenue from current customers”
“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
Provide Rapid Response
Minimize Problems
Increase
Employee Productivity
Learning Perspective
Develop Strategic Skills
Access to Strategic Information
Align Personal Goals

15. A Good Balanced Scorecard Tells the Story of Your Strategy Through A Set of Linked Cause and Effect Hypotheses
Strategic Objectives
Strategic Measurements
(Lag Indicators)
(Lead Indicators)
F1 - Improve Returns
F2 - Broaden Revenue Mix
F3 - Reduce Cost Structure
Return on Investment
Revenue Growth
Deposit Service Cost Change
Revenue Mix
Financial
C1 - Increase Customer Satisfaction With Our Products & People
C2 - Increase Satisfaction “After the Sale”
Share of Segment
Customer Retention
Depth of Relation
Satisfaction Survey
Customer
I1 - Understand Our Customers
I2 - Create Innovative Products
I3 - Cross-Sell Products
I4 - Shift Customers to Cost-Effective Channels
I5 - Minimize Operational Problems
I6 - Responsive Service
New Product Revenue
Cross-Sell Ratio
Channel Mix Change
Service Error Rate
Request Fulfillment Time
Product Development Cycle
Hours with Customers
Internal
L1 - Develop Strategic Skills
L2 - Provide Strategic Info
L3 - Align Personal Goals
Strategic Job Coverage Ratio
Strategic Info Availability Ratio
Personal Goals Alignment (%)
Employee Satisfaction
Revenue per Employee
Learning

16. Theme Example from Southwest Airlines’ Balanced Scorecard
Strategic Theme: Operating Efficiency
Profitability
Financial
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
Objectives
Fast ground turnaround
Statement of what strategy must achieve and what’s critical to its success
Measurement
On Ground Time
On-Time Departure
How success in achieving the strategy will be measured and tracked
Target
30 Minutes
90%
The level of performance or rate of improvement needed
Cycle time optimization
Key action programs required to achieve objectives
Initiative

17. Longer Term (3-5 year) View Shorter Term (Annual) View
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
Shorter Term (Annual) View
Mission
Vision
Themes/ Goals
Objectives
Measures
Targets
Initiatives
Milestones
Accountable
Resource Alloc.
Grow revenue from patient care
% patient care revenue growth
‘02 xx%
‘03 xx%
‘04 xx%
Financial
Meet access expectations
3rd available appointment (% met)
Access project
Meet monthly target
Mkg. Team
$ xxxx
‘02 xx%
‘03 xx%
‘04 xx%
Customer
ABC Hospital System will provide excellent care in our selected specialty areas while maintaining margin and growing share
2. Improve customer satisfaction
3. Assure consistent high quality
4. Provide operational excellence
1. Strengthen innovation
Serve the needs of patients excellently
Assure optimum patient mix
% patient mix
’02 = 39%
’03 = 40%
’04 = 41%
Mix Margins Project
Complete by 2003
Dept. Chairs
$ xxxx
Internal
(11) Does a strategic focus make sense in a tactical business world?
Promote ABC Culture Model
Employee Satisfaction Survey
‘02 xx%
‘03 xx%
‘04 xx%
Evaluate survey response
Deadline met
HR Committee
$ xxxx
Learning
Tactical
Strategic

18. The Mobil Story (US Marketing & Refining): 1993-1998
Growth Strategy
Improve quality of revenue by understanding customer needs and differentiating ourselves accordingly.
Productivity Strategy
Maximize utilization of existing assets and integrate the business to reduce total delivered cost.
Financial Perspective
Return on Capital
Increased from 6% to 16%
Competitive Position (profitability)
From last (1993) to first (95, 96, 97, 98)
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 Perspective
Customer Satisfaction
Continuous improvement for 3 consecutive years
Internal Perspective
Product Innovation
Customer Management
Speedpass Active
Dealer Quality
Perfect Orders
Increasing at rate of 1M per year
Continuous improvement for 4 consecutive years
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
Motivated & Prepared Workforce
Strategic Awareness
Annual employee survey shows awareness of strategy increased from 20% to 80%

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

20. SMDC Health System Overview
Merged Several Organizations
St. Mary’s Medical Center- 380 beds
Miller Dwan Medical Center 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

21. 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
No real accountability for implementation
Executive Management Team continued to be stuck fighting fires rather than focusing on the strategic direction of SMDC
SMDC went from being in the black to in the red. Keep in mind, most hospitals feel they are doing very well if they have a 2% margin, so it doesn’t take much to move into the red.

22. 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

23. FY1999 CORPORATE LEVEL BALANCED SCORECARD
Financial
Customer
Operational
People
Technical
Indica-
tor
Tar-
get
FY99
Final
Target
Stat
-us
Stat- us
Adjusted
Discharges
23,890
23,592
Patient
Satis-
faction
Choose key
focus areas
for
improve-
ment C
Arranging
Care
Determine outpatient
phone model,
conduct pilots
Cultural
Develop-
Complete
communi-
cations
strategy
Quality
Improve-
Implement
system-wide
governance
structure
Encounters
912,188
892,243
Employer
survey
develop-
ment in CY
1999 CY
model for
registration &
scheduling
physician
external quality
report in CY
Cost per
Discharge
6,964
7,535
HEDIS
Indicators
Select
indicators
ment plan M
Providing
Determine model for
patient delivery
system for clinical
divisions
employee
Meet or exceed
standards for
SMDC
accreditation
Encounter
215
252
Com-
munity
Service
reporting
process and
inventory
Complete system
strategy for
ambulatory surgery
plan to
maintain
Catholic-
ity
Informa-
tion
Technol-
ogy
Complete IT
strategic plan
in CY 1999
Operating
Margin
2.0
1.3
Commun-
ity Aware-
ness
surve y in
CY 1999
Docu-
menting
and
Tracking
Complete plan for
decentralized coding
and charge entry
Employee
Relations
Strategy
Accom-
plish “pay
equity”
Complete Y2K
compliance by
12/99
Excess
3.8
3.3
Market
Share
baseline
Innova-
tion and
Program
Complete feasibility
study for a women’s
health center
Synchro-
nize
benefits
Medical
Education
& Research
report of
funded grants
publications
Days Cash
on Hand
103.6
108.6
Complete plan for a
geriatrics program
Facilities
Planning
Perkins & Will
plan
Days in
Accounts
Receivable
77.7
82.8
Return on
Investment
3.4
2.9
“C” = task completed; “CY” = Calendar Year 1999 task; “M” = task modified
Finance section :
Target
met ;
Target not met
SMDC was trying to work with a performance measurement tool in advance of crafting a focused business strategy
Balanced Scorecard Collaborative was hired to help get SMDC on the right track with their BSC

24. 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

25. The Strategy Map: Cause and Effect Relationships
Financial
Strong Financial Base
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
Implement Managed
Growth
Maximize High Margin
Opportunities
Customer
Specialty Care Patients
Referring Providers
Leading Edge
Technology
Leading Edge
Expertise
Continually Develop
Clinical Excellence
Internal
Develop Leading
Edge Programs/
Techniques
Align Research
Priorities
Learning & Growth
Implement Technology
to Support Processes
and Programs
Develop Critical Staffing
Resource Plans

26. 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
FINANCIAL
To financially sustain our Mission, on what must we focus?
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
Primary Care Patients
Specialty Care Patients / Referring Physicians
Payers
CUSTOMER
To achieve our Vision, how should we appear to our customers?
Excellent service
Personal
relationships
Leading
edge technology
Leading
edge expertise
Innovative
programs
Low cost
service
Provide Outstanding Customer Service
Continually Develop Clinical Excellence
Strive for Operational Excellence
Clinical Practice Management
Optimize Staff Efficiency
INTERNAL
To satisfy our customers, at which operational processes must we excel?
Align research priorities with targeted growth areas
Easy Access
On-Time Service
Redesign operations for efficiency and effectiveness
Develop state of the art techniques and programs
Strategic Program Development
LEARNING & GROWTH
How will we sustain our ability to change and improve?
Instill a Climate for Change
Implement Technology
Skill & Competency Development
Clearly communicate expectations and accountabilities aligned with strategic priorities
Instill a climate of pride in the organization & commitment to the mission
Implement technology to support internal processes
Develop Critical Staffing Resource Plans
Develop a Quality Mindset

27. 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

28. 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
Organizational performance, strategic direction meetings held quarterly.
Weekly 1/2 hour management briefings
Bi-annual employee forums
All meetings use the framework of the strategy map and scorecard to communicate priorities and report on performance
Monthly results reported to the whole organization via the intranet

29. 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

30. Implementing the Balanced Scorecard At Your Hospital

31. Standards & Certification Management Consulting
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
Training
Partner Programs
Enhance the Approach
Design Communities
Best Practice Program

32. 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

33. To Learn More About The Balanced Scorecard, Join BSC Online at www
To Learn More About The Balanced Scorecard, Join BSC Online at
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 briefing from Drs. Kaplan and Norton
Mention the Bibliography on the table

34. Questions and Comments