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Balanced Scorecards: A Smart Approach to Performance Improvement WIPFLI.COM July 19, 2005 Bob Stephen and Jill Zabel Wipfli Health Care Practice

Our Session Objectives Understand the benefits of using the Balanced Scorecard. Discuss the process: Readiness Strategy Maps Scorecard Development Cascading Using the Scorecard Additional considerations

Introduction Balanced Scorecard 101 Readiness Case Study Next Steps Agenda Introduction Balanced Scorecard 101 Readiness Case Study Next Steps Wrap-Up Q&A

Introduction Our Experience 20+ hospitals over the past 18 months Wisconsin Office of Rural Health Project Mississippi Delta Project Other state offices/ performance improvement networks Small and rural hospitals are at the forefront of Balanced Scorecard adoption in healthcare

Prelude to the Balanced Scorecard Mission/Vision Goals/Objectives (what we want to do) Strategies (how we will do it) Measures (how we know we did it) Strategic Planning

Why isn’t completing a strategic plan enough? Based on research by Kaplan and Norton, 90% of all strategies fail. “In the majority of cases – we estimate 70% – the real problem isn’t [bad strategy but] … bad execution.” Fortune - Cover Story, June 1999 “Why CEO’s Fail” Malcolm Baldrige National Quality Award Foundation survey: 300 CEOs 72% felt executing strategies was more important

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 Barriers Translation - Strategy is not connected to operational or actionable issues. Measurement and Focus - The organization measures what they have—often financial and historical—rather than what drives strategy AND 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 key stakeholders – employees, physicians, or community Continuity - Strategy is an event, not an ongoing process.

Balanced Scorecard Translates mission & strategy into a set of performance measures and strategically aligned objectives. Links strategies and outcomes. Four perspectives: Financial Customer Internal Processes Learning & Growth (Enabling Investments)

How Does the Balanced Scorecard Work? Mission Why we exist Values What’s Important to Us Vision What We Want to Be Strategy How We Achieve Our Vision Strategy Map Translate the Strategy Balanced Scorecard Measure and Focus Targets and Initiatives What We Need to Do Cascading Scorecards and Initiatives What Our Teams and Departments Must Do Personal Objectives What “I” Need to Do Strategic Outcomes Financial Viability Satisfied Internal And External Customers Effective Processes Enabling Investments Adapted from Strategy Maps, Kaplan and Norton, HBS Press 2004

Success depends on effort and a sound approach. Benefits Hospitals 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.

Maximizing Value The 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 sponsorship Develop strategy maps with cause-and-effect links Strong measures Ties to action Commitment to management use Willingness to change

Readiness Readiness Lack of Barriers Do we have a strategy? Is leadership (CEO) on board? Do we understand what this is? Potential Value Is 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?

Case Study: “County Community Hospital”

Case: County Community Hospital (CH) Situation Rural provider Depressed community No competitors for 25 mile radius Large competitors within commuting distance Inefficient processes (long ED Wait times) Staffing competition with large providers Possible integration with physician clinic Aging plant and equipment Lack of management focus (“fires and homeruns”) Case study is a composite of several customer organizations.

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 Themes Process improvement/Make us more accessible (wait times, scheduling)/Do more with less Focus on customer service Community focus Ensure quality and safety Develop the right partnerships with physicians and tertiary care centers – create a community gateway to services Ensure the right mix of services for the community Cultivate an “ownership” culture

Case: Building a Balanced Scorecard 1. Strategy Development 2. Strategy Map Steering Committee Select Strategies Determine Priorities “Blocking & Tackling” Reconvene Steering Committee Establish Cause & Effect Linkage Establish Objective Owners 5. Continuous Review 3. Measures New Management Meeting Communication Extend to Departments Define Measures -Accountability -Targets -Sources 4. Initiatives Define & Prioritize Initiatives Finalize Scorecard

Case: Steering Committee Administrator (Executive Sponsor) Manager, Quality Improvement (Champion) CFO VP, Nursing VP, Support Services Director, Clinics Primary Care Physician Board Trustee

Case: Submitted Strategic Objectives Lower days in A/R Control costs Reduce employee turnover Reduce agency use Clean the building Renovate 2nd floor Reduce Emergency Department wait times Upgrade radiology Reduce costs Focus on safety Improve community reputation Invest in the quality program Stop or slow out-migration Start dialysis program Improve customer satisfaction Recruit internal medicine PCPs Re-start the urgent care program Renovate the operating rooms Upgrade OR equipment Develop an alliance with University Hospital This list contains duplicates and initiatives—obvious duplicates are combined and initiatives were sent to a parking lot during the first meeting.

Objective Linking Process Case: Strategy Mapping Process Objective Linking Process To link objectives to the map, a relatively simple 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 12-16 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 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 Viability Growth Effectiveness As customers of the hospital’s services, what are our expectations? Customer Patients Physicians Community What processes must we excel at to meet customer needs? Internal Customer Service Process and Productivity Market Strategies Service Strategies Physician Collaboration Quality and Safety Community Focus Enabling Investment (Employees) What type of culture, skills, training, and technology are required to support our processes? People Culture Infrastructure 21

22 Strategic Vision County Community Hospital will contribute to the the community by offering accessible quality care tailored to the needs of our residents. Financial Viability Increase Revenue Improve Our Cost Position Customer Provide Patient Access and Service Ensure Physician Satisfaction With Access and Quality of Services Remain a Community Asset Internal Achieve Organizational Commitment to Services Develop Strong PCP & Referral Partnerships Process Improvement: Efficiency/Access Exceed Quality & Safety Standards Match Our Services to Community Need Ensure community focus Employees & Investment Recruit and Retain the Right Employees and Physicians Establish an “Ownership” Culture Ensure the Facility and Technology Meet Requirements 22

Case: Prioritization Prioritization 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).

Case: Measures Each 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.

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 plans Selected: Results for ER project (Wait time) Next Step: Assign accountability, define, and set targets/alarms

Case: Initiatives A 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.

Case: Scorecard Draft 1 2 3 4

Use the scorecard – keep it up to date Case: Next Steps Use the scorecard – keep it up to date Restructure management meetings – the scorecard is the agenda Communicate to all stakeholders Start to “cascade” to departments (5 priorities)

Case: New Management Meeting – Sample Agenda Review changes and priorities Priority initiatives Recent changes (Red and Green) Current business grouped by: Financial Viability Customer Internal Processes Enabling Investments Changes to Scorecard Communication

Case: Roll-Out The 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.

Case: 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.

Example: For each critical strategy… Case: Cascading Starts in Month 9 Example: For each critical strategy… Level Goal/Strategy Hospital Goal: Process Improvement Nursing Care/ER Reduce ER Wait times (See example) Strategic thinking exercise should, in part, employ the use of scenarios Scenarios - "What if" occurs - how will we want to be positioned (proactive) - what will be out response (reactive) Housekeeping Improve room turnaround times

Employees & Investment WEIGHTING Measures Initiatives Owner Status 10% ER Visits Daily Reporting CFO TBD Agency Cost DON 15% Wait Time Outliers ER Task Force Communication plan Dir. ER 40% Triage Time Urgent Care Implementation Admit Time Bed Task Force CEO 25% % People Trained BPR Project PI Coordinator Absentee Rate Culture Training Dir. HR Strategic Vision Metro Northeast Hospital will contribute to the Revitalization of the community by offering Accessible quality care tailored to the needs of our residents. Financial Survival Increase Revenue Improve our Cost Position Customer Provide patient Access and Service Internal Process Improvement: Efficiency/Access Employees & Investment Establish an “Ownership” Culture

Building a Balanced Scorecard 1. Strategy Development 2. Strategy Map Steering Committee Select Strategies Determine Priorities “Blocking & Tackling” Reconvene Steering Committee Establish Cause & Effect Linkage Establish Objective Owners 5. Continuous Review 3. Measures New Management Meeting Communication Extend to Departments Define Measures -Accountability -Targets -Sources 4. Initiatives Define & Prioritize Initiatives Finalize Scorecard

Strategy Mapping: Checklist What are the critical steps involved with strategy mapping? Steering Committee (5-8 members) Pre-Work Reading (introduction to Balanced Scorecard and Strategy Maps) Review the strategy and develop/refine customer value propositions Develop a draft strategy map framework (or use the template) Solicit top 5-10 strategic objectives from each participant The Meeting Plan on 6 hours Start with education Confirm the strategy map framework Define customer value propositions Place objectives on the map Group and define objectives Prioritize perspectives and objectives Assign owners for each objective

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.

Measurement and Initiatives: Checklist What Are the Critical Steps Involved in Selecting Measures and Initiatives? Pre-Work Strategy map confirmation Define the objectives Identify possible measures – or inventory existing measures Identify existing and proposed hospital-wide initiatives The Meeting(s) Plan on 4-6 hours for measures and up to 4 hours for initiatives Start with education (measures, targets, and alarms) Select 1-2 measures for each objective Identify frequency, source, and owner of each measure Define 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 objectives Define initiatives It is better to have a measure that tells 60% of a story than no measure at all.

Initiative Selection: Measures - Tips Measure Selection and Definition: 1 – 2 measures per objective Measures are fluid Balance 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 initiative An initiative may link to more than one objective

Management Team Adoption What Comes Next? Management Team Adoption Communication Cascading Technology

What Comes Next: Roll-Out (communication) Communication is vital in the roll-out of the Balanced Scorecard. 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.

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.

What Comes Next: Cascading Options Of the cascading options available, three should be considered. 4 Objective Cascading Cascade the top objective in each perspective Have each department develop linked objectives and measures Expand or change as necessary Service Line Cascading Cascade one service line Convene multi-department team Map processes Create strategy map and scorecard Add 1 -2 more services Cascade departments based on service lines Department Cascading Fully Cascade 2 departments (clinical, non-clinical) Full strategy map and scorecard developed Set schedule to bring on additional departments Easiest to implement Fastest results Greatest potential value Fits Kaplan/Norton Model

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.

Wrap-Up The 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.

Wrap-Up: Check-List Leadership buy-in is critical Strategy must exist Provide education before starting Strategy translation is the foundation of a successful scorecard Choose appropriate measures that tell the strategy story (even if only 60%!) Get to green: initiatives are essential The hard (and valuable) work is just beginning once the scorecard is created Cascading should begin once the high-level scorecard is operational Initial benefits are often intangible (but valuable!) Keep it simple

Wrap-Up: Resources Balanced 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 & Sons The Strategy Focused Organization, Kaplan and Norton, 2001, Harvard Business School Press www.Wipfli.com

Questions ?