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  • 1. Chapter 4 Strategy andthe Balanced Scorecard

2. The Balanced ScorecardWhat gets measured gets managedHealthcare Operations Management 3 2008 Health Administration Press. All rights reserved. 3. Whats on Your Desk Today? Urgent operatingLast years problemsinitiativeEmployee This years newturnover initiativerecruiting 40 e-mailsFinancial and 10 voice mailsperformance pressureHealthcare Operations Management4 2008 Health Administration Press. All rights reserved. 4. Traditional Management Tools FinancialReports:P/L Balance SheetROI-ROCE StrategicOperating PlanStatisticsHealthcare Operations Management 5 2008 Health Administration Press. All rights reserved. 5. The Theory of Management Operating StatisticsStrategicPlanOperations FinancialResultsManagement ControlHealthcare Operations Management6 2008 Health Administration Press. All rights reserved. 6. Traditional Management Tools Created by different departments Reviewed by different managers Reviewed in different time frames No connection to each otherHealthcare Operations Management 7 2008 Health Administration Press. All rights reserved. 7. The Problem Poor linkage of strategic plan to operationsand expected financial results; strategies arenot actionable Strategies are not linked to departmental,team, and individual goals Strategies are not linked to both long-termand short-term resource allocation Feedback is tactical, not strategic(e.g., focuses on financial reporting only) The resultpoor execution and long-termoutcomesHealthcare Operations Management 8 2008 Health Administration Press. All rights reserved. 8. Kaplan and Norton Study in 1990Measuring Performance inCompanies Balance Financial, customer, internal, innovation, andlearning Short-term and long-term objectives Financial and nonfinancial measures Leading and lagging indicators Internal and external performance Aligning measures with strategy Developing a theory of the companyHealthcare Operations Management 9 2008 Health Administration Press. All rights reserved. 9. Balanced Scorecard as a Strategic Management System Clarify and translate vision and strategy Communicate and link strategicobjectives and measures Plan, set targets, and align strategicinitiatives Enhance strategic feedback andlearningHealthcare Operations Management 10 2008 Health Administration Press. All rights reserved. 10. Balanced Scorecard in Healthcare Highly complex environment Multi-stakeholder leadership Resists change Catastrophic failure difficult to anticipate Excellent strategic management tool Use increasing in many healthcare organizations Healthcare Operations Management 11 2008 Health Administration Press. All rights reserved. 11. Elements of the BalancedScorecard Mission and vision Perspectives Financial Customer Internal business process Learning and growing Linking measures to strategy Structure and strategy Strategic alignmenttop to bottom Targets, resources, initiatives, and budgets Feedback and the strategic learning process Healthcare Operations Management 12 2008 Health Administration Press. All rights reserved. 12. Mission and Vision:Some Balanced Scorecard Examples Achieve financial strength Develop reputation/brand Grow the business Be able to demonstrate operational excellence Form strategic alliances, especially withphysicians Develop IT infrastructure to improve continuity ofcare Source: Inamdar and Kaplan, Journal ofHealthcare Management, May/June 2002Healthcare Operations Management 13 2008 Health Administration Press. All rights reserved. 13. The Four PerspectivesHealthcare Operations Management 14 2008 Health Administration Press. All rights reserved. 14. Financial Strategies Grow Revenue growth Sustain Profitability, ROI, ROCE Harvest Cash flow, working capital Risk management DiversityHealthcare Operations Management 15 2008 Health Administration Press. All rights reserved. 15. Revenue Growth and Mix New products (e.g., HP and 3M) New applications for existingproducts New customers and markets New relationshipspartnerships New product and service mix New pricesHealthcare Operations Management 16 2008 Health Administration Press. All rights reserved. 16. Cost ReductionProductivity Increase revenue/employee Reduce unit cost Improve channel mixhow customersuse products or services (e.g., onlinereservations for air travel) Reduce overheadsales, marketing,general and administrative Healthcare Operations Management 17 2008 Health Administration Press. All rights reserved. 17. Asset UtilizationInvestment Strategy Manage working capital Accounts payable Inventory Accounts receivable Improve asset allocation Sharing of IT, specialized equipment,buildingsHealthcare Operations Management 18 2008 Health Administration Press. All rights reserved. 18. Risk Management Through Diversity Revenue sources Market segments Customers Products Asset allocationsHealthcare Operations Management 19 2008 Health Administration Press. All rights reserved. 19. CustomersMarket Segmentation What is the key value proposition to bedelivered to the targeted market segment? Healthcare market segment examples: Patient with chronic illnesses (e.g., diabetes) Obstetric care Sports medicine Cancer Emergency careHealthcare Operations Management 20 2008 Health Administration Press. All rights reserved. 20. Standard Measures Market share Customer retention Customer acquisition Customer satisfaction Customer profitability Healthcare Operations Management 21 2008 Health Administration Press. All rights reserved. 21. The Value Proposition Product and service attributes Low price, leading edge, or high performance, etc. Time: quick, slow Customer relationship Customer intimate (e.g., Nordstrom) or not(e.g., HP) Integrated supply chain relationship Image and reputationHealthcare Operations Management 22 2008 Health Administration Press. All rights reserved. 22. Hospital Example Market segment: pregnant womenages 1835 Product attributes Quick access Warm, welcoming facilities Customer relations Strong relationships with nurses, midwifes, anddoctors Image High-quality care Excellent referrals and transport for high riskHealthcare Operations Management 23 2008 Health Administration Press. All rights reserved. 23. Internal Business Process Identify Create theProduct/MarketService InnovationBuildProduct/ DeliverService OperationsService Process Post-Sale ServicesHealthcare Operations Management 24 2008 Health Administration Press. All rights reserved. 24. Innovation Identify the market What benefits will customers value intomorrows market? How can we innovate to deliver thesebenefits? Create the product Basic research Applied research New product to market Healthcare Operations Management 25 2008 Health Administration Press. All rights reserved. 25. Measures for Product Development Percentage of sales from new products Percentage of sales from proprietary products New product introductions Time to develop new products Time to break even(development cost = accumulated profit) Healthcare Operations Management 26 2008 Health Administration Press. All rights reserved. 26. Operations Process Process optimization in a stableenvironment Statistical process control Rapid prototyping Six Sigma Quality function deployment and Lean Real-time simulation and control Healthcare Operations Management 27 2008 Health Administration Press. All rights reserved. 27. Post-Sale Services Warranty and repair Billing and collection Rapid reliable service contracts Feedback on product performance todrive improvementHealthcare Operations Management 28 2008 Health Administration Press. All rights reserved. 28. Learn and GrowResults EmployeeEmployee RetentionProductivityEmployee Satisfaction StaffInformation TechnologyClimate forCompetencies and DataActions Healthcare Operations Management 29 2008 Health Administration Press. All rights reserved. 29. Measures of Employee Satisfaction Involvement with decisions Recognition for doing a good job Access to sufficient information to do the jobwell Active encouragement of creativity andinitiative Support for staff-level functions Overall satisfaction with the organization Healthcare Operations Management 30 2008 Health Administration Press. All rights reserved. 30. Drivers ofLearning and Growing Reskilling Level and intensity of reskilling Number of employees involved Information systems capabilities Motivation, empowerment, alignment Suggestions and involvement in decisions Team performance and rewards Personal alignment and rewardsHealthcare Operations Management 31 2008 Health Administration Press. All rights reserved. 31. Linking Balanced ScorecardMeasures to Strategy Cause-and-effect relationship Outcomes and performance drivers Link to financialsHealthcare Operations Management 32 2008 Health Administration Press. All rights reserved. 32. Cause-and-Effect Relationships A strategy is set of hypotheses about causeand effect (if, then statementse.g., If thewait time in the emergency department islowered, then the patient will be moresatisfied.) Every measure selected for a BalancedScorecard should be an element of a chain ofcause-and-effect relationships thatcommunicates the organizations strategyHealthcare Operations Management 33 2008 Health Administration Press. All rights reserved. 33. Outcomes and Performance Drivers Outcome indicators Lag Tend to be generic Examples: profitability, market share, customersatisfaction Performance drivers Predict the future Are specific to strategy Examples: emergency room wait time, remodeling ontime lines Need equal mix of both types Suggested maximum is 5 per quadrant or 20Healthcare Operations Management 34 2008 Health Administration Press. All rights reserved. 34. Link to Financials Financial goals are topmost in BalancedScorecard Each other strategy eventually needs tolink to financial goals Causal pathways need to be clear andquantitative, if possible Some healthcare organizations makethe customer/patient top