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Balanced Scorecard Collaborative, Inc. • 55 Old Bedford Road • Lincoln, MA 01773 • Tel: 781.259.3737 • Fax: 781.259.3389 • bscol.com
Using the Balanced Scorecard to Build A Strategy-Focused Healthcare Organization
For more information, contact:
Kate O’Brien
781.402.1143
2©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
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
4©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
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 FailRam Charan and Geoffrey
Colvin Fortune (6/21/99)
5©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
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)
BSCol Offers a Variety of Services to Achieve Our Mission
Conferences
Ensure Integrity
Publications
Design Communities
Best Practice Program
Support the Use
Standards & Certification
Partner Programs
Management Consulting
Training
Create Awareness
Enhance the
Approach
Our Mission:
“To facilitate the worldwide awareness, use, enhancement, and integrity of the Balanced
Scorecard as a value-added management process”
7©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
1992 1996 2000
Balanced Scorecard History
Measurement and
Reporting
Alignment and Communication
Enterprise-wide Strategic
Management
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 asa 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©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
The Results are Widespread
1993 – $275 loss1998 – Top Quartile – $3b spin-off
Brown & Root Engineering (Rockwater)
Saint Mary’s/ Duluth Clinic Health System
Duke Children’s Hospital
Southern Citrus
CIGNA Property & Casualty Chemical Bank
ATT Canada
1993 – Losing money1996 – # 1 in Niche (growth &
profits)
1995 1998
Profits
1993 – X1998 – 20X
1995 – $300M loss1998 – Customer base doubles1999 – $7b spin-off
• 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
Mobil US Marketing & Refining Competitive Rank (out of 7,profit)
19931995199619971998
#6#1#1#1#1
Measure % Improvement
Operating Margin 25
Family Satisfaction 11
Length of Stay 25
Readmission Rate 63
Measure Improvement
Operating Margin $18M since BSC implementation
Days in AR Decrease 16 days
Overall Hospital Point Satisfaction
15%
10©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
Organizations Often Have A Gap Between Strategy and Action
Strategy Is a Step In a Continuum
MISSIONWhy we exist
VALUESWhat’s important to us
VISIONWhat we want to be
STRATEGYOur game plan
STRATEGIC OUTCOMES
SatisfiedSHAREHOLDERS
Delighted CUSTOMERS
Efficient and EffectivePROCESSES
Motivated & PreparedWORKFORCE
11©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
The Balanced Scorecard Is A Bridge To Close That Gap
Strategy Is a Step In a Continuum
MISSIONWhy we exist
VALUESWhat’s important to us
VISIONWhat we want to be
STRATEGYOur game plan
BALANCED SCORECARDImplementation & Focus
STRATEGIC INITIATIVESWhat we need to do
STRATEGIC OUTCOMES
SatisfiedSHAREHOLDERS
Delighted CUSTOMERS
Efficient and EffectivePROCESSES
Motivated & PreparedWORKFORCE
PERSONAL OBJECTIVESWhat I need to do
12©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
What Is a Balanced Scorecard?
At the highest level, the Balanced Scorecard isa framework that helps organizations put
strategy at the center of the organization bytranslating strategy into operational objectives
that drive both behavior and performance.
13©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
Measurement is the language that gives clarity to vague concepts
Measurement is used to communicate, not simply to control
Financial Perspective• Profitability• Growth • Shareholder Value
The Vision
Customer Perspective
• Price• Service• Quality
Internal Perspective
Learning and Growth• New Skills• Continuous Improvement
• Intellectual Assets
“If we succeed, how will we look to our shareholders?”
“To achieve our vision, what customer needs must we serve?”
“To satisfy our customers and shareholders, at which business processes must we excel?”
“To excel in our processes, what must our organization learn?”
• Cycle Time• Productivity• Cost
The Balanced Scorecard Provides a Four Perspective Framework to Translate Strategy Into Operational Terms
14©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
The Revenue Growth Strategy“Improve stability by broadening the sources of revenue from current customers”
The Productivity Strategy“Improve operating efficiency by shifting customers to more cost-effective channels of distribution”
Improve Returns
Improve Operating Efficiency
Broaden Revenue
Mix
Increase Customer
Confidence in Our Financial
Advice
IncreaseCustomer
Satisfaction Through Superior
Execution
IncreaseEmployee
Productivity
Access to Strategic
Information
Develop Strategic
Skills
Align Personal
Goals
FinancialPerspective
CustomerPerspective
InternalPerspective
Learning Perspective
Cross-Sell the Product
Line
Shift to Appropriate
Channel
Provide Rapid
Response
Develop New
Products
Minimize Problems
Understand Customer Segments
A Good Balanced Scorecard Strategy Map Tells the Story of Your Strategy
15©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
A Good Balanced Scorecard Tells the Story of Your Strategy Through A Set of Linked Cause and Effect Hypotheses
F1 - Improve ReturnsF2 - Broaden Revenue Mix
F3 - Reduce Cost Structure
C1 - Increase Customer Satisfaction With Our Products & People
C2 - Increase Satisfaction “After the Sale”
I1 - Understand Our CustomersI2 - Create Innovative Products
I3 - Cross-Sell Products
I4 - Shift Customers to Cost-Effective Channels
I5 - Minimize Operational Problems
I6 - Responsive Service
L1 - Develop Strategic SkillsL2 - Provide Strategic InfoL3 - Align Personal Goals
Return on Investment Revenue Growth
Deposit Service Cost Change
Share of Segment
Customer Retention
New Product Revenue
Cross-Sell Ratio
Channel Mix Change
Service Error Rate
Request Fulfillment Time
Employee Satisfaction Revenue per Employee
StrategicObjectives
Strategic Measurements
(Lag Indicators) (Lead Indicators)
Revenue Mix
Depth of Relation
Satisfaction Survey
Product Development Cycle
Hours with Customers
Strategic Job Coverage Ratio Strategic Info Availability Ratio Personal Goals Alignment (%)
Fin
an
cia
lC
us
tom
er
Inte
rna
lL
ear
nin
g
16©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
Objectives
• Fast ground turnaround
Statement of what strategy must achieve
and what’s critical to its
success
Target
• 30 Minutes• 90%
The level of performance
or rate of improvement
needed
• Cycle time optimization
Key action programs
required to achieve
objectives
InitiativeMeasurement
• On Ground Time• On-Time
Departure
How success in achieving the strategy
will be measured and
tracked
Strategic Theme: Operating Efficiency
ProfitabilityFinancial
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
Theme Example from Southwest Airlines’ Balanced Scorecard
17©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
The Balanced Scorecard Supports a Complete Strategic Management System by Linking Long Term Strategy and Measures to More Tactical Planning & Budgeting
Objectives Milestones
• Promote ABC Culture Model
• Employee Satisfaction Survey
• Evaluate survey response
Inte
rnal
Lea
rnin
gC
ust
om
er
Accountable
• HR Committee
• $ xxxx
Resource Alloc.Targets InitiativesMeasuresThemes/ GoalsVisionMission
• Meet access expectations
• 3rd available appointment (% met)
• ‘02 xx%
• ‘03 xx%
• ‘04 xx%
• Access project
• Meet monthly target
• Deadline met
• Mkg. Team
• $ xxxx
AB
C H
ospi
tal S
yste
m w
ill p
rovi
de e
xcel
lent
ca
re in
our
sel
ecte
d sp
ecia
lty a
reas
whi
le
mai
ntai
ning
mar
gin
and
grow
ing
shar
e
Ser
ve th
e ne
eds
of p
atie
nts
exce
llent
ly
1.
Str
en
gth
en
inn
ova
tion
2.
Imp
rove
cu
sto
mer
sa
tisfa
ctio
n3
. A
ssu
re c
on
sist
en
t h
igh
qu
ality
4.
Pro
vid
e o
pe
ratio
na
l exc
elle
nce
Longer Term (3-5 year) View Shorter Term (Annual) View
Strategic Tactical
• % patient mix • ’02 = 39%
• ’03 = 40%
• ’04 = 41%
• Mix Margins Project
• Dept. Chairs• Complete by 2003
• $ xxxx• Assure optimum patient mix
• ‘02 xx%
• ‘03 xx%
• ‘04 xx%
Fin
anci
al• Grow
revenue from patient care
• % patient care revenue growth
• ‘02 xx%
• ‘03 xx%
• ‘04 xx%
18©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
Growth StrategyGrowth Strategy
Improve quality of revenue by understanding customer Improve quality of revenue by understanding customer needs and differentiating ourselves accordinglyneeds and differentiating ourselves accordingly..
Productivity StrategyProductivity Strategy
Maximize utilization of existing assets and integrate Maximize utilization of existing assets and integrate the business to reduce total delivered cost.the business to reduce total delivered cost.
Financial Financial PerspectivePerspective
Return on CapitalIncreased from 6% to 16%
Competitive Position(profitability)
From last (1993)to first (95, 96, 97, 98)
Volume GrowthExceeds industry by 2-2.5% annually
Reduce Cash ExpensesDown by 20%
Improve Cash FlowFrom -$500 M/Yr to +$700 M/Yr
Customer Customer PerspectivePerspective
Internal Internal PerspectivePerspective
Customer SatisfactionContinuous improvement for 3
consecutive years
Speedpass ActiveIncreasing at rate of
1M per year
Dealer Quality Perfect OrdersContinuous
improvement for 4 consecutive years
Learning & Learning & Growth Growth PerspectivePerspective
Quality Capacity Utilization Safety Lost work incidents
down from 150 to 30 per year
EnvironmentalNumber of incidents
reduced by 63%Continuous
improvement for 4 consecutive years
Annual value of lost yield reduced from
$175m to $50m
Strategic AwarenessAnnual employee survey shows awareness of
strategy increased from 20% to 80%
Product InnovationProduct Innovation Customer ManagementCustomer Management
Operational Excellence Good Neighbor
Motivated & Prepared WorkforceMotivated & Prepared Workforce
Continuous improvement for 4 consecutive years
The Mobil Story (US Marketing & Refining): 1993-1998
20©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
SMDC Health System Overview
Merged Several Organizations
• St. Mary’s Medical Center- 380 beds
• Miller Dwan Medical Center - 166 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©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
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
22©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
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
FY1999 CORPORATE LEVEL BALANCED SCORECARD
Financial Customer Operational People TechnicalIndica-
torTar-get
FY99Final
Indica-tor
Target Stat-us
Indica-tor
Target Stat-us
Indica-tor
Target Stat-us
Indica-tor
Target Stat-us
AdjustedDischarges
23,890 23,592 PatientSatis-faction
Choose keyfocus areas
forimprove-
ment
C ArrangingCare
Determine outpatientphone model,conduct pilots
C CulturalDevelop-
ment
Completecommuni-
cationsstrategy
C QualityImprove-
ment
Implementsystem-widegovernance
structure
C
Encounters 912,188 892,243 EmployerSatis-faction
Completesurvey
develop-ment in CY
1999
CY Determine outpatientmodel for
registration &scheduling
C Completephysician
survey
C Completeexternal quality
report in CY1999
CY
Cost perAdjustedDischarge
6,964 7,535 HEDISIndicators
Selectindicators
fordevelop-ment plan
M ProvidingCare
Determine model forpatient delivery
system for clinicaldivisions
C Completeemployee
survey
C Meet or exceedstandards for
SMDCaccreditation
C
Cost perEncounter
215 252 Com-munityService
Completereporting
process andinventory
C Complete systemstrategy for
ambulatory surgery
C Completeplan to
maintainCatholic-
ity
C Informa-tion
Technol-ogy
Complete ITstrategic planin CY 1999
CY
OperatingMargin
2.0 1.3 Commun-ity Aware-
ness
Completesurvey inCY 1999
CY Docu-menting
andTracking
Care
Complete plan fordecentralized coding
and charge entry
C EmployeeRelationsStrategy
Accom-plish “pay
equity”
C Complete Y2Kcompliance by
12/99
CY
ExcessMargin
3.8 3.3 MarketShare
Completebaseline
C Innova-tion andProgramDevelop-
ment
Complete feasibilitystudy for a women’s
health center
C Synchro-nize
employeebenefits
C MedicalEducation
& Research
Completereport of
funded grantsand
publications
C
Days Cashon Hand
103.6 108.6 Complete plan for ageriatrics program
C FacilitiesPlanning
CompletePerkins & Will
plan
M
Days inAccounts
Receivable
77.7 82.8
Return onInvestment
3.4 2.9
“C” = task completed; “CY” = Calendar Year 1999 task; “M” = task modifiedFinance section: Target met; Target not met
24©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
The Strategy Map Evolved The BSC Process...and Drove SMDC Results
Value propositions provided clarity
Payers
OperationalExcellence
Specialty Care PatientsReferring Providers
Product Leadership
Primary CarePatients
CustomerIntimacy
25©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
The Strategy Map: Cause and Effect Relationships
• 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
Maximize High Margin
Opportunities
Strong Financial Base
FinancialFinancial
CustomerCustomerSpecialty Care Patients
Referring Providers
Leading EdgeTechnology
Leading EdgeExpertise
InternalInternal
Continually
DevelopClinical
ExcellenceDevelop Leading
Edge Programs/Techniques
Learning & GrowthLearning & Growth
Develop Critical Staffing
Resource Plans
Align ResearchPriorities
Implement Technologyto Support Processes
and Programs
Implement Managed
Growth
INTERNALTo satisfy our customers, at which operational processes must we excel?
Clearly communicate expectations and accountabilities aligned with
strategic priorities
Instill a Climate for Change Implement Technology
FINANCIALTo financially sustain our Mission, on what must we focus? Implement Managed
Growth
Vision:SMDC is a values-driven, integrated organization which will be recognized for excellence in
customer service, quality patient care, financial strength, andsupport of community health
Build a Strong Financial Base to Sustain our Mission and Achieve our Vision
CUSTOMERTo achieve our Vision, how should we appear to our customers?
Specialty Care Patients / Referring PhysiciansPrimary Care Patients Payers
FY 2002 Strategy Map
Easy Access
Deliver Cost Efficient Care
Develop state of the art techniques and programs
Strategic Program Development
Align research priorities with targeted growth areas
Implement technology to support internal processes
On-Time Service
Optimize Staff EfficiencyClinical Practice Management
Redesign operations for efficiency and effectiveness
Excellent servicePersonal
relationshipsLeading
edge technologyLeading
edge expertiseInnovativeprograms
Low costservice
Strive for Operational Excellence
Continually Develop Clinical Excellence
Provide Outstanding Customer Service
Instill a climate of pride in the organization &
commitment to the mission
Skill & Competency Development
Develop Critical Staffing Resource
Plans
Develop a Quality Mindset
LEARNING & GROWTH
How will we sustain our ability to change and improve?
Maximize High Margin, Market Opportunities 1
27©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
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©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
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
29©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
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
31©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
BSCol Offers The Brand, Know-How, and Proven Track Record To Help Organizations Achieve Results
Conferences
Ensure Integrity
Publications
Design Communities
Best Practice Program
Support the Use
Standards & Certification
Partner Programs
Management Consulting
Training
Create Awareness
Enhance the
Approach
32©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
Rapid Deployment Case Study: Major Federal Organization
Need
Approach
Benefits
•Definition of “Corporate” strategy
•Rapid roll-out and broad reach
•Develop internal capabilities to sustain momentum
•Develop Corporate Balanced Scorecard
•Define template for rolling out BSC
•Train subordinate units
•Streamline project management
•Quality checks
•Online education
•Clear guidance from Corporate
•Active involvement from client teams
•Rapid deployment with minimal resources
•Quality control
33©2002 Balanced Scorecard Collaborative, Inc. 2002 Arizona Rural Hospital Flexibility Program Conference
To Learn More About The Balanced Scorecard, Join BSC Online at www.bscol.com
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 e-mail briefing from Drs. Kaplan and Norton