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Chapter 1 Chapter 1 Presentation Transcript

  •  
  • Chapter 4 Strategy and the Balanced Scorecard
  • The Balanced Scorecard What gets measured gets managed
  • What’s on Your Desk Today? Urgent operating problems Employee turnover—recruiting Last year’s initiative This year’s new initiative 40 e-mails and 10 voice mails Financial performance pressure
  • Traditional Management Tools Financial Reports: P/L Balance Sheet ROI-ROCE Operating Statistics Strategic Plan
  • The Theory of Management Financial Results Operating Statistics Strategic Plan Operations Management Control
  • Traditional Management Tools
    • Created by different departments
    • Reviewed by different managers
    • Reviewed in different time frames
    • No connection to each other
  • The Problem
    • Poor linkage of strategic plan to operations and expected financial results; strategies are not “actionable”
    • Strategies are not linked to departmental, team, and individual goals
    • Strategies are not linked to both long-term and short-term resource allocation
    • Feedback is tactical, not strategic (e.g., focuses on financial reporting only)
    • The result—poor execution and long-term outcomes
  • Kaplan and Norton
    • Study in 1990—“Measuring Performance in Companies”
    • Balance
      • Financial, customer, internal, innovation, and learning
      • 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 company”
  • Balanced Scorecard as a Strategic Management System
    • Clarify and translate vision and strategy
    • Communicate and link strategic objectives and measures
    • Plan, set targets, and align strategic initiatives
    • Enhance strategic feedback and learning
  • 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
  • Elements of the Balanced Scorecard
    • Mission and vision
    • Perspectives
      • Financial
      • Customer
      • Internal business process
      • Learning and growing
    • Linking measures to strategy
    • Structure and strategy
    • Strategic alignment—top to bottom
    • Targets, resources, initiatives, and budgets
    • Feedback and the strategic learning process
  • 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 with physicians
    • Develop IT infrastructure to improve continuity of care
    Source : Inamdar and Kaplan, Journal of Healthcare Management , May/June 2002
  • The Four Perspectives
  • Financial Strategies
    • Grow
      • Revenue growth
    • Sustain
      • Profitability, ROI, ROCE
    • Harvest
      • Cash flow, working capital
    • Risk management
      • Diversity
  • Revenue Growth and Mix
    • New products (e.g., HP and 3M)
    • New applications for existing products
    • New customers and markets
    • New relationships—partnerships
    • New product and service mix
    • New prices
  • Cost Reduction—Productivity
    • Increase revenue/employee
    • Reduce unit cost
    • Improve channel mix—how customers use products or services (e.g., online reservations for air travel)
    • Reduce overhead—sales, marketing, general and administrative
  • Asset Utilization Investment Strategy
    • Manage working capital
      • Accounts payable
      • Inventory
      • Accounts receivable
    • Improve asset allocation
      • Sharing of IT, specialized equipment, buildings
  • Risk Management Through Diversity
    • Revenue sources
    • Market segments
    • Customers
    • Products
    • Asset allocations
  • Customers—Market Segmentation
    • What is the key value proposition to be delivered to the targeted market segment?
    • Healthcare market segment examples:
      • Patient with chronic illnesses (e.g., diabetes)
      • Obstetric care
      • Sports medicine
      • Cancer
      • Emergency care
  • Standard Measures
    • Market share
    • Customer retention
    • Customer acquisition
    • Customer satisfaction
    • Customer profitability
  • 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 reputation
  • Hospital Example
    • Market segment: pregnant women ages 18–35
    • Product attributes
      • Quick access
      • Warm, welcoming facilities
    • Customer relations
      • Strong relationships with nurses, midwifes, and doctors
    • Image
      • High-quality care
      • Excellent referrals and transport for high risk
  • Internal Business Process Create Product/ Service Identify the Market Build Product/ Service Deliver Service Innovation Operations Process Post-Sale Services
  • Innovation
    • Identify the market
      • What benefits will customers value in tomorrow’s market?
      • How can we innovate to deliver these benefits?
    • Create the product
      • Basic research
      • Applied research
      • New product to market
  • 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)
  • Operations Process
    • Process optimization in a stable environment
    • Statistical process control
    • Rapid prototyping
    • Six Sigma
    • Quality function deployment and Lean
    • Real-time simulation and control
  • Post-Sale Services
    • Warranty and repair
    • Billing and collection
    • Rapid reliable service contracts
    • Feedback on product performance to drive improvement
  • Learn and Grow Results Staff Competencies Employee Satisfaction Employee Productivity Employee Retention Information Technology and Data Climate for Actions
  • Measures of Employee Satisfaction
    • Involvement with decisions
    • Recognition for doing a good job
    • Access to sufficient information to do the job well
    • Active encouragement of creativity and initiative
    • Support for staff-level functions
    • Overall satisfaction with the organization
  • Drivers of Learning 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 rewards
  • Linking Balanced Scorecard Measures to Strategy
    • Cause-and-effect relationship
    • Outcomes and performance drivers
    • Link to financials
  • Cause-and-Effect Relationships
    • A strategy is set of hypotheses about cause and effect (“if, then” statements—e.g., “If the wait time in the emergency department is lowered, then the patient will be more satisfied.”)
    • Every measure selected for a Balanced Scorecard should be an element of a chain of cause-and-effect relationships that communicates the organization’s strategy
  • Outcomes and Performance Drivers
    • Outcome indicators
      • Lag
      • Tend to be generic
      • Examples: profitability, market share, customer satisfaction
    • Performance drivers
      • Predict the future
      • Are specific to strategy
      • Examples: emergency room wait time, remodeling on time lines
    • Need equal mix of both types
    • Suggested maximum is 5 per quadrant or 20
  • Link to Financials
    • Financial goals are topmost in Balanced Scorecard
    • Each other strategy eventually needs to link to financial goals
    • Causal pathways need to be clear and quantitative, if possible
    • Some healthcare organizations make the customer/patient topmost
  • Strategy Maps and Initiatives
    • Strategic method of execution
    • Set of linked initiatives
      • Can be small action or major project
      • “ If, then” statements
      • Links to top quadrant results (finance, customer)
    • Initiatives can become formal project
    • Metrics
      • Leading
      • Lagging
      • Dates
  • Finance Business Processes Learning and Growth Customers General Balanced Scorecard Provide employees with skills, tools, and motivation Improve marketing and customer service Improve operations Improve financial results
  • Finance Business Processes Learning and Growth Customers Emergency Department (ED) Balanced Scorecard Learn Lean process improvement tools: Goal = complete by December 1 Measure market share: Goal = 5% increase Measure patient wait time: Goal: <30 minutes Do project on patient flow—make changes: Goal = value stream increased by 30% Increase net revenue of ED product line: Goal = 10%
  • Finance Business Processes Learning and Growth Customers Obstetric (OB) Service Balanced Scorecard Customer service training: Goal = complete by July 1 Measure market share: Goal = 5% increase Measure patient satisfaction (facilities): Goal: >90% Remodel OB suite: Goal = complete by November 1 Increase net revenue of OB product line: Goal = 10% Contract for emergency transportation: Goal = complete by November 1 Begin tours and survey: Goal = patient satisfaction >90% Measure patient satisfaction (perceived clinical quality): Goal: >90% Measure patient satisfaction (high touch): Goal: >90%
  • Learning and Growth Customers Rotated General Balanced Scorecard Provide employees with skills, tools, and motivation Improve availability of financial resources Improve operations Improved patient results and satisfaction Finance Business Processes
  • Targets, Resources, Initiatives, and Budgets
    • Set stretch targets
    • Identify strategic initiatives
    • Identify critical cross-organization initiatives
    • Link to annual resource allocation and budgets
    • Remember to maintain critical monitoring systems for nonstrategic operations
  • Display Results Graphically
  • Sample BSC—Financial Revenue Profitability
  • Sample BSC—Customer Customer Satisfaction
  • Sample BSC—Operations Fast-Track Admitting Percentage Cost per Unit Incremental New Admissions
  • Sample BSC—Learn and Grow Six Sigma Training Scores Customer Service Training Scores
  • Project Selection (Niven) 1.0 10 0.3 3 10% Affects other projects 5. 95 6.3 Total 1.0 10 0.8 8 10% Time to complete 1.0 10 0.8 8 10% Key personnel required 1.0 10 0.5 5 10% Project cost 1.5 10 0.75 5 15% Financial gain 0.45 1 3.15 7 45% Link to strategy Project B Score Project B Points Project A Score Project A Points Weight Criteria
  • Feedback and the Strategic Learning Process Clarifying vision and strategy Planning and target setting Strategic feedback and learning Communication and linking strategy
  • Cascading Scorecards Linking Directly or Influencing Higher-Level Scorecards Increased patient satisfaction Higher brand recognition Clean and timely bills Corporate Support (IT) Line Department (OB)
  • Does the Strategy Work?
    • Double loop learning
      • Can you achieve the initiative’s goals (control loop)?
      • If not, what other initiative can achieve the strategic goals (secondary loop)?
      • Control loop—weekly; strategic (secondary) loop—quarterly
    • Tools
      • Statistical tools (e.g., correlation analysis)
      • Anecdotal reporting
      • Peer review
      • Team review and problem solving
  • Implementation
    • Link scorecards at corporate and departmental level
    • Use scorecards to communicate strategy implementation
    • Link cross-departmentally
    • Link to budgets
    • Monitor all operating statistics—may be basis for new initiatives
  • End of Chapter 4