Chapter 1


Published on

Published in: Business, Technology
  • Be the first to comment

  • Be the first to like this

No Downloads
Total Views
On Slideshare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Chapter 1

  1. 2. Chapter 4 Strategy and the Balanced Scorecard
  2. 3. The Balanced Scorecard What gets measured gets managed
  3. 4. 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
  4. 5. Traditional Management Tools Financial Reports: P/L Balance Sheet ROI-ROCE Operating Statistics Strategic Plan
  5. 6. The Theory of Management Financial Results Operating Statistics Strategic Plan Operations Management Control
  6. 7. Traditional Management Tools <ul><li>Created by different departments </li></ul><ul><li>Reviewed by different managers </li></ul><ul><li>Reviewed in different time frames </li></ul><ul><li>No connection to each other </li></ul>
  7. 8. The Problem <ul><li>Poor linkage of strategic plan to operations and expected financial results; strategies are not “actionable” </li></ul><ul><li>Strategies are not linked to departmental, team, and individual goals </li></ul><ul><li>Strategies are not linked to both long-term and short-term resource allocation </li></ul><ul><li>Feedback is tactical, not strategic (e.g., focuses on financial reporting only) </li></ul><ul><li>The result—poor execution and long-term outcomes </li></ul>
  8. 9. Kaplan and Norton <ul><li>Study in 1990—“Measuring Performance in Companies” </li></ul><ul><li>Balance </li></ul><ul><ul><li>Financial, customer, internal, innovation, and learning </li></ul></ul><ul><ul><li>Short-term and long-term objectives </li></ul></ul><ul><ul><li>Financial and nonfinancial measures </li></ul></ul><ul><ul><li>Leading and lagging indicators </li></ul></ul><ul><ul><li>Internal and external performance </li></ul></ul><ul><li>Aligning measures with strategy </li></ul><ul><li>Developing a “theory of the company” </li></ul>
  9. 10. Balanced Scorecard as a Strategic Management System <ul><li>Clarify and translate vision and strategy </li></ul><ul><li>Communicate and link strategic objectives and measures </li></ul><ul><li>Plan, set targets, and align strategic initiatives </li></ul><ul><li>Enhance strategic feedback and learning </li></ul>
  10. 11. Balanced Scorecard in Healthcare <ul><li>Highly complex environment </li></ul><ul><li>Multi-stakeholder leadership </li></ul><ul><li>Resists change </li></ul><ul><li>Catastrophic failure difficult to anticipate </li></ul><ul><li>Excellent strategic management tool </li></ul><ul><li>Use increasing in many healthcare organizations </li></ul>
  11. 12. Elements of the Balanced Scorecard <ul><li>Mission and vision </li></ul><ul><li>Perspectives </li></ul><ul><ul><li>Financial </li></ul></ul><ul><ul><li>Customer </li></ul></ul><ul><ul><li>Internal business process </li></ul></ul><ul><ul><li>Learning and growing </li></ul></ul><ul><li>Linking measures to strategy </li></ul><ul><li>Structure and strategy </li></ul><ul><li>Strategic alignment—top to bottom </li></ul><ul><li>Targets, resources, initiatives, and budgets </li></ul><ul><li>Feedback and the strategic learning process </li></ul>
  12. 13. Mission and Vision: Some Balanced Scorecard Examples <ul><li>Achieve financial strength </li></ul><ul><li>Develop reputation/brand </li></ul><ul><li>Grow the business </li></ul><ul><li>Be able to demonstrate operational excellence </li></ul><ul><li>Form strategic alliances, especially with physicians </li></ul><ul><li>Develop IT infrastructure to improve continuity of care </li></ul>Source : Inamdar and Kaplan, Journal of Healthcare Management , May/June 2002
  13. 14. The Four Perspectives
  14. 15. Financial Strategies <ul><li>Grow </li></ul><ul><ul><li>Revenue growth </li></ul></ul><ul><li>Sustain </li></ul><ul><ul><li>Profitability, ROI, ROCE </li></ul></ul><ul><li>Harvest </li></ul><ul><ul><li>Cash flow, working capital </li></ul></ul><ul><li>Risk management </li></ul><ul><ul><li>Diversity </li></ul></ul>
  15. 16. Revenue Growth and Mix <ul><li>New products (e.g., HP and 3M) </li></ul><ul><li>New applications for existing products </li></ul><ul><li>New customers and markets </li></ul><ul><li>New relationships—partnerships </li></ul><ul><li>New product and service mix </li></ul><ul><li>New prices </li></ul>
  16. 17. Cost Reduction—Productivity <ul><li>Increase revenue/employee </li></ul><ul><li>Reduce unit cost </li></ul><ul><li>Improve channel mix—how customers use products or services (e.g., online reservations for air travel) </li></ul><ul><li>Reduce overhead—sales, marketing, general and administrative </li></ul>
  17. 18. Asset Utilization Investment Strategy <ul><li>Manage working capital </li></ul><ul><ul><li>Accounts payable </li></ul></ul><ul><ul><li>Inventory </li></ul></ul><ul><ul><li>Accounts receivable </li></ul></ul><ul><li>Improve asset allocation </li></ul><ul><ul><li>Sharing of IT, specialized equipment, buildings </li></ul></ul>
  18. 19. Risk Management Through Diversity <ul><li>Revenue sources </li></ul><ul><li>Market segments </li></ul><ul><li>Customers </li></ul><ul><li>Products </li></ul><ul><li>Asset allocations </li></ul>
  19. 20. Customers—Market Segmentation <ul><li>What is the key value proposition to be delivered to the targeted market segment? </li></ul><ul><li>Healthcare market segment examples: </li></ul><ul><ul><li>Patient with chronic illnesses (e.g., diabetes) </li></ul></ul><ul><ul><li>Obstetric care </li></ul></ul><ul><ul><li>Sports medicine </li></ul></ul><ul><ul><li>Cancer </li></ul></ul><ul><ul><li>Emergency care </li></ul></ul>
  20. 21. Standard Measures <ul><li>Market share </li></ul><ul><li>Customer retention </li></ul><ul><li>Customer acquisition </li></ul><ul><li>Customer satisfaction </li></ul><ul><li>Customer profitability </li></ul>
  21. 22. The Value Proposition <ul><li>Product and service attributes </li></ul><ul><ul><li>Low price, leading edge, or high performance, etc. </li></ul></ul><ul><ul><li>Time: quick, slow </li></ul></ul><ul><li>Customer relationship </li></ul><ul><ul><li>Customer intimate (e.g., Nordstrom) or not (e.g., HP) </li></ul></ul><ul><ul><li>Integrated supply chain relationship </li></ul></ul><ul><li>Image and reputation </li></ul>
  22. 23. Hospital Example <ul><li>Market segment: pregnant women ages 18–35 </li></ul><ul><li>Product attributes </li></ul><ul><ul><li>Quick access </li></ul></ul><ul><ul><li>Warm, welcoming facilities </li></ul></ul><ul><li>Customer relations </li></ul><ul><ul><li>Strong relationships with nurses, midwifes, and doctors </li></ul></ul><ul><li>Image </li></ul><ul><ul><li>High-quality care </li></ul></ul><ul><ul><li>Excellent referrals and transport for high risk </li></ul></ul>
  23. 24. Internal Business Process Create Product/ Service Identify the Market Build Product/ Service Deliver Service Innovation Operations Process Post-Sale Services
  24. 25. Innovation <ul><li>Identify the market </li></ul><ul><ul><li>What benefits will customers value in tomorrow’s market? </li></ul></ul><ul><ul><li>How can we innovate to deliver these benefits? </li></ul></ul><ul><li>Create the product </li></ul><ul><ul><li>Basic research </li></ul></ul><ul><ul><li>Applied research </li></ul></ul><ul><ul><li>New product to market </li></ul></ul>
  25. 26. Measures for Product Development <ul><li>Percentage of sales from new products </li></ul><ul><li>Percentage of sales from proprietary products </li></ul><ul><li>New product introductions </li></ul><ul><li>Time to develop new products </li></ul><ul><li>Time to break even (development cost = accumulated profit) </li></ul>
  26. 27. Operations Process <ul><li>Process optimization in a stable environment </li></ul><ul><li>Statistical process control </li></ul><ul><li>Rapid prototyping </li></ul><ul><li>Six Sigma </li></ul><ul><li>Quality function deployment and Lean </li></ul><ul><li>Real-time simulation and control </li></ul>
  27. 28. Post-Sale Services <ul><li>Warranty and repair </li></ul><ul><li>Billing and collection </li></ul><ul><li>Rapid reliable service contracts </li></ul><ul><li>Feedback on product performance to drive improvement </li></ul>
  28. 29. Learn and Grow Results Staff Competencies Employee Satisfaction Employee Productivity Employee Retention Information Technology and Data Climate for Actions
  29. 30. Measures of Employee Satisfaction <ul><li>Involvement with decisions </li></ul><ul><li>Recognition for doing a good job </li></ul><ul><li>Access to sufficient information to do the job well </li></ul><ul><li>Active encouragement of creativity and initiative </li></ul><ul><li>Support for staff-level functions </li></ul><ul><li>Overall satisfaction with the organization </li></ul>
  30. 31. Drivers of Learning and Growing <ul><li>Reskilling </li></ul><ul><ul><li>Level and intensity of reskilling </li></ul></ul><ul><ul><li>Number of employees involved </li></ul></ul><ul><li>Information systems capabilities </li></ul><ul><li>Motivation, empowerment, alignment </li></ul><ul><ul><li>Suggestions and involvement in decisions </li></ul></ul><ul><ul><li>Team performance and rewards </li></ul></ul><ul><ul><li>Personal alignment and rewards </li></ul></ul>
  31. 32. Linking Balanced Scorecard Measures to Strategy <ul><li>Cause-and-effect relationship </li></ul><ul><li>Outcomes and performance drivers </li></ul><ul><li>Link to financials </li></ul>
  32. 33. Cause-and-Effect Relationships <ul><li>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.”) </li></ul><ul><li>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 </li></ul>
  33. 34. Outcomes and Performance Drivers <ul><li>Outcome indicators </li></ul><ul><ul><li>Lag </li></ul></ul><ul><ul><li>Tend to be generic </li></ul></ul><ul><ul><li>Examples: profitability, market share, customer satisfaction </li></ul></ul><ul><li>Performance drivers </li></ul><ul><ul><li>Predict the future </li></ul></ul><ul><ul><li>Are specific to strategy </li></ul></ul><ul><ul><li>Examples: emergency room wait time, remodeling on time lines </li></ul></ul><ul><li>Need equal mix of both types </li></ul><ul><li>Suggested maximum is 5 per quadrant or 20 </li></ul>
  34. 35. Link to Financials <ul><li>Financial goals are topmost in Balanced Scorecard </li></ul><ul><li>Each other strategy eventually needs to link to financial goals </li></ul><ul><li>Causal pathways need to be clear and quantitative, if possible </li></ul><ul><li>Some healthcare organizations make the customer/patient topmost </li></ul>
  35. 36. Strategy Maps and Initiatives <ul><li>Strategic method of execution </li></ul><ul><li>Set of linked initiatives </li></ul><ul><ul><li>Can be small action or major project </li></ul></ul><ul><ul><li>“ If, then” statements </li></ul></ul><ul><ul><li>Links to top quadrant results (finance, customer) </li></ul></ul><ul><li>Initiatives can become formal project </li></ul><ul><li>Metrics </li></ul><ul><ul><li>Leading </li></ul></ul><ul><ul><li>Lagging </li></ul></ul><ul><ul><li>Dates </li></ul></ul>
  36. 37. 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
  37. 38. 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%
  38. 39. 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%
  39. 40. 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
  40. 41. Targets, Resources, Initiatives, and Budgets <ul><li>Set stretch targets </li></ul><ul><li>Identify strategic initiatives </li></ul><ul><li>Identify critical cross-organization initiatives </li></ul><ul><li>Link to annual resource allocation and budgets </li></ul><ul><li>Remember to maintain critical monitoring systems for nonstrategic operations </li></ul>
  41. 42. Display Results Graphically
  42. 43. Sample BSC—Financial Revenue Profitability
  43. 44. Sample BSC—Customer Customer Satisfaction
  44. 45. Sample BSC—Operations Fast-Track Admitting Percentage Cost per Unit Incremental New Admissions
  45. 46. Sample BSC—Learn and Grow Six Sigma Training Scores Customer Service Training Scores
  46. 47. 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
  47. 48. Feedback and the Strategic Learning Process Clarifying vision and strategy Planning and target setting Strategic feedback and learning Communication and linking strategy
  48. 49. 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)
  49. 50. Does the Strategy Work? <ul><li>Double loop learning </li></ul><ul><ul><li>Can you achieve the initiative’s goals (control loop)? </li></ul></ul><ul><ul><li>If not, what other initiative can achieve the strategic goals (secondary loop)? </li></ul></ul><ul><ul><li>Control loop—weekly; strategic (secondary) loop—quarterly </li></ul></ul><ul><li>Tools </li></ul><ul><ul><li>Statistical tools (e.g., correlation analysis) </li></ul></ul><ul><ul><li>Anecdotal reporting </li></ul></ul><ul><ul><li>Peer review </li></ul></ul><ul><ul><li>Team review and problem solving </li></ul></ul>
  50. 51. Implementation <ul><li>Link scorecards at corporate and departmental level </li></ul><ul><li>Use scorecards to communicate strategy implementation </li></ul><ul><li>Link cross-departmentally </li></ul><ul><li>Link to budgets </li></ul><ul><li>Monitor all operating statistics—may be basis for new initiatives </li></ul>
  51. 52. End of Chapter 4
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.