By: David C. Hoffman, Ph.D., Partner

Introduction

Robert Kaplan and David Norton introduced the Balanced Scorecard (BSC) in 1992 as a mechanism for shifting executive thinking from a short-term focus on cost-reduction and pricing strategies to longer-term measures as the primary barometers for organizational performance.   While much has been written about the Balanced Scorecard concept, little information exists about its successful application in small and rural heath systems.  One reason is that some smaller health care systems are legitimately concerned that the process will require expensive and labor-intensive data-collection systems that strain resources and divert attention from patient care.  Small organizations can be easily overwhelmed by the data and information collection aspects of BSC and feel compelled to collect more information than may be necessary to gauge performance.  For BSC to work for small and rural hospitals, the process has to be affordable, efficient, and sized to the organization, or people will not use it. 

Why consider a Balanced Scorecard approach?

Organizations that use the BSC approach are generally interested in more than just measurement.  They are interested in transforming the way they look at and manage their businesses.  Measurement is important, but it is a means not an end.  The quality of strategies and how well they are executed are the most critical factors.  BSC-oriented businesses are interested in performance improvement and focusing human and capital resources on the operational processes that support their strategies.  They tend to have an undying dedication to improving customer value.  Companies that have used BSC state that the process helps managers-from the executive team to the department managers-gain a "big picture" understanding of the linkage between strategy and operations. 

Translating strategy into action

In small businesses, the key to implementing BSC is tailoring the process to scale and making it easy to use.  Small and rural health systems that want to make the move to BSC should consider it a long-term commitment and consider a 1-2 year-phase-inperiod.  It is wise in the early stages to pick a few "high-impact" strategies-no more than 5-8 that will drive success in the organization -  and pursue only a handful of measurement indicators those ones that are either readily available from current systems or those that can easily be devised with available resources.  Most hospitals, and some clinics, have financial and management information systems that can produce highly usable financial and operational indicators, and there are a wealth of inexpensive resources available from hospital association and health care network databases for benchmarking operations and customer satisfaction.   The temptation for "data seduction" should be avoided.  Time is better spent measuring a few key indicators in the early stages of BSC implementation than turning the organization into full-time data collectors.

Before you start

Before leaping into BSC, hospitals should seriously consider their level of “readiness” to begin and benefit from the process.  Not all hospitals are ready.  Successful BSC implementation demands a focused executive team and line managers who can stay focused and lead the organization through change.  BSC is really a planning as well as a management system, and executives and boards should honestly seek answers to these questions before proceeding:

• Are major strategies in place and communicated to key stakeholders?
• How ready is the organization to accept cultural change?
• Does the organization have “change agent” leaders who can excite, educate, motivate, coach and mentor people through change?
• Does the organization have a clear vision that staff and physicians relate to and embrace?
• Are there internal “champions” for the BSC concept?
• Are there sufficient staff and infrastructure resources available to maintain the momentum of BSC development and implementation?
• Is the organization in a position to focus on a change process or are there distractions because of other priorities?

Ten step approach

Figure 1 summarizes a framework for putting the BSC process into action in a small or rural health care organization.

• Select strategies
  Strategies are the starting point and framework for developing a Balanced Scorecard. They begin with the governing board and senior leadership—CEO, CFO, VP of Patient Care, other senior-level staff, and medical staff leadership-and create the roadmap that sets the direction, vision, and values of the organization.  If your strategic plan is not current, consider updating it before you commit to the BSC process.  Just having strategies is not enough.  The quality of the strategies is critical.  Here are some guidelines for selecting high-quality strategies.
  
  High-quality strategies...
  • Are clear, relevant, and related to the organization's mission.
  • Result in activities that have a significant impact on the long-term success of the organization (e.g., filling gaps in clinical service-lines, improving local physician specialty mix, contributing to growth and profitability).
  • Address activities that are important for correcting short-term problems (e.g., operational issues that affect competitive advantage or financial performance).
  • Do not be tempted to set the world record for the longest list of strategies.  Concentrate on quality, not on the number. 
    
• Establish priorities
  Not all strategies will carry the same priority or time urgency.  Determine which strategies are most important to current and long-term circumstances and determine which ones will command the highest attention and the most resources.  Take into consideration current market opportunities, profitability objectives, and available financial and human resources.
  
• Educate & communicate
  Senior leadership’s critical role is to introduce and prepare the organization for BSC.  Recognize that using a Balanced Scorecard can represent a major cultural change to the organization.  Senior leadership is the "glue" for communicating vision and strategies, as well as the reasons and benefits for following this approach.  Leaders must be able to relate process and value of BSC to individuals and departments throughout the organization, and they must anticipate differences in how individuals accept and internalize new concepts.  Allowing sufficient mental "soak-time" for people to become comfortable with the BSC approach and principles is essential.
  
  Focusing the organization on strategy begins with focusing individuals on strategy.  Use group meetings and question and answer sessions with managers and department heads for education and discussion of the BSC concept.  Staff needs to know what role they will play in the process, what information will be collected, and how it will be used.  Be prepared to answer these questions:  Why are we doing this? What are the benefits?  What will it mean to me and my department?
  
• Set goals and targets to measure
  While leaders have to create vision and direction, managers and support staff need to be actively involved in setting goals and targets for measurement.  The translation of strategies to action begins with the setting of simple yet straight-forward and measurable goals for the departments that have primary responsibility for strategy execution.  Goals should be set for each of the four domains:  Financial, Customer, Internal Processes, and Growth & Learning (Enabling Investments).
  Take the example of a hospital with the strategy to "be known as having the best patient and customer service among its competitors.".  An example of one goal for the Customer and Internal Processes domains might be to have error-free bills that are mailed correctly on the 15th of each month.  There could be similar goals applicable to the Admissions Department, inpatient and outpatient admissions with a minimum of paperwork and waiting time.  Similar goals can be constructed for the other domains and virtually any department which has accountability for execution of the strategy.
  
• Determine sources of data
  Avoid the "zebras"-the esoteric measurements - that yield information of questionable value.  When picking specific benchmarks to measure strategic performance, look first to existing reports and other easily obtainable information through your current systems.  Most MIS/FIS systems, even in small hospitals, are able to track and report a number of useful financial and utilization indicators.
  
• Develop new measurement tools as needed
  On occasion it may be useful to develop a specific type of survey tool or format a particular report for key information that needs to be tracked.  Look to internal staff first to design what you need and turn to consultants for specialty items to supplement in-house expertise. 
  
• Assign accountability
  Little gets done unless someone is responsible for doing it.  Accountability will vary depending upon the strategy that is being executed, but ultimately it will reside with specific individuals and departments.  The execution of most strategies will cut across several departments and areas of accountability.  Forming small "strategy teams" consisting of key managers responsible for various elements of performance improvement is helpful in getting people involved and breaking down interdepartment rivalries.  Strategy teams should be involved in the selection and design of specific benchmarks and indicators in areas where they have accountability, and they should help determine the means of collection and the frequency with which data is gathered. 
  
• Determine the frequency of measurements
  Measurement will differ depending on the indicator being measured.  Certain financial indicators may be tracked monthly, while patient satisfaction data might be collected daily and reported semiannually.  Determine the optimum frequencies for measurement and feedback so that needed changes can be made in a timely manner.
  
• Monitor, measure, feedback
  The over-arching purpose of monitoring and collecting performance information is to effect performance improvement in the execution of a strategy.  Football teams keep detailed statistics on the plays that they run so that they know what's working and they have a basis for making improvements.  The information collected in a Balanced Scorecard is only valuable if the results get back to the people "running the plays."  
  
• Correct and adjust performance
  Strategy teams should routinely review the information that they are collecting with senior leadership and make adjustments to internal processes to help ensure maximum performance.  The importance of using strategy teams to adjust performance can be crucial to success.  There are few instances in a hospital where overall performance is controlled by a single department.  Many failures of performance result from botched task coordination between departments (e.g., coordination of lab and imaging tests between clinical departments and ancillary departments).  Quarterly reviews or more frequent reviews of performance data, depending on the specific problem areas that are being tracked, can be important to performance improvement, and ultimately strategic success.

Final thoughts
The Balanced Scorecard has evolved beyond the point of a mere measurement tool.  Executives who are using BSC effectively have begun to see it as a way to manage and link performance to strategies.  BSC helps all managers keep their departments centered on core business strategies and the contribution that their departments can make to the overall organization’s overall “high-level” scorecard. 

Using the Balanced Scorecard should be viewed as a management system that requires a long-term commitment, patience, and a methodical approach in order to reap the highest dividends.  Leaders who expect to employ an off-the-shelf product and see instant results will be disappointed.  For those who are willing to take a long-range approach, the potential for benefits can be substantial.

David C. Hoffman, Ph.D., (608) 274-980 is a partner in Wipfli’s Health Care Practice.

References 
1. Kaplan, Robert S., and David P. Norton, The Balance Scorecard, Harvard Business School Press, 1996.
2. Leauby, Bruce A. and Kristin Wentzel, "Know the Score: The Balanced Scorecard Approach to Strategically  Assist Clients," Pennsylvania CPA Journal, Spring 2002.
3. The Rural Wisconsin Health Cooperative and the Pioneer Health Network have developed a number of surveys and benchmark tools available to their members and others. The Mountain States Group, Inc. and the National Rural Health Resources Center have recently published a comprehensive manual entitled Balanced Scorecard for Small and Rural Hospitals.