The Use of the Balanced Score Card in the Healthcare Industry

Abstract

This research paper will talk about the balanced scorecard as applied to the Healthcare Industry. This paper also puts some emphasis on the performance of healthcare organization on the BSC management system mechanism, alongside the future outlook of healthcare services model in regards to the points highlighted in the below context. The current business atmosphere has seen an increasing demand of a strategic management system due to the need of organizations to survive, sustain and prosper in a tough competitive environment (Singh & Kumar, 2007). Very few are capable of bringing strategic management into a logical conclusion that is the realization of extremely complicated strategies (Singh & Kumar, 2007).  Additionally, for many organizations, the procedure is not cosmetic, but a genuine need to shift from the current to a better state in terms of profitability, growth, share of the market, and so on. Per Chan (2004), the systems of performance measurement play an essential role in assessing the strategic performance of any organization. Therefore, a shift towards Balanced Scorecard (BSC) has surfaced as a managerial strategy to assess the strategic organizational performance. Performance Management (PM) of the healthcare domain is an essential factor of the management of the business. Additionally, it raises the value of PM appraisal system by adopting the internal processes of a business, customer aspects, financial aspects and employee learning, as well as, growth factors. Lastly. this paper highlights more on the application of the Balanced Scorecard as a management tool in the healthcare industry along with its benefits, background and the four major area it has to target.

Introduction

This research paper will talk about the balanced scorecard as applied to the Healthcare Industry. I chose the healthcare industry as I work for the same domain as a senior consultant with Blue Cross Blue Shield and am well aware of the US IT healthcare practices. Furthermore, I am also aware of the provider payer network, hospital and insurers etc. This paper talks about using the balanced scorecard approach to evaluate and/or help formulate strategy. According to Hafner (1998) using the Balanced Scorecard initiative brought all the executives of the companies together to make sure they all are on the same page to attain the vision and goals set my their company in the right strategic direction. Balance scorecard is a very useful tool to facilitate an organization’s plan to align management processes and a well vision strategic planning of the company. Balance scoreboard is very important as it helps them to draw and define long term strategy for the company.

According to Kaplan & Norton (1996), “it is a performance measurement framework which also adds strategic non-financial performance procedures to the old financial metrics to give managers a more “balanced” view of organizational performance” (Kaplan & Norton, 1996). BSC has helped sharpen the focus and better align the day to day activities with longer strategies. Also an organization can improve their communication and performance in all the sectors using the balance scoreboard. In addition, it benefits the organization to improve their communication and monitors organizations’ performance against strategic goals. It is a strategic management and planning system that is used enormously in various industries (let alone the healthcare sector) and non-profit and government organizations globally, by aligning business activities to the strategy and vision of the organization thus enhancing external and internal communications.

Background

The balanced scorecard (BSC) was invented by Kaplan S. Robert a Harvard business school professor. Since its appearance, BSC has showed excellent vitality (Hitchins et al, 2001). It has successfully helped businesses in finding solutions regarding two key issues including performance assessment and strategy implementation. According (Hitchins et al, 2001), in a thousand companies worldwide, over 70% of them that utilized BSC find it to be the most influential tool for strategic management. The balanced scorecard is a customer focused planning and process improvement tool targeted at focusing and driving the change process in most of the industries today. It explains strategy into an integrated set of financial and non-financial procedures that interact with the organizational strategy and with employees to provide them with feedback on what should be their plan of action to achieve their goal and objective. The balanced scorecard is an effective strategic planning tool that provides managers an overall view on how well the organization is succeeding in meeting its mission and vision. By focusing on both financial and non-financial performance targets and outcomes, the balanced scorecard helps managers to view the organization from all sides to determine if the organization is properly aligned.

The core idea behind BSC is that it is an implementation strategy tool, which, through customer, finance, learning and development, and internal processes indicators depicts the relationship between the strategic track of an organization to attain performance appraisal and enhancement and the strategy implementation (Kaplan & Norton, 1996). BSC is a strategic planning and management system that organizations use to:

• Communicate what they are trying to accomplish
• Align the day-to-day work that everyone is doing with strategy
• Prioritize projects, products, and services
• Measure and monitor progress towards strategic targets

Five key functional areas chosen to develop a common set of measures for the healthcare organization are:

• Human resources
• Facility management
• Environment health and safety
• Information technology
• Financial operations

The system links the strategy elements such as mission, vision, core values (what we believe in), strategic focus areas and the more operational components like objectives (continuous improvement activities), measures (which track strategic performance), targets (our desired level of performance), and initiatives (projects that help you reach your targets).

There are 4 perspectives to maintain a perfect balance score which are innovation, finance, customer and process perspective.

• Innovation helps to achieve the longterm goal of an origination. Innovation depends on people skills and system capabilities and all these things helps an organization to become innovative. This perspective requires people skills, and system capabilities (Renaud, 2013).
• Financial perspective focuses on how the strategy delivers the required financial result and how it measures success profitability and growth. The BSC takes care of several factors like the non-financial and financial measures, short and long-term objectives, internal and external environment and  procedures and the performance of the management (Norton, 2000). Therefore, the healthcare domain has utilized this perspective to reflect the integrated operations.
• Customer perspective is purely customer focused and concentrates on the outcomes of the strategy and the customer satisfaction/dissatisfaction.
• Process perspective, focuses on how to improve the works to reach the goal. It is critical to the success of a strategy.

Benefits

Balanced scorecards have many benefits. They are:

• Promote implementation of organizational strategies.
• Updating the organizational strategies.
• Effective communication within the organization.
• Improve focus and alignment among divisional or individual goals and the organization’s goals and strategies.
• Align annual or short-term operating plans and performance evaluation measurement with long-term strategies.

Balance Scorecards as a Management Tool In Healthcare

                According to Bisbe, J., & Barrubés, J. (2012), the balanced scorecard concept lays focus on the linkage of measurement to a strategy map and this connection between the strategy map and measurement system elevates the role of non-financial measures in strategy implementation and evaluation.  It enhanced trust and facilitated better dialogue, higher level of employee involvement. Though there are some measures that maybe overlooked when it comes to balance scorecards, some measures are more superior to others, and particularly with cascaded Balanced Scorecards at a department or clinical level, between operational measures and strategic measures. Strategic measures become more superior as they shed more light on the patient’s focus and his or her satisfaction, putting what is important first unlike operational measures.

                 According to Sharma, A. (2009), strict financial indicators such as debt ratios and rate of debt coverage among other things, should probably be given a lesser weight, whereas greater importance should be placed on clinical-economic indicators lessening from the exploitation of the minimum data set basically. These can include; average length of stay attuned for case complexity, pharmaceutical costs, complexity used for cost per case, and indicators of cost-effectiveness. Hoque, Z. (2013) shares and says that an idea to make this process better would be to determine whether clinicians and managers share a common vision about what the most relevant measures are, as they will often have different and/or contradictory views about these measures.

Strategy implementation of BSC in the healthcare industry

To attain a competitive edge, in addition to retaining customers, healthcare institutions have become innovative to meet the changing requirements of their payers, providers, hospitals, medicaid and medicare. Innovativeness leads to the consumer satisfaction which in turn, has strengthened the industry’s financial position. According to Smeth (2006), strategies may be excellently drawn, as well as, presented, but the issue is that strategy is not excellently communicated to individuals involved in the process of execution. He further highlighted the fact that although the execution of a strategy is everyone’s business in an organization, the eventual outcome is poor execution of a strategy in many organizations. The strategy is formulated by the top management, but its execution is a bottom up procedure.

BSBC helped implement Balanced Scorecard by communicating the strategy in the following way

Per Hafner (1998), “in order to share new ideas and thoughts on the organizational performance measurement and management system based on the Balanced Scorecard, a university “think thank” Performance Champions group was established that meets quarterly as a forum (Hafner, 1998)”. The group members composed of executives and department heads responsible with the BSC have the duty to:

• Thorough review of the measurement initiatives
• Explore trends and models that are being used in other sectors and domains
• Provide guidance and direction for enhancing the BSC depending on how and what part should be utilized based of the subjective need and demand of the organization.

In order to better communicate the performance architecture ideology a new website was created in our company that focused on:

• BCBS’s vision, mission, values and goals
• The Balanced Scorecard approach and objectives that the company will follow to optimize profits, processes and people’s effectiveness
• Customer satisfaction and organizational surveys that’s provided a detailed outline of the gaps that needed to be covered
• Presentation materials and initiative status reports

Apart from BSC being an appraisal system indicator, it is also a system of strategic management. Namazi & Abhari (2010) identified that the problem of poor strategic implementation, alongside the dependence of healthcare measures only to assess the strategic performance of an organization to adopt the BSC as a tool to connect performance measures by viewing the strategic vision of the bank from four diverse perspectives. They include; internal processes, customer, financial and learning and development. My company uses these four areas to document a strategic sense in regards to cause and effect relationship between the present activities of the organization and its long-term accomplishment.

a)     Customers:The customer perspective addresses the question of how the firm is viewed by its customers and how well the firm is serving its targeted customers in order to meet the financial objectives. Generally, customers view the firm in terms of time, quality, performance and cost. Through the customer perspective, the top managers and consultants identify their competing customer and market segments by doing a SWOT analysis. They then select performance measures for these targeted segments. Examples of core customer measures are:

1. Customer satisfaction and retention
2. Targeting new customer acquisition.
3. Customer profitability.
4. Market share for the targeted segments.

b)     Financial Perspective:  Financial measures talks about the readily measurable economic consequences of actions already taken. They provide a detailed analysis on the improvement  of the organization’s strategy, deployment, and implementation plan. Examples of financial indicators include:

1. Economic value added (EVA).
2. Generation of cash flow.
3. Operating income and return on investments and assets.
4. Rapid sales growth.

The objectives from financial perspective are as follows:

1. Measuring the revenue growth
2. Profitability for the return on equity
3. Cost leadership

c)      Internal processes of the organization:internal processes of an organization means the expectations of performance may be attained. This perception refers to the answer of the question of what business processes the healthcare company must excel at, in order to satisfy its shareholders and customers. The main focus of this perception is the outcomes of the internal processes of the healthcare company that lead to its financial success, alongside, customer satisfaction while maintaining all the regulatory compliance standards. Fundamentally, the perception is based on producing services and products in the most effective and efficient ways to benefit the target audience and to maximize growth and profits. Mostly utilized measures include non-conformance cost, quality cost, time savings and process innovation. In order to retain the target customer and attain the shareholder’s requirements regarding financial returns, managers require putting extreme emphasis on customer satisfaction and internal processes. This is achieved through the establishment of measurable indicators.

d)     Learning and growth:The learning and growth perspective focusses on the infrastructure the organization must have to create long-term growth, progress and improvement. The three principal sources of any organization are people, processes and the system. The company identifies gaps by doing a GAP Analysis between existing capabilities of people, systems, and procedures and the actions required to achieve the effective performance. To close gaps, the organization must invest in re-skilling employees maybe by educating them by effective training, improving information technology and aligning organizational procedures and routines. The three objectives of learning and growth perspective include

1. Manufacturing learning- here time to new process maturity is measured
2. Product focus- here percentage of product representing sales is measured
3. Time to market- here the time compared to that of competitor’s time is measured
    

Conclusion

In the BSC governance mechanism, Medicaid organizations are required to come up with a management committee which will have the final authority to approve the BSC framework, design and content to make sure the accordance between the healthcare organization’s strategy and its implementation points. This process consists of two integral process parts, like the comprehension of the strategic objective implementation by evaluating the completion of the indicators in the BSC and the second one, checking the BSC operation so as to equal the design of the scorecard and review processes. Nonetheless, this will rely on the enhancement of technologies of information security, in order for the healthcare organization to progress in innovative financial products and improve their core competitiveness. Our company’s model is based on the implication of the knowledge-based economy, alongside the cultural grade. This will promote the mode of thinking and services.

This study can be viewed as part of an investigation of the operation of numerous assessment strategies created in the past several years. It is therefore expected that with the elevated demands from analysts of the healthcare sector, stakeholders, practitioners and educators, the BSC will be broadly utilized in the banking industry all over the world (Silk, 1998).  I think there is still some room for improvements, to excel to identify the processes and activities that deliver critical services to both internal and external stakeholders and customers. Effective BSC application comes from the top management executives who show their commitment to the BSC adoption. Design measure to access all core competencies such as productivity, accuracy, effective use of the available resources etc. Additionally, the healthcare sector should at the same time speed up the renovation of service delivery model to enhance the speed of mixed services so as to improve the international competitiveness.

This study also suggest that the healthcare sector should improve the BSC technique so as to remain appropriate not only in their own operations but also to the increasingly changing macro-environmental dynamics. Also, it can also benefit directions to healthcare companies when they consider strategies of performance assessment. The key reason for this study was to increase the understanding on how this BSC strategy may be developed, as well as, applied to evaluate the performance of companies. Although some of the healthcare companies in this research did not utilize the BSC before, this research has emphasized the essence of looking at performance from other angles, alongside the healthcare perspective.

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