The Role and Application of the Balanced Scorecard in Healthcare Quality Management

Kicab Custafieda-M,4ndez, MA; Katherine Mangun, EdM RN;Anne Murie Luvery, MS RN

personal-when employees attend to their needs. Employees receive work value when the organization and its stakeholders give them employment, benefits, and career and development opportunities. Healthcare organizations should no longer look at a onedimensional report card (e.g., their financial statements) or at a limited two-dimensional report card ( e g , clinical outcomes and costs).Healthcare organizationsneed to develop a balanced scorecard that includes measures of business value, employee value, and patient value (see Figure 1). Healthcare organizationsneed to add to the balanced scorecard the fourth dimension recommended by Kaplan and Norton (1992, 1993, 1996): learning and growth measures. These four dimensions or perspectives can be subsumed under three value areas. For example, organizationslearn and grow because their employees learn and grow. Therefore, measures of employee value that address employee development, education, and training are learning and growth measures. Similarly,learning-cycle time efficiency and time to develop next-generation servicesare examples of businesvalue learning-andgrowthmeasures. The percentage of patients using preventive services is an example of a patient-value learning-and-growthmeasure.

o connect practices, outcomes, quality, value, and costs, healthcare organizations must start using a balanced scorecard. A balanced scorecard is a set of measures that reveals the interdependency of the organization, its employees, and its patients. It thus serves as a balanced perspective on the organization for senior management to use in designing, developing, deploying, and directing the strategic plan, consistent with total quality management principles.

Introduction
Senior management has several roles. One role includes designing, developing, deploying, and directing the strategic plan. To do this effectively, the senior managers must translate strateges into key measurable organization drivers and in turn translate the drivers into actionable items. Given the pressures healthcare organizations face today, the measures of the key drivers must reveal all the critical aspects of the organization to management. Athough the flurry of report cards for healthcare organizations is a trend in the right direction, it is not enough. These report cards do not include all the necessary measures. Clinical outcome and cost measures reveal only part of what healthcare organizations are about.

The Role of the Balanced Scorecard

Senior management develops a strategic plan that creates a vision of future behavior, performance, and perception of the organization by others (see Figure 2). An organizational assessment (e.g., the Baldrige self-assessment [National Institute of Standards and Technology,1995,19971 yields a baseline for ) current behavior, performance, and perception of the organization by others. The vision and the assessment data are combined to generate a balanced scorecard that links structures, processes, outcomes, value, quality, and costs. The key measures identified from this linkage are used to develop an action plan. The action plan lists the high-priorityactions necessary to realize the strategic plan. An action plan contains four critical elements for each action: Who is responsible, accountable, and authorized to complete the action What the action is When the action will be completed Why the action is needed The Whyshould be defined by benefits (e.g., the change in the measures, behavior, performance, and perception).

The Balanced Scorecard

Kaplan and Norton (1992, 1993, 1996) have developed an approach for a business report card called the balanced scorecard. The premise behind the balanced scorecard is that senior management must have a balanced set of measures that describes the critical aspects of the organization. This balance is achieved by developing measures from four different perspectives: patient, internal, learning, and financial (see Figure l). A scorecard for healthcare organizations needs to recognize where and how healthcare adds value. Healthcare affects three categories of interdependent value: business value, employee value, and patient value (Castafieda-Mkndez,1996).The healthcare organization and other stakeholders receive business value (e.g., return on investment, equity) when patients patronize the organization. Patients receive healthcare value-clinical and
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Figure 1 A Sample Balanced Scorecard for a Hospital .

Patient-Value Added (Patient Perspective) New healthcare services Access Community partnerships Preventive medicine Clinical outcomes Patient and family satisfaction Employee-Value Added (Internal Perspective) Employee well-being Employee development Employee retention Employee satisfaction Patient-focused integration Business-Value Added (Learning Perspective) Quality improvement Percentage of new services from patients Processcycle time efficiency Learningcycle time efficiency Time to develop new services Business-Value Added (Financial Perspective) Activity-based costing if feasible Cost-ofquality databases Value-added analyses Organization cycle time Return on investment Cash flow Litigation avoidance

Note: From Value-Based Cost Managementfor Healthcare: Linking Costs to Quality and Delivery, by K Castaiieda-MCndez, 1996, New York: Quality Resources, Inc. Copyright 1996 by K. Castafieda-MCndez. Reprinted with permission.

Figure 2. The Role of the Balanced Scorecard in an Action Plan

Strategic planning

Feedback

Future (the Vision) behavior performance perception

Assessment

t
Annual audits

Current behavior performance perception Periodic reviews

Balanced Scorecard: Value-added measures linking structures processes outcomes value costs

Actions who what when why

Management should review the balanced scorecard periodically to evaluate and take corrective and preventive action on planned actions that do not contribute to the strategy. Lack of contribution can range from actions that are not progressingas planned to actions that are proving ineffective. Senior management audits its progress annually by reviewing the organizationwide balanced scorecard and by perfonning another assessment.This annual audit is feedback to the strategic planning process, which senior managementuses to repeat the cycle, to take corrective action, and to redirect the organization.

Application
Lawrence Hospital is a not-for-profit 280-bed acute care institution in Westchester, M. The Lawrence Hospital Board of

Governors gave full support to senior management to begin a total quality management initiative, called TQM/Q2000, inJanuary 1992. Employees at all levels received training and education and applied their learning as members of cross-functiona1 teams. By January 1995 senior management decided a new 5-year strategic plan was needed. The one they developed identified four strategies of highest priority. In May andJune 1995a group of employees, headed by the president and the vice president of nursing and quality, took a 3-day workshop on using the Baldrige criteria for self-assessment.This achieved three goals: 1. Lawrence Hospital now had in-house expertise on the Baldrige award criteria. 2. The hospital now had a draft application(i.e.,a description
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Table 1 Deriving a Balanced Scorecard: Process Management at Lawrence Hospital .

1. Behavioral Change Goals (The Vision) Behavior Performance Decreased Physician complaints satisfaction Increased use of appropriate resources Third-party payer Increased reimbursements satisfaction
Multidisciplinary design of systems Streamlined decision making Increased communications Courtesy and time efficiency Employee buy-in Decreased response time Increased understanding and acceptance Rapid, respectful movement through the system

Consistency in employment opportunities Team delivery of care Improved competence Accountability and Empowerment recognition Realistic expectations Confidence in the system Caring culture Utilization of new skills and competencies

Perception Efficient and safe working environment for physician and patients Efficient and effective performance

2. Value Added (The Success Measures) For Emdovees For Patients

Decreased conflict between physician and staff Decreased conflict between physician and organization Predictability and consistency of healthcare providers Seamless service Rapid intervention

For Business Prqper utilization of resources

Increased number of contracts, referrals, atfiliations, and networks Reduced costs

Increased response time and productivity Realistic expectations Decreased turnaround time; consistent expectations Increased volume and Available services services

Table 2. Deriving Actions to Overcome Obstacles: Process Management at Lawrence Hospital

Obstacles to Integrating Patient-Focused Services and Systems Proceeding at a slow pace due to fear of loss of autonomy Lack of clear vision of integration Lack of accountability for behavior and own job satisfaction Lack of clear vision and expectations Action General Plan WHO Leadership WHAT Clear vision of integration of systems WHEN January 1,1996 WHY Definitive action follows vision. Specific Plan Cross-section of employees Hospitalwide courtesy training; results incorporated into performance appraisals April 1, 1996, completion Clear expectations emphasize the importance of the individual.

of the organization) from a quality management perspective. 3. The hospital now had a quality management self-assessment of the organization. Three months later, the same group of employees took part in a lday follow-up session to learn how to develop a balanced scorecard that would lead to the identification of high-priority actions. Through a series of exercises, the group developed an operational vision for their number-one strategy: Strengthen quality throughout the organization.They did this by translating their vision into changes in behavior, performance, and others perceptions of Lawrence Hospital. They then developed a plausible balanced scorecard for that vision. Finally, they developed a list of actions. The group that focused on the impact the strategy had on process management of clinical services (Category 5.0 of the
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Baldrige healthcare criteria) produced the results shown in Table 1 Section 1 of Table 1 answers the question, If you achieve . the strategy, how will you differ in behavior, performance, and perception by others, compared with today?Through these exercises, the group recognized the relationship among the behavioral changes one attempts to make, the corresponding performance, and the perceptions others have of the attempt. Section 2 identifies plausible measures for the balanced scorecard. These measures are intimately tied to the columns labeled Performanceand Perception.Section 2 answers, Howwould the behavioral change affect the value added for the employees, the patients, and the business? The next step was to develop the actions critical to achieving these changes (see Table 2). Specific actions were derived from answering, What do you need to do to overcome obstacles to achieving the strategy?Obstacles are identified as types of criti-

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cal success factors. This process is repeated to derive measures at the action level (e.g., quality improvement teams, departments, functions, projects). The action-level measures support and are derived from the organization-levelmeasures. The organization-level measures address six Baldrige categories: leadership, strategic planning, information and analysis, human resource management, process management, and patient/stakeholder satisfaction.

Journal for Healthcare Quality is pleased to offer the opportunity to earn continuing education (CE)
credits to those who read this article and complete the form on page 48. This continuing education o fering, JHQ63, &I1 provide one contact hour to those who cornplete it appropriately. (See the application form for further details.)

summary
Measures drive behavior. The wrong measures dnve the wrong behavior by separating the strategic plan from daily activities and long-term projects. A balanced report provides the means for deriving the right measures by recognizing that healthcare organizations create a cycle of interdependent values: employment value, patient (healthcare) value, and business value. Senior management can no longer rely on financial measures or quality measures alone. An organization needs to be managed and led by a three-part profit-and-lossstatementthat addresses patient, employee, and business values.

Objectives: After participating in this independent study offering, the reader will be able to do the following: 1. List and explain the four perspectives of a balanced scorecard. 2. Describe the three parts of a vision created by the strategic plan, and identify the three types of value that need to be measured.
CE Questions, JHQ63 (Mark your answers on the answer sheet on page 48.)

Authors Biographies

Kicab Castalieda-Mhdafounded q e s in 1991. The Ridgefild, CIT: consultingjirm helps healthcare orgmizations in strategic planning, perfmance impouement, and self-assessment.Cu.sta?ieda-M&da has 2Oyears ofexperience as an educato7; consultant, and author on quality, statistics, and education in the United States, Latin America, and Europe. Katherine Mangan is senior clinical/operutionsauditor at Mon,tefiore Medical Center in Bronx, NY She was administratiue director o the f nursing department at Lawrence Hospital in Bronmille, iQ when this project was completed. Anne Marie Lavery is clinical care coordinatorfor M C U and CCU at Montefiore Medical Center in Bronx, NY At the time she was wmking on this pfoiect, she was nursing manager at Lawrence Hospital in Bmnxville, NY
References
Castaiieda-Mkndez, K ( 1996). Value-b(w.edcost managerrmtfor heallhcam: Linking cosls LO q u d i l y uncl cleliuery. New York: Quality Resources, Inc. Kaplan, R.S., PC Norton, D.P. (1992). The balanced scorecard: Measures that drive perforrnance. Haniard Hzcsine.c,s /irn,zcnu, 70( 1 ), 71-79. Kaplan, R.S., PC Norton, D.P. (1993). Putting the halancud scorecard to work. Haniard Nusiness Rmzcnii, 7/(5), 134147. Kaplan, K.S., PC Norton, D.P. (1996). Using the balancctl scorecard a s a strateRmzcnii, 74( 1 ), 75-85. gic niatiiigetiient system. I f a m a d Bioine.~s National Institute of Stindards and Technology. ( 1995). Malcolm Bnldrige National Qiifllity Aroarrl healthcare pilot mlmn. Gdithel-SbLirg,MD: Author. National Institute of Standards and Technology. (1997). ~MnlcolinBaldrige Nntional Qiinlity Awnrd 1997 cr&rinJrr pmrf0mance Pxcellence. Gaithershurg, MD: Author.

1. In terms of healthcare quality management, the balanced scorecard emphasizes the a. role of management. b. importance of the employee. c. cooperation between medicine and nursing. d. interdependence of the organization.

2. The balanced scorecard further defines the critical aspects of the organization as
a. nursing, medicine, therapeutics, and patients. b. nursing, patients, medicine, and learning. c. patients, internal, medicine, and financial. d. patients, internal, learning, and financial.

3. To perform an initial self-assessment,an organization needs to evaluate a. current behavior, standards, and performance. b. current behavior, performance, and perception by others. c. standards, performance, and perception by others. d. standards, current behavior, and perception by others.
4. The annual review of the balanced scorecard should provide feedback to the a. strategic planning process. b. board of directors. c. senior management. d. all of the above

5. The following i a true/false question: The strategic plan s should be separated from daily activities and long-term pojects. a. true b. false

Earn CE Credit on the Internet. See page 9.

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