1Running head: DUKE CHILDREN’S HOSPITAL BALANCED SCORECARD

The Use of Balanced Scorecard

From a Customer Satisfaction

Perspective

Robert L Robinson

TUI University

2USE OF BALANCED SCORECARD BY DUKE CHILDREN’S HOSPITAL

Dr. Jon Meliones Duke Children's Hospital had to cope with the open warfare on the one

hand and caregivers physicians and nurses on the other.6 Administrators kept emphasizing, "Cut

costs, save money." Caregivers replied, "We're not good at cutting costs; we cure children and

save lives. That is our mission." Staff members were demoralized, financial performance was

terrible, and improvement programs kept failing. Meliones created a leadership team with

representatives from each of the three employee groups to redefine the mission and to develop a

Balanced Scorecard that incorporated two apparently conflicting objectives—lower costs,

improve patient care. Meliones, the leader, continued to encounter conflict and resistance, but he

kept repeating the balanced mantra, "No money, no mission," emphasizing the need to achieve

harmony among these seemingly incompatible objectives. During the next three years,

employees worked constructively together; they transformed large operating losses into positive

operating margins, while achieving levels of patient care and satisfaction that were ranked best in

their category. Having constructed the high-level strategy map and scorecard, leaders cascade

the strategy down to decentralized divisions, business units, and support functions. Rather than

dictating the company-level measures down to the operating units, leaders encourage the

operating units to define their own strategy based on local market conditions, competition,

operating technologies, and resources to deliver on the high-level strategic themes. The business-

unit managers choose local measures that influence, but are not necessarily identical to the

corporate scorecard measures.

The most remarkable transformations and partnerships occur in support functions and

shared services, such as human resources, information technology, finance, and purchasing

departments. The process transforms these from functionally oriented cost centers into strategic

partners with the line-operating units and the company. This alignment is often accomplished

3USE OF BALANCED SCORECARD BY DUKE CHILDREN’S HOSPITAL

with a service agreement that defines the menu of services to be provided—including

functionality, quality level, and cost—between each support department and the business units.

When this process is complete, the employees in all organizational units, whether a line-business

unit or a staff functions, understand how their unit contributes to overall organizational success.

This process aligns the decentralized units to a strategic partnership with each other and the

corporate parent to deliver an integrated strategy. Corporate-level synergies emerge in which the

whole exceeds the sum of the individual parts.

For these scorecards to be effective, however, everyone in the organization must

understand the strategies for their unit, division, and the overall corporation. CEOs understand

that they cannot implement strategies by themselves. They need contributions—actions and ideas

—from everyone. Individuals far from corporate and regional headquarters create considerable

value by finding new and improved ways of doing business. This is not top-down direction. This

is top-down communication, helping employees to learn how they can contribute to successful

strategy implementation. Leaders use many different channels to communicate the strategic

message. The strategy map and Balanced Scorecard are communicated in newsletters, brochures,

bulletin boards, speeches, videos, training, education programs, and the company intranet. The

personal behavior of executives reinforces the message.

Using the Balanced Scorecard, Duke Children's Hospital was able to significantly reduce

cost per patient case and patient length of stay, affecting a major profitability turnaround, while

still maintaining superior customer satisfaction ratings. Duke Children's Hospital affected a

major profitability turnaround while maintaining patient service and retaining medical staff. The

hospital implemented the Balanced Scorecard with the goal to align the hospital's strategy with

4USE OF BALANCED SCORECARD BY DUKE CHILDREN’S HOSPITAL

their resource management. Today, the hospital has successfully created 10 Balanced Scorecards,

reduced the cost per patient case by 33% and patient length of stay by 31%, increased the net

margin by $15 million, and been recognized for the highest rating in customer satisfaction of 28

institutions. "As an academic institution, we were interested in a solution that could function as

a teaching and learning tool and report how we were doing. The Balanced Scorecard provides

that monitoring and conscience and assists us in improving our practice patterns. We look at the

scorecard as the evolving brain of our organization. In practicing smarter, we dramatically

reduced our cost per patient case and patient length-of-stay, and significantly increased our

customer satisfaction. Our results at Duke Children's prove the Balanced Scorecard approach can

be the catalyst for positive change in healthcare."

The Balanced Scorecard presented a set of four measures--financial performance,

customer knowledge, internal business processes, and learning and growth--to score an

organization's performance. In The Strategy-Focused Organization, the authors apply lessons

from companies' use of the scorecard to measure and guide how strategy is implemented.

Looking at organizations as diverse as Duke Children's Hospital, Kaplan and Norton have

identified five principles to develop a strategy-focused organization. The book's five sections

present these principles: Part One--Translating the Strategy to Operational Terms; Part Two--

Aligning the Organization to Create Synergies; Part Three--Making Strategy Everyone's

Everyday Job; Part Four--Making Strategy a Continuous Process; and Part Five--Executive

Leadership to Mobilize Change. The many charts, flow charts and graphs are complex, detailed

and multi-layered. Case studies help explain the strategies and measurement tools.

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References

Meliones, J. (2000). Saving Money, Saving Lives.

http://hbr.org/2000/11/saving-money-saving-lives/ar/1

Lussier, R. (2006). Entrepreneurs use a balanced scorecard to translate strategy into

Performance measures.

http://www.allbusiness.com/management-companies-enterprises/1185916-1.html