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The Role and Application of the BalancedScorecard in Healthcare Quality ManagementKicab Custafieda-M,4ndez, MA; Katherine Mangu n, EdM RN; nne Murie Luvery, MS RN

o connect practices, outcomes, quality, value,T nd costs, healthcare organizations must startusing a balanced scorecard. A balanced scorecard isa set of measures that reveals the interdependen cy ofthe organization, its employees, and its patients. Itthu s serves as a balan ced perspective on th e organi-zation for senior management to use in designing,developing, deploying, and directing the strategicplan , consistent with total quality man age men t prin-ciples.

IntroductionSenior management has several roles. O ne role includes

designing, developing, deploying, and directing the strategicplan. To do this effectively, the senior managers must translatestra teges into key measurable organization drivers and in turntranslate the drivers into actionable items. Given the pressureshealthcare organizations face today, the measures of the key dri-vers must reveal all the critical aspects of the organization tomanagement.

Athough the flurry of report cards for healthcare organiza-tions is a trend in the right direction, it is not enough. These re-port cards do no t include all the necessary measures. Clinicaloutcome an d cost measures reveal only part of what health-care organizations are about.The Balanced Scorecard

Kaplan and Norton (1992, 1993, 1996) have developed anapproach for a business report card called the balanced score-card. The premise behind the balanced scorecard is that seniormanagement must have a balanced set of measures that describesthe critical aspects of the organization. This balance is achievedby developing measures from four different perspectives: pa-tient, internal, learning, and financial (see Figurel).

A scorecard for healthcare organizations needs to recognizewhere and how healthcare adds value. Healthcare affects threecategories of interdependent value: business value, employeevalue, and patient value (Castafieda-Mkndez,1996).The health-care organization and other stakeholders receive business val-ue (e.g., return on investment, equity) when patients patronizethe organization. Patients receive healthcare value-clinical and

personal-when employees attend to their needs. Employeesreceive work value when the organization and it s stakeholdersgive them employment, benefits, and career and developmentopportunities.

Healthcare organizations should no longer look at a one-dimensional report card (e.g., their financial statements) orat a limited two-dimensional report card ( e g ,clinical outcomesand costs).Healthcare organizations need to developa balancedscorecard that includes measures of business value, employeevalue, and patient value (see Figure 1).

Healthcare organizations need to add to the balanced score-card the fourth dimension recommended by Kaplan and Nor-ton (1992, 1993, 1996): earning and growth measures. Thesefour dimensions or perspectives can be subsumed under threevalue areas. For example, organizations earn and grow becausetheir employees learn and grow. Therefore, measures of em-ployee value that address employee development, education,and training are learning and growth measures. Similarly, earn-ing-cycle time efficiency and time to develop next-generationservices are examples of businesvalue learning-andgrowthmea-sures. The percentage of patients using preventive services is anexample of a patient-value learning-and-growthmeasure.The Role of the Balanced Scorecard

Senior management develops a strategic plan that creates avision of future behavior, performance, and perception of theorganization by others (see Figure 2).An organizational as-sessment (e.g., the Baldrige self-assessment [National Instituteof Standards and Technology, 1995,19971 yieldsa baseline forcurrent behavior, performance, and perception of the organi-zation by others. The vision and the assessment data are com-bined to generate a balanced scorecard that links structures,processes, outcomes, value, quality, and costs.The key measures identified from this linkage are used to de-velop an action plan. The action plan lists the high-priority ac-tions necessary to realize the strategic plan. An action plan con-tains four critical elements for each action:

Who is responsible, accountable, and authorized to com-plete the actionWhat the action isWhen the action will be completedWhy the action is needed

The Why should be defined by benefits (e.g., the change inthe measures, behavior, performance, and perception).

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Figure 1.A Sample Balanced Scorecard for a HospitalPatient-Value Added(Patient Perspective)

New healthcare servicesAccessCommunity partnershipsPreventive medicineClinical outcome sPatient and family satisfaction

Employee-Value Added Business-Value Added(Internal Perspective) (Learning Perspective)Employee well-being Quality improvementEmployee develo pment Percentage of new servicesEmployee retent ion from patientsEmployee satisfaction Processcycle time efficiencyPatient-focused integration Learningcycl e time efficiency

Time to devel op new services

Business-Value Added(Financial Perspective)

Activity-based costingCost-ofquality databasesValue-added analysesOrganization cycle timeReturn on investmentCash flowLitigation avoidance

if feasible

Note: From Value-Based Cost Ma nag em entf or Healthcare: Li nk in g Costs to Quality and D elivery, by K Castaiieda-MCndez, 1996, New York:Quality Resources, Inc. Copyrigh t 1996 by K. Castafieda-MCndez. Reprinted with permission.

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

Future (the Vision)behaviorperformanceperception

Assessment

tAnnualaudits

Currentbehaviorperformanceperception Periodic

reviews IBalancedScorecard:Value-addedmeasures linking

structuresprocessesoutcomesvaluecosts

Actionswhowhatwhenwhy

Management should review the balanced scorecard period-ically to evaluate and take corrective and preventive action onplanned actions that do not contribute to the strategy. Lack ofcontribution can range from actions that are not progressingasplanned to actions that are proving ineffective. Senior man-agement audits it s progress annually by reviewing the organi-zationwide balanced scorecard and by perfonning another as-sessment. This annual audit is feedback to the strategic planningprocess, which senior managementuses to repeat the cycle, totake corrective action, and to redirect the organization.Application

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

Governors gave full support to senior management to begin atotal quality management initiative, called TQM/Q2000, inJan-uary 1992. Employees at all levels received training and educa-tion and applied their learning asmembers of cross-function-a1 teams.ByJanuary 1995 senior management decided a new 5-yearstrategic plan was needed. The one they developed identifiedfour strategies of highest priority. In May andJune 1995 a groupof employees, headed by the president and the vice presidentof nursing and quality, took a 3-day workshop on using t heBaldrige criteria for self-assessment.This achieved three goals:

1. Lawrence Hospital now had in-house expertise on the2. The hospital now had a draft application i.e.,a description

Baldrige award criteria.

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Table 1.Deriving a Balanced Scorecard: Process Management at Lawrence Hospital1. Behavioral Change Goals (The Vision)Behavior Performance PerceptionPhysiciansatisfaction

Third-party payersatisfactionMultidisciplinarydesign of systemsStreamlineddecision makingIncreasedcommunications

Courtesy andtime efficiency

DecreasedcomplaintsIncreased use ofappropriate resourcesIncreasedreimbursementsEmployee buy-inDecreased responsetimeIncreased under-standing andacceptanceRapid, respectfulmovement throughthe system

Efficient and safeworking environmen tfor physician andpatientsEfficient and effec-tive performanceTeam delivery of careEmpowermentConfidence in thesystem

Caring culture

2. Value Added (The Success Measures)For Emdovees For Patients For BusinessDecreased conflict Decreased conflictbetween physician between physicianand staff and organizationConsistency in Predictability an demployment consistency ofopportunit ies healthcare providersImproved Seamlesscompetence serviceAccountability and Rapid interventionrecognitionRealistic expectations Realistic expectations

Utilization of new Available servicesskills and compe-tencies

Prqp er utilization ofresources

Increased num ber ofcontracts, referrals,atfiliations, and networksReduced costsIncreased responsetime a nd productivityDecreased turnaroundtime; consistent expec-tationsIncreased volume an dservices

Table 2. Deriving Actions to Overcome Obstacles: Process Management at Lawrence HospitalObstaclesto Integrating Patient-Focused Services and Systems

Proceedin g at a slow pace du e to fear of loss of autonomyLack of clear vision of integrationLack of accountability for behavior and own jo b satisfactionLack of clear vision and expectations

Action General Plan Specific PlanWHO Leadership Cross-section of employeesWHATWHEN January 1,1 996 April 1, 1996, completionWHY Definitive action follows vision.

Clear vision of integration of systems Hospitalwide courtesy training; results inco rporated into performance appraisals

Clear expectations emphasize the importance of t he individual.

of the organization) from a quality management perspec-tive.

3. The hospital now had a quality management self-assess-ment of the organization.

Three months later, the same group of employees took partin a lday follow-up session to learn how to develop a balancedscorecard that would lead to the identification of high-priorityactions. Through a series of exercises, the group developedan operational vision for their number-one strategy: Strength-en quality throughout the organization.They did this by trans-lating their vision into changes in behavior, performance, andothers perceptions of Lawrence Hospital. They then developeda plausible balanced scorecard for that vision. Finally, they de-veloped a list of actions.

The group that focused on the impact the strategy had onprocess management of clinical services (Category5.0 of the

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Baldrige healthcare criteria) produced the results shown in Table1.Section 1 of Table 1 answers the question, Ifyou achievethe strategy, how will you differ in behavior, performance, andperception by others, compared with today?Through these ex-ercises, the group recognized the relationship among the be-havioral changes one attempts to make, the corresponding per-formance, and the perceptions others have of the attempt.Section 2 identifies plausible measures for the balanced score-card. These measures are intimately tied to the columns labeledPerformance nd Perception.Section2 answers, Howwouldthe behavioral change affect the value added for the employees,the patients, and the business?

The next step was to develop the actions critical to achievingthese changes (seeTable2) .Specific actions were derived fromanswering, What do you need to do to overcome obstacles toachieving 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). Th e action-level measures support an d are derivedfrom the organization-level measures. The organization-levelmeasures address six Baldrige categories: leadership, strategicplanning, information and analysis, human resource manage-ment, process management, and patient/stakeholder satisfac-tion.summary

Measures drive behavior. The wrong measures dnve the wrongbehavior by separating the strategic plan from daily activitiesand long-term projects. A balanced report provides the meansfor deriving the right measures by recognizing that healthcareorganizations create a cycleof interdependent values: employ-ment value, patient (healthcare) value, and business value. Se-nior management can no longer rely on financial measures orquality measures alone. An organization needs to be managedand led by a three-part profit-and-loss tatement hat addressespatient, employee, and business values.

Authors BiographiesKicab C astalied a-Mh da ounded q e s n 1 991. The Ridgefild, CIT:consultingjirm helps healthcare orgmizations in strategic plan ning ,per fm an ce impouem ent, and self-assessment. Cu.sta?ieda-M&da has2Oyears ofexperienceasan educato7; consultant, and author on qual-ity, statistics, and education in the United States, Latin America, andEurope.Katherine Ma nga n issenior clinical/operutionsauditor at Mon,tefioreMedical Center in Bronx, NY She was admin istratiue director o thenursing department at Lawrence Hospital inBronmille, iQ when thisproject was completed.An ne Marie Lavery is clinical care coordinator or M C U and CCUat Montefiore Medical Center in Bronx, NY At the time she was wmk-ing on this pfoiect, she was nursing manager at Lawrence Hospital inBmnxville, NY

ReferencesCastaiieda-Mkndez, K ( 1996). Value-b(w.edcost managerrmtfor heallhcam: Link-

ing cosls LO qud i l y uncl cleliuery. New York: Quality Resources, Inc.Kaplan, R.S., PC Norton, D.P. (1992).Th e balanced scorecard: Measures thatdrive perforrnance. Haniard Hzcsine.c,s /irn,zcnu, 70(1 ), 71-79.Kaplan, R.S., PC Norton, D.P. (1993). Putting the halancud scorecard t o work.Haniard Nusiness Rmzcnii, 7/(5), 134147.Kaplan,K.S., PC Norton, D.P. (1996). Using th e balancctl scorecard a s a strate-gic niatiiigetiient system. I f a m a d Bioine.~sRmzcnii, 74(1 ), 75-85.National Institute of Stindards an d Technology. ( 1995). Malcolm BnldrigeNational QiifllityAroarrl healthcare pilot mlmn.Gdithel-SbLirg,MD: Author.National Institute of Standards an d Technology. (1997). ~MnlcolinBaldrigeNntional Qiinlity Awnrd 1997 cr&rinJrr pmrf0mance Pxcellence. Gaithershurg,MD: Author.

Journal for Healthcare Qua lity is pleased to offer theopportunity to earn continuing education (CE)credits to those who read this article and completethe form on page 48. This continuing education ofering,JHQ63,&I1 provide one contact hour to those who corn-plete it appropriately. (See the application form for fu rth erdetails.)Objectives:After participating in this independent study offering, thereader will be able to d o the following:

1. List and explain the four perspectives of a balanced score-card.2. Describe the three parts of a vision created by the strategicplan, and identify the three types of value that need to bemeasured.

CE Questions, JHQ 63(Mark your answers on the answer sheet on page 48.)1. In terms of healthcare qualitymanagement, the balanced

scorecard emphasizes thea. 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 aspectsof 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 needsto evaluate

a. current behavior, standards, and performance.b. current behavior, performance, and perception byc. standards, performance, and perception by others.d. standards, current behavior, and perception by others.

others.

4. The annual review of the balanced scorecard should providefeedback to the

a. strategic planning process.b. board of directors.c. senior management.d. all of the above

5. The following is a true/false question: The strategic planshould be separated from daily activities and long-term po-jects.

a. trueb. false

Earn CE Credit on the Internet. See page 9.

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j healthc qual.1998

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