Balanced scorecard helps achieve practice vision by balancing financial, non-financial goals

Part 2 of this two-part series focuses on the initiatives and measures of the balanced scorecard.

Issue: October 15, 2005

ByKent B. Bone, COE, MBA

Last time we defined the tools to create the foundation of the balanced scorecard. At this point, a good facilitator has selected and managed the implementation team through the many debates and negotiations on the apparent strengths, weakness, opportunities and threats, or SWOT, of the practice. Each team member should now fully understand each “sticky note” element in the SWOT analysis, and the team has declared each SWOT element’s validity in light of the vision statement.

Finally, the team moved the validated SWOT elements into meaningful categories in preparation of creating the initiatives that will help guide all employees’ actions toward attaining the practice vision statement.

Creating initiatives

Create one or more strong action statements (initiatives) representing the character of the SWOT categories created in phase three. An example might be “manage expenses.” This initiative has the two elements of a good action statement, a verb (manage) and a noun (expenses) – in short, a statement that says “do something.”

Make good definitions of these initiatives so that all who follow can understand what the initiative is about (Figure 1). There is no set length to an initiative, but try to keep it to one or two meaningful sentences so the initiative is easily read and understood; short phrases are best.

Sorting initiatives

This phase focuses these initiatives into the proper balanced scorecard (BSC) perspective. A strategic plan can have many different themes or perspectives, but a BSC, as defined by its creators, is limited to four primary perspectives:

Financial (from the perspective of an owner);
Customer (from the perspective of the patient or customer);
Internal processes (from the perspective of the managers and process owners); and
Training and growth (from the perspective of the employees).

Another perspective generally used by the public sector is environmental (from the perspective of conserving and protecting our natural resources).

The four primary “business” perspectives answer questions that focus on the vision statement as follows:

Financial perspective (owners): What are our financial objectives with respect to achieving the vision?
Customer perspective (patients): At what customer measures do we need to excel to produce the desired financial performance?
Internal process perspective (process managers): At what internal processes must we excel in order to satisfy our customers?
Training and growth perspective (employees): What must we do to develop our internal resources in order to excel at these processes?

Review your early initiatives in light of the questions asked above; these questions will help you fit the initiative to the proper perspective. The team at our fictitious company, 2020 Eye Center P.A., in reviewing the initiatives created above, combined or eliminated many of their original thoughts into 16 major initiatives. There is not a magic number of initiatives for any entity; use only those initiatives that can be measured and managed with the resources available to the company. As a guideline, the creators of the BSC state that no more that 20 overall initiatives should be used and that each perspective should be limited to no more than five initiatives.

Linking initiatives

To make sure the selected initiatives help achieve the vision statement, link each perspective to the vision statement either directly or through another initiative that links to the vision statement. Some initiatives will be drivers for other initiatives (Figure 2).

The purpose of linking is to make sure all initiatives are actions that lead to achieving the vision. In other words, by taking action on a BSC initiative, you should expect the vision to eventually happen. The implementation team, through the linking discussion (negotiation) process, decreased the number of initiatives to a final 10 core strategic initiatives because six could not be comfortably linked given the practice’s resources.

Defining measures

Measures for the initiatives must be defined, and their metrics must be reasonable to obtain. Lead indicators are those performance measures that help predict an outcome, and lag indicators measure actual performance for the indicated period of time. If an initiative is “Increase patient encounters by 10%,” then an example of a good lead indicator might be “Appointments scheduled for the next month” as compared to the same period last year. Use measuring periods meaningful to the practice.

If this lead indicator is showing that the initiative is not close to being met, then a review of the internal processes creating additional patient volumes should be undertaken. The review may indicate the need for modifications to the current processes or new processes initiated to change the trend in this lead indicator. To document the actual performance, lag indicators should be evaluated and defined. For the patient encounter initiative example above, a lag measure could be “Actual increase in patient encounters” over the same period last year.

Give each initiative the same careful thought process for both lead and lag indicators. Because there will be some non-financial initiatives, lead indicators may not be as easy to define and are sometimes unreasonable to obtain, but meaningful lag indicators can generally be found. If no reasonable lag indicator can be identified, strike that initiative because you have no measure to value the resources expended for this effort. Work hard at identifying the best measures for lead and lag indicators to help predict and steer the outcome of an initiative (Figure 3).

Publish and educate

2020’s BSC is now ready to publish (Figure 4). Many key people who have not been a part of the BSC creation will participate in making the BSC initiatives happen, so expect the education/communication process to this group of people to take considerable time. Because of the importance of education, some companies have made this process an initiative on their BSC. Good definitions, such as in Figure 1, will help make sure your strategic initiatives are understood with the most clarity.

Time frame

Assuming there is no one on the executive team who has gone through this process before, expect 12 to 14 weeks from the first meeting to publishing the BSC. It seems like a long time, but buy-in from the executive/implantation team is critical.

It will take time to educate, negotiate, create and formalize the initiatives to be published. I have formal training in this subject, and it took approximately 12 weeks from start to publication in my practice, but it was worth it.

Review process

Review the outcomes of each initiative on a regular basis. Monthly is best, but review at least quarterly. Then, modify your initiatives as needed and re-educate employees as the practice changes. This phase makes the future happen as envisioned, not by happenstance.

For Your Information:

Kent B. Bone, COE, MBA, can be reached at Mid-Florida Eye Center, PA, 17560 West Highway 441, Mount Dora, FL 32757; 352-735-4214 ext 213; e-mail: kbone@midfleye.com.