BEST PRACTICE BALANCED SCORECARDS FOR...

BEST PRACTICEBALANCED SCORECARDS

FOR GOVERNANCE,ORGANIZATIONS & CEOs

What we do know is that there needs to be a common language/common framework that links the Board, theCEO, senior management and middle management toprovide the strategic focus, alignment, synergy andimplementation support that frontline service providersrequire to be successful at achieving the organization’soutcomes – the results that flow from their mission, theirvision and their strategy.

Emerging from the failures of re-engineering, restructur-ing and merger methodologies has come the art and sci-ence of Balanced Scorecarding – which has been trackedand evaluated by Harvard’s Balanced ScorecardCollaborative since 1990.

The bottom line: about 30% to 50% of organizationsthat practice balanced scorecarding experience improvedperformance on a balanced set of strategic indicators –including staff/customer satisfaction rates and financialperformance.

However, similar to TQM/CQI and reengineeringmethodologies in the healthcare sector, 70% failure ratesamong organizations using a scorecard are common.This essay will provide you with some current insightsinto how the design and execution of BSC methodolo-gies can put your organization among the 30% who aresuccessful.

M A N A G I N G C H A N G E , F A L L 2 0 0 3 15

HEALTHCARE SECTOR MANAGEMENT TRENDS

BEST PRACTICEBALANCED SCORECARDS

FOR GOVERNANCE,ORGANIZATIONS & CEOs

By Ted Ball, Bruce Harber, Ken Moore & Liz Verlaan-Cole

A fter a decade of “lessons learned” in balanced scorecarding in the health-care sector, we are coming to a much better understanding about “what works”and “what doesn’t work” in achieving strategic focus, organizational alignmentand accountability for outcomes in healthcare organizations and local deliverysystems. This essay is intended to provoke the thinking of Boards, managers andpolicy-makers on how some of these lessons and emerging best practices couldbe adapted to their unique circumstances.

Balanced Scorecarding

A Balanced Scorecard is a systems thinking-basedtool/methodology/process that is deeply rooted in thefailures of reengineering, downsizing, mergers and aplethora of “structural quick-fixes” that have beenemployed in the health sector over the past ten years.

In their book The BalancedScorecard, by Kaplan and Norton state that “the BalancedScorecard translates mission and strategy into outcomes andmeasures organized into four perspectives: financial, customer,internal processes and learning and growth.”

“The scorecard provides a framework, and a language tocommunicate mission and strategy; and it uses measure-ment to inform employees about the drivers of currentand future success.”

“By articulating the outcomes the organization desires –and the drivers of those outcomes – senior executives canchannel the energies, the abilities, and the specificknowledge of people throughout the organizationtowards achieving the long-term goals”.

In a best practice framework used in the healthcare sector, the scorecard contains the four strategic quadrants(finance & customer outcomes, value-adding processes and thelearning & growth enablers) and traces their “relationshipof effect” (follow the arrows in Figure #1).

These healthcare organizations start by determining theoutcomes they will achieve for their customers, as well as the outcomes they will achieve in their financialquadrant.

They then determine what value-adding processes theyneed to design in order to achieve these outcomes; whatskills their staff need, what learning & growth invest-ments they need to make in order to enable the organi-zation to design and implement the value-addingprocesses that will produce the results/outcomes listed intheir customer and financial quadrants.

While there are examples of dramatic improvements in the corporate sector with the BSC, in recent years,numerous healthcare organizations in the United States,Canada and Europe have achieved breakthrough resultsas well.

Noorein Inamdar and Robert Kaplan in their essay“Applying the Balanced Scorecard in Health Care ProviderOrganizations” (Journal of Healthcare Management,May/June, 2002) noted that unlike the traditional, linearindustrial-age management methodologies common tothe healthcare sector, the BSC can provide the followingbenefits:

• A framework that will align the entire organizationaround the implementation of a more customer-focused strategy.

• Core principles and processes for strategy implemen-tation/execution.

• A communication and collaboration mechanismthat clearly assigns accountability to those responsi-ble for carrying out the strategy – at all levels of theorganization.

• A measurement reporting system and monitoring toassess the progress and success of the strategy.

S C O R E C A R D S F O R G O V E R N A N C E , O R G A N I Z A T I O N S A N D C E O s


FINANCIAL

• Balance Revenue and Costs

• Asset Utilization

• Efficiency / Effectiveness

• Leveraged Use of Resources

VALUE-ADDEDPROCESSES

• Core Process:Quality Care

• Support Processes

• Integrated Service Design

CUSTOMER

• Accessibility

• Quality Care / Outcomes

• Seamless Services

• Customer Satisfaction

LEARNING & GROWTH ENABLERS

• Human Capital & Strategic Competencies

• Accountability and Strategic Budgeting

• Information Capital

• Alignment & Culture

THE BALANCED SCORECARD

Figure #1

• Direction for allocating resources to achieve the strategy.

• A continual feedback and learning process that facil-itates continuous adjustments to emerging realities.

The evidence suggests that most healthcare organizationsdo not currently have adequate processes to managestrategy. In Figure #2 is the Balanced ScorecardCollaborative’s data on organizations that employ traditional approaches to managing strategy.

Healthcare organizations need to ask themselves if theircurrent practices reflects the overall performance of typi-cal organizations.

Execution

While the BSC holds open the possibility of chang-ing these results dramatically, there are no guarantees.

Many healthcare organizations currently using a processthat they call “a Balanced Scorecard”, are actually only

using the BSC as a performance measurement tool –sometimes used to blame – rather than for the originalpurpose: strategy implementation.

Simply put, the BSC has been designed as a frameworkand a process that mobilizes people to achieve the out-comes and targets of their strategy. It is a tool/process forexecuting strategy.

Bossidy and Charan, in theirbook, Execution: The Discipline ofGetting Things Done describesexecution as “a systemic processof rigorously discussing hows andwhats, questioning, tenaciouslyfollowing through, and ensuringaccountability.”

“It includes making assumptionsabout the external environment, assessing the organiza-tion’s capabilities, linking strategy to operations and thepeople who are going to implement the strategy, syn-chronizing those people with their various disciplines,and linking rewards to outcomes.”

“It also includes mechanisms for changing assumptionsas the environment changes, and for upgrading the orga-nization’s capabilities to meet the challenges of an ambi-tious strategy.”

While much has been written on Organizational BalancedScorecards and their ability to mobilize an organizationand to facilitate a better balance between empowermentand accountability, we are now seeing even greater levelsof alignment and synergy in organizations that are devel-oping three additional complementary scorecards: theBalanced Governance Scorecard and the CEO/Chief-of-StaffScorecard – as well as Managerial Accountability Agreements.

The Balanced Governance Scorecard

The reality is that while the healthcare sector hasundergone ten to fifteen years of unrelenting incremen-tal changes, governance processes and methodologieshave largely gone unchanged over that same period.



WITHOUT PROCESS TO EXECUTE STRATEGY, YOU COULD

BECOME A STATISTIC:Most health care organizations do not have adequateprocesses to manage strategy. Consider the following:

Of a typical workforce does not 95% understand their organization’s strategy

Of organizations fail to execute 90% their strategies successfully

Of executive teams spend less 86% than one hour per month discussing strategy

Of organizations do not link middle 70% management incentives to strategy

Of organizations do not link 60% strategy to budgeting

Balanced Scorecard Collaborative, Health Care Summit 2003

Figure #2

Even 15 years ago the healthcare sector was by far themost complex of organizational designs that humanshave ever devised. Today, the complexities of hospitalsand local delivery systems are staggering – when viewedthrough the lens of traditional industrial-age systems,structures, processes, and managerial styles.

Today, we have the benefit of learning from “whatworked”, and “what didn’t work” in the Carver Model andthe Pointer/Orlikoff Model of governance in the healthcaresector over the past ten years.

For Boards that have maintained their traditional governance model, and for Boards that have evolvedtheir own unique approach to Carver or Pointer/Orlikoff,the Balanced Governance Scorecard could be the next iteration of their continuous improvement journey.

Balanced Governance Scorecarding is a methodology and a process that enables Boards to evaluate their ownperformance – as a group, and as individuals. It isdesigned to describe and manage the strategic responsi-bilities of the Board itself.

A recent study by Governance Metrics (August, 2003)clearly demonstrates that “good governance” makes aconsiderable difference to the operational performance

of an organization, and that “poor governance” contributes to sub-optimal performance at the operational level.

In his insightful book, Deep Change: Discovering theLeader Within, Robert E. Quinn states that “the mostimportant lever for change is modelling the changeprocess for other individuals. This requires that the people at the top themselves engage in a deep changeprocess.”

Boards that are prepared to redesign themselves willtherefore “model change” and “commitment to excel-lence” to the rest of the organization.

The Board’s Responsibilities

What are the strategic responsibilities of Boards in abest practice healthcare governance model?

They are:

1. Approve Strategic Direction

Boards of public hospitals and community service orga-nizations represent the interests of the public in theirmandate to set the strategic direction of their publicly-funded organizations. They represent the interests of the



FINANCIAL

• Enhance long-term value for owners / customers

• Balanced Budget

• Leveraged Use of Resources


• Performance oversight, monitoring and Accountability Process

• Strategic Budgeting Process

• Quality Assurance Process

• Compliance and Communication

• Succession Planning

CUSTOMER

• Accessibility

• Quality Care / Outcomes

• Seamless Services

• Customer Satisfaction


• Capacity-building for governance

• Develop Coaching Skills

• Invest in the learning & growth of staff and board

• Performance information system and IT support

BALANCED GOVERNANCE SCORECARD

THE BOARD’SRESPONSIBILITIES1. Approve Strategic Direction

2. Ensure leveraged use of resources

3. Coach the CEO/Chief-of-Staff and holding them accountable for results

4. Serve as the guardian for compliance and open communications

5. Select CEO/Chief-of-Staff, ensure continuous learning/improvements and succession planning

Figure #3

Figure #4

“owners” and “customers”: the citizens of the province/community.

However, it is the CEO’s job todevelop strategy in conjunctionwith their senior and middlemanagers, and to implement/execute the strategic directionsapproved by the Board.

It is the CEO’s mandate to create,lead and manage a strategically-focused organization that has the

internal capacity to achieve the outcomes set by theBoard.

A recent McKinsey survey in the corporate sector indicat-ed that 44% of directors don’t fully understand the keydrivers of value for the organization they govern. Giventhe complexities of hospitals and health systems, andgiven the dramatic changes that have occurred incremen-tally over the past ten years, there is little expectation thathealthcare Boards can or should create strategy.

They hire a CEO for that. CEOs develop and implementstrategies designed to achieve the Board’s “ends policies”.Boards approve or amend the high level strategies gener-ated by the CEO and their Strategy Team: provide over-sight; and, hold the CEO accountable for outcomes.

Boards of hospitals are also accountable for maintaininghigh quality-of-care standards in their organization. Insome jurisdictions, Boards are required to have a Chief-of-Staff to whom they devolve their accountabilities formaintaining current quality-of-care standards at theirhospital.

In the post-SARS world, and withrecent evidence that 8,000 to10,000 Canadians die annuallybecause of preventable hospitaland medical errors, quality-of-care issues are becoming criticallyimportant to the public – andtherefore to the boards that repre-sent their interests.

On behalf of the customers and the owners, Boardsensure that the organization’s systems, structures andprocesses are producing continuous improvements in thequality of care provided.

The Board’s job is to “add value” to the BSC developmentprocess – through their monitoring of the progress beingmade by the CEO, senior management and the Chief-of-Staff on the themes, perspectives, outcomes, measuresand targets set out in an Organizational Balanced Scorecardthat they have approved following extensive dialogueswith the CEO and their strategy team.

The Board’s job is to “push the envelope” on behalf ofthe owners and customers by bringing a deep under-standing of community values and a diverse set of perspectives/skills/ knowledge. They ask “wicked” and“probing questions” that stimulate and provoke every-one’s thinking about how best to serve the community –through the leveraged use of resources available.

Then they provide approval for the strategic directions(“ends”) that they believe reflect the public interest, andthat they are convinced will achieve the organization’smission and vision – within the resources that have beenallocated by the provincial government.

2. Ensure Leveraged Use of Resources

Boards must ensure that resources are used effectivelyand efficiently to achieve the strategy that they approve.They set fiscal policy, approve large capital expendituresand are accountable for ensuring a balanced budget.

While Boards can always attempt to convince the funders(provincial governments/the public) that they need moreresources to fulfill their mission, their job is to ask prob-ing/wicked questions of the CEO, senior managers andthe Chief-of-Staff to ensure that the strategy they haveapproved has the resources required for success – andthat the budget is balanced.

While the “owners” want accessible, high-quality ser-vices, as taxpayers, they also want to be confident thatavailable resources are being spent wisely, for the highestreturn on investment for their community.

Organizations that use the balanced scorecard framework,language and process abandonthe traditional budgeting processthat can consume up to 30% ofthe time of senior executives, anda great deal of middle managers’time – whose survival oftendepends on learning how to“game the numbers”.



In Beyond Budgeting: How Managers can Break Free Fromthe Annual Performance Trap Jeremy Hope and RobinFraser point out that “as long as budgeting – a vestige ofthe old command-and-control approach to management– remains in place – the newer tools designed to decen-tralize strategic decision-making will never achieve theirfull potential.”

The authors suggest five principles to ensure that there isa leveraged use of resources (see Figure #5).

Experience indicates that where organizations utilize abest practice balanced scorecarding methodology, andretain their traditional budgeting process, staff receivetwo conflicting messages: “we’re changing,” and, “we’renot changing”.

Where strategic budgeting has been used in conjunctionwith an Organizational Balanced Scorecard, the role of theBoard is a key critical success factor.

The Board needs to learn how to focus on the meaningof both the financial and non-financial data; ask probingquestions on behalf of the “owners”; push for innova-tion, creativity, teamwork and collective intelligence –while holding their two employees accountable for theoutcomes/results achieved within a best practiceaccountability framework and process.

3. Coach the CEO/Chief-of-Staff and Holding them Accountable for Results

The Organizational BSC monitoring process ensures thatBoard meetings are opportunities for board members toshare their knowledge, discuss strategic tradeoffs, andlend decision support to the CEO, senior managementteam and Chief-of-Staff.

In their book, Board Work:Governing Health Care Organi-zations, Pointer and Orlikoff say“In today’s health care system,proposals and recommendationsmust wind their way through a governance labyrinth that significantly decreases an organi-zation’s strategic and operationalmetabolic rate –at a time whendecisiveness and agility are needed most.”

Pointer and Orlikoff point out that “Board meeting timeis often spent passively listening to reports and receivingbackground information – from management, the medical staff and the Board’s own committees. Little timeis left for the ‘red meat’ of governing: deliberating anddebating decisions and policies that require Board inputand action.”

The Organizational Balanced Scorecard’s performance measurement system provides the Board with a set offinancial and non-financial measures and targets thatshows past, current and anticipated performance usingmeasures and targets that are meaningful and easy tounderstand.

With the best interests of the customers and owners intheir hearts and minds, Boards use the BSC monitoringprocess of the CEO, Chief-of-Staff and senior manage-ment team to coach, guide, mentor and “add value” totheir thinking – while “pushing the envelope” on behalfof the community they serve.



STRATEGIC BUDGETINGPRINCIPLES

1. Provide a governance framework based on clear principles and boundaries.

2. Create a high-performance climate based on relative success.

3. Give people freedom to make decisions that are consistent with governance principles and the Board’s “ends policies”.

4. Place the responsibility for valuecreating decisions on front-line teams.

5. Support open and ethical informationsystems that provide “one truth” throughout the organization.

From: Beyond Budgeting

Figure #5

Because they want the CEO and Chief-of-Staff to succeed,Board members will want to find ways of “adding value”to their two employees – as they and their teams strugglewith the actions required to close “the gap” between cur-rent performance, and the outcomes/results for whichthey are being held accountable by the Board.

Really excellent Boards are ones that master the skill andart of coaching. While there are many coaching models,Boards need to be intentional about how they will provide coaching and feedback to their employees.

In the healthcare sector, Boards that “add value” arethose that create a safe environment where the CEO andsenior management team can explore their best thinkingon strategy with the Board, and, as a result, are able toenrich and leverage their thinking and their plans.

Apart from the monitoring of the progress being madeon the Organization’s Balanced Scorecard, best practicessuggests that CEOs and Chiefs-of-Staff should developtheir own scorecards as a starting point for theirAccountability Agreements. Their scorecards and the agreements should reflect how they personally willenable the organization to successfully achieve the organization’s BSC outcomes – as well as the “supportsthey require” to be successful, and the “consequences” ofsuccess and failure.

4. Serve as Guardian for Compliance & Open Communication

Compliance includes legal, accounting and regulatoryrequirements – as well as oversight to ensure that theorganization is adapting best practices for quality-of-carestandards, human resource management, performancemeasurement and strategy implementation.

Increasingly, provincial governments are usingPerformance Agreements that set out high level agreed-upon outcomes that will be achieved, in return for public resources.

How these are designed is critically important. In BeyondBudgeting, Hope and Fraser point out that “fixed performance contracts cause managers to behave in dysfunctional ways”. They say “at best this results in‘managing the numbers’, at worst, it results in outrightmisrepresentation and fraud.”

While some jurisdictions havedesigned the PerformanceAgreement (or Business PlanningProcess) to micro-manage theoperations of healthcare organi-zations, this approach can createconfused accountabilities for theCEO as to who their boss really is:their Board, or the public servantswho are monitoring and inspect-ing them?

A recent British Columbia Auditor’s Report points to themodels in New Zealand/Australia/Britain that are rootedin learning and continuous improvement, rather than incentralized bureaucratic control, as the “best practice”approach that needs to be developed.

Whichever model is employed – best or worst practice –Boards are accountable for ensuring that their agreementwith their funder is honoured.

Boards therefore need to ensure that, in addition to theoutcomes that they are seeking to meet the unique needsof their community, they need to incorporate what theyhave agreed to in their Performance Agreement, in theAccountability Agreements with their two employees: theCEO/Chief-of-Staff.

Boards therefore devolve their accountabilities and monitor performance.

5. Select the CEO/Chief-of-Staff, Ensure ContinuousLearning and Succession Planning

Boards select their two employeesand hold them accountable forachieving the outcomes listed intheir Organizational BalancedScorecard – where the outcomesare continuously adjusted toreflect emerging realities.

In the learning and continuousimprovement model, Boards arenot engaged in “gotcha” exercises; and, CEOs, seniormanagers are not engaged in “defensive routines”.Instead, the governance and managerial leadership participate in authentic learning dialogues to explore the “gaps” in performance, and to explore the possibleleveraged actions that will close the gaps identified.



Boards are also responsible for ensuring that there is succession planning for all key executives, and that thereare adequate resources for learning and growth – at least1% to 5% of the payroll budget. Best practices suggeststhat these resources be initially devoted to ensuring thatsenior managers, middle managers and staff have theskills and capacity required to design and implement theprocesses that will achieve the organization’s outcomesin the customer and financial quadrants of their BSC.

In their book, A Balcony Perspective, Broholm andJohnson describe a board member’s role this way:“Board members have a critical role in the developmentof trust-worthy institutions. They build trust by under-standing their role, and using their power wisely; by setting boundaries for staff which are creative, not oppressive; by serving as mentors to the organization,and by creating hospitable space for indepth reflection.”

Participating in the development of the OrganizationalBalanced Scorecard, and developing their own GovernanceBalanced Scorecard, are two important ways for Boards to“model learning” for their organization. In doing so,they are functioning in stewardship to their community.

Peter Block defines stewardship as“the willingness to be account-able for the well-being of thebroader community, by operatingin service, rather than in controlof those around us.”

When Boards and CEOs haveachieved a genuine partnership –a relationship of equality – even

though the Board is the “partner-in-charge”, (51% vs.49%), then stewardship and partnership can becomeorganizational realities.

While it is the CEO’s and Chief-of-Staff’s responsibility to ensure that managers and medical chiefs are in alignment with the Board’s strategic directions and“ends” policies, the Board provides “oversight” for theaccountability processes that provide the right balance ofempowerment and accountability for the organization’s staffto succeed.

Finally, Boards are responsible for succession planningfor all key executives.

Governance/Management Roles

The Carver and Pointer/OrlikoffModels of governance provideclarity on the distinct roles of governance and management.

The CEO’s responsibility to man-age and lead the organization isdistinct, but complementary, tothe Board oversight responsibility.

The CEO’s role is to lead and manage the senior teamand middle managers to develop/facilitate/communicatethe organization’s strategy.

In a number of successful organizations, CEOs and theirsenior managers sought input from directors, managersand the wider system for their best thinking on the organization’s BSC outcomes and measures – beforereturning to their Board.

To ensure that the outcomes for which the CEO andChief-of-Staff are accountable are in fact achieved, theCEO’s role is to ensure organizational alignment of thepeople, systems, structures, processes, culture and theskills that are required to succeed.

In the strategy implementation process CEOs and theirsenior management teams are as much system designers asthey are strategists.

To ensure best practices in system and organizationaldesign, balanced scorecarders use another systems think-ing-based tool for complex system design: the StrategicAlignment Model – which helps system designers to discover how they can better align their structure, cultureand skills to achieve their Balanced Scorecard outcomes(see alignment model, Figure #6).

In organizations where the Board is developing their ownGovernance Balanced Scorecard (while engaging in dialogues with the CEO/Chief-of-Staff and the seniormanagement team on the initial few iterations of theirOrganizational BSC), the dialogues tend to be rich withmutual learning and empathy – rather than negativejudgment, or blind acceptance.





BOARD’S ROLEVISION

• Continuously review, explore and refine the organization’s vision

• Require highly participative processes for sharedvision, strategy development and feedback

APPROVE STRATEGIC DIRECTIONS

• Long-term strategy and targets

• Partnerships and system integration

OVERSEE FINANCIAL ACTIVITIES

• Performance review/monitoring process

• Fiscal policy/strategic budgeting

• Ensure leveraged use of resources

• Approve major capital expenditures

COACH THE CEO/CHIEF-OF-STAFF & PARTNER WITH SENIOR MANAGEMENT

• Decision support

• Performance feedback/advice

• Ask probing questions on behalf of the “owners”and “customers”

• Function as coach, guide, mentor

SELECT & MOTIVATE EXECUTIVES

• Executive performance and compensation

• Succession planning/executive development

• Invest in learning & growth of board and staff

ENSURE COMPLIANCE

• Regulation requirements

• Quality care and risk management

• Stakeholder/funder communications

• Hold CEO/Chief-of-Staff accountable for outcomes

CEO’S ROLESHARED VISION

• Ensure teams and staff throughout the organization have ownership of the evolving vision and strategy

• Lead and manage transformation process

DEFINE & COMMUNICATE STRATEGY

• Identify financial and non-financial drivers

• Capacity-building for BSC input through cascading process

• Partnership and system integration

MANAGE FINANCIAL RESOURCES

• Fiscal policy/strategic budgeting

• Forecasting and strategic budgeting

• Propose major capital expenditures

• Balance the budget

ORGANIZATIONAL & PEOPLE ALIGNMENT

• Workforce acquisition/retention and performancemanagement

• Alignment of processes, systems, structures, culture and skills to achieve the strategy

• Coach direct reports/model learning

• Provide the right balance of leadership/management and empowerment/accountability

BUILD CAPACITY OF STAFF

• Invest in learning & growth of staff

• Model learning

• Practice developmental facilitation and coaching

MANAGE EXECUTION

• Performance measurement/reporting/ review

• Partnership with Chief-of-Staff/senior team/Board

• Determine leveraged actions to close the performance gap

• Stewardship for success



Ongoing monitoring dialogues, and retreats between theBoard and the senior management team should bedesigned to achieve leadership alignment, commonunderstanding, and, ultimately Board approval and support for achieving the outcomes listed in theOrganizational BSC.

The CEO’s/Chief-of-Staff’sScorecards and Accountability Agreements

Best practices suggest that Chief Executive Officers areheld accountable by their Boards for achieving the highlevel outcomes in the customer and financial quadrantslisted in the Board-approved Organizational BSC.

While that continues to reflect best practices, in recentyears CEOs have begun to develop their own scorecard –as part of their process for developing an AccountabilityAgreement with their Board. These agreements balancethe “supports required” to successfully achieve the outcomes – as well as the “consequences” of success and failure.

In developing the CEO Agreement, the CEO reflects onthe Organizational BSC and asks:

“What can I do, as CEO, to enable my organization to be successful? What will I do to ‘add value’ in each of the quadrants of the organizational and governance scorecards?” (see Figure #8)

By leading the organization through the BSC develop-ment process, CEOs will have a good understanding ofthe strengths and vulnerabilities of their organization –and how they can provide the right balance of leadershipand management that will contribute to their organiza-tion’s success.

By engaging in developmental coaching with their directreports, and working with each of them as they developtheir own Accountability Agreements, and integrate themcross-functionally, the CEO will also have a good under-standing of how they can support or remove barriers for senior and middle management, the Chief-of-Staffand the Board – so that they all successfully achieve theiroutcomes and targets.

When everyone is successful, the CEO is successful.

CUSTOMER & FINANCIAL STRATEGIC OUTCOMES

STRATEGIC THEMES IN A BALANCED SCORECARD

STRATEGY

CULTURE

SKILLS STRUCTURE

• TECHNICAL• ANALYTICAL • PEOPLE • ORGANIZATIONAL• COMMUNICATIONS

• DESIGN• DECISION-MAKING

& ACCOUNTABILITY• INFORMATION SYSTEMS• REWARDS/INCENTIVES

& STRATEGIC BUDGETING

• NORMS • VALUES • LANGUAGE

• BEHAVIOUR • LEADERSHIP • STEWARDSHIP

SHARED VISION

STRATEGIC ALIGNMENT MODEL

Figure #6



While the Board has two employees (CEO/Chief-of-Staff), the Chief-of-Staff is a member of the CEO’s seniormanagement team. The CEO is the one accountable forthe overall strategy and the results produced. There canalso be “shared accountabilities” that require partnershipand collaboration between the Board’s two employees toensure that the organization is successful.

While there are some examples of organizations thathave successfully engaged physicians in the OrganizationalBalanced Scorecard Process, the evidence would suggestthat there is significant room for improvement.

That’s why the process for developing the Chief-of-Staff’sBSC and Accountability Agreement is so critically impor-tant to hospitals. Current wisdom suggests: “slow down,in order to speed up”, and, “plan to plan, or plan to fail”.

Medical Chiefs and Medical Advisory Committees needto see how the accountability process and the BSC areused to mobilize the “supports” they need to successful-ly achieve the quality-of-care outcomes for which theyare accountable.

Can this process address the long-held criticism of thelack of meaningful physician engagement in decision-making and strategy?

Yes. When physicians experience this process as a system-atic method for holding the Chief-of-Staff, CEO, seniormanagers and the Board accountable for providing theagreed-upon “supports required” to achieve their out-comes, the BSC will become a meaningful and importanttool for the hospital’s physician leadership group.

Physicians, through the Medical Chiefs, and through theChief-of-Staff, can be full participants in on-going deci-sion-making and strategy development with this model.

However, where the BSC is seen as yet another “manage-ment fad”, and where physicians may have becomedemoralized and cynical about ever experiencingimprovements, it could take two or three years beforeactive cooperation occurs.

For the best results, there needs to be a renewed commit-ment – on the part of the hospitals and their physicianleadership – for cooperation, collaboration, trust-building and respect.

In organizations where hospital/physician relationshipsrequire a period of trust-building, the Chief-of-Staff canprovide the medical perspective on the first few iterationsof the BSC in their work with the other members of theCEO’s strategy team.

Once there is an environment of trust, respect and partnership, the Chief-of-Staff can then facilitate the best thinking of the Medical Chiefs and the hospital’squality-of-care committee – and fully engage the medicalperspective in the BSC process before seeking the Board’sapproval on the Organizational BSC.

When there is alignment on the medical perspective, onthe part of the physician leadership, the Chief-of-Staffcan then work with the Medical Chiefs to developAccountability Agreements with them that clearly set outthe “supports required” for them to be successful.

In this design, physicians can achieve the balance ofempowerment and accountability that holds the prospectfor significantly improving hospital/physician relations –and ultimately, organizational performance.

This approach acknowledges that our existing systems,structures and processes that define hospital/physicianrelationships have been unintentionally designed to create conflict and dysfunctionality.

While traditional hospital/ physician relationshipdesigns may have ingrained personal conflict betweenmanagement/physicians/Board/CEO, people must beready to “let go” of past conflicts, forgive, and be ready tomove on and collaborate to achieve the organization’sshared vision.

FINANCIAL

• How will I “add value” to achieving our financial outcomes?


• How will I “add value” to designing these processes?

CUSTOMER

• How will I “add value” to achieving our customer outcomes?


• How will I “add value” to achieving our learning and growth outcomes?

CEOs BALANCED SCORECARD

Figure #8



Among the handful of hospitals that have successfullyintegrated the physician’s perspective into their BSC inthe early stages of development is Duke Children’sHospital – named to the Balanced ScorecardCollaborative’s Hall of Fame in 2000.

Managerial Accountability Agreements

Because CEOs are accountable for all of the outcomesin the organization’s evolving BSC, they need systems,structures and processes that will ensure that theiraccountabilities to the Board are linked and integratedinto the accountability process for all managers.

An Accountability Agreement is a tool forpeople to mobilize the support theyneed to successfully achieve the out-comes for which they are accountable(see “Redefining Accountability in theHealthcare Sector”, Managing Change,Spring, 2003).

Accountability Agreements need to bedesigned as a “fair business bargain”.They are a personal promise to achievemeasurable results within a guaranteethat “you can’t be accountable for anything over which youhave no control.”

When vice-presidents, directors, and managers and med-ical chiefs integrate their Accountability Agreements cross-functionally, they are able to reach agreements on howthey will work together to align the systems, structuresand processes that will enable them – individually andcollectively – to achieve the outcomes in theirOrganizational BSC.

The Accountability Agreement is the manager’s best friend,not their worst enemy! It is designed to reflect the rightbalance of empowerment and accountability.

Synergy & Alignment

So, how does the Balanced Scorecard, AccountabilityAgreement and Performance Agreement work togetherto create alignment and synergy at the organization level?

In Figure #9 we have created a Venn diagram that outlinesthe various pieces of the governance/management puzzlethat we have dealt with in this essay.

The centerpiece of this architecture is the OrganizationalBalanced Scorecard which, when approved by the Board,becomes the “ends policies” and the official strategy ofthe organization – subject to continuous improvementsthat are driven by the emerging internal and externalrealities that the organization must manage.

While the CEO is accountable for theoutcomes listed in the financial and cus-tomer quadrants of the OrganizationalBSC, they develop a personal BSC, andan Accountability Agreement with theirBoard that reflects the “supportsrequired” to succeed, as well as the “con-sequences” of success and failure.

In healthcare systems, where legislationrequires the Chief-of-Staff to beaccountable to the Board directly, a

Chief-of-Staff creates a scorecard and an accountabilityagreement with the Board that is reflected in both the Organizational BSC and the CEO’s AccountabilityAgreement.

To ensure their own success, CEOs require their directreports to develop Accountability Agreements that incor-porate the outcomes in the Organizational BSC that theyare accountable for achieving.

In turn, vice-presidents have Accountability Agreementswith directors, and managers have agreements with theirdirectors – thereby linking everyone in management withthe Board’s directions. This is how an organization canachieve alignment of “people, systems, structures andprocesses”.

“AccountabilityAgreements are

designed to reflectthe right balance of empowerment

and accountability.”



ALIGNING BALANCED SCORECARDS AND ACCOUNTABILITY AGREEMENTS

GOVERNANCE BSC(PERFORMANCE AGREEMENT WITH FUNDER)

The Board is accountable for everything. The CEO’s scorecard reflects the Organizational BSC and the Chief-of-Staff’s.

The Organizational BSC incorporates the Chief-of-Staff’s BSC.

CEOs BSC(ACCOUNTABILITY AGREEMENT

WITH THE BOARD)

ORGANIZATIONALBALANCED SCORECARD

(MANAGERIAL ACCOUNTABILITY AGREEMENTS)

CHIEF-OF-STAFFsBALANCED SCORECARD

(ACCOUNTABILITY AGREEMENT WITH THE BOARD)

Figure #9



Finally, encompassing everything is the Board’s ownBalanced Scorecard – what we have called the BalancedGovernance Scorecard – which provides the Board andindividual board members with a methodology for mea-suring their own performance.

Instead of dealing with each of the components of governance, management, quality and financial perfor-mance as separate silos that have nothing or little to dowith each other, this suggested architecture aligns each ofthese pieces into a single integrated approach that willproduce synergy, collaboration, alignment, and, strategicfocus.

However, for this system to work, man-agers – particularly the top managers –need to be deeply and fully committed tochange.

In the Strategy-Focused OrganizationKaplan and Norton point out that experi-ence has repeatedly shown that “the singlemost important condition for success isthe ownership and active involvement ofthe executive team.”

These authors remind us that “strategyrequires change from virtually every part ofthe organization. Strategy requires team-work to coordinate these changes. And strategy imple-mentation requires continual attention and focus on thechange initiatives and performance against targeted

outcomes. If those at the top are not energetic leaders ofthe process, change will not take place, strategy will notbe implemented, and the opportunity for breakthrough performance will be missed.”

Local DeliverySystem Integration

While Balanced Scorecards can create alignmentand synergy within an organization, they can also be

utilized within a local delivery system toachieve enhanced integration and coordi-nation of services at the patient/customercontact points across the continuum ofcare within a community.

Healthcare delivery organizations areoften trapped in senseless silo competi-tions between institutions and communi-ty agencies. They are engaged in relationaldynamics that systems thinking scholarscall a “system archetype” – a repeating pattern of behaviours/thinking that always fails in the end.

The archetype in this case is called “The Tragedy of theCommons” (see Figure #10) where the end result is: everybody loses.

“The single mostimportant

condition for success is

the ownershipand active

involvement of the executive team.”

THE TRAGEDY OF THE COMMONSThis systems thinking archetype illustrates one of the common mistakes in designing complex systems: combining perverse incentives for individuals or silos in systems where – ultimately – survival requires cooperation and coordination of effort and resources.

Named after an essay by ecologist Garrett Hardin (1968), the tragedy occurs over the use of a “common pasture” where the villagers of a community graze their livestock and where the incentive structure isdesigned to reward everyone for increasing the size of their livestock herds.

In time, the common pasture is bare dirt, all the livestock die, and the villagers starve. What is missing fromthe commons system are appropriate incentives, governance and decision-making processes that ensure that the size of the herds grow to the level where it matches the growth rate of the grass.

As an illustration for the healthcare sector, Hardin’s story reveals why it is essential that individual silos seethe larger picture and develop incentives and decision-making processes that will enable a community to collaborate and coordinate in their individual and collective self-interests.

Figure #10



So, how do you get organizations to shift their historicalsilo-behaviours and competitive dynamics to achieve vertical and horizontal integration of customer serviceswithin a delivery system?

At his June, 2003 dialogue workshop with Board leadersand senior managers in eastern Ontario’s ChamplainDistrict, Dr. Dennis Pointer, the foremost authority onbest practice healthcare governance, advised that “Boardsare the best stimulants, facilitators and vehicles forgreater inter-organizational cooperation.”

But Boards have to consciously choose to change from:“representing the interests of their silo”; to “represent-ing the interests of their common ‘owners’ and ‘cus-tomers’: the citizens of the province,and the community they serve.”

While the health sector’s addiction to“structural quick-fixes” will compelmany to believe that Regional HealthAuthorities, more mergers or more rulesand requirements for hospital networksare the solution to consumer demandsfor a “seamless system of services”,experience with system integrationissues does not support their beliefsthat change happens when you simplychange the structure.

From the former North Shore HealthRegion in British Columbia, and from anumber of American integrated healthsystems, we see compelling exampleswhere having a common language/common framework for problem-solving and decision-making that the BSC strategy implementation processprovides, enables everyone – cross-functionally withinorganizations, and at the hand-off points across thedelivery system – to integrate at the service delivery level.

The paradoxical lesson learned: organizations within alocal delivery system can be independent and interde-pendent at the same time – when they share a commonlanguage/common framework for strategy implementa-tion.

When a critical mass of healthcare organizations withina local delivery system have included “seamless services”

as a customer outcome; and “integrated service design”as a value-adding process in their BSC – for which theBoard is holding the CEO accountable – there will bemeasurable improvements in system integration.

While it is possible to retain the benefits of independentgovernance and management and achieve the efficiencyand effectiveness goals of integrated services at the cus-tomer delivery level – progress will be slow and painful,until and unless the system abandons its silo-orientation.

Boards can and should play a key role in creating thisshift in the thinking and behaviour at the communitylevel.

When a critical mass of Boards within alocal delivery system realize that theyare all representing the same “owners”and “customers”, decision-making andstrategy development within an organi-zation will shift from the traditionalsilo-focus, to a customer-focus andcommunity-focus.

Service integration from a customer per-spective will only actually occur when acritical mass of CEOs and ExecutiveDirectors across a local delivery systemare being held accountable for measur-able improvements in system integra-tion by their respective Boards.

When this occurs, collaboration, coor-dination and cooperation can be trans-formed from “buzz-words”, to mean-

ingful changes that will produce the results that con-sumers want and need.

Governments can and should play a key role in this shiftas well. Instead of merely the rhetoric supporting inte-gration, Ministries of Health need to align their core systems, structures, processes and incentives to supportintegration at the customer service level.

If provincial governments want the healthcare organiza-tions that they fund to be accessible and seamless for thecitizens they serve, then they must integrate their owninternal departmental silos.

“Organizations withina local delivery system can be

independent andinterdependent at the

same time – whenthey share a common

language/commonframework for strategy

implementation.”



Is Failure an Option?

Evidence from the Balanced Scorecard Collaborative tellsus that only 10% of organizations ever successfullyimplement their strategy.

Common reasons for failure are locatedin the four barriers: vision, people, man-agement and resource allocation, as setout in Figure #11.

Balanced scorecarding methodology isrooted in the lessons learned from our“best mistakes” from the past. The tra-ditional “quick-fixes” for healthcarehave historically been: increased fund-ing, and structural change – sometimesdescribed as “tinkering on the edges,and playing on the margins”.

The question is: have we really learnedfrom our “best mistakes” of the past, or,are we doomed to repeat them a fewmore times before we change? Will wecontinue to call for “more money” oranother “structural quick-fix” as the solution?

Today, we are experiencing the ultimate paradox: increas-ing spending on the healthcare system will result in asociety that would in fact be less healthy – because theresources for quality education, clean water, safe foodand secure electrical power would be diverted to hospitals.

So, if the solutions aren’t more money, or a reorganiza-tion of power and control structures, where are the solutions? The answer is: within the organization itself.

Learning Organizations are organizations that deeplyunderstand that the solutions to their most perplexing

problems are within their organization– in the hearts and minds of the peoplewho work there.

Learning organizations align their sys-tems, structures and processes to tapinto the collective intelligence of theirorganization. In the healthcare sector,organizational culture has now becomethe “burning platform” for change.

While nurses and other health profes-sionals have self-selected to be in the“caring business”, their employers havenot historically demonstrated muchcare, concern or respect for front-lineworkers. To discover why customer sat-isfaction and public confidence rates areslipping, one need only look at staff sat-isfaction rates.

Even with billions of dollars in increased spending, adecade of incremental “quick-fixes” has produced one of“the most toxic work environments in the country” –with the healthcare sector ranking dead last among fifteen employment categories – according to the CPRN-Ekos Employment Relationship Survey, Canada, 2000.

“While nurses andother health profes-sionals have self-

selected to be in thecaring business, their

employers have nothistorically demon-strated much care,

concern or respect forfront-line workers.”

ONLY 10% OF

ORGANIZATIONS EXECUTE

THEIR STRATEGY

THE BARRIERS TO IMPLEMENTING STRATEGY

BARRIERS TO STRATEGY EXECUTION

ONLY 5% OF THE WORK-

FORCE UNDERSTANDS

THE STRATEGY.

ONLY 25% OF THE MAN-

AGERS HAVE INCENTIVES

LINKED TO STRATEGY.

85% OF EXECUTIVE

TEAMS SPEND LESS THAN

ONE HOUR PER MONTH

DISCUSSING STRATEGY.

60% OF ORGANIZATIONS

DON’T LINK BUDGETS TO

THEIR STRATEGY.

VISION BARRIER PEOPLE BARRIER MANAGEMENT BARRIER RESOURCE BARRIER

Figure #11

Balanced Scorecard Collaborative, Health Care Summit 2003



The reality is that our healthcare system is making health-care workers sick. The health sector currently experiencesabsenteeism rates that are more than twice the nationalaverage (see essay, “Best Practice Balanced Scorecards: APowerful Tool for Mobilizing Human Effort”, ManagingChange, Winter, 2002).

Traditionally, health system politics has led to an endlessseries of measures intended to create an “illusion” ofmovement forward, or an “illusion” that there is account-ability for the outcomes being achieved with theresources provided.

Properly practiced, balanced scorecarding and learningorganization processes for high-performance teams canshift the traditional political culture of healthcare orga-nizations to one which focuses everyone on the strategy– and their personal role in strategy execution.

But the fact is that balanced scorecarding can be an illusion as well. Instead of a CEO-led, highly participa-tive strategy implementation process, scorecarding cansimply become a performance measurement system thatpinpoints “who to blame”, rather than “what to fix”, and“who needs support”, when there is little or no progress.

Unless an organization is determined to be in the 30%success group, balanced scorecarding can in fact becomecounter-productive – producing an entrenched com-mand-and-control mindset; increasing cynicism, fearand anxiety; further contributing to declining staffmorale; and ultimately, adversely effecting customer sat-isfaction and public confidence rates.

Successful Scorecarding

What are some of the critical success factors for balanced scorecarding?

In Figure #12 we have listed eight. Of these, we believethat the most leveraged are the first and the last.

That is, scorecarding needs to be the CEO’s strategy implementation process – conducted in an atmosphere of atrue learning organization – where there is a balance ofempowerment and accountability, strategic-focus andcontinuous capacity-building for learning, growth andchange.

Peter Senge, author of the Fifth Discipline: The Art &Practice of the Learning Organization says “a learningorganization is a place where people continually expand

their capacity to create the resultsthey truly desire, where new andexpansive patterns of thinking arenurtured, where collective actionis set free, and where people arecontinually learning how to learntogether.”

Without such an enlightenedmanagerial philosophy and prac-tice, BSCs will continue to experi-ence 70% failure rates – or at least sub-optimal perfor-mance outcomes.

Today, it is estimated that 86% of executive teams spendless than one hour per month on strategy. Clearly, providing strategic direction to the organization as awhole isn’t an important priority within intense workweeks that are often 70 hours – 90 hours long for manyhealthcare executives.

Highly urgent, and ultimately unimportant matters, regularly hijack the attention and talent of our seniormanagers.

Governance – at the Board level, and at the provinciallevel, need to ask themselves the extent to which theycontribute to this problem – and how they can play a keyrole in providing the time, space and motivation formanagers to become successful scorecarders.

Where “crisis management” has become an ingrainedhabit, the medium and long-term targets of a BalancedScorecard can easily become a pipe dream.

If politics – internally and externally – is still the key driving force within an organization, the BalancedScorecard will simply become a new methodology for“doing politics”.

Until and unless the Board, the CEO, the Chief-of-Staff,the senior management team and the organization’smiddle managers are aligned on a shared vision and acoherent strategy – and have developed the internalcapacity to actually execute the strategy – balanced score-carding will not produce the results that an organizationneeds to achieve.

The results achieved with the Balanced Scorecard are alsohighly dependent on shifting the role of middle man-agers from command-and-control and a silo-orientation,to developmental facilitation/coaching and cross-functional integration.



CRITICAL SUCCESS FACTORS FOR BALANCED SCORECARDING

1. Used as a tool/process by the CEO to develop and implement strategies thatachieve the outcomes for which they are held accountable by their Board.

2. The traditional senior management team, composed of silo-heads, is transformed into the CEO’s Strategy Implementation Team whose role is to leadand manage the transformation of the whole organization – through “just-in-time” developmental facilitation and coaching.

3. Organizations invest in the skills of their people and build the capacity of seniorand middle managers through the BSC cascading process – in which people“learn-by-doing” in highly participative processes. Middle managers integratecross-functionally and provide facilitation and coaching.

4. Boards redesign their traditional governance processes by adapting best practice healthcare governance to their unique circumstances – using aBalanced Governance Scorecard. They model change, learning & growth andstewardship.

5. Organizations utilize best practice Accountability Agreements, linked to theirOrganizational BSC, for everyone in management – so they can be aligned withthe Board, integrated cross-functionally, and achieve the right balance ofempowerment and accountability to ensure their success.

6. CEOs and Chiefs-of-Staff develop individual scorecards as part of theirAccountability Agreement process with their Boards. Their agreements changeas reality changes.

7. The organization aligns its structures, systems, processes, cultures and skills to achieve the outcomes in their Organizational BSC. The CEO and senior management are responsible for organizational alignment.

8. The organization practices as a true learning organization.

Figure #12



The most successful organizations are those that utilizethe balanced scorecard development process as anopportunity for developing the internal capacity of middle managers to lead and manage change. Middlemanagers “learn-by-doing”, “just-in-time” within safeand supportive environments that provide them with thesupports they require to be successful.

Clearly, balanced scorecarding requires an enormouseffort. Is it worth it? The answer is: only if you are unrelenting in your determination to succeed!

It’s About People

For those organizations that are unhappy with theircurrent processes for governance, management andaccountability, the best practice Balanced Scorecardprocess holds the possibility of addressing many of theissues that are the cause of sub-optimal performancetoday.

While the pressure for public accountability can beexpected to escalate friction between Boards/CEOs andsenior managers, the Balanced Scorecard offers a bestpractice framework for guiding the development of strategy; providing a methodology for strategy execution;a measurement and monitoring process; a system for bal-ancing empowerment and accountability; and, a processfor building collaboration, synergy and partnershipsthroughout the organization – and between the organizations within a local delivery system.

However, it is our collective view – rooted in the diverseexperiences of our authors team – that scorecardingshould only be undertaken by those organizations thatare aligned at the Board/Senior Management level, andare deeply committed to successfully transforming theirorganization into a true learning organization.

It is our collective judgment that, while theOrganizational Balanced Scorecard should be the centraltool for strategy implementation, it won’t achieve thegains that are possible unless it is combined with severalof the other systems thinking-based tools, and teamlearning practices of learning organizations.

In our view, strategy development and strategy implementation are not really about the tools – they areabout people, and about how to best support peoplewho are undergoing change.

While the tools and processes of learning organizationsprovide the essential common language/common framework for talking about, planning for and imple-menting change, the truth is, there will be no change,until and unless there is change at the top: from non-strategic, crisis-oriented, command-and-controlmindsets and processes to highly strategic, fully alignedgovernance and managerial leaders.

Governance Scorecards, Organizational Balanced Scorecardsand CEO/Chiefs-of-Staff Scorecards and ManagerialAccountability Agreements are a proven set of tools andprocesses for achieving leadership alignment – the essential first step in achieving real and positive changewithin the healthcare system.

Ted Ball is a partner in Quantum Transformation Technologies, a Toronto-based company specializing in building the capacityof organizations to transform themselves.

Ted has worked in collaboration with Quantum Innovationson R&D projects and assignments that have focused ondevelopmental facilitation and coaching to governing Boards,CEOs and senior teams to determine for themselves how theywill transform.

Email: [email protected]

Bruce Harber is the CEO of York Central Hospital. He wasmost recently the Chief Operating Officer (Vancouver Acute).Bruce has been the Chief Executive Officer for the formerNorth Shore Health Region; President and CEO of PeelMemorial Hospital and President and CEO of Mount SaintJoseph Hospital. Bruce has led teams that have producedoutcomes/results that Harvard’s Balanced ScorecardCollaborative have ranked among the best in the world.


Ken Moore is President of Quantum Innovations, an Austin-based consulting and training company specializing in strategy, organization and leadership development. He wasCorporate Vice-President for Strategic Planning, Consultingand Education for Columbia/HCA, Vice-President of QuantumSolutions and served on the faculties of NortheasternUniversity, UCLA, and California State University.


Liz Verlaan-Cole is a partner in Quantum Learning Systemswho serves as a coach and facilitator for strategy teams whoare learning balanced scorecarding methods in learning-by-doing dialogue workshops.

Liz’s R&D background includes developmental coaching,strategic alignment, organization design processes and leadership development in the health, education and corporate sectors.



ACCOUNTABILITYTo access this insightful essay on accountability process design, contact:

[email protected]

Quantum Transformation Technologies517 Wellington Street West, Suite 201Toronto, Ontario M5V 1G1Phone (416) 581-8814, Fax (416) 581-1361

“The most important lever forchange is modelling the change

process for other individuals.

This requires that peopleat the top themselves engagein the deep change process.”

Robert E. Quinn“Deep Change: Discovering the Leader Within.”

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