The Duke Children’s Hospital decided to use a balanced scorecard to evaluate the stakeholder relationships and its business processes. The rationale behind this decision was multifaceted. First and foremost, the hospital was experiencing a severe increase in the costs of delivering its services to clients. The high costs resulted from a cut in Medicaid allowances which was accompanied by an increase with patients who had low reimbursement. At the same time, the cost for treating each head was increasing at an alarming rate. The end result was a decline in the hospital’s revenues. This in turn resulted in poor quality services, low levels of productivity among its staffs and low levels of satisfaction for both the hospital’s staffs and the patients. The management recognized that something needed to be done and although initially it had been decided that programs and services would be eliminated, the hospital found a better option in the implementation of the balanced scorecard.
In the implementation of the balanced scorecard, the Duke Children’s Hospital followed a three-step process. The first step entailed establishing a connection between the hospital’s “mission, strategy, objectives, targets, key performance indicators, and initiatives across the organization,” (Meliones, Ballard, Liekweg & Burton, 2001, p. 24). The hospital’s chief stakeholders were required to cooperate in the mapping measurement strategies and in the definition of the organization’s goals. They were also required to pinpoint the key performance indicators that were a driving force to the organization and create a link between them and the organization’s objectives and strategy. The scorecard was then created in a way that favored the hospital’s budget. Specifically, the scorecard was created in a way that took into consideration the organization’s key performance indicators, staff satisfaction and regulation.
The second step followed by the hospital entailed the analysis of the organization’s performance to obtain results. Rather than focus on cost reduction and profit making through staff reduction, the hospital opted for a more effective approach. This approach entailed improving the quality of the services provided by increasing the staffs’ productivity through empowerment. This approach not only helps in cutting down costs but also enhanced the performance of the organization through quality improvement techniques. Likewise, the approach increases the productivity and satisfaction of the staff.
The third step followed by the Duke Children’s Hospital in implementing the balanced scorecard entailed gaining knowledge and strategic control of the organization. This was realized through systematically reviewing and revising the scorecard to enable the organization to become a learning institution. The systematic reviews and revisions also enable the organization to identify new and more innovative strategies that enhance the organization’s business effectiveness as well as the quality of the clinical services offered. The advantage of this step is that it is a cycle in that new opportunities for improvement emerge as the organization faces new challenges. In addition, the process is reviewed on a quarterly basis and updates are made in the organization’s strategy and key performance indicators. Most importantly, the organization creates a balance in the frequency with which it reviews and updates its scorecard. This is important for the achievement of the organization’s goals.
The internal business process focused on by the organization in the implementation of the balanced scorecard is the organization’s operations management (Niven, 2010). This entailed changing the way in which the organization carries out its day-to-day activities. This is illustrated by the steps the hospital followed in implementing the scorecard. The hospital had to change the way in which services were offered, for instance, by equipping its staffs with tools that enabled them to provide high quality services. Thus, instead of cutting down costs by laying off some of its staff, the organization opted to empower them which in turn had the same effect of cost minimization but better yet it led to the improvement of the quality of services which would not have been possible. Secondly, the organization began monitoring its activities and services on a regular basis to evaluate the success or failure of the scorecard. This regular monitoring enabled the organization to identify its strong points as well as its weak points that needed improvement. This was mainly achieved by creating a link between the various components of the organization. This link created a system of balances and checks for the organization and ensured that all segments of the organization were improving (Meliones et al., 2001).
The changes brought about by the scorecard were profound and had a significant impact on the organization. The positive impact was experienced in all the four aspects of the organization namely: “financial, customer, learning and growth, and internal business,” (Meliones et al., 2001, p. 28). To begin with, Duke Children’s Hospital experienced a reduction of $4389 in the cost per case within a period of four fiscal years which translated into a total reduction in cost of $30 million. Secondly, the net margin of the organization improved by $15 million in a span of four years. Before the implementation of the balanced scorecard, the organization had plans of cutting down on the programs and services it provides. But after the scorecard, the organization is making investments that will ensure the success of the hospital in the future. Other changes brought about by the scorecard include: significant improvements in both the staffs’ and patients’ satisfaction levels, improved morbidity measured by a reduction in readmission rates, and a significant increase of 29 percent in the nurses’ productivity levels.
The Duke Children’s Hospital did a good job in designing and implementing the balanced scorecard. A balanced scorecard has four major components namely: “financial, customer, learning and growth, and internal business” (Meliones et al., 2001, p. 24). Thus, a well designed and implemented balanced scorecard ought to address these four areas of an organization. On the financial element, the balanced scorecard designed and implemented by Duke Children’s Hospital resulted in an increase in the organization’s net margin hence it is a good scorecard. On the customer element, the balanced scorecard led to an improvement in the quality of services provided to the patients. This was especially demonstrated by the decline in morbidity as measured by a reduction in the rates of readmission. The learning and growth element addresses the activities and programs the organization undertakes to ensure continued improvement (Gothard & Wixson, 1994).
The Duke Children’s Hospital carries out systematic reviews, revisions and updates on a regular basis. These activities help the organization to identify the areas that need improvement. They also enable it to identity new opportunities when it faces new challenges. Lastly, the internal business element of a balanced scorecard addresses the areas in which the organization must excel at (Kaplan & Norton, 1996). For the Duke Children’s Hospital, this area is its operations management which entails changing the way in which it runs its day-to-day activities. Thus, it can be concluded that the balanced scorecard designed and implemented by Duke Children’s Hospital is a good scorecard.
Gothard, L., & Wixson, N. (1994). Charting a Course for Continuous Quality Improvement. Risk Management, 41(1), 27-33.
Kaplan, R. S., & Norton, D. P. (1996). The Balanced Scorecard: Translating strategy into action. Boston: Harvard Business School Press.
Meliones, J., Ballard, R., Liekweg, R., & Burton, W. (2001). No mission, no margin: It’s that simple. Journal of Health Care Finance, 27(3), 21-29.
Niven, P. (2010). Internal process perspective. EPM Review. Web.