The Design of the Balanced Scorecard in Hospitals

(1)

The Design of the Balanced Scorecard in

Hospitals

Master Thesis: MSc Business Administration Organizational & Management Control

Rijksuniversiteit Groningen Faculty Economics & Business

(2)

1. Introduction

In recent years, hospitals in the Netherlands have been confronted with budget cuts. This while the demand for health care because of an ageing population and the possibilities for treatment because of innovations are rising. Because of this the pressure on hospitals is increasing to deliver more healthcare at lower costs per treatment. Another pressure on hospitals is the introduction of free market in the health care sector. Since 2012 health care insurers are free to negotiate 70% of all treatments. A side effect of this is that insurance companies

significantly boost the pressure to achieve the lowest possible rates.

One of the hospitals that has been put to these challenges is the University Medical Center Groningen (UMCG). The UMCG is one of the largest hospitals in the Netherlands and the largest employer in the northern part of the

Netherlands. In 2012 the UMCG employed 11.586 people and had 1339 beds. The total revenues in 2012 amounted to almost 1 billion euros. The UMCG is divided into six sectors A-‐F. Each sector includes a number of departments. The sector which this study concerns is sector C. Sector C contains the departments of pediatrics, rehabilitation medicine, genetics, gynecology & obstetrics, psychiatry and urology. Appendix 1 shows a diagram of the organizational structure.

Due to these changes in the health care sector, the UMCG in 2010 set a target to increase effectiveness of the general and medical support in the coming years. As a first step in this process, a plan was drawn up together with McKinsey to save 25 million euros titled: “ready for the future”.

To be able to survive in this changing environment, hospitals need to work

efficiently and for this, it is important to have the right management information. The UMCG is a complex organization in which it can be a difficult task to control all the different departments in an adequate way.

To measure their performance, the UMCG has adopted the balanced scorecard. It is used as a means for the sectors to report to the board of directors. The

balanced scorecard (BSC) is the same for the entire hospital and the targets are also the same for every department, more information about the BSC of the UMCG will be given in chapter 4. This does not take into account the differences between the departments, for example on the topic of the number of days a patient stays in the hospital. Because of this, the impression is given that certain departments and sectors perform poorly while the reason for this is that the targets are just not feasible for these particular departments.

(4)

According to the controllers of sector C, at this moment the BSC is only used to report to the board of directors. What they would like to see however, is that the BSC can be used to control the departments in the sector.

One of the problems with this is that at this moment, according to the

management of sector C it is difficult to judge certain results of the departments. It is not clear if any and if so which indicators can be compared between the departments. Because this is not clear, the management of sector C is looking for indicators they can compare so it can better judge if the departments are doing well or not. At this moment the management is able to compare the results to previous years but if results are better than the years before, this doesn’t necessarily mean that they are good. Another reason why they are looking for comparable indicators is that they want to find best practices among the departments. If they can find best practices, they can implement these best practices in other departments to increase their efficiency. At the healthcare administration they have already implemented best practices from other departments and thereby have increased their efficiency. The ambition of the management of sector C is to also be able to do this regarding other indicators. Another problem is that because the scorecard is designed for the hospital in general, the design is not optimal for controlling every department individually. It doesn’t take into account certain indicators that might be very important for one department but not for every department. By not using those indicators, the design of the BSC is by definition flawed.

A point that also has to be studied is to what extent the current BSC has been designed and implemented correctly to see if certain adjustments have been done.

The literature gap that will be filled by doing this study is to find out what the design of the BSC in Dutch academic hospitals looks like. A lot of case studies have been done into the design of the BSC in hospitals but it is presumed that there are some important differences between general and academic hospitals and also between countries. Differences that could be important are the fact that in academic hospitals there is a bigger emphasis on research and education. A difference between countries that could be of influence on the design of a BSC is for example the way that hospitals are financed.

(5)

From these problems, the following research objective and research questions have been derived:

Research objective:

To find out to which extent the current balanced scorecard can be used to control every department in a hospital and to redesign the balanced scorecard per departments.

Research question:

How does the balanced scorecard in hospitals have to be designed to control all departments within a hospital?

Subquestions:

-‐ How is the balanced scorecard used in hospitals?

-‐ What are success factors in designing and implementing a balanced scorecard?

-‐ What performance indicators are used in the hospital sector? -‐ What are the problems that the sector C management is having in

controlling the departments?

-‐ What information does the management of sector C need?

-‐ How can the balanced scorecard be designed to solve these problems? -‐ For what specific purposes was the BSC implemented in the UMCG? -‐ To what extent were these goals realized?

(6)

2. Literature review

To be able to answer the research question, first some theory has to be discussed. The first paragraph will give a quick overview of the BSC and its management processes. Next, in paragraph 2.2 a number of expressions of

criticism will be discussed and incorporated into this study if necessary. Because this study is focused on the design of the BSC in a hospital, paragraph 2.3 will discuss the BSC in health care. In paragraph 2.4 the design of the BSC will be explained. Based on the steps described there, the BSC for the UMCG will be designed. The implementation of the BSC will be examined in paragraph 2.5. The BSC has already been implemented in the UMCG so in this study attention will only be given to the implementation of the previous BSC. Finally, paragraph 2.6 will discuss the indicators that are found in hospitals and potentially can be useful in the UMCG.

2.1 The balanced scorecard

Kaplan and Norton first introduced the BSC in 1992 as a remedy to the

inadequacies of performance measurement systems that focused too much on financial measures only. Kaplan and Norton found that managers should not have to choose between financial and operational measures but should get a balanced presentation of both. According to Kaplan and Norton (1992), the BSC gives managers a comprehensive view of the organization by adding measures of customer satisfaction, internal processes and innovation and learning to the financial measures.

The BSC provides four perspectives, as can be seen in figure 1. These four perspectives give answers to four questions:

-‐ How do customers see us (customer perspective)

In this perspective, managers are asked to translate their general mission statement to specific measures that reflect factors that are really important for customers. Companies have to set goals for time, quality, performance and service. These goals have to be translated into specific measures.

-‐ What should we excel at (Internal perspective)

To be able to satisfy customers’ needs, managers have to focus on internal processes.

The internal measures of the BSC especially have to focus on processes that have the biggest impact on customer satisfaction. Companies also have to keep

(7)

-‐ Can we continue to improve and create value? (innovation-‐ and learning perspective)

Great competition between companies ensures that continuously improvements need to be made to existing products and processes. The ability to innovate, improve and learn is directly related to the value of a company.

-‐ How are we seen by shareholders (financial perspective)

Traditional financial goals are about profitability, growth and shareholder value.

Figure 1: The balanced scorcard, Kaplan and Norton, 1992

For each of the four perspectives a choice of performance indicators has to be made. The perspectives are connected through causal relationships. The chain of cause and effect should pervade all four perspectives.

(8)

improving employee skills (learning and growth), which will have an effect on process quality and process cycle time (internal), which will increase on time delivery, which in turn will increase customer loyalty (customer), which will finally improve return on capital (financial) (Kaplan & Norton, 1996a). In this example you can see that through several cause and effect relationships, every perspective of the BSC is involved.

According to Kaplan and Norton (1996b), a properly constructed BSC should consist of linked objectives and measures that are mutually reinforcing.

Kaplan and Norton (2007) argue that through the implementation of the BSC, managers don’t have to rely on only financial measures. The BSC lets them introduce four new management processes that link long-‐term, strategic objectives to short term actions. These four processes are pictured in figure 2.

Figure 2, BSC management processes, Kaplan & Norton, 1996a

1. Translating the vision. This helps managers to translate the vision and strategy of the company into operational terms.

(9)

This gives employees understanding of how their work will lead to reaching the overall goals of the company (Kaplan & Norton, 1996b). 3. Business planning. Through the BSC managers can better integrate the

different change programs to achieve their strategic goals. They can do this by setting goals for the BSC performance indicators and based on this set priorities.

4. Feedback and learning, gives companies feedback on not only financial goals but also on the other three perspectives in the BSC.

In this study, first it will be examined if these processes are already in place in the current BSC. For example, does the current BSC translate the vision and strategy of the company? In the redesign of the BSC for the sector, it has to be designed in a way that these processes can take place. The translation of the overall scorecard of a company to several “personal” scorecards for the business units, which happens in the communicating and linking process, is essentially what is being done in this study. In this paragraph, the BSC has been discussed from the perspective of Kaplan and Norton and the ideas they had when

designing this model. However, it is also good to see if the model really works in this way or if there are some flaws that have to be considered. This will be done in the next paragraph.

2.2 Balanced scorecard criticism

The BSC has been adopted by many organizations but there has also been some criticism by different researchers which should be taken into account. This paragraph sums up some of the points of criticism and discusses how these critiques are processed in this study.

One of the articles that criticizes the BSC, is that of Norreklit (2000). What Norreklit found, is that the BSC is too much about the functioning of the organization itself and doesn’t take into account all stakeholders. This is a

problem because satisfying stakeholders is the most important goal for hospitals (Zelman et al, 1999).

Norreklit (2000) also had some criticism about the fact that the BSC often is implemented top-‐down, which means that employees can resist this

implementation. Norreklit thinks that Kaplan and Norton don’t give enough attention to this issue.

Aidemark (2001) builds on this by saying that the BSC is in health care is not seen as a top-‐down management tool but rather as a possibility to give a bottom-‐ up view of the activities. The BSC is seen as a tool to communicate between departments and within the hospital administration.

(10)

Another point of critique from Norreklit (2000) is based on the fact that Kaplan and Norton assume that there is a cause-‐and-‐effect relationship between

customer satisfaction and financial performance. They think that when consumers are more satisfied, the financial result will automatically improve. The critique from Norreklit (2000) is that this assumption isn’t always true and therefore, there is not by definition a causal relationship.

Aidemark (2001) also found that the cause-‐and-‐effect relationships on which the BSC are based, don’t work in health care organizations. Aidemark thinks the link between the customer and financial perspectives is not only missing but an emphasis on the customer perspective may even increase activity expenses. In his study into the BSC of health care organizations in Sweden, Aidemark (2001) found that instead of the hierarchy between the four perspectives, the health care professionals built a network of perspectives in balance. They didn’t find any perspective more important than another but focused on the interaction between perspectives.

These criticisms and especially that of Norreklit (2000) were often cited and well worth taken into consideration while doing this study.

The fact that Norreklit (2000) and Aidemark (2001) think that the BSC can’t just be implemented top-‐down without any problems, is something that attention has to be given to when designing the BSC at sector C. This point of criticism is processed in this study by involving the managers in the design of the new BSC. By doing this, more internal commitment will be created.

The fact that there might not be a causal relationship between the customer and financial perspective doesn’t mean that the concept of the BSC is useless. Like Aidemark (2001) found, the BSC can be designed in a way that there is no hierarchy between perspectives but in a way that every perspective is equally important (balanced). This point of critique will be discussed further in the next paragraph where the perspectives for the BSC in health care will be addressed.

2.3 The balanced scorecard in health care

When designing a BSC for a hospital, it is first necessary to know if the benefits that can be achieved, can also be achieved in the health care industry.

Inamdar and Kaplan (2002) studied nine healthcare organizations that were early adopters of the BSC. They found that the BSC can be an important tool for healthcare organizations. The responses to their questionnaires indicated that the organizations received significant incremental value, above what they expected from the implementation of the BSC.

(11)

Some benefits they found were:

-‐ The development process forced the organizations to clarify and gain consensus on the strategy

-‐ The BSC increased the credibility of management with board members -‐ The four perspectives of the BSC gave executives a framework for

decision making

-‐ The BSC set priorities by identifying, rationalizing, and aligning initiatives -‐ The BSC linked strategy with resource allocation

-‐ The BSC supported greater accountability, especially when it was linked to managers’ incentive plans

-‐ The BSC enabled learning and continuous improvement

The payoff from the implementation was measurable performance improvement in competitive market positioning, financial results, and customer satisfaction.

Other positive findings about the use of the BSC in hospitals came from

Aidemark (2001). They found that in Swedish health care organizations, the BSC was seen as an appropriate control mechanism. During the interviews with hospital administrators, all of them considered the BSC almost as designed for health care organizations. The BSC was seen as an important mechanism for being able to move towards its objectives and with that as an appropriate substitute for the one-‐sided financial measurement system. Through the BSC, a bigger emphasis could be placed on the patient and the care processes. Because professionals could determine the measures themselves, they could put an emphasis on what they think is important.

Zelman et al. (2003) also found that the BSC is relevant to health care, with the remark that there is some modification needed to suit the industry by adding perspectives. Perspectives that are added include quality of care, outcomes, human resources and clinical productivity.

Through their analysis of 22 case studies about the use of the BSC in the health care sector, Gurd and Gao (2008) also found that in some cases, perspectives were added to the BSC. One perspective that was different in healthcare

organizations is people. In hospitals, the quality of care is so much dependent on the attitudes of doctors and nurses. Because of this and particularly the

autonomous role of the physicians, some hospitals added people or staff as an extra perspective. Gurd and Gao (2008) agreed with this by saying that in hospitals, where human resources are so important, they should be added as a perspective.

(12)

outcomes for patients are not the main focus. When the customer perspective is the top perspective, the financial perspective serves to increase customer satisfaction, instead of the other way around. Only 50 percent used the learning and growth perspective, which can be explained by the fact that organizations have trouble with implementing this perspective.

We have seen what the positive effects can be of using the BSC in hospitals and what perspectives are mostly used. The question however remains if this is the same in an academic medical center like the UMCG. The study of Zelman et al. (1999) into the issues for academic health centers in implementing the BSC concluded that while the four perspectives are relevant, they should be modified to make them work for the needs of an academic health center.

For academic health centers, the financial success is only important because it allows them to meet their goals and objectives, not to satisfy their stockholders. For the financial perspective this means that they shouldn’t focus on how they should appear to their stockholders to succeed financially. What they should focus on is to reach the financial condition that allows them to accomplish their mission. In other words, succeeding financially shouldn’t be an end goal but a means towards satisfying their goals and objectives.

In the customer perspective customers can’t be defined as customers but as stakeholders. In academic health centers the ultimate success will depend largely on how each group of stakeholders perceives the activities of the academic health center.

Issues that academic health centers face in the internal perspective is that they usually don’t have a good understanding of what their core processes are. For most academic health centers the core processes are research, patient care and education but often they don’t have strategic indicators in each of these areas. Another issue is that in many AHC’s information systems are not able to provide key pieces of information across departments.

The learning and growth perspective is according to Zelman et al. (1999) one of the most problematic of the four perspectives as AHCs are very complex

organizations and there are very few models for moving them from traditional past to a future of innovation and growth. When studying the BSC in the UMCG, these are all issues that have to be taken into account.

(13)

Also, it is important to see what the perspectives were that were used to see if these perspectives are also applicable at the UMCG. The four original

perspectives will all be used in the UMCG. The customer perspective is the most important of the four because in the UMCG, which is an AHC, the stakeholder is the most important, not the stockholder. The learning and innovation

perspective is said to be more problematic in AHCs but for the UMCG it is still very important because of the research, which is one of the main focus points. Zelman et al (2003) and Gurd and Gao (2008) both found that in hospitals, a human resource perspective can be added. In this study the importance of human resources in hospitals will be acknowledged by paying attention to this when developing the indicators. The human resource perspective however, will not be added because these indicators can also be added to the internal

perspective.

The finding from that Kaplan and Norton (2001) that in health care, the

customer perspective should be the top perspective will not be adopted in this study. The reason for this is the criticism from Norreklit (2000) discussed in the last paragraph, which says that there is no causal relationship between the customer and financial perspective.

Now that it is clear what perspectives will be included in the BSC, in the next paragraph it will be discussed how the content of the BSC should be designed.

2.4 Balanced scorecard design

When designing a BSC in the UMCG, certain steps have to be taken. Which steps have to be taken, will be discussed in this paragraph.

Kaplan and Norton (1994) have formulated eight phases for the design and implementation of the BSC:

1. Formulate the mission and vision of the organization

2. Formulate what the organization should look like in a couple of years 3. Identify specific strategies that would lead to such a situation

4. Formulate performance under the four perspectives of the BSC 5. Identify the most relevant performance indicators for each of the

perspectives

6. Identify the sources that can give the necessary information 7. Design a concept BSC and evaluate this

(14)

stakeholders and key individuals within the organization have to be identified to assist the development of the BSC. This seems to be an important step as we have already seen in the previous paragraphs that implementing the BSC top-‐ down without gaining support from the stakeholders can lead to resistance. In their article into the use of the BSC Kaplan and Norton (1996c) give an example of how one company built a strategic management system within a 30 month time frame:

1. Clarify the vision

Members of an executive team worked together to translate a generic vision into a strategy that can be communicated. It helped build consensus and commitment to the strategy.

2. Communicate to middle managers and develop business unit scorecards The top three management layers discussed the new strategy. Each business unit translated its strategy into its own scorecard.

3. Eliminate nonstrategic investments and launch corporate change programs

The corporate scorecard identified many programs that are not

contributing to the strategy and the need for new cross business programs was identified.

4. Review business unit scorecards

The CEO and the executive team reviewed the individual business units’ scorecards

5. Refine the vision

The review of the business units’ scorecards identified several issues that were not included in the corporate strategy.

6. Communicate the BSC to the entire company and establish individual performance objectives.

7. Update long-‐range plan and budget

The investments required were identified and funded 8. Conduct monthly and quarterly reviews

9. Conduct annual strategy review

10. Link everyone’s performance to the BSC

The eight phases described by Kaplan and Norton (1994) will be followed when designing the BSC for the UMCG. Also, the current design will be reviewed by checking if these steps have been taken.

(15)

2.5 Critical factors for successful balanced scorecard implementation

From the research of Inamdar and Kaplan (2002) some challenges appeared: -‐ Obtaining approval to implement the BSC

-‐ Obtaining executive time and commitment

-‐ Developing the value proposition for the customer perspective -‐ Deploying the BSC throughout the organization

-‐ Gaining commitment to implement the BSC

-‐ Obtaining and interpreting timely data in a cost-‐effective manner For a successful implementation of the BSC, it is important to find a way to deal with these challenges.

Inamdar and Kaplan (2002) formulated five guidelines for BSC implementation: -‐ Evaluate the organization’s ability and readiness to apply the BSC

-‐ Manage the BSC development and implementation process -‐ Manage the learning before, during, and in later stages of the

implementation process

-‐ Expect and support role changes among different constituents -‐ Take a systems approach

-‐ Keeping the scorecard simple and using it for learning

Adhering to these rules can help make the implantation of the BSC more successful.

In their study, Malina and Selto (2001) found that managers react favorably to the BSC when:

-‐ BSC elements are measures effectively, they are aligned with strategy and guide changes and improvements

-‐ The BSC is a comprehensive measure of performance that reflects the needs of effective management

-‐ The BSC factors are seen to be causally linked to each other and tied to meaningful rewards

-‐ BSC benchmarks are appropriate for evaluation and useful for guiding changes

-‐ Relative BSC performance is a guide for improvement

On the other hand they found that some other factors negatively influenced the perception of the BSC. This happened when measures are inaccurate or

subjective, communication is one-‐way and benchmarks are inappropriate but still used for evaluation.

This means that to improve performance, organizations should enhance the named positive factors and should eliminate the negative factors.

(16)

When implementing a BSC at sector C of the UMCG, it is important to be aware of the challenges described by Inamdar and Kaplan so these challenges can be dealt with before they become a problem. Also when adhering to the guidelines of Inamdar and Kaplan (2002) and the factors that managers react favorably to described by Malina and Selto (2001), increases the odds of a successful implementation of the BSC.

2.6 Performance indicators in health care

Gurd and Gao (2008) and Kocakulah and Austill (2007) found several indicators in BSCs in hospitals. From each of the studies three indicators that are most relevant to this study per perspective can be seen in the table below:

Gurd and Gao Kocakulah and Austill

Financial perspective Market share Cost per case

Depreciation Fund raising

Number of contracts

received

Operating margin Customer perspective Patient waiting time Patient retention

Staff satisfaction Patient satisfaction

Reputation Market share

Internal perspective Patient satisfaction Nurses to patient index

Infection rate Mortality index

Hours per unit of activity FTE per bed Learning and growth

perspective

Education credits per FTE

Employee turnover rate

New research projects Employee satisfaction

Staff satisfaction Training hours per

employee

These indicators are not included in the current BSC of the UMCG but will be used in this study to find out if they might also be appropriate to use in the UMCG. The fact that these indicators are used in some hospitals doesn’t necessarily mean they have to be used in all hospitals. The adaptability is actually a part of the attraction of the BSC, it was never used as a “strait jacket” (Kaplan and Norton, 1996). Even more than in other sectors, the BSC appears to be more diverse in the healthcare sector (Gurd & Gao, 2008) (Voelker et al. 2001). Therefore, these indicators will be used in the interviews to find out if they are applicable to the departments in the UMCG but in this phase of the study no conclusions will be drawn as to which of these indicators have to be included in the BSC.

(17)

3. Methodology

3.1 Type of research

The research method that is going to be used in this research is a case study. This research method was chosen because it can be used to answer “how” questions and focus on a phenomenon within its real-‐life context and the boundaries between phenomenon and its context are not yet clear (Yin, 1994). Because the UMCG is a specific case that is going to be researched and it is going to be studied in depth, case study research is an appropriate research method.

Case studies can be either qualitative or quantitative (Eisenhardt, 1989). For this research, a qualitative method has been chosen. Qualitative research is an

approach that allows you to examine people’s experiences in detail. People are studied in their natural settings (Hennink et al., 2010). In this research, we are going to study a relatively new phenomenon in depth and therefore a qualitative method is best suited.

3.2 Data collection

Case studies usually combine data collection methods like archives, interviews, questionnaires and observations (Eisenhardt, 1989). In this research three types of data are going to be collected.

The first part of this study consists of a literature review. Different articles are discussed that are focused on the design and implementation of the BSC. Special attention is given to the use of the BSC in the health care sector and the factors that can make this implementation more successful.

Second, documents from within the organization are going to be collected and analyzed. These documents include annual reports, policy statements, monthly reports from the departments to the director of the sector, triennial reports from the sector to the board of directors and formats on how to report to the board. These documents will be used to get an idea of what the current situation is, on which can be built.

Third, observations will take place. The observations will be in the form of a tour of the different departments to see how these departments work and to get a feel for the organization. Also, the researcher is present at the organization for 4 months. Observations will also take place during that time.

Finally, in-‐depth interviews are going to be conducted. The interviews are going to be semi-‐structured. The goal is to let the interview flow as naturally as

(18)

interview doesn’t go off topic and that every aspect gets some attention. In total eight interviews will take place, one with a controller from sector C, one with a controller from concern control and six with the managers of the departments. The interview with the controller from concern control is to get an insight into the implementation of the BSC. How was it implemented, what do they think to gain by this implementation, how did they come to these performance indicators, etc.

The interview with the controller from sector C will give an insight into what the controllers need to report to the board and to control the departments in the best way possible. It will also give an insight into how the current BSC

contributes to this and what can be changed to improve it.

The interviews with the managers of the departments will contribute to the understanding of what the performance indicators are that can be used for every department. The departments’ genetics and pediatrics will be studied more in depth and for those departments, specific performance indicators will be drawn up as well as targets for the performance indicators.

Every respondent will be interviewed once about the current and future situation. The interviews will take 1 to 1,5 hours.

3.3 Data analysis

The interviews will be analyzed by first transcribing them. The transcription method used will be the denaturalized method. This means that while still trying to get a full and faithful transcription, there is less emphasis on involuntary vocalization (Oliver et al., 2005). The reason for why this method was chosen is that naturalized transcription might overwhelm the readability of the

transcription while it is unnecessary when using the data for informational purposes. The inclusion of every little encouraging word from the interviewer can detract from the data and can make the interviewee look less articulate than they actually were (MacLean et al., 2004).

After the transcription, codes will be developed. Deductive codes will be made based on literature and professional insights. Inductive codes will follow from the transcriptions of the interviews. From these codes a code book will be drawn up that includes the type of code, a description and an example from the data. Any changes in the codes that will occur during the research will be documented. Finally, through pattern coding certain concepts will be drawn up.

Through the use of the different research methods (triangulation) the validity of the study will be ensured. By doing semi-‐structured interviews instead of open interviews, the interviews will be more standardized and are therefore more reliable. The software program atlas.ti will be used to systematically analyze the data, also ensuring reliability.

(19)

4. Results and analysis

4.1 UMCG mission, vision, values

As seen in the theory section, Kaplan and Norton (1996a) find that the BSC must come from the mission, vision and strategy of the organization. The following section contains the mission, vision, values and strategy of the UMCG as stated in the document Building the future of health 2020 from the board of directors of the UMCG (2014). This mission and vision will be used later on in the chapter for the redesign of the BSC.

A summary of the mission and the following strategy will be given here:

The mission of the UMCG is called: Building the future of health. This means that the UMCG wants to implement this in our patient care, scientific research,

education and in medical and nursing training programs. They want to excel and innovate in all of these areas.

In this mission they have three starting points: -‐ The patient as a person is leading

The UMCG wants people to be as healthy as they possibly can be, everything they do contributes to this.

-‐ We are pioneers in research

Scientific research results in new knowledge about health, prevention, disease and treatments. This knowledge is used for innovations: practical improvements in healthcare. All patients benefit from this.

-‐ We share our knowledge in the North of the Netherlands and across the globe. The knowledge of the UMCG belongs to everyone. They share insights with others and help them apply them in practice. Education is also based on this innovation. This benefits patients in the North of the Netherlands and elsewhere. This is why the UMCG participates in many networks and joint ventures for all core tasks.

Following the mission and vision, the strategy of the UMCG is formulated as follows:

-‐ Set the example for quality and safety -‐ Organize healthcare around patient groups -‐ Inspire partnerships within the chain

-‐ Maintain position in international top of research, education and training -‐ Translate Healthy Ageing to clinics and staff

-‐ Combine treatment and prevention

-‐ From customized care to personalized medicine

(20)

4.2 The UMCG Balanced Scorecard

4.2.1 The first development of the UMCG balanced scorecard

In 2006 the first design for a BSC for the UMCG was developed to solve the problem that the current planning and control cycle was too much aimed at controlling internal costs. There was to little attention given to the non-‐financial indicators. The Board of Directors has expressed the desire to develop a control model which enables controlling in a more integral way. (Boersma, Nicolai, 2006).

The BSC was developed in two workshops by representatives from six departments supported by an employee from the financial department. This means that the BSC was developed decentralized.

As we have seen in the theory section, developing the BSC decentralized wasn’t the original idea when Kaplan and Norton (1992) developed it. However, when we considered the criticism of Norreklit (2000) and Aidemark (2001),

developing the BSC in a hospital in this way, is a good way to gain internal commitment.

The development of the indicators for the BSC was performed based on the goals of the organization. Based on these goals, it was determined what the

organization should excel at, the critical success factors.

In the workshops the following steps have been taken to get to the indicators: 1. Determining the goals pursued by the UMCG

2. Identifying the critical success factors 3. Identifying the possible indicators 4. Choosing the indicators

5. Determine the sources from which the realized values of the indicators will be established

These steps that were taken, match the first steps that were formulated by Kaplan and Norton (1994). Also, basing the BSC on the mission and vision of the UMCG is the correct way to choose the indicators (Kaplan and Norton, 1994). After the development of the BSC, the departments would be able to report based on this BSC. To do this, the following steps had to be taken:

1. Adjusting the BSC after coordination with the board of directors 2. Sharpening of the norms and sources per indicator

3. The first use of the BSC by the departments involved

4. Evaluation of the usability of the reports delivered by the departments involved

5. Development of a follow-‐up plan for the deployment of the BSC

(21)

article (1996c), except for two steps: the development of business units

scorecards and the review of business unit scorecards. Therefore, in paragraphs to come later in this chapter, two business unit scorecards will be developed.

4.2.2 The current UMCG balanced scorecard

In this paragraph the results regarding the current BSC of the UMCG in general will be discussed. Two departments, namely genetics and psychiatry will be discussed more in detail later on.

After the design of the BSC in 2006, it wasn’t immediately used for reporting. Actually, it wasn’t until 2013 that the sector management used the BSC in its quarterly reports. By that time, the BSC had changed almost completely. In appendix 3 the BSC that is currently used in the UMCG is added. This BSC is currently used by the sector management to report to the board of directors every four months.

As said, the BSC in its current form has only be introduced one year ago. In a letter from the director of Finance and Control, the sectors were asked to report following the indicators that were given in that BSC starting in 2013. In addition to these indicators, the sectors were also asked to report about other topics that are important for that specific sector.

Currently the information from the BSC is not yet available for the managers of the departments but only for the controllers.

When comparing the current BSC to the mission, vision and values, it becomes obvious that there are some discrepancies.

One of the three mission statements is: we are pioneers in research. This while the current BSC doesn’t contain any indicators concerning research.

The second of the three mission statements concerns the sharing of knowledge in the Netherlands and around the world. This mission statement hasn’t been translated into indicators on the current BSC either. This means that when looking at the BSC developed in 2006 and the current BSC there is a big difference in the extent to which it is related to the mission and vision. As the concerncontroller put it: “this is more of a pragmatic approach”.

(22)

Gurd and Gao (2008) argued should be added to the BSC in hospitals.

In the financial perspective, there is a consensus between the managers of the departments that all of the current indicators are useful for controlling their department. An issue with the operating income is that there hasn’t been made a clear choice between the old activities and the new DBCs/DOTs. At the moment, internally it is hard to let go of the old system of activities while externally the departments get paid based on DBCs.

Another issue, especially for the pediatrics department but also to a lesser extent for some others, is that the patients that are admitted in their clinic come from other departments. Every child gets admitted to the pediatrics department but the department that is related to their condition gets the income for that child. Because of this, the pediatrics department has almost no insight into the income they are generating and how this relates to their expenses. To be able to properly control their department, this information should be available in the BSC.

In the internal perspective, there aren’t many remarks by the managers of

indicators that are missing. Some weren’t usable for all departments for example because they don’t perform surgeries but in general the managers agreed on these indicators. Also there aren’t big discrepancies between the indicators and the mission and vision.

In the customer perspective there are some indicators missing when looking at the mission and vision. Firstly, patient satisfaction is not included while this was an indicator that clearly came forward from the studies from Gurd and Gao (2008) and Kocakulah and Austill (2007). When asked, the managers also thought this was an important indicator. There are already surveys carried out among the patients but the results are not yet displayed in the BSC.

In the learning and innovation perspective, it is very clear that one of the major priorities of the UMCG, research, is entirely missing in the BSC. This is supported by the managers of the departments. The same can be said for education. Partly this should only be in a BSC for sector F but the education of AIOs and nurses is also a task for the departments in sector C.

4.2.3 Indicators in the current Balanced Scorecard

After coding the interviews, the results per indicator per department were written down. These results can be found in appendix 4. After the coding, the results were analyzed and the table below was drawn up to give an overview of which indicators are suitable for which departments.

The Design of the Balanced Scorecard in Hospitals