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Strategic Planning and the Balanced Scorecard for Faculty Practice Plans

Rimar, Stephen MD, MBA

Institutional Issues: Commentaries

Dr. Rimar is medical director of the Yale Faculty Practice, Yale University School of Medicine, New Haven, Connecticut. For further details of the YFP's Balanced Scorecard, Dr. Rimar may be contacted at 〈〉.

While most for-profit organizations routinely use strategic planning to achieve a competitive advantage in the marketplace, academic health centers (AHCs) have only recently adopted this important tool.1,2 Many AHCs have had difficulty applying it to their highly complex and decentralized systems, which are driven by multiple missions,2 but faculty practice plans, which are more centralized in their governance and operations and have a single mission, are well positioned to realize the benefits of strategic planning, particularly when combined with a system of performance measurement.

More than any other component of AHCs, faculty practice plans can benefit from strategic planning and more easily develop and implement the process. Their increasingly centralized governance and operation, with a small number of senior managers and a clear division of roles and responsibilities, makes it easier for them to plan and implement strategy than for a larger, more decentralized medical school or hospital to do so. In addition, faculty practices, although a key participant in the multiple missions of AHCs, are primarily focused on the single mission of delivering patient care. This simplifies the planning process and eliminates some of the obstacles to balanced scorecard implementation reported by AHCs.2 Most important, however, measures of strategic outcomes are better developed for clinical practice than for education or research. Billings and collections, numbers of patient visits, clinical outcome data, and patient satisfaction are used extensively throughout the industry and therefore provide readily assessable methods, targets, and benchmarks.

Strategic planning is critical for faculty practice plans since they are, in many ways, more vulnerable to competition than the other components of AHCs. Without financial reserves or government subsidies, practice plans must pay for their entire operations from clinical revenues. Furthermore, this lack of financial reserves, combined with their much larger proportion of unpaid or underpaid services than their non-faculty peers, jeopardizes their ability to retain outstanding practitioners. Local competitors often absorb the best residents and usually practice in a more efficient and lucrative environment. In order to remain competitive, a faculty practice plan needs a well-developed and implemented strategy.

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A valuable tool for strategic planning is the balanced scorecard, developed by Kaplan and Norton,3,4 which links strategy to outcome, and planning to performance. For faculty practice plans, the ability to link compensation to performance and performance to strategy is becoming necessary for survival. The balanced scorecard can provide this linkage. Furthermore, because the balanced scorecard calls for frequently measuring performance and regularly reviewing and refining strategy, evaluation occurs continuously. This minimizes the likelihood that the process will end up like most strategic plans—shelved for posterity.

We used the balanced scorecard approach to restructure and focus the direction of the Yale Faculty Practice, the centralized faculty practice plan of the Yale University School of Medicine. The process was undertaken in conjunction with developing the medical school budget for the 1999-2000 fiscal year. It had three objectives: to develop a strategy that would give us a competitive advantage in our marketplace, to focus performance measurement on goals and objectives designed specifically to address this strategy, and to provide a simple, yet comprehensive, format for use in presenting the strategy and the performance measurement process to our constituents.

The balanced scorecard approach gives organizations an inclusive template to use when developing goals and performance measures—and therefore also furnishes the perfect framework for strategic planning. It does this by requiring examination of the organization's performance from four perspectives based on four key questions: financial (How do we look to our shareholders?), customer (How do our customers see us?), internal business process (What must we excel at?) and learning and growth (Can we continue to improve and create value?). This approach results in a “scorecard” consisting of strategic goals and corresponding performance measures for each of the perspectives. This combination of goals and measures represents an organization's strategy. By tracking well-designed measures linked to the goals, one can determine both the progress of an organization toward achieving its strategy and the effectiveness of the strategy itself.

We modified the original scorecard approach based on previous experience in a clinical department.5 The new process involved four steps. First, we developed divisional goals and measures. The director of each division in the Yale Faculty Practice (financial services, facilities, marketing, contracting, etc.) submitted divisional goals for the upcoming year based on the four perspectives of the original scorecard (i.e., answers to the key question associated with each perspective). Second, we held a senior management strategy session at which each director presented his or her division's plan, that is, its yearly goals and accompanying measures. The group critiqued each presentation, focusing on the appropriateness of each goal in relation to other divisional plans, the faculty plan's mission, and the suitability and practicality of each proposed performance measure. Third, we constructed a balanced scorecard “straw man.” This draft scorecard was based on the presentations and discussions at the strategy session. It consisted of two levels of goals and measures: those of each division developed by the respective director and modified in the strategy session (divisional action plans), and those for the entire Yale Faculty Practice, based on the common themes of the divisional plans. Together, the divisional plans described how organizational objectives would be met, and their associated measures identified the markers of progress toward their achievement. Fourth, we developed the final scorecard.

Three weeks after the initial strategy session, another session was held in which the draft scorecard was critiqued and modified before presentation to the practice's Board of Governors for approval.

Our modifications of Kaplan and Norton's original model and its implementation were designed to optimize scorecard's effectiveness and speed of implementation, given the nature of the Yale Faculty Practice. First, in building the final scorecard from the divisional level up, we were able to tie together all existing activities and components of the practice and provide a means of evaluating the performances of all divisional leaders and employees based on goals and outcomes for the entire organization. Second, re-ordering the original model's steps suited our unique mission. For many businesses, the financial perspective is the most important one. It sits atop the scorecard and drives the approach to the other perspectives (in order, the customer, the internal, and the learning perspectives). Our nonprofit, patient care organization, however, values the customer perspective above all else, and views the financial perspective as the “foundation” on which all other perspectives rest. We, therefore, placed the customer perspective at the top. Third, using only existing performance measures helped to make development and deployment rapid. Previous attempts at implementation have been delayed and even crippled by efforts to obtain “ideal” measures. We defined an ideal performance measure as one that was suitable and readily available or easily obtainable. Finally, in adopting a corporate approach to planning, we further decreased the time needed for developing the scorecard. Rather than have the scorecard evolve from committees and subcommittees, as is often the case with planning in AHCs, the faculty practice's senior management group developed the scorecard under the leadership of the plan's chief executive, who then presented it to the Board of Governors for discussion and endorsement.

Also, our modification of the scorecard allows for easily customized presentations using various levels of detail. The strategy for the practice plan can be presented (and monitored) as a single-page graphic display or an extremely detailed action plan with outcome measures, depending on the needs of the organization or audience. Finally, all the standard tools of strategic planning, such as SWOT (strengths, weaknesses, opportunities, threats) analysis, can easily be used with it, enhancing their usefulness as well as that of the scorecard.

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Our use of the balanced scorecard for strategic planning in the Yale Faculty Practice has been extremely valuable and has yielded both expected and surprising positive results. One of the most important expected outcomes has been a foundation for performance-incentive bonuses. We now base yearly evaluations on scorecard metrics, and link individual performance goals to those of the division and of the practice plan. Unexpectedly, the intense process of articulating specific goals and measures during scorecard development proved too difficult for some managers in our organization and resulted in their resignation. An overdue restructuring of the practice plan was thus made possible. The scorecard also fulfilled its function as a means of aligning personnel, projects, and money with our vision for clinical care delivery. By clearly and openly declaring the faculty practice's strategy through the scorecard, we easily embraced efforts that advanced our strategy, and we confidently declined proposals that were not linked to it. Finally, the scorecard enabled us to clearly articulate our vision and the plan to realize it to our constituents.

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© 2000 Association of American Medical Colleges