Develop and Communicate Your Strategy

  • Edda Weimann
  • Peter Weimann



  • Which performance indicators can you apply to analyse and develop the various departments and the hospital further?

  • Why do financial performance indicators have only limited relevance?

  • What can you expect from the Balanced Scorecard?

  • Why must the Balanced Scorecard cycle be repeated continuously?

This chapter guides you in developing goals from your vision statement. It outlines in detail the Balanced Scorecard (BSC), the different perspectives and the approach to applying it. Problems that may occur when applying the BSC are described. Measures of communication are briefly explained.


Business Process Performance Indicator Strategic Goal Strategic Objective Balance Scorecard 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  • Which performance indicators can you apply to analyse and develop the various departments and the hospital further?

  • Why do financial performance indicators have only limited relevance?

  • What can you expect from the Balanced Scorecard?

  • Why must the Balanced Scorecard cycle be continuously repeated?

This chapter guides you in developing goals from your vision statement. It outlines in detail the Balanced Scorecard (BSC), the different perspectives and the approach to applying it. Problems that may occur are described. Measures of communication are briefly explained.

“Your most unhappy customers are your greatest source of learning.” (Bill Gates)

Diagnosis-related groups (DRGs) were developed in the 1980s by a collaboration between the Yale School of Management and the School of Public Health. Hospital cases are classified into groups based on International Classification of Diseases (ICDIO) coding and co-morbidities. This method replaces cost-based reimbursement. Important parameters are the case mix index, which highlights the complexity of cases, the underlying base rate for cases, the maximum duration of stay for each DRG and the readmission rate. In the UK called Healthcare Resource Groups (HRGs).

Diagnosis-related groups enhance the transparency of the financial situation of health care providers. Hospitals have now to publish the number of services, treatments, modalities, hospital-acquired infections, surgical interventions, bed occupancy rate etc. in their annual reports. Frequently, special emphasis is put on the presentation: well-designed glossy brochures picture caring hospital staff treating satisfied patients. A genuine comparison and benchmarking of hospitals, as is propagated and aimed at, is still seldom possible.

However, the hospital’s most important performance indicators are known only to a few insiders in the executive management team. The director of finance holds the money and the power associated with these resources. Only a few staff members in the hospital have a sound economic business knowledge, although everybody – including interns, registrars and nurses – is being asked to work economically. How this can be achieved was not taught during their training. Whether the year has been a good or a bad one will mostly be outlined in the annual New Year’s speech given by the CEO. The new year is always rated as difficult, partly because of the annual budget negotiations with the various health insurance funds and with the local and national government as well as health care purchasers.

The knowledge of the financial indicators and the allocation of funds is frequently abused in power struggles between different departments. If more people in the hospital possessed sound economic knowledge, they could use this expertise to demand higher transparency and pursue common goals to drive the hospital forwards in a bottom-up approach.

7.1 From Vision to Objectives

The Balanced Scorecard (BSC) offers a good path for developing sustainable future strategies beyond the key performance indicators. In addition, the BSC furnishes all staff with valid decision criteria. It was developed in the US for businesses during the 1990s by Robert Kaplan and David Norton (Kaplan and Norton 1996). Their studies investigated what a performance measurement system should be like in the future. One of the major underlying questions was whether monetary indicators are sufficient or whether non-monetary indicators are just as important for the long-term operation of an enterprise such as a hospital. They said that only one instrument (for instance, financial data) was not adequate for controlling an enterprise. Consequently, they developed the BSC and suggested using three other types of indicators, apart from the financial ones (financial perspective):
  • Indicators related to the clients (patients/referring specialists): client perspective

  • Indicators related to the processes: internal business process perspective

  • Indicators related to learning and growth: learning and growth perspective

7.2 Four BSC Perspectives

However, Kaplan and Norton (1996) do not see these four perspectives as fixed parameters appropriate to every kind of enterprise, but instead, as a template for developing one’s own BSC. First used in a classic business environment, BSCs are now gaining importance in hospital settings (Stewart and Bestor 2000; Zelman et al. 2003). The outline below no longer refers to the business environment generally but to hospitals specifically. Norton and Kaplan applied the client’s perspective to businesses. We now subdivide a hospital’s clients into referring doctors and patients, thus forming two sub-groupings of the client’s perspective, being the referring doctors’ and the patients’ perspectives.

The BSC is a method that increases the probability of a planned strategy reaching implementation: it starts from a mission statement, derives objectives from strategies, and substantiates these objectives by means of measured values, goals and actions. This refining and substantiating of objectives can be represented as a pyramid, as shown in Fig. 7.1, which depicts how the hospital’s strategy can be converted into concrete activities on the individual level. Every department and every staff member will know how they can contribute to the company’s success. The goals of BSC usually relate to performance indicators, and for these key data indicators specific goals are defined, in particular what precisely has to be achieved (Banker et al. 2004).
Fig. 7.1

From mission via strategy and balanced scorecard (BSC) to the objectives (Pyramid)

In business management, performance indicators can be used to evaluate companies and hospitals. They also play an important role in the BSC, serving as the basis for decisions (problem recognition and presentation in addition to the acquisition of relevant information), for monitoring (target versus actual performance comparison), for documentation or coordination (behaviour control) of important facts and interdependencies within the hospital. Performance indicators can be subdivided into categories, some of which are shown in Fig. 7.2.
Fig. 7.2

Classification of performance indicators

In controlling and monitoring processes within a hospital, traditionally the focus rests on financial key data, such as profitability or liquidity. In health systems that apply DRGs the case mix index and the base rate are important financial indicators. Financial key indicators give an indication of the financial success of a hospital, but for the following reasons they are insufficient for its strategic orientation.

Financial performance indicators often refer to the past. This diminishes their helpfulness when positioning a hospital appropriately for the future. It is not possible to derive a reliable prognosis of the performance for the next year from the turnover and profit of the previous year. Therefore, financial performance indicators can give only limited help regarding a good or a less favourable development of a hospital.

Performance indicators can be used to measure business processes and improve them. They include information on technical and business management matters as well as on processes, stakeholders, shareholders, staff or clients (patients, referring doctors; Fig. 7.3).
Fig. 7.3

Cross-linkage of individual perspectives to vision and strategy

The vision and strategy of the hospital or a hospital group form the key factor to measure the performance indicators. They provide the management executives with a comprehensive overview of the performance and effectiveness of the hospital and its business processes. BSC is based on the assumption that a one-dimensional description and control of a hospital is not realistic. With the help of the BSC, other crucial parameters of a hospital can be illustrated and the information necessary for controlling the hospital can be made available. Thus, the BSC facilitates a holistic management and key data system, which, in addition to the financial perspective, includes non-monetary performance indicators. Based on the BCS concrete actions can be taken and monitored to align the performance of the staff with the hospital’s vision and goals. In a BSC, key data with a different chronological reference are needed, such as early (performance drivers) as well as late indicators (result key data):
  • Leading (early) indicators give an impression of the course the hospital is taking. They can facilitate the development of the hospital and indicate whether the objectives will be achieved. They are therefore called performance drivers. A good example of a performance driver is the number of recourse claims and complaints. Admittedly, they do not mirror treatment results but they give an indication of the quality of service deliveries in the hospital. A change of this performance driver is going to affect the hospital’s results (lagging indicators) in the foreseeable future.

  • Lagging (late) indicators show whether the hospital has reached its objectives. A typical example of such an indicator is the number of patients treated. This number indicates whether a hospital has reached its goals. This key indicator does not, however, provide insight into any future development of the hospital. In some health systems the number of cases are budgeted and hence limited. Hospitals are then unable to thrive economically by increasing the number of cases, since additional cases will not be reimbursed. The prescribed aspects of the national health system framework affect hospitals and influence their economic and strategic alignment.

Combination of leading and lagging indicators

Both kinds of indicators are only valuable when they are looked at together. It is the combination of performance indicators relating to the past and to the future that makes the BSC most useful:
  • Lagging indicators on their own only indicate which objectives the hospital wants to achieve in the long run (turnover). They do not indicate how these objectives will be accomplished (lowering of error rate).

  • Leading indicators on the other hand, enable only short-term, operative improvements (lowering of complaint rate; recourse claims). However, one cannot see whether, and how, the financial results have been changed by these performance drivers.

Accordingly, leading and lagging indicators are defined for each of the four perspectives. This makes it possible for the hospital to be guided in such a way that its strategic objectives for all four perspectives may be reached in a balanced way (Fig. 7.4).
Fig. 7.4

Standard perspectives of BSC

  • The Financial perspective serves as an orientation for the other perspectives. It includes information about a hospital’s financial position and performance. For this purpose, the key data of efficiency (e.g., process costs) and effectiveness (e.g., savings) can be utilised.

  • The Patients’ and referring doctors perspective provides information about the services by which current and future patients and referring doctors can be attracted to the hospital. A possible key figure for this would be the patient’s satisfaction rate.

  • The Internal business process perspective describes the most important characteristics of the business processes and assesses them according to costs, time, and quality. The focus is less on the improvement of existing hospital processes, but rather on the identification of potential client requirements, such as referring doctors and patients. Process perspectives include key data such as patient waiting times, average length of stay, case mix index, etc.

  • The Learning and growth perspective defines the necessary infrastructure to enable growth and improvement of the hospital’s competitive position. In these areas only ‘soft’ performance indicators are utilised (e.g., staff qualifications in the field of managerial and economic processes.)

7.3 The Role of the Cause-and-Effect Chain in BSC

The BSC helps to visualise hospital performance indicators for the staff. Thus strategic objectives become evident for the people involved. The strategies are anchored in every-day operations and the budget and, if necessary, are adjusted to the changing environment. In this way, the visions and the derived strategic objectives are measurable.

It is not so much a matter of grading the performance of the past but also of monitoring the variables that strongly influence the performance of your hospital in the future. Therefore you should use the BSC as a tool for implementing strategic objectives.

Through the cause-and-effect-chain, the hospital’s strategy is linked to the clients’ perspective (patient and referring doctors’ perspective). This is connected to the hospital’s processes and in turn to indicators on the learning and growth perspective. The challenge lies in choosing fewer but at the same time relevant performance indicators which influence each other in the various perspectives. For instance, a client performance indicator should be selected in such a way that its achievement has a positive effect on the associated financial indicator.

The development of a BSC is at least as valuable as the resulting objectives, performance indicators and their measures. In developing the BSC, you and your staff gain deeper insight into the future alignment between key indicators and performance. It results in a stronger identification with the hospital’s objectives. Consequently, the motivation of the staff increases to play a part in a hospital’s business processes and contribute to them (Fig. 7.5).
Fig. 7.5

Advantages of BSC

The introduction of BSC forces management and staff to reflect on the hospital’s vision and strategy and, where applicable, revise it. The BSC links a hospitals’ past with its future. The communication at traditionally difficult interfaces, for instance between the hospital management and the medical staff or between accounting, procurement and operational business, can be distinctly improved by the common ‘language’ of the BSC.

The BSC serves as a leadership tool for aligning the organisation to the strategic goals in the various perspectives (finance, patient and referring doctors, processes, learning and growth). Unlike guiding principles and other fuzzy formulations, the BSC tries to make the goals tangible and implementable by deriving measures from it.

The above-mentioned perspectives are interlinked by a logical cause–effect chain that is described as a cause–effect diagram. Not all links are set out here, only the strategically intended cause–effect ones (Fig. 7.6), i.e., connections that are important for the hospital’s goals and strategies.
Fig. 7.6

Functioning of the cause–effect chain

The core element of the BSC is the establishing of this complex web of reciprocal relationships. The participants often have very different perceptions about cause and effect. However, intensive and open communication between the hospital’s various stakeholders can bring about the necessary process of reaching consensus.

By thinking in terms of perspectives and the various links, you can highlight the essential interdependencies in one system to support the implementation of your strategy. While you document the cause-effect chain on three or four pages, your strategy is described entirely. Therefore, the cause–effect chain is also called a strategy map. Every change in one of the BSC performance indicators has thus an effect on other indicators. This underlines how the entire hospital is reflected in the BSC. Although individual perspectives are balanced among themselves, the financial perspective plays a kind of leadership role. In the long run, the other perspectives must eventually improve the hospital’s financial situation.

The connection between key performance indicators and the cause–effect chain (strategy map) is depicted in Fig. 7.7 (modified according to Kaplan and Norton 1996).
Fig. 7.7

Example of a cause–effect chain (strategy map) with the different perspectives

Within the BSC, the following points for the cause–effect chain must always be kept in mind:
  • When interlinking all key data, this often results in a kind of spider’s web. Within this net, no performance indicator can change without having an effect on the others.

  • The cause–effect chain connects the entire hospital with its objectives. In this way you achieve a more in-depth discussion of the performance indicators within the hospital.

  • The hospital’s strategy is expanded to the entire hospital because every individual directly influences the results of the BSC.

  • The hospital can better utilise their change potentials through the cause-effect chain. You can explain the effects of single changes for the entire hospital.

A further example of the implementation of a strategy into a cause–effect chain is shown in Fig. 7.8.
Fig. 7.8

Strategy map interconnecting the various perspectives

Case Study

The BSC has been utilised in various hospitals and departments. An example is Duke’s Children’s Hospital in Durham (North Carolina, USA) (Kaplan 2001). This hospital introduced the BSC to react to a number of changes in the environment, such as
  • The average length of stay is too high and above the national average.

  • The hospital is uncertain about their service provision.

  • There are no goals to which management, doctors and nursing staff agreed on.

  • Communication and cooperation with private paediatricians is inadequate and unsatisfactory.

  • The hospital’s position on the market is threatened by competing medical facilities.

Despite all these difficulties the hospital pursues the vision of becoming a ‘centre of excellence’. Patients, parents and referring doctors should be offered the best possible, empathic treatment with outstanding communication. The following goals are set: patients should experience a high degree of satisfaction, a high rate of recommendations, excellent information and the best admission and discharge management. The referring doctors should be provided with a high degree of communication and have consistent contact persons in the hospital.

These goals were reached by applying the BSC. Within the first years, the average length of stay decreases and a higher case-mix is achieved as intended. In addition, loyalty and satisfaction increases in both patients and staff.

7.4 Implementing the BSC

Budgeting: a method of being annoyed before, rather than after spending the money. (Voltaire)

The introduction of the BSC is not a process that is concluded after one run-through cycle. The implementation is a continuous cycle that is repeated again and again. This approach transforms the BSC into a strategic operational framework for the hospital. Each strategic decision falls within the course of the BSC. As an integrated and comprehensive management approach, the BSC provides a continuous cycle with the following phases (Fig. 7.9):
Fig. 7.9

BSC cycle

  • Development of a strategy: setting up the hospital’s vision and strategy; formulating the BSC based on an analysis of the environment and hospitals potentials.

  • Communicating the strategy and initiating the objectives: communicating the vision and mission statement and connecting the objectives with individual performance parameters in specific areas, departments and teams by applying BSC key performance indicators.

  • Setting up and implementing plans: integration of BSC key performance indicators into regular controlling (reporting, budgeting and forecasting).

  • Strategic feedback, learning, adapting: regular revision of the BSC, and monitoring the BSC key performance indicators with regard to their relevance to success.

To summarise the above, a hospital that employs a BSC will first have to be certain about its vision and strategy. Then the vision and strategy are transformed into the hospital’s objectives and circulated within the hospital. The objectives must then be implemented. In the planning phase, this needs to be separated from budgeting. It should rather meet the strategic planning and alignment of the hospital with the objectives. The strategic feedback, results and new knowledge closes the BSC cycle and leads to the review of vision and strategy (Fig. 7.9). Currently, a frequent limiting factor is that the strategy is based on the budget instead on the vision of the hospital.

The BSC links the development of a hospital strategy with its implementation. At the same time, the objectives are specified and monitored by the performance indicators. In this way deviations from the specified goals by non-adherence to key data will become evident at an early stage.

We will now discuss in possible goals for the four perspectives of the BSC, such as key performance indicators, the target values and possible measures. Accordingly, each perspective should provide information (Fig. 7.10) on:
Fig. 7.10

The different perspectives of the BSC

  • Objectives (strategies): in general, long-term economic success and medical–strategic alignment will secure the survival and the development of the hospital.

  • Key performance indicators (dimensions): after the objectives have been set up, you have to deduct indicators that permit measuring the degree of success in reaching a goal in each area.

  • Target parameters (values): in the context of implementing the objectives, you have to specify concrete target values for each of the measures taken. These targets should relate to the actual values.

  • Measures (initiatives): you specify your initiatives to achieve the objectives.

7.5 The Financial Perspective

In the BSC approach, the following questions cover financial perspective: How do we as a private or non-profit hospital have to visualise our success? How can we demonstrate the financial success of our vision? In the development of the BSC, the following specific steps must be implemented:
  • Define financial objectives

  • Determine key performance indicators (leading and lagging indicators)

  • Specify target parameters/values for the key performance indicators

  • Introduce measures and initiatives (including responsibility and time frame)

  • Organise feedback (continuous development of the strategic goals; Fig. 7.11)
    Fig. 7.11

    Control processes of the BSC (Modified according to Kaplan and Norton (1996))

7.5.1 Objectives of Financial Perspective

Although the different perspectives of the BSC are of equal importance, financial success is the primary goal of every enterprise, including a hospital. Even a public or non-profit hospital has to work economically so that future capital investments can be made to ensure the continued development of the hospital according to the demands of the market. The key indicators of the other perspectives are interlinked and therefor influence improves the financial performance of a hospital or a hospital group.

By introducing the BSC, or in the course of strategic planning, part of the profits can be sacrificed for the sake of promoting certain things. However, it is expected that eventually these will contribute to an increase in profits. Examples are: members of staff are trained so that the knowledge they have gained will later be used for improving the business results, or a hospital department that is not profitable is supported and promoted by other departments to increase future performance.

7.5.2 Key Performance Indicators of the Financial Perspective

Most hospitals usually have a large number of key indicators for the financial perspective. Therefore, the right ones must be chosen for the BSC. In contrast to key indicators of the other perspectives, the key indicators of the financial perspective are well known to the hospital management and the finance department. The financial triangle (Fig. 7.12) depicts the key indicators and objectives of the financial perspective of a BSC. The following objectives could form the basis of the financial perspective in the hospital:
Fig. 7.12

Key indicators of the financial perspective

  • Growth of profitability and mix of earning sources, i.e.,
    • Extension of services to reach new patients and new medical fields

    • Change to services with higher value creation

  • Decreasing costs and increasing productivity, i.e., by reduction of the direct and indirect costs of services

  • Utilisation of assets and investment strategies
    • Better utilisation of the hospital’s resources, e.g., subletting of unused training facilities to third parties during weekends, evenings, and holidays

    • Reduction of current assets

Possible key indicators for profit growth and various earning sources.

With regard to the above-mentioned objectives, the following key indicators are relevant for the growth of a hospital:
  • Proportion of revenues from new services

  • Turnover in new treatment areas

  • Enlargement of the target market share

  • Profitability of patient groups or treatments

  • Turnover regarding new patients and referrer

Possible key indicators for decreasing costs and improved productivity

Potential key indicators for reducing costs and/or increasing productivity in a hospital are:
  • Costs of the hospital compared with competitor (benchmarking): costs per case

  • Reducing costs: comparing costs in various departments

  • Increased productivity: profit per department/patient/referring doctor

Possible key indicators for utilisation of assets and/or investment strategies.

The alternatives for key indicators for the utilisation of assets and/or investment strategies, are:
  • Shareholder value

  • Cash flow

  • Growth of turnover

  • Increased service life of devices

  • Utilisation of assets depending on turnover (investment rate, investments in research and development)

The implementation of goals in objectives, key indicators, target values and measures could, for example, look as described in Table 7.1.
Table 7.1

Examples of the implementation of goals from the financial perspective


Key performance indicators

Target parameters


Competitive cost structure

Reduction of costs

Annual reduction by 10 %

Outsourcing or privatisation of certain services (outpatients, laboratory, radiology, pharmacy)

Reduction of tied capital

Increase in utilisation periods of facilities

Additional 2 years

General overhaul, shorter maintenance intervals

7.6 Patient and Referrer Perspective

From the patients’ and referring doctors’ perspective, the following questions cover the BSC approach: how do we act towards our patients and referring doctors to realise our vision? In the development of the BSC, the following specific steps must be implemented:
  • Develop objectives for the different target groups

  • Define key indicators (early and lagging indicators)

  • Specify target parameters/values for the key performance indicators

  • Introduce measures and initiatives (including responsibility and time frame)

  • Organise feedback (continuous development of the strategic goals)

7.6.1 Objectives of Referring Doctors’ and Patients’ Perspective

For the layout the referring doctors’ and patients’ perspective, the following considerations must be made:
  • The hospital must satisfy the requirements of referring doctors and patients.

  • The hospital must determine the focus in which medical fields it wants to be competitive.

  • The hospital must clarify in which way it offers the services to the patients and the referring doctors.

7.6.2 Key Performance Indicators of Referring Doctors’ and Patients’ Perspective

Lagging indicators are already commonly used in many hospitals. In their basic form, they are unique for all hospitals but still have to be adjusted to the specific requirements. Many of these lagging indicators can be turned into early indicators by changing the angle from which they are viewed: Patient loyalty and patient satisfaction can quickly turn into early indicators in case of forward-looking treatments and therapies (e.g., laser operations, minimal invasive techniques, interventional endoscopy, day-hospital treatments and outpatient surgeries). Figure 7.13 illustrates early and lagging indicators as well as the different interrelations.
Fig. 7.13

Leading and lagging indicators of the referring doctors’ and patients’ perspective

Leading Indicators of Patients’ and Referring Doctors’ Perspective

They enable observations about future treatments and are valuable indicators for the future market.

Leading Indicator – Satisfaction of Patients and Referring Doctors

The satisfaction of referring doctors and patients is an important factor for a hospital. Satisfied patients will return to the hospital for other medical conditions. They are a credit to the hospital and will tell others of their positive experiences (multipliers). The following examples of key indicators for patient satisfaction can be established by questionnaires:
  • Survey results of general patient satisfaction

  • Recommendation rate

  • Number of positive feedbacks from patients’ and referring doctors’

Leading Indicator – Patients’ and Referring Doctors’ Loyalty

The loyalty indicator provides information on how well the hospital looks after the patients and referring doctors. Many hospitals only concentrate on new patients. Existing relationships are not fostered and referring doctors and patients might turn to other competing health care providers such as hospitals, day hospitals and colleagues in private practice. It is often forgotten that it is more cost-effective, and thus more profitable, to foster a customer base than to acquire new customers. The following example illustrates that loyalty indicators for referring doctors and patient are comparatively easy to ascertain in-house:
  • Share of turnover of ‘long-standing’ referring doctors and ‘long-standing’ patients

  • Growth of ‘long-standing’ referring doctors and ‘long-standing’ patients

  • Allocation and referral frequency

Leading Indicator – Treatment and Service Characteristics

The quality of medical treatments and services a hospital offers in the following three areas is important for referring doctors and patients:
  • Personal and individual attention

  • Quality of care

  • Waiting and treatment time

The following key indicators can – if used correctly – give an early indication of whether the hospital is on the right track in fulfilling its clients’ requirements:
  • Accessibility and availability

  • Proportion of re-admissions for the same diagnosis

  • Complaint rate - rate of adverse incidents

  • Medical services and additional health services

Leading Indicator – Image and Reputation

An early indicator for the patients’ and referring doctors’ perspective is given by the public image of a hospital. Patients will more easily choose a hospital with an excellent reputation. Monopolists have an advantage; however, this can quickly disappear once there are competitors on the market. The press and public relations office can significantly contribute to an improvement of a hospital’s image. Some indicators are
  • Growth of advertising budgets of the press office

  • Number of positive comments/reviews in the media

  • Number of articles in the press

  • Number of visitors at hospital events (regular and new visitors)

Leading Indicator – Relationships with Patients and Referring Doctors

Relationships with patients and referring doctors influence the success of a hospital to a large extent. If a hospital cannot build up positive relationships with the referring doctors and patients, it will lose them sooner or later. The important points in this context relate to:
  • Accessibility of the hospital

  • Time to address enquiries, complaints and appointments

  • Number of complaints

  • Patient satisfaction

Examples for key indicators are:
  • Friendliness and customer service awareness of the staff. Surveys among patients and referring doctors are helpful to provide the relevant data.

  • Waiting times for admission, at the patient administration, until a telephone call is picked up, requests for appointments are dealt with, etc.

Lagging Indicators from the Referrers’ and Patients’ Perspective

Lagging indicator – acquisition of new clients. The acquisition of new clients such as patients and referring doctors is important for a sound financial performance. The following key figures for new acquisitions can be ascertained internally:
  • Proportion of new patients within the total number of patients

  • Growth rate for new patients and referring doctors

  • Ratio of newly referring doctors to the number of potential new referring doctors who were contacted

Lagging indicator – profitability. A hospital needs to measure its profitability on a regular basis. In order to recognize if the relationships with other stakeholders are valued, the various contracts with the service providers must be analysed. Occasionally, there might be strategic reasons to exempt an individual service provider from making profit but this should be the exception. As a rule, contracts should make profit. The following key indicators can be utilised:
  • Profitability per patient/patient group

  • Contribution margin per patient/patient group

Lagging indicator – market share. The market share is also important because it can measure its success with the desired target group. The following target figures can be utilised:
  • Market share in a specific market (e.g., regional)

  • Market share in a specific target group (e.g., youth, families, senior citizens, old age homes)

Within a specific target group, key indicators measure the share within the total number of patients (‘account share’ or ‘share in the number of referred patients’).
  • Example: The total share of a target group covered by one referring doctor (e.g., share of patients suffering from diabetes mellitus and co-morbidities such as hypertension and neuropathy).

The implementation of goals, i.e., the parameters of objectives as key indicators, target values and initiatives could for example be described as in Table 7.2.
Table 7.2

Examples of goals from the perspective of the patients and referrers


Key performance indicators

Target parameters


Development of a higher price segment for private patients treated in wards offering ‘comfort class’

Number of new private patients in the ‘comfort class’ wards

Annual increase of 10 %

Marketing campaign


Most patient-friendly hospital in the region

Customer satisfaction index

Annual increase of 5 %

Regular feedback from test persons

Continuous service training for staff

7.7 Internal Business Process Perspective

When you apply the BSC to the process perspective, you should ask the following questions: which business processes related to patients and referring doctors do we need to change and how must we change them to achieve the set goals? By developing the BSC, the following specific steps must be implemented:
  • Defining the objectives for innovation, treatment processes and patient services

  • Determine key indicators (early and lagging indicators)

  • Specify target parameters/values for the key performance indicators

  • Introduce measures and initiatives (including responsibility and time frame)

  • Organise feedback to continuously develop the strategic goals

When you apply the BSC in hospital processes, avoid to put the emphasis on a certain part of the process. Rather, the total process should be analysed from the strategic point of view to identify those processes that are critical for achieving the objectives for patients, referring doctor and shareholder. This step is in line with business engineering. For example, the entire process can be subdivided into four different aspects for the relevant key indicators.
  • Innovation describes the identification of the market and the requirements of patients’ and referring doctors’ in addition to new services to be offered.

  • Treatment describes the therapy and treatment offers.

  • Service includes all services intended for patients. This comprises the service for in-patient and outpatient treatments. In addition can serve to secure patient satisfaction, e.g., talks of health professionals on certain diseases, diet and fitness for cardiac and stroke patients.

  • Internal and external communication: communication is a process that can continuously be improved because weaknesses need to be detected and removed and new technology needs to be considered and applied.

In the process perspective you cannot differentiate between leading and lagging indicators as the relevant business processes are sequences that are passed through continuously (cycle).

Example: The key indicator ‘post-operative care patients’ actually appears to be a typical lagging indicator as it provides information on whether patients are satisfied with the services in the hospital. If one uses them to indicate new patient requirements, it turns into a leading indicator.

7.7.1 Innovation

The best way to predict the future is to create it. (Alan Key)

This process cannot be delegated to colleagues, the departments or the head of the innovation hub. Rather, every staff member, irrespective of his level in the hierarchy, must become actively involved in the hospital’s innovation processes to solve problems, e.g.,
  • Identification of patients’ requirements

  • Creation of appropriate services to fulfil the patients’ and referring doctors’ requirements.

Possible key indicators for the innovation process are:
  • Number of newly identified patients’ and referring doctors’ requirements

  • Degree of implementation of identified patients’ and referring doctors’ requirements

  • Project success rate – how many ideas are successfully implemented?

  • Time to market (time until practical implementation of the innovation)

7.7.2 Treatment and Service Processes

In all hospital services and treatment processes, each step from procurement to treatment, discharge, and accounts has to be structured in such a way that the services fulfil the patients’ requirements in the following respects:
  • Quality

  • Costs

  • Time

Then key indicators can be utilised for the processes:
  • Time until appointment

  • Number of appointments kept

  • Number of complaints and recourse claims

7.7.3 Service for Patients and Referring Doctors

In order to obtain satisfied referring doctors and patients who are to recommend your hospital to other patients, it is necessary to provide support for the patients after the discharge. Some key indicators illustrate how capable these patient services are:
  • Number of patients treated after being discharged in collaboration between the hospital and private practitioners

  • Lead time to reply and settle queries and complaints

  • Waiting times

  • Billing and collection times regarding private patients and service providers

One of the most important strategic objectives is a continuously high standard of treatments and services. All patients should be cared for and treated courteously, not only those who know the executive hospital management or the HoD or who complain about their concerns: if patients are successful in bypassing staff, they will increasingly talk to the hospital’s management first without having the matter discussed with the people in charge. Consequently, the executive hospital management should redirect decisions and complaints to those responsible for dealing with them: this will ensure that management do not face a loss of competence and, at the same time, they are empowering their co-workers.

7.7.4 Internal and External Communication

A hospital’s internal and external communication must be seen as a business process that plays a key role in the hospital.

Internal communication is vital for the BSC, i.e., the dissemination of strategic goals throughout the hospital. This can be measured by the following key indicators:
  • Internal dissemination of news in the hospital’s bulletin: Are staff member interested in the contents? How many staff members read the paper regularly? Which content is read? Are the matters related to the interests of the staff or is the content published by and for the hospital management?

  • Number of staff contributors to the hospital paper. Is the paper intended to enhance internal communication? Are the concerns of the staff taken up in the bulletin? Or is it instead seen as a prescribed and persuasive medium working on behalf of the hospital management? Blogs could also present an innovative way of communication enabling staff to express internally, in the hospital, their opinions on projects and strategies; it is also a method that avoids matters being broadcasted outside the hospital, via social media.

External communication, important for defining the hospital’s image and reputation, usually comprises three areas:
  • Public relations

  • Advertising

  • Hospital events

They can be evaluated using the following performance indicators:
  • Number of positive reviews/articles in external media such as the daily newspapers or television

  • Number of participants in hospital events (number of regular and new visitors)

  • Number of participants attending ‘open days’

7.8 Learning and Growth Perspective

This perspective, which is frequently regarded as the staff perspective, is aimed at transforming the hospital into an organisation with a culture of learning and growth. To achieve the goals of organisational growth and development, the necessary infrastructure must be set up.

7.8.1 Objectives of Learning and Growth Perspective

The objective is to empower staff so that tasks will be carried out as best as possible. In addition, relevant information technologies must be available to provide the organisation with the necessary information. How can you enable your staff to implement the objectives derived from this vision?

7.8.2 Key Performance Indicators of the Learning and Growth Perspective

For the performance indicators of this perspective, it is particularly important to define how the results can be determined. It might be difficult to express these objectives in key indicators and related target values. However, if this task is taken up by a mixed team from all involved departments, it could lead to an overarching awareness of the organisational culture in the hospital (Fig. 7.14).
Fig. 7.14

Early and lagging indicators for the learning and growth perspective

Lagging Indicator – Staff Satisfaction

Satisfied staff is the requirement of a well-functioning hospital. Satisfied colleagues perform better than unsatisfied. The following factors influence positively staff satisfaction (Sect.  10.6):
  • Responsibility assigned to the employees

  • Performance appraisal

  • Pleasant and trusting work environment

  • Reliability in the hospital and the different departments

  • Open and trusting working relationship with one another

The following examples of key indicators can be used for measuring staff satisfaction:
  • Average sick leave

  • Willingness to work (unpaid) overtime

  • Number of applicants by whom the hospital was recommended by staff members

  • Willingness to take on tasks that are beyond normal work routine (e.g., participation in student teaching and supervision).

Lagging Indicator – Staff Loyalty

A high degree of staff loyalty can contribute to the success of a hospital for various reasons:
  • The training of new employees is costly and does not render a ‘return on investment’ if the employee is going to leave the hospital after a short time.

  • Every employee gains knowledge and experience while working at the hospital, which will be lost when they leave the hospital.

The following key indicators can be used for determining staff satisfaction:
  • Average affiliation with the hospital in years

  • Resignation rate

  • Number of absentees and days absent

However, there is a potential risk when the long term affiliation of employees is put in the centre of hospital strategy. In spite of long affiliation with one organisation, employees should be able to repeatedly face new and changing tasks. A regular influx of new staff from other health care providers must be the goal to maintain the competitiveness of a hospital and the enthusiasm for innovation. Vacant positions should be promoted in an official process and filled preferably with external candidates.

Lagging Indicator – Staff Productivity

The productivity of staff members depends on their job satisfaction: on whether their abilities match their present position and whether their work is appreciated. The following key indicators can be applied:
  • Number of patients

  • Rate of regress claims, complaints and ‘critical incidence reporting system’ reports. (Caution: the reports may decrease if staff feel that their reports do not add value. They will then save themselves the effort of posting a report.)

  • Additional qualifications that serve the completion of a task

  • Number of consultants and HoDs cooperating with other health care providers, such as hospitals, doctors in private practice, day hospitals, treatment centres

Leading Indicators of the Learning and Growth Perspective

Leading indicator – staff training. The training level of staff is a typical early indicator. If the expertise of staff increases, they must be given the opportunity to apply their new knowledge. It is necessary to plan training courses: these should be varied, for instance, compulsory specialised courses, and to evaluate if that serve mainly the general interest of the staff or are in the interest of the hospital. For a hospital that wants to further position itself in the market it is vital to continually improve the qualifications of its employees. Key indicators for staff training, such as the total number of training events can hardly be linked to tangible success in the short term. Only in the long run will newly gained knowledge contribute to a hospital’s success.

Leading indicator – staff motivation. Besides being satisfied with their current work task, employees must identify themselves with the hospital’s goals and strategy to further improve results. The following measures could be applied for staff motivation:
  • Centre (e.g., innovation hub) that allows staff to contribute to the hospital development

  • Possibility for teamwork

  • Hospital management that attends to the needs and demands of the staff

Possible performance indicator could be:
  • Suggestions for improvement per employee

  • Payment of incentives for improvement suggestions and implementations

  • Number of suggestions submitted by a team

  • Implementation of improvements (e.g., measured via paid incentives)

Informal infrastructure: using information technologies such as the internet, intranet or the hospital’s in-house software solutions is indispensable. But how is it possible to ascertain whether these technologies are, in fact, being used? Key performance indicators for the usage of these technologies could be the following:
  • Percentage of software solutions and apps used

  • Accessibility of available data or evaluations

  • Number of IT usage hours by management and employees

Availability of medical/management reports. The implementation of goals, i.e., objectives, key indicators, target values, and measures, could be described as depicted in Table 7.3.
Table 7.3

Examples of the implementation of goals from the learning and growth perspective


Key performance indicators

Target parameters


Increased staff competency

Number of training units per staff member

3 per staff member

Continuous qualification; targeted training programmes

Increased rate of innovations

New service and treatment offers

25 %

Improved website and communication with private doctors via social media

Increased staff motivation

Rate of resignations

3 %

Mentoring programme, incentives

7.9 Case Report on the Application of the BSC

Rochester Heights (RH) is a large regional general hospital. Like many hospitals in the neighbourhood, RH is facing the following problems:
  • Proximity of several competitors

  • Low bed occupancy rate

  • Low financial revenue

  • Unmotivated staff, shortage of skills

  • Duration of stay too long

To tackle these issues, RH develops the following mission: ‘Personalised patient centred care providing a high satisfaction level’.

Rochester Heights follows the vision ‘what we want to achieve in future’: ‘We want to raise the rate of private patients to 30 %.’

Consequently RH promotes the following strategies:
  • High degree of patient satisfaction

  • Highest degree of patient centredness in the market

  • Short waiting periods before admission

  • Vision: In 3 years we are the major regional provider serving private patient.

In several workshops the executive management developed a strategy map (cause–effect chain; Fig. 7.15).
Fig. 7.15

Strategy map of Rochester Heights

Based on these results RH decides to outsource the treatment services for private patients as an independent hospital branch and calls it ‘Health Center of Excellence Rochester Heights’.

The executive hospital management looks for an investor in the market and approached the neighbouring headquarters of the car company Mobi-De. The vision and implementation for a Health Centre of Excellence are presented there: the staff of Mobi-De will receive improved medical care. The hospital management promises fast treatment processes, individualised care, enhanced recovery time through combined medical services, and optimized support by cooperating with colleagues in private practise. Financial support and the profit share are agreed upon. As a long time result, the hospital increases the number of private patients and could achieve the set goals. The goals, key indicators, and measures are displayed in Table 7.4.
Table 7.4

Sample case: Rochester Heights



Key performance indicators

Target parameter


Financial perspective

Increased profits

Turnover of patients

Annual increase of 15 %

Financial cooperation with Mobi-De

Perspective of patient and referring doctors

High reliability

Satisfaction index

Annual increase of 20 %

Use of software and marketing programmes

Waiting time

Online tools

Granting requested appointments increased by 15 %

Interfaces and online tools

Internal business process perspective

New services

Time first to market

100 days

Marketing by hospital management. Improved implementation

Number of private patients

Turnover of private patients

30 %

Marketing measures

Learning and growth perspective

Staff competence

Number of training units per staff member

3 per staff member

Continuous qualification process.

Targeted training programmes

Service competence

Greater client satisfaction, lower rate of complaints

25 %

Targeted training of staff

Staff motivation

Reduced absenteeism and resignation rate

3 %

Mentoring programme

Through staff training and scheduled implementation of the new vision and business goals, the Center of Excellence RH is able to establish itself in collaboration with its stake- and shareholders in a niche market as well as to provide improved service provisions. By creating new income resources, the financial revenue improves so that future-orientated capital investments can be made throughout the year. As a result, not only the private hospital, but also RH gains a better financial revenue.

7.10 Problems in the Development and Implementation of BSC

We want to briefly address various problems in the development and implementation of the BSC. The BSC carries the risk of implementing wrong or unrealistic goals. However, even ‘bad’ strategies can be managed professionally. Furthermore, a BSC can be overloaded with too many objectives that are too complex. If the BSC is developed too superficially, a one-sided focus on key indicators, particularly on lagging performance indicators, can result. When this happens the intention of the BSC to align actions to strategic goals and the sustainable future development of potentials is lost. If you attend mainly to key indicators, an unbalanced ‘optimisation’ of key indicators can take place – especially if remuneration or incentives are linked to the fulfilment of key indicators. Therefore, the individual targets must be balanced, to avoid undesirable effects.

If a hospital strategy is implemented by applying the BSC, it is necessary to monitor compliance with the relevant key indicator to ensure long-term acceptance. However, you cannot always hold people accountable for every deviation that occurs. Particularly, in cases of external interventions such as the implementation of top-down saving measures in the health system, the reason for departing from the plan cannot be placed with the person responsible for key indicators. Thus, it is a fundamental principle that ‘responsible for’ and ‘not responsible for’ deviations from the plan are clearly separated. The best chance of achieving this is to explore risks related to a specific target figure when the BSC is being developed. Precisely these risks should clearly describe a ‘not responsible for’ deviation from a planned and expected value. By using this approach, strategic management and risk management are integrated and the efficiency and logical consistency of both systems can increase.

7.11 Summary

The control and definition of key performance indicators are an important part of, but should not be the major focus of, business decisions made by a hospital’s management. Key performance indicators play a central part in the hospital’s concept. If the focus rests only on financial key indicators, the bigger picture gets lost. The balanced scorecard is a holistic management approach that provides a key indicator system of non financial and financial perspectives for the monitoring process. It serves to ensure the consistent alignment of actions, processes, and measures within a team/organisation (hospital, departments, project groups, etc.) to a common goal. In contrast to the classical key data systems, the BSC also focuses the attention on non-financial indicators via the assumed interrelationship of the cause–effect links. By means of the BSC, the different perspectives are analysed and help to establish competitive advantages for a hospital so that the various key indicators and measures can be aligned to it. Apart from the classic financial key indicators, the BSC includes referring doctors, patients, treatment processes, and staff. Relevant key indicators must be defined for each of them. Consequently, the hospital can be developed in such a way that the strategic objectives for all four perspectives may be reached in a balanced manner. Unlike guiding principles and other fuzzy formulations, the BSC enables that measurable goals can be implemented.

7.12 Five Reflective Questions for Practical Application

  1. 1.

    What is the strategy of your hospital or department? Outline your 1-, 2-, 5-year plans.

  2. 2.

    Why do you regard the BSC as useful/not useful for your hospital or department?

  3. 3.

    Which areas can you envision implementing a BSC?

  4. 4.

    Can you apply the pyramid depicted in Fig. 7.1 to your hospital or department?

  5. 5.

    What resources and which people would you need to realise your mission?


References and Further Reading

  1. Banker RD, Chang H, Pizzini MJ (2004) The balanced scorecard: judgmental effects of performance measures linked to strategy. Account Rev 79(1):1–23CrossRefGoogle Scholar
  2. Kaplan RS (2001) Strategic performance measurement and management in non-profit organizations. Nonprofit Manage Lead 11(3):353–370, Jossey & BassCrossRefGoogle Scholar
  3. Kaplan RS, Norton DP (1996) Using the balanced scorecard as a strategic management system. Harv Bus Rev 1–2:75–85Google Scholar
  4. Stewart LJ, Bestor WE (2000) Applying a balanced scorecard to health care organisations. J Corp Account Finance 11(3):75–82CrossRefGoogle Scholar
  5. Zelman W, Pink GH, Matthias CB (2003) Use of balanced score card at health care. J Health Care Finance 29(4):1PubMedGoogle Scholar

Copyright information

© Springer Berlin Heidelberg 2017

Authors and Affiliations

  • Edda Weimann
    • 1
    • 2
  • Peter Weimann
    • 1
    • 3
  1. 1.Commerce Faculty Department of Information SystemsUniversity of Cape TownCape TownSouth Africa
  2. 2.Groote Schuur Hospital Academic HospitalUniversity of Cape TownCape TownSouth Africa
  3. 3.Beuth UniversityBerlinGermany

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