Human Capital Allignment with Mission and Startegy in Healthcare Organization

RESEARCH PROPOSAL
May 16th, 2009

Align Human Capital with Healthcare Organization’s Strategy, Could the Balanced Scorecard Help?

Firdaus Basbeth

Supervisor:

Submitted in fulfilment of the requirements for the degree of Doctor of Philosophy in the University of









CONTENTS
PAGE Nos.

1. Introduction 3

2. Literature Review 4
2.1 Balanced Score Card 4
2.2 The Strategy Maps 6
2.3 BSC Success Rate 8
2.4 Healthcare Organization 9

3. Research Objective 10

4. Research Strategy 11

5. Anticipated Result and Data Analysis 12
5.1 Anticipated Result 12
5.2 Data Analysis 13

6. Program Schedule and Budget 14
6.1 Program Schedule 14
6.2 Budget 14

7. References and Bibliography 15









1. INTRODUCTION
The changing nature of today's health care organizations, including pressure to reduce costs, improve the quality of care and meet stringent guidelines, has forced health care professionals to re-examine how they evaluate their performance. While many health care organizations have long recognized the need to look beyond financial measures when evaluating their performance, many still struggle with what measures to select and how to use the results of those measures.
In 1992, Robert S. Kaplan and David P. Norton wrote The Balanced Scorecard as an introduction to their management strategy for business in the information age. The balanced scorecard is a strategic planning and management system that is used to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It is a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance.
Although many successful stories of using balanced scorecard have been reported in other organization, little evidence of its application to healthcare organization has been reported (Chow and et al, 1998), Nevertheless, there was a strong consensus among prominent researchers from many countries about the need to use balanced scorecard reporting by healthcare providers (Forgione, 1997).
As a first step in filling this gap, this study will assesses
1. How widespread is the use of the BSC in the healthcare organization?
2. What factors that drive hospital management to undertake a balanced scorecard initiative
3. What would balanced scorecard look like for a healthcare organization, and how organization align four perspectives customer, process, learning and development, and financial performance with strategy
4. Does adopting the BSC improve a healthcare organization’s customer, process, learning and development, and financial performance?
Moreover, the intangible assets identified in the balance scorecard’s learning and growth perspective are clearly the foundation of an organization’s strategy. The most valuable intangible category is human capital because of its emphasis on the most important jobs. According to a survey by Balanced Scorecard Collaborative and the Society of Human Resource Management, only 19 percent actually integrate their strategic plans with those of the organization. To measure the contribution of well aligned of Human Capital with Healthcare organization’s mission and strategy, finally the next research questions is
5. How much does improvement in Human Capital practice through implementation of BSC in healthcare organization actually contribute to the bottom line?


2. LITERATURE REVIEW
2.1 The Balanced Score Card
The basic idea of the Balance Scorecard is to focus the organization on metrics that matter as seen from a strategic point of view. To avoid focusing only on short term financial measures the scorecard comprises metrics from areas such as customer, internal processes, and learning and growth perspectives respectively. The balanced scorecard suggests that we view the organization from four perspectives.
§ The Learning & Growth Perspective
The Learning and Growth Perspective of the balance scorecard focus on the competencies and resources needed in order to make the deliveries defined in the internal processes objectives.
§ The Internal Processes Perspective
The Internal Processes Perspective of the Balance Scorecard focus on the deliveries the organization must make in order to be perceived by customers according to its customer objectives.
§ The Customer Perspective
Looking at an organization using the Customer Perspective is about how the customers perceive the value offered. The objectives should closely define how customers should perceive the value proposal in order for them to reward the organization with the financial results they expect.
§ The Financial Perspective
When we are looking at an organization using the Financial Perspective it is all about financial performance - at least for the profit maximizing business. The objectives should be defined in order to excite the owners or sponsors to ensure continued funding of the organization.

2.2 The Strategy Maps – Bringing It Together
A strategy map is a useful tool for linking strategy with the company's intangible assets. The strategy map shows that intangible assets influence the performance of a company through enhancing internal processes. According to Kaplan and Norton, there are three categories of intangible assets that are essential for implementing any strategy identified in the Learning and Growth Perspective of the Balanced Scorecard: human capital, information capital, and organization capital. Certain intangibles are hard for competitors to replicate. These types of intangible assets include employee skills, information technology systems, and the organization's culture. Because of this, the company that possesses the right set of intangible assets has a powerful competitive advantage.

Figure 1 Strategy Map

2.3 Balanced Scorecard in Healthcare Organization
Performance measurement is not a new concept to the healthcare industry. “Hospitals have been using metrics for a long time, longer than most other organizations..” Technology has enabled hospital leadership to collect and distribute vast amounts of data; benchmarking process that allow healthcare organizations to measure their performance against industry averages have been in place since the late 1970s” (Pieper 2005, p.9). Since the 1990s, health care organizations have had to face greater pressures from society, for example, increased payer power and constraining regulations. They balance complex tradeoffs among cost, quality, access, and consumer choice (Inamdar and Kaplan, 2002). “When dramatic changes are inevitable, developing a strategic focus and examining the business and quality of the health care in a measurable and repeatable manner become each organization’s opportunity” (Meliones, Ballard et al. 2001, p. 28). So it is not surprising that so many health care organizations chose to apply BSC and their BSC practices had unique characteristics. BSC in healthcare organizations presents a different picture compared to other industries. For example, most health cases used other perspectives in their BSCs, but Speckbacher, Bischof et al.’s (2003) survey in German-speaking countries only 17% of the companies used other perspectives. The use of the learning and growth perspective was similar, but there was less use of the customer perspective


2.4 . Aligning Human Capital with Strategy
In the knowledge based global economy, intangible assets like human capital account for nearly 80 percent of an organization’s value. Converting intangible assets to tangible results represents a new way of thinking for most organizations. Every organization has workers and leaders who require development and a climate that requires shapes, therefore organizations can create value by improving the development of human capital throughout their business unit. Experience indicates that if these processes are linked to strategy, the value of the organizations human capital increase dramatically. Survey research demonstrates that superior human capital practices are not only correlated with financial returns, they are, in fact, a leading indicator of increased shareholder value. Creating alignment and measuring strategic readiness enable HR executives to manage these processes. According to a survey by Balanced Scorecard Collaborative and the Society of Human Resource Management, only 19 percent actually integrate their strategic plans with those of the enterprise.
In particular, in the learning and growth perspective which Marr and Adams (2004) argue is its weakest link. Frigo and Krumwiede (1999) reported that the majority of BSC users rate the effectiveness of the innovation perspective as ‘less than adequate to poor’ while Speckbacher et al. (2003) concluded that over 30 percent of the BSC users in their study has no ‘learning and growth’ perspective. Kaplan and Norton admit (1996b, p.144) that “this gap is disappointing since one of the most important goals for adopting the scorecard measurement and management framework is to promote the growth of individual and organizational capabilities”.
Deloitte's study - the Deloitte & Touche Human Capital ROI Study - answers the question of how much do effective people practices actually contribute to the bottom line of an organization by measuring human capital practices and linking them to corporate financial performance. Deloitte's results suggest that human capital practices may account for as much as 43% of the difference between a company's market-to-book value and its competitors.

3. RESEARCH OBJECTIVES
Since the inception of the BSC in the health care and other organization, much has been written touting its benefits, though it can be costly to develop and implement. There has been little empirical evidence, however, that health care organization adopting the BSC have experienced the benefits. The research will find out if healthcare organizations implementing the BSC have improved their performance as a result. We set out to clarify:
How widespread is the use of the BSC in the healthcare organization?
What factors that drive hospital management to undertake a balanced scorecard initiative
What would balanced scorecard look like for a healthcare organization and how organization align four perspectives customer, process, learning and development, and financial performance with strategy
Does adopting the BSC improve a healthcare organization’s customer, process, learning and development, and financial performance?
How much does improvement in Human Capital through implementation of BSC in healthcare organization actually contribute to the bottom line?
4. RESEARCH STRATEGY
Both quantitative and qualitative methodology will be used in this research to answer the research questions.
4.1 How widespread is the use of the BSC in the healthcare organization? data will be collected through healthcare organizational association and the Performance Measurement Association via Internet search. The main sources were published papers and internet sites identify successful implementations. We searched Google as well as academic databases – searching for several key words: balanced scorecard in hospital and health care. These findings will tell the name and location, size of the organization, the year of the implementation of BSC.
4.2 What factors that drive hospital management to undertake a balanced scorecard initiative? data will be collected through interview with 50 healthcare organization’s management across UK.
4.3 What would balanced scorecard look like for a healthcare organization and how they align four perspectives customer, process, learning and development, financial performance with the strategy, we used two types of method:

4.3.1 Interview
Data will be collected through interview with 50 healthcare organization’s management across UK, to understand How organization align four perspectives customer, process, learning and development, financial performance with the strategy.

4.3.2 Perception Survey
A model will be constructed and used to evaluate the strategy map and objectives in balanced scorecard based on the internal organization perception. Survey instrument will be developed on the website and an email will be sent to management in the healthcare organization that uses the Balanced Scorecard asking them to fill in the questionnaire, with the address of the website provided. After period of time, the data obtained from each questionnaire will be gathered from the website. This method is selected to enables the questionnaire to be directed to the most appropriate person, the one with experience in using the Balanced Scorecard. Scores will be derived based on their importance and rating on a scale of 1 (low) to 10 (high). Based on results from interviews, list of objectives and measures suggested constructing the model. This model, with the explanation, was then resubmitted to the respondent for further comments. The comments were then used to improve the use of the model. The example of the questionnaire as shown below

4.4 Does adopting the BSC improvement in a healthcare organization’s customer intimacy, operational excellence, learning and development, and financial performance? The way to measure will be using four types of methods.
4.4.1 Measuring internal perception and satisfaction
Survey instrument / questionnaire will be sent to 100 selected personnel internal organization, to determine balanced scorecard objectives-KPI’s and practices and its benefit to the organizations. Those interviewed are healthcare stakeholders, comprising of healthcare organization staff, physicians, management, administrative staff, managers, governing board, patience, community, donor, and legislator. Data will be collected to be able to derive scores for each participating company on a scale of 1 (low) to 100 (high). The score is an indicator of the strength of a company's balanced scorecard objectives-KPI, and practices relative to other participating companies.
4.4.2 Measuring Patient Satisfaction
Survey instrument will be sent to the patients. Data for the study will be collected from 500 patients in the data base for which it has fax or telephone numbered. These questions will likely covers four categories: (rating scale ranging from ‘low’ (1) to ‘high’ (5) on Customer Loyalty, Communication, Easy Access, Administration, Interpersonal Relationships.
4.4.3 Measuring Objectives Achievement
To examine the effect of balanced scorecard implementation on performance, the event-study methodology for detecting improvements in operating performance will be followed. Types of information will be needed financial and non financial performance from the most recent fiscal year (market-to-book ratio, year total return to shareholders, revenue growth, operating margin) and non financial indicators: customer intimacy, operational and learning and growth performance.
In a nutshell, an event study compares performance of a group of firms that have undergone a particular event (in this case, their first year balanced scorecard implementation) with the performance of a comparable group of healthcare organization that did not undergo that event. This method is commonly used in financial research and has also been used to show that TQM (total quality management) improves firms’ performance (Hendricks and Singhal 1997).
An event study requires specifying the event period, which in our case is the period during which balanced scoracard is implemented. A typical implementation takes anywhere from six to 18 months, so we define our event period as the year in which the first certification was received (call this year t) and the year immediately preceding certification (year t – 1). The period preceding the event period (year t – 2) is used for determining the control group.
The years following the event period (years t + 1 through t + 3) are used to test whether certified firms experienced superior (or excess) performance compared to the control group. For example, if a healthcare organization implement balanced scorecard in 2004, we use its performance in 2002 to select a control group, and then compare financial performance in all subsequent years, i.e. year t – 1 (or 2003), year t (or 2004), etc.
By choosing a control group of firms based on having comparable characteristics before implementing balanced scorecard, an event study allows us to test whether firms that adopting balanced scorecard achieve higher performance than otherwise comparable firms that did not receive certification



d. Correlation Matrix
To see the correlation of the KPI financial and non financial performance, a matrix will be created with the three value drivers of financial performance, revenue growth, operating margin, along one axis against non financial performance of operational excellence, customer intimacy, and learning and growth on the other axis.

4.5 How much does improvement in Human Capital practice through implementation of BSC in healthcare organization actually contribute to the bottom line? We collected two types of data: Information on human capital practices (e.g., pay, performance measurement, training and development, communication and leadership) and Information on financial and organizational performance from the most recent fiscal year. Scoring system will be assigning an overall score to each participating Healthcare organization. The score is based on the 17 critical survey items that linked most strongly with financial performance. The score is an indicator of the strength of a company’s human capital practices relative to other participating organizations. A Correlation matrix will be used with the three value drivers of revenue growth operates margin, market to book ratio vs 17 survey items.


5. ANTICIPATED RESULT AND DATA ANALISYS
In this research we will examine and find out the answer of the research questions and the findings will be as the following:
§ The list of healthcare organization, the size and the year of the implementation of BSC, and the reason for implementing balanced scorecard: customer mandate, donor and government mandate, competitive pressure or advantage, continuous improvement based on customer requirements, improve quality. Data will be analyzed to examine whether healthcare organization are internally driven or externally driven in adopting balanced scorecard.
§ The process to create, translate and develop performance measure and practice based on the balanced scorecard model from their mission and strategy. From the survey result, and interview, different model and dashboard of indicators will be obtained. Different set of indicators will be the reflection of the different objectives and concern. Data will be analyzed to examine the maturity level of the organization in implementing balanced scorecard, and the strategy map model that they used. The higher the maturity level, the better the strategy map, the dashboard of indicators, and the alignment to the strategy and healthcare’s mission. The “BSC – Value Map” model will be drawn from this step, and will be used to answer the research question no 3, the benefit of implementing balanced scorecard in healthcare organization.
§ The effect of adopting balanced scorecard to the financial and non financial performance. We compare whether the performance indicators improved after the balanced scorecard implementation. Healthcare organization that chooses the right performance metrics should have financial and non financial indicators improvement over time, and substantially outperform healthcare organizations that do not. Financial performance improvement should give a positive correlation to non financial indicators.
§ The improvement in Human Capital through implementation of balanced scorecard in healthcare organization actually contributes to the bottom line. Data will be analyzed to identify linkages between specific human capital practices and the financial; measures looking at the market to-book value of a company – a solid Indicator of a company’s ability to create value above and beyond its physical and financial assets, to find out the strongest statistical linkage to human capital practices. As a final step in the analysis, a proprietary scoring system that allows us to assign an overall HC score to each participating company will be developed. The HC score is based on the 17 critical survey items that linked most strongly with financial performance (as shown on page 13). The score is an indicator of the strength of a organization’s human capital practices relative to other participating organization’s. The financial consequences of a high or low HC score should be extraordinary. Participating organizations will be divided into four quartiles based upon their HC Score, then will be compare the aggregate financial performance of each quartile. Organization with high HC scores on average earns more money for their shareholders than their peers in the middle and bottom quartiles.
§ Three types of Statistical Test will be used : Z test: to know that four balanced scorecard perspectives, objectives and measures will give better alignment to achieve strategy and hospital mission compare to peer that doesn’t align Human Capital in their BSC implementation. F test: to know whether there is a significant variance between improvements in financial performance over time in healthcare organization that implement balanced scorecard and others that doesn’t. Reliability and validity checks for the two composite variable measures employed in the study, that is, internal organization performance and Financial Performance, are performed through correlation and regression coefficients, and goodness-of-fit statistics.


6. PROGRAM SCHEDULLE AND BUDGET
6.1 Program Schedule
In duration, the research project will be conducted within 3 years (from 1 September 2009 to 30 November 2012). ). Research will take place in the UK with the following schedule


6.2 Budget
The research will be fully funded by scholarship of UK government. However if the funds have not been acquired the money will be self payment. Total budget is 15,000 US$. The budget will include (US$):
costs for printing questionnaires - 2, 000
mailing questionnaires 2, 000
costs for follow-ups or return (mailing, telephoning, envelopes) 2, 000
cost for interviewing (traveling within UK/Australia) 6, 000
cost for printing documents 3, 000


7. References and Bibliography
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