Published: 27/05/2004, Volume II4, No. 5907 Page 30 31

The balanced scorecard was devised to gauge organisational performance in an age when short-term results are usually the focus. John Deffenbaugh asks if the NHS is using it correctly

Though star-ratings and targets are under review, performance management remains a regular feature of the management calendar.Managers have therefore become used to the term 'balanced scorecard' since this is one of the key performance management areas in the current star-rating system.

However, how closely does the concept as used by the Department of Health and Healthcare Commission reflect what this management tool was designed for?

Like many such methodologies, the balanced scorecard has been popularised and taken away from its roots. Understanding it properly means exploring where the balanced scorecard came from, what it is, its use in the star system and potential for benchmarking.

The balanced scorecard came initially from the 'measurement' school of management - 'what gets measured gets done'. It arose from a concern in business that the finance people often decided what was measured, and this caused an imbalance in how the success of the organisation was judged.

Another driver behind the scorecard was the need to balance the short-term focus with a long-term perspective. Industry in particular became focused on the short-term during the 1980s and 1990s.

Look at Railtrack for the consequences here: the early financial success drove up the share price, but the cost was lack of investment in the infrastructure. The balanced scorecard is an ideal system to ensure this does not happen.

Enter management strategists Professor Robert Kaplan and Dr David Norton a decade ago. They coined the term 'balanced scorecard' and presented a model for its use (see figure 1). A balanced scorecard is an agreed set of measures that provides managers with a comprehensive, balanced and timely view of an organisation's performance.

The four perspectives of the scorecard measures are:

Financial: a historic perspective of financial performance.

Customers: both a forward looking and historic measurement of how the organisation has met customer criteria.

Internal process: also both forward and backwardfacing measures to assess processes that are 'mission critical'.

Innovation, learning and development: mainly forward-looking measures to lay the foundation for long-term change and sustainability.

The organisation's objectives will fit under the headings of these perspectives, and for each objective there will be one or more measures, namely an indicator ofhow it is performing relative to the objective. The perspectives are also placed in hierarchical order, reinforcing the 'cause and effect' relationship.

This causal relationship is of fundamental importance since it provides the rationale and hard evidence to invest in long-term initiatives, such as clinical governance, people development, IT infrastructure and facilities. Take, for instance, the justification to invest in clean wards as a lead driver of future performance and achievement of the performance indicator for infection control.

The components of a balanced scorecard therefore comprise the objectives within each perspective, the measure for each objective and its target - and the vision and strategy within which all this takes place.

What is new in all this is the causal relationship, demonstrating the internal consistency and the links between objectives and measures.Without this causal relationship, a set of measures - sometimes presented as performance indicators - is just a list. That is what the Department of Health called its balanced scorecard, which is now the property of the Healthcare Commission.

From the start there were three components in how the stars were awarded: key targets, the balanced scorecard measures, and Commission for Health Improvement reports.

The balanced scorecard is made up of 35 performance indicators grouped under three perspectives: clinical focus, patient focus, and capacity and capability. Unlike the Kaplan and Norton scorecard, inherited by the Healthcare Commission, the CHI balanced scorecard does not present the indicators in a relational context.

Therefore, one of the key benefits of a balanced scorecard is lost. For instance, 'delayed transfers of care' will affect 'total inpatient waits', and likewise the results under 'staff opinion survey' could be construed to impact on the results under the 'infection control procedures' indicator.

The CHI list of performance indicators misses a major opportunity to make this link, which is often presented in the form of what is called a 'strategy map'. This evaluates and makes visually explicit an organisation's perspectives, objectives, and measures, and the causal links among them. Some of the current CHI balanced scorecard indicators are presented in figure 2 above in the form of a strategy map, which suggests some ways in which indicators might be linked.

The CHI scorecard for 2003-04 had 44 measures in total: 35 balanced scorecard and nine key targets.

Kaplan and Norton recommend that a scorecard should have 20-25 headline measures.Management can measure and monitor only so many areas.

A genuine balanced scorecard system also has the potential to improve benchmarking. Benchmarking is about improving performance by learning from best practices and the processes by which they can be achieved. This means looking outward from the trust, not just elsewhere in the NHS, but also into Europe and the US. The numerous comparisons of the NHS with Kaiser Permanente is a high-profile example of benchmarking.

However, making like-for-like comparisons is very difficult, and requires detailed definitions, data capture systems, and management resources.

If the balanced scorecard is retained in the long run, it should be developed in two respects - make it relational, and use it to have a close look at some of the targets, namely the more qualitative ones that are more difficult to measure.

'We will see if these changes have been made when the latest balanced scorecard indicators are released by the Healthcare Commission later this year.

Common pitfalls: balanced scorecard systems can fail to produce results

Lack of senior management commitment.

'Backroom scorecards'- produced by a few people behind closed doors.

Scorecards that are not cascaded below the executive team.

Scorecards become fossilised - 'it was so much work to do, it'll be too much work to change'.

The IT project - the whizzy software package that no-one uses.

The best is the enemy of the good - 'I am not going to launch it until It is perfect'.

Lack of expertise.

Lack of an agreed vision or strategy.

Jeremy Martin, Dorset and Somerset strategic health authority performance manager.

Goal difference: everything in context 'Say, Manchester United lose at home to Portsmouth.By one measure, that means United are doing really badly.But what if you ask how have they done throughout the season? And in the cups and in Europe? And as a plc? This is the basis of the balanced scorecard - a more rounded perspective that measures in the context of past, present and future rather than always being driven by last Saturday's result.

'I have been working with the BSC concept since the 1970s in a variety of settings and I do think the holy grail - the kind of key performance ratios like price earnings in the private sector - will not be found for the NHS, and especially not mental health.We are a long way from that.

'However, what we can do is, while accepting that imperfection, begin to look at better measures of patient satisfaction and better ways of measuring it.The public has a right to ask: 'What's the score?'and have an easy-tounderstand answer.

'The essence of a balanced scorecard approach is to get a global view of organisational and departmental performance by looking not just at internal factors but at external factors - the outputs and outcomes.The NHS tends to be better at measuring internals than externals because they are often about perceptions and about relationships, especially in mental health.But that subjectivity can still be measured, it is just more complex and requires discipline.'

Jeremy Taylor, Nottinghamshire Healthcare trust chief executive.

John Deffenbaugh is a director of Frontline Consultants, john. deffenbaugh@frontlinemc. com