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Merging Six Sigma And The Balanced Scorecard
B In an era of complexity and contradiction, many healthcare organizations are seeking bold strategies for leading and managing change. While concepts behind the Balanced Scorecard and core Six Sigma methodologies are not new, a powerful management tool can be crafted through the unification of these two proven strategies. An approach that combines the targeted performance indicators of a Balanced Scorecard with the statistical rigor of Six Sigma can be used to effectively focus an organization on the achievement of strategic goals – in essence, creating the ultimate "management cockpit." Adopting this structured approach to planning, managing and monitoring improvement brings cohesion to conflicting constituencies and builds confidence in proposed process improvements. In turn, this confidence can have a measurable impact on the organization by accelerating the implementation of change, often viewed as a delicate balance between cost, quality and efficiency. The Case for Change Healthcare today is experiencing both the best and worst of times. Countless lives are saved daily by medical breakthroughs, dedicated practitioners and state-of-the-art technologies. Yet, within this trillion-dollar industry amazing medical feats are juxtaposed against systemic failures and disgruntled stakeholders. Workforce shortages further constrain a system facing a rising demand for services. Advanced technology is often overlaid on archaic processes. As some emergency departments are forced to close, others find themselves overcrowded and understaffed. Especially frustrating are reimbursement challenges that continue unabated. These challenges are now accompanied by significant changes in the payer mix, moving steadily away from government toward private or industry payers, as illustrated in Figure 1. History indicates that the combination of this shift in payer mix with the rise in healthcare premiums will trigger a market reaction. Figure 2 illustrates this anticipated reaction by comparing the annual percent change in healthcare premiums to the annual percent change in the consumer price index as an indicator of general inflation.
The market began its reaction, in the form of managed care, to the wide gap existing prior to 1990. This gap decreased significantly until the implementation of the Balanced Budget Act (BBA), and by 2002 it had widened again to nearly 10 percentage points with further market reaction anticipated. There are two significant risks associated with the next market reaction: 1) Government intervention, 2) Industry consequently recasting providers as mere vendors. The industry is at a critical juncture, facing a growing need for systemic change but lacking the infrastructure and digitization that could provide a clear line of sight from strategy to execution and impact. Under mounting pressure to provide better care using fewer resources, some organizations are seeking alternative management models, realizing they can no longer conduct "business as usual." One solution to help organizations truly align strategic objectives with a clear measurement of impact may be combining the rigor of Six Sigma with the Balanced Scorecard approach. A Balanced Scorecard approach provides the mechanisms to drive organizational alignment, sustain improvements and maintain equilibrium across the enterprise. Based on statistics and aspects deemed most 'critical to quality,' Six Sigma could further focus the organization's improvement efforts. Such an approach that identifies and statistically quantifies the impact of causal factors on healthcare's value chain would provide organizations with a solid foundation for change. Healthcare's Value Chain
The value chain for healthcare begins with highly satisfied, dedicated and well- motivated care providers. This produces high internal quality, which relates to process steps that are felt by the institution and are not directly felt by the patient or referring physician. An example of an internal quality metric is the cycle time for the transcription of a radiology report. This represents an interim step in the process that begins with the recognition of need for the exam and ends with the authenticated report in front of the clinical decision maker. Naturally then, high external quality follows from high internal quality. In other words, quality in those steps that are felt by the customer leads to high customer satisfaction and loyalty. This, in turn, leads to revenue and margin, completing the value chain. When appropriate performance metrics are aligned along the value chain, they provide greater insight into how the system is performing today, and what it may anticipate in the future. This concept is illustrated in Figure 4. In this illustration the organization under consideration is operating well in its financial and customer satisfaction metrics as indicated by the upward pointing green arrows. Employee satisfaction and internal quality are poor as indicated by the downward pointing red arrows. As a result, external quality felt by the customer is beginning to decline as indicated by the yellow arrow pointing sideways. It is intuitive that if this trend continues, customer satisfaction and financial performance will begin to decline as well.
The Balanced Scorecard approach is based upon understanding healthcare's value chain and aligning both strategy and the extended delivery teams' behavior to focus on those activities necessary for the sustained creation of value. Six Sigma methodology is based on statistically quantifying the impact of causal factors on the variability of results. When applied in concert, they represent powerful tools that can be effectively deployed to align the organization's vision, mission, strategy and specific behaviors toward the sustained creation and delivery of value. Creating Organizational Alignment Generally written at the 30,000-foot level, vision and mission statements are designed to elicit basic agreement from all team members. When vision and mission are translated into specific behaviors, however, agreement is less immediate and conflict may arise among various stakeholder groups. Translating strategic imperatives into a network of clear, simple metrics is the first step in the Balanced Scorecard approach. Alignment of these metrics along the value chain is Step 2, and is illustrated in Figure 5.
The remaining steps in using the Balanced Scorecard approach to create organizational alignment include the following: Step 3 - Assessment of the Organization's CapabilitiesMany of the statistical tools and process improvement techniques associated with Six Sigma lend themselves well to the accomplishment of these subsequent steps and are illustrated in the following sections. A Six Sigma Primer In the simplest of terms, Six Sigma is a quality improvement methodology that provides a systematic approach to the elimination of defects that affect something important to the customer. Those aspects of service that are of importance to the customer are termed "Critical To Quality," or CTQs in Six Sigma jargon. The tools associated with Six Sigma are qualitative, statistical and instructional devices for "observing" process variables, "quantifying" their impact on outcomes, as well as "managing" their character. Six Sigma is based upon three simple principles:
The idea of measuring the number of standard deviations that fit between the mean performance of a process and the customer's expectation (translated into specification limits) is referred to as the process "Z-Score." The Z-Score allows for comparative analysis of the performance of dissimilar processes, based upon the tendencies of each to either satisfy or disappoint their respective customers, the higher the Z-Score the less probability of customer disappointment. Making Quality the Operating System A top level institutional Scorecard must be translated to the department level. At the department level, those factors that have the greatest impact on the top level Scorecard must be identified and rigorously controlled. This is another significant opportunity to employ Six Sigma methodology. A typical Six Sigma project will focus on a specific metric referred to as the project's "response variable" or Y. The variation in this Y is a function of one or more causal factors, referred to as Xs. The idea is to mathematically understand the contribution of causal factors to variability of the project's response variable or Y, before specific solutions are designed, thereby maximizing the impact of the solution. By creating statistical linkages between the Y, metrics on the Balanced Scorecard and the X(s), causal factors, the Six Sigma methodology augments the Balanced Scorecard approach in two important ways. First, every link in the value chain is a causal factor to the subsequent link. Referring back to Figure 4, each link may be thought of as a Y in and of itself, and as an X to the next downstream link in the chain. Second, as the value chain metrics at an institutional level are flowed-down to departments, quantification of the causal Xs at a department level will pinpoint specific processes and behaviors that have the greatest impact on the value chain. This provides the foundation for Step 4 (Cause Analysis). In Cause Analysis, two strategies are deployed with the same objective - focusing limited resources on those activities that represent the greatest return on investment. First, by retaining performance data month to month along the value chain, a regression model may be built indicating the potential impact of changes in one link of the value chain on performance in successive links. This model also can highlight where there is no verifiable statistical linkage, leading to three critical outcomes: 1. Insuring the right metrics have been selected.During the analysis phase, the team identifies the factors or Xs likely to have the greatest impact on the response variable. These factors are classified as either controllable or uncontrollable. If a causal factor (X) is controllable and contributes significantly to variability in the response variable (Y), then an opportunity to achieve a better result presents itself by controlling the causal factor. By focusing on causal factors that have a statistically proven impact on a process, the organization gains an important advantage in being able to predict the effect of proposed changes and create an easily understood family of value propositions. Aligning Systems and Structures Taking an improvement initiative to the next level, however, also requires a careful examination of existing systems and structures. In many cases, the way an organization's systems and structures are aligned fundamentally conflicts with the objectives they are trying to achieve. It's important to begin by making sure appropriate resources are deployed where they will have the greatest impact. It is also necessary to look at seven additional elements that are key to the success of the initiative, and critical questions that must be answered: Gaining Control The challenges confronting healthcare are complex, and no overnight solution will make the problems disappear. Taking a calibrated approach to performance improvement, however, can help hospitals and health systems regain control and realize substantial benefits. Combining Six Sigma with the Balanced Scorecard may be the best way to reach and sustain a new level of organizational excellence. About The Author Reproduction Without Permission Is Strictly Prohibited – Copyright Requests Publish an Article: Do you have a Six Sigma tip, learning or case study? Share it with the largest community of Six Sigma professionals, and be recognized by your peers. It's a great way to promote your expertise and/or build your resume. Read more about submitting an article. "The Bottom Line" Links
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