MHA 709 UMGC Healthcare Strategic Management Essay

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The Author(s) BMC Health Services Research 2017, 17(Suppl 1):451 DOI 10.1186/s12913-017-2339-4 DEBATE Open Access Adaptive reuse in the healthcare industry: repurposing abandoned buildings to serve medical missions James K. Elrod1 and John L. Fortenberry Jr.1,2* Abstract Background: Adaptive reuse—the practice of identifying, acquiring, renovating, and placing back into service a building or similar structure for a purpose different than that for which it was originally designed—offers great potential for addressing the spatial expansion needs of healthcare establishments in a unique and mutually beneficial manner. This repurposing approach, however, has received very little attention in the health sciences literature, diminishing the opportunities of those serving in hospitals, medical clinics, and related care providing institutions to acquire an understanding of the practice. Discussion: The delivery of healthcare services primarily is site based, requiring physical space for physicians, nurses, administrators, and others to carry out the many duties associated with the provision of medical care and attention. But this space often represents a significant expenditure, consuming financial resources which otherwise could be directed toward patient care. Economies on this front are possible through adaptive reuse, permitting more resources to be directed toward mission fulfillment activities. This article directs attention toward adaptive reuse by profiling Willis-Knighton Health System’s associated experiences and implementation strategies. Among other things, opportunities and obstacles are discussed, detailed cases are presented, and an operational framework is provided, permitting healthcare providers to understand and make use of this novel practice for addressing spatial expansion needs more affordably. Conclusions: Since space considerations exist throughout the lives of healthcare establishments, providers must ensure an awareness of methods for productively attending to these requirements. Evidenced by Willis-Knighton Health System’s associated experiences and outcomes, adaptive reuse presents an option for more economically addressing spatial requirements, fostering opportunities to expand the delivery of health and medical services. Keywords: Adaptive reuse, Repurposing, Growth strategy, Spatial expansion, Healthcare Background Despite advancements in virtual, mobile, and related technologies, the delivery of healthcare services remains largely site based, requiring physical space for physicians, nurses, administrators, and others to conduct all of the activities associated with the provision of medical care and attention. Space considerations exist very obviously for new healthcare establishments just opening their doors to patients, but they remain concerns even as institutions mature, especially in cases where patient * Correspondence: [email protected] 1 Willis-Knighton Health System, 2600 Greenwood Road, Shreveport, LA 71103, USA 2 LSU Shreveport, 1 University Place, Shreveport, LA 71115, USA volume outstrips capacity, necessitating additional space, and in situations where expansion initiatives take healthcare organizations into new communities. Often times, this space, whether owned or leased, carries significant costs, reducing financial resources that otherwise could be directed toward patient care [1, 2]. Real estate expenditures can be so pronounced that they can dissuade or even prohibit expansion, diminishing abilities for healthcare providers to deliver more care to more people. Quite obviously, achieving economies on this front can permit more resources to be directed toward mission fulfillment, namely delivering health and medical services to patients. © The Author(s). 2017 Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. The Creative Commons Public Domain Dedication waiver (http://creativecommons.org/publicdomain/zero/1.0/) applies to the data made available in this article, unless otherwise stated. The Author(s) BMC Health Services Research 2017, 17(Suppl 1):451 One method for achieving such economies rests with a particular approach known as adaptive reuse. This practice entails the identification, acquisition, and renovation of existing, abandoned buildings, placing them back into service on behalf of their new owners and reinstating them as assets, rather than blights, in their given communities. Adaptive reuse has been profiled extensively in many industries, with retail, hospitality, and housing sectors being notable examples [3–5]. The healthcare industry has received some attention (e.g., [6–10]), but it has been very sparse, diminishing the opportunities of those serving in hospitals, medical clinics, and related care providing institutions to acquire an understanding of the practice. This article directs attention toward adaptive reuse by profiling Willis-Knighton Health System’s associated experiences and implementation strategies. Among other things, opportunities and obstacles are discussed, detailed cases are presented, and an operational framework is supplied, permitting healthcare providers to understand and make use of this novel practice for addressing spatial expansion needs more affordably, fostering opportunities to expand the delivery of health and medical services. Definition Adaptive reuse is defined as the practice of identifying, acquiring, renovating, and placing back into service a building or similar structure for a purpose different than that for which it was originally designed. Sometimes termed repurposing, the technique often centers on breathing new life into abandoned buildings in various states of decline. Although it contains a significant renovation component, adaptive reuse is much broader due to its focus on modifying structures to accommodate new and different missions. It’s been shown to help communities maintain or recapture vitality, reduce blight caused by abandoned properties, and conserve natural resources, all while permitting institutions to economically address their spatial expansion needs [11–13]. Abandoned buildings emerge for myriad reasons ranging from progress, which compels establishments to relocate to better serve clients, to misfortune, which prompts businesses to cease operations at particular locations. Regardless of cause, vacant properties remain, representing unrealized potential. Adaptive reuse allows enterprising institutions to tap into this potential, addressing spatial expansion requirements and restoring to service an otherwise unproductive property [14]. One institution possessing extensive adaptive reuse experience is Willis-Knighton Health System. Willis-Knighton Health System and adaptive reuse Willis-Knighton Health System is a nongovernmental, notfor-profit healthcare provider delivering comprehensive Page 6 of 38 health and wellness services through multiple hospitals, numerous general and specialty medical clinics, an allinclusive retirement community, and more. Based in Shreveport, Louisiana, the system holds market leadership in its served region, centered in the heart of an area known as the Ark-La-Tex, where the states of Arkansas, Louisiana, and Texas converge. Willis-Knighton Health System’s experience with adaptive reuse began decades ago. The system’s origins date to 1924 with the establishment of Tri-State Sanitarium, founded to address the healthcare needs of the burgeoning population of west Shreveport. Sold in 1929 to Drs. James Willis and Joseph Knighton, the establishment continued operations and, in 1952, it was renamed in honor of Drs. Willis and Knighton. For the first several decades of its existence, the establishment played an important but relatively small role in delivering the region’s healthcare. In the 1970s, however, Willis-Knighton Health System embarked on a detailed growth campaign to expand its footprint beyond west Shreveport. With funding to support growth initiatives being in short supply, Willis-Knighton Health System was forced to economize, leading executives to consider repurposing existing, abandoned structures to support growth ambitions. Initial and subsequent adaptive reuse experiences proved economical and effective, resulting in the practice becoming a deeply ingrained part of Willis-Knighton Health System’s culture. With over 20 adaptive reuse projects having been accomplished successfully, it’s the first consideration whenever facing expansion needs that cannot be accommodated by renovating existing space. New construction is pursued only after adaptive reuse possibilities have been investigated and determined to either be nonexistent or unviable. The practice is considered to be a core component of Willis-Knighton Health System’s overall strategy due to its history of enhancing the institution’s competitive advantages. Selected examples Reviewing several examples profiling Willis-Knighton Health System’s repurposing initiatives perhaps is the best starting point for developing an understanding of adaptive reuse. The variety evident in the noted examples illustrates the depth and breadth of adaptive reuse possibilities, some being obvious and others less so. WK Innovation Center (formerly Bossier Medical Center) Built in 1966, Bossier Medical Center provided healthcare services for many years to the population of Bossier Parish, Louisiana before closing in the 1990s. Subsequent providers occupied the facility until the early 2000s when the property was abandoned. Unoccupied and exposed to the elements, the building fell into The Author(s) BMC Health Services Research 2017, 17(Suppl 1):451 disrepair, blighting one of the busiest transit corridors in the community. In 2012, desiring a location to house a consolidated business office, centrally and securely store medical records, house system-wide education initiatives (e.g., WK’s virtual hospital, new employee orientation center), showcase its legacy (e.g., WK’s Talbot Medical Museum), and provide a conference venue for internal and community use, Willis-Knighton Health System canvassed the marketplace to identify potential repurposing opportunities. The former Bossier Medical Center emerged as a top candidate. Ensuing assessments prompted purchase of the property after which it was comprehensively revitalized for its new role, emerging in 2015 as the WK Innovation Center. Repurposing the 185,000 square foot property cost $16 million (acquisition plus renovations), reflecting a $26 million savings compared to the $42 million estimate for equivalent new construction. Willis-Knighton Health System fulfilled its spatial expansion needs at a bargain price and the community received a new, stateof-the-art facility in place of urban blight. WK Rehabilitation Institute (formerly Doctors’ Hospital) Once a cornerstone of healthcare, Doctors’ Hospital of Shreveport closed permanently in 2010, bringing to an end a legacy which began in 1907. The idled building’s appearance declined greatly in forthcoming years due to inactivity and exposure, but its solid structure and especially its ideal location, overlooking the heart of downtown Shreveport, made it an attractive adaptive reuse candidate. In 2015, seeking a location to house its center of excellence for rehabilitative care, Willis-Knighton Health System purchased the building, comprehensively repurposing it to serve this new and different healthcare mission. Modifications even included reorienting the building’s main entrance to face the primary transit corridor leading to the facility, improving its roadside presence and enhancing access for patients. Completed in 2017 and reintroduced as the WK Rehabilitation Institute, the 150,000 square foot building cost $26 million (acquisition plus renovations), a bargain price, especially when considering that equivalent new construction would total $44.5 million. Beyond an $18.5 million savings, adaptive reuse afforded Willis-Knighton Health System with one of Shreveport’s most iconic locations and gave the city a virtually brand new institution providing an impressive entryway into downtown. The resulting transformation, illustrated in Figs. 1 and 2, has been welcomed by governmental officials and other stakeholders for its positive impact on the aesthetics and economics of Shreveport. WK Portico Medical Mall (formerly Portico Shopping Center) A retail shopping center, anchored by a Brookshire’s Food and Pharmacy grocery store, offered another attractive Page 7 of 38 adaptive reuse candidate for Willis-Knighton Health System. Situated across the street from one of the system’s hospitals, WK Pierremont Health Center, the shopping center, constructed in 1992, was acquired in 1999 with plans to use the available space to address capacity limitations experienced at the neighboring hospital. Comprehensively revitalized and reintroduced as the WK Portico Medical Mall, the 136,000 square foot establishment houses the system’s center of excellence for orthopedic care, physician offices, and a range of support services. The $13 million project (acquisition plus renovations) afforded a significant discount compared to the new construction estimate of $41 million, yielding a $28 million savings thanks to the economies offered by adaptive reuse. WK Fleet Service Center (formerly Gulf Oil Service Station) Seeking a place to provide routine maintenance for its growing fleet of service vehicles, Willis-Knighton Health System investigated options and discovered an opportunity adjacent to its main campus in an available Gulf Oil service station. The owners of the 1950s–era service station desired to exit the business in the late 1980s and sought a buyer. After learning of Willis-Knighton Health System’s interest, the owners ultimately decided to donate the property to the system, affording them tax benefits associated with supplying a gift to a charitable institution. Repurposing was quick and easy, as the nearly 3000 square foot service station already contained vehicle service bays, hydraulic lifts, and additional equipment needed for the building’s revised role of maintaining the system’s many vehicles. Additional modifications were necessary to convert the premises to serve an institutional mission, but these were minimal. The service station reemerged in 1990 as the WK Fleet Service Center, carrying a total cost of $50,000, a significant savings compared to the new construction estimate of $360,000, afforded by the generosity of the service station’s owners and the economies of adaptive reuse. It now services a fleet of over 120 vehicles, including company cars, delivery trucks, and patient transportation vans. WK Palmetto Center (formerly Palmetto Country Club) Willis-Knighton Health System’s latest adaptive reuse project is ongoing and entails the conversion of the recently closed Palmetto Country Club into a comprehensive healthcare campus. Founded in 1950, the country club closed in 2014 due to declining memberships. It featured an 18-hole golf course, club house, and swimming pool situated on a 155-acre site in Benton, Louisiana. Willis-Knighton Health System had been monitoring this high-growth marketplace for an attractive expansion opportunity and, after careful consideration, decided to The Author(s) BMC Health Services Research 2017, 17(Suppl 1):451 Page 8 of 38 Fig. 1 Doctors’ Hospital, as it appeared before Willis-Knighton Health System’s acquisition. Copyright © 2014 Willis-Knighton Health System. Used with permission. The featured photographs present Doctors’ Hospital of Shreveport just before its acquisition by Willis-Knighton Health System in 2015. Complete with a “For Sale” sign atop its tower and razor wire barriers around its perimeter, the dilapidated facility appeared well suited only for the wrecking ball. Willis-Knighton Health System, however, realized the building’s potential and on acquisition began concerted adaptive reuse efforts to effect its transformation purchase the property which over the course of a decade will emerge as a full campus. The first step, currently underway, involves repurposing the existing clubhouse and swimming pool to serve as a WK Fitness and Wellness Center. Preliminary analyses suggest that Benton, Louisiana will need comprehensive acute and long term care services in coming years. Service lines will gradually be introduced at WK Palmetto Center as community need dictates. Due to the ongoing nature of the project, ultimate savings have yet to be determined, but the country club was acquired at a cost considered to represent an exceptional value. The majority of the resulting campus indeed will require new construction, but the existing infrastructure formerly used by the country club is being incorporated into the revised plans in full, demonstrating that adaptive reuse can be deployed in combination with new construction, conserving resources and bolstering associated value. Opportunities Willis-Knighton Health System’s adaptive reuse experiences suggest that the practice affords a range of opportunities, most of which are unavailable through any other spatial expansion method. The observed attributes are supported in the literature of adaptive reuse and they also confirm the notion that adaptive reuse delivers a wealth of mutual benefits. Financial incentives Adaptive reuse has the potential to deliver significant financial savings unavailable through equivalent new The Author(s) BMC Health Services Research 2017, 17(Suppl 1):451 Page 9 of 38 Fig. 2 The WK Rehabilitation Institute, repurposed from Doctors’ Hospital. Copyright © 2016 Willis-Knighton Health System. Used with permission. The dramatic adaptive reuse transformation of the former Doctors’ Hospital of Shreveport into Willis-Knighton Health System’s newest center of excellence, the WK Rehabilitation Institute, is clearly presented in the noted photographs. The resulting building, reintroduced in 2017, is virtually indistinguishable from brand new construction and features an entirely revised facade, all-new interior elements, and an enhanced layout which facilitates access. A property that once blighted the community now serves as a symbol of innovation and progress construction projects [15]. This benefit, observed in each of Willis-Knighton Health System’s experiences, is cited as the primary motivation for pursuing adaptive reuse [14–16]. The economies associated with the practice primarily result from the highly favorable pricing of properties which effectively have concluded their first lives and no longer are able to attract tenants. Buildings that are unoccupied, especially for lengthy periods of time, often present opportunities for negotiating attractive pricing and sometimes feature discounted pricing at the onset [11, 13, 14]. Additional savings are possible by reusing some or all of the existing building’s infrastructure in the revised property, reducing building materials and labor costs [17–20]. Loans and grants tied to historic preservation, redevelopment, and related initiatives might also be available, offering an additional opportunity to achieve economies [14, 16]. The savings potential of adaptive reuse certainly shouldn’t be lost on those serving in the healthcare industry. Just as Willis-Knighton Health System discovered in its initial growth endeavors, adaptive reuse, courtesy of the savings generated, can make possible spatial expansion which wouldn’t be feasible under new construction scenarios. It also helps demonstrate fiscal responsibility, something especially important for government healthcare institutions and not-for-profit establishments, as they face the heightened expectations of the citizenry to use resources judiciously. Further, the economies derived from adaptive reuse can facilitate institutional efforts to deliver charitable care to underserved populations. Willis-Knighton Health System’s indigent clinic network, for example, has made use of The Author(s) BMC Health Services Research 2017, 17(Suppl 1):451 the practice, permitting an increasing percentage of charitable dollars to be directed toward care provision in these needy communities. When viewed in this light, adaptive reuse has deeper strategic implications than might be assumed at face value. Page 10 of 38 [19, 20]. As an environmentally responsible institution, Willis-Knighton Health System strives to maximize opportunities for conservation and adaptive reuse clearly has fostered associated efforts. Obstacles Premium location availabilities Many variables converge to create an idyllic location for healthcare operations, especially those involving care delivery which must ensure safe, convenient access for patients. Often, the best locations in communities are already occupied, but relocations or closures can once again free them up, albeit with existing structures onsite. Through adaptive reuse, these highly-prized locations can be brought back into consideration [11, 12]. In each of Willis-Knighton Health System’s adaptive reuse experiences, the locations acquired were deemed to be excellent. Several properties, in fact, afforded oneof-a-kind visibility and access in their given markets. Community renewal support Abandoned buildings represent intensive problems for communities. Over time, they can become blights, which diminish scenic beauty. Safety hazards also emerge, resulting from inactivity which leaves abandoned structures vulnerable to criminal and environmental elements. Further, tax revenues are lost. The opportunity to return an abandoned building to productive service facilitates community renewal efforts, eliminating blight, fostering job creation, and generating goodwill that garners the support of political leaders, neighboring businesses, and the citizenry [11, 13, 14]. Through its adaptive reuse endeavors, Willis-Knighton Health System has endeared itself to stakeholders ranging from top elected officials to private citizens who appreciate the renewal afforded by the system’s investments. While healthcare institutions have long sought to be excellent partners with their given communities, usually via traditional routes such as offering vital medical services, adaptive reuse provides a pathway for enhancing the resulting partnerships through contributions that far exceed healthcare delivery. Conservation of resources Adaptive reuse supports many conservation efforts, thus bolstering the environmental stewardship credentials of those healthcare institutions that turn to the practice. By repurposing an existing, abandoned building, its destruction can be averted, reducing the burden on landfills which otherwise would have to accommodate the waste [21–23]. Further, even when adaptive reuse projects require extensive renovations, the natural resource requirements are fewer than those associated with new construction, representing a more eco-friendly option Healthcare institutions desirous of pursuing adaptive reuse should be aware of obstacles that might potentially be encountered. These sometimes present insurmountable challenges and other times they require additional effort to overcome, with each case being situation dependent. Insufficient or nonexistent availabilities A very obvious obstacle to adaptive reuse simply entails the lack of a suitable and available building in a desired area. Available structures must possess a range of qualities, determined by the prospective buyer, to be viable adaptive reuse candidates. Suitable candidates may or may not exist, something that can only be determined through exploration and investigation [14, 24]. Excessive renovation costs Even when a suitable prospective building is identified meeting location, size, and other desirables, on closer inspection, the structure might be determined to be too expensive to renovate. While modern design and construction techniques can make outdated structures new again, meeting even the loftiest standards for patient care delivery, limits indeed can be reached after which the associated costs of the renovation outweigh the benefits. Damage from things such as flooding, fire, vandalism, and environmental contamination can be so severe that repairs would not be economically feasible. Ultimately, the magnitude of negative encumbrances in the context of the prospective buyer’s tolerance regarding the cost of remedies will determine whether the site remains an option or should be discarded in favor of other opportunities [14, 19, 20]. Disagreements with stakeholders over reuse In some cases, establishments might be forced to forego an adaptive reuse candidate because community stakeholders find the prospective reuse to be undesirable. Occasionally, this dissatisfaction is expressed through public protests and related conveyances. Adaptive reuse by definition entails a building reemerging to serve a purpose different than the one pursued originally, setting the stage for at least some to be disenchanted. Much depends on the nature of the new use and whether those in the community view it to be a benefit or detriment to the given locale [13, 25]. When evaluating candidate properties, Willis-Knighton Health System proactively engages public officials, community leaders, and private citizens, informing them of The Author(s) BMC Health Services Research 2017, 17(Suppl 1):451 envisioned plans for the rebirth of the given structure. Feedback is sought, and if possible, stakeholder suggestions are incorporated into associated plans. This approach ensures that envisioned plans are communicated accurately. It also helps to gauge stakeholder interest in the proposed project, providing a key indicator for ascertaining if the pursuit is worthwhile. Zoning difficulties Since adaptive reuse implies that an existing building will reemerge to serve a new purpose different from that of its original mission, zoning and related regulatory matters must be taken into consideration when evaluating any candidate property. Converting a property from one classification to another may or may not be possible, with this being dependent on local rules and regulations governing commercial operations [14, 16, 20]. Quite obviously, such matters must be thoroughly investigated well in advance of purchase, making sure that any regulatory issues encountered can be traversed successfully. Operationalization Willis-Knighton Health System’s methods for operationalizing adaptive reuse evolved from its own experiences. Lacking the benefit of an underlying knowledge base available in the health sciences literature, executives were forced to rely on intuition, creative thinking, and a willingness to experiment and learn from successes and failures. With each adaptive reuse experience, expertise increased and eventually led to the operational plans that remain in use today. Since adaptive reuse is merely an option for consideration whenever spatial expansion needs present themselves, simple awareness of the practice is the initiating operational requirement. An awareness of adaptive reuse places it into the realm of possibilities for addressing space requirements, but a formal protocol is needed to ensure its consideration. The usual and customary process associated with realizing a spatial expansion involves seven stages as follows. 1. 2. 3. 4. 5. 6. 7. Needs assessment Site selection and acquisition Concept development and approval Design development and approval Construction, completion, and inspection Commercial preparation Grand opening During Stage 2, site selection and acquisition, opportunities emerge to consider adaptive reuse Page 11 of 38 candidates. To formalize consideration, Willis-Knighton Health System devised a 4-step decision-making model, termed the Adaptive Reuse Consideration Framework, placing it within the site selection and acquisition stage. Illustrated in Table 1, the framework is explained as follows. Step 1: market surveillance When facing a need for physical space that cannot be met by renovating existing infrastructure, instead of Table 1 The adaptive reuse consideration framework Step 1. market surveillance Before considering new construction, investigate the availability of an adaptive reuse candidate property Action steps: a. Canvass desirable locations for candidate properties b. Enlist the assistance of a real estate professional to aid in the search Is an adaptive reuse candidate available? If YES, proceed to Step 2. If NO, consider new construction. Step 2. preliminary analysis Conduct a preliminary analysis of the adaptive reuse candidate property Action steps: a. Assemble a team consisting of key personnel involved in the expansion initiative b. Visit the site and perform a walk-through inside and around the candidate property c. Hold a “reimagination session” to envision possibilities Are the results of the preliminary analysis satisfactory? If YES, proceed to Step 3. If NO, consider new construction. Step 3. feasibility study Conduct a feasibility study of the adaptive reuse candidate property Action steps: a. Perform a customer service assessment Example considerations: i. Is the size of the structure adequate to serve the targeted customer base? If not, are renovations possible? ii. Does the location facilitate pedestrian and vehicular customer traffic (e.g., safety, accessibility, parking)? iii. Does a good fit exist between the candidate property and existing system components, permitting cohesion in service delivery? b. Perform a political assessment Example considerations: i. Will the intended use of the property require zoning changes or other regulatory considerations? ii. Are public officials supportive of the intended use of the property? iii. Is any discontent anticipated among the citizenry regarding the intended use of the property? c. Perform a financial assessment Example considerations: i. Does the cost of the project (property cost plus required renovations) make economic sense? ii. What savings, incentives, or other financial benefits, if any, are anticipated to be afforded over an equivalent new construction scenario? iii. Are any other realistic scenarios possible which might yield a better financial result? Are the results of the feasibility study satisfactory? If YES, proceed to Step 4. If NO, consider new construction. Step 4. property acquisition Acquire the property and proceed to the concept development and approval stage The Author(s) BMC Health Services Research 2017, 17(Suppl 1):451 immediately focusing on acquiring a vacant parcel of land upon which to place new construction, executives first scout the general area where the expansion is needed to determine if an abandoned and available building that can accommodate the desired application exists. This is a fairly quick process, as availabilities can easily be ascertained either by personal site visits to canvass the area or by requesting the assistance of commercial real estate professionals with firsthand knowledge of availabilities. If availabilities do not exist, then adaptive reuse pursuits are abandoned, with traditional new construction pathways being pursued instead. However, if a building with the potential to be repurposed exists, executives conduct a preliminary analysis to determine its suitability. Step 2: preliminary analysis The preliminary analysis begins with a site visit conducted at the candidate property by an evaluation team consisting of executives, key personnel who will be responsible for overseeing the forthcoming operation, engineering and construction personnel, and architecture and design consultants. The site visit permits team members to view the current state of the premises and ascertain its potential to be repurposed. Importantly, this comprehensive tour provides a context for reimagining the structure as a new and improved entity fulfilling the mission called for by the expansion. If the structure is deemed to be worthy of accommodating the reimagined application, a deeper feasibility study is conducted. Step 3: feasibility study The feasibility study examines the merit of the candidate property on customer service, political, and financial fronts. The customer service assessment seeks to determine if the prospective property can adequately accommodate target audiences. Among other things, efforts are initiated to determine if the size of the structure is appropriate for the given application and, if not, what degree of renovation would be necessary to make the accommodation. Pedestrian and vehicular traffic patterns are studied to ensure safe and convenient access for those who will be using the envisioned facility. Vehicle parking requirements also are investigated. Further, efforts are taken to determine if cohesion between the new location and the greater institution will be sufficient to ensure that support services can be delivered in a problem free manner. The political assessment primarily focuses on zoning and associated regulatory issues concerning the property, investigating what steps, if any, are needed to permit a healthcare-related mission to take place at the noted site. Additionally, efforts are directed toward ascertaining the Page 12 of 38 degree of stakeholder support associated with the intended mission. The financial assessment investigates the cost of the prospective project (acquisition plus renovations) in an effort to determine whether the pursuit makes economic sense. Resulting figures then are compared with estimates of the cost of an equivalent new construction project, giving executives a useful evaluative reference. Attention also is directed toward ascertaining what, if any, alternative scenarios are possible and, if so, what are their associated costs, providing yet another comparison to help ensure a financially prudent decision. The details and insights gained from the customer service, political, and financial assessments are compiled and presented in ensuing meetings to render a decision regarding feasibility. If obstacles which cannot be overcome are revealed in the findings, barring the emergence of another prospective adaptive reuse candidate, a new construction scenario will be pursued. Step 4: property acquisition If the adaptive reuse candidate is deemed to be meritorious, the property will be acquired and the effort will advance to the concept development and approval stage. The reimagined site will be formalized by commissioned designers, architects, and engineers, eventually resulting in a completed, repurposed building that satisfies the institution’s expansion needs and once again delivers value in the community. Addressing technical complexities Willis-Knighton Health System’s Adaptive Reuse Consideration Framework provides a basic overview of the steps required to evaluate adaptive reuse candidates and its use helps to ensure that the practice is considered when spatial expansion decisions are at hand. Due to the inherent complexities associated with repurposing abandoned buildings to serve medical missions, it goes without saying that the application of this framework requires healthcare institutions to direct significant time and attention toward each step. While the range of associated tasks might seem overwhelming, perhaps to the point of discouraging some from pursuing adaptive reuse, Willis-Knighton Health System has observed from its experiences that relying on qualified and capable experts reduces burdens significantly. Willis-Knighton Health System’s approach for ascertaining the financial feasibility of an adaptive reuse candidate generally begins by calculating the total cost per square foot for an equivalent new construction project using historical knowledge and industry standards. This provides a rough estimate of the institution’s cost ceiling for the given project, offering a working measure with which to compare the potential savings associated with the adaptive The Author(s) BMC Health Services Research 2017, 17(Suppl 1):451 reuse candidate under review. If this appears promising, executives then arrange for formal cost estimates to be prepared by architecture and engineering firms, ultimately affording an accurate adaptive reuse versus new construction cost comparison which Willis-Knighton Health System’s executives can use to make an informed decision. Similarly, engineering and construction concerns associated with adaptive reuse candidates (e.g., physical plant assessments, hazardous waste identification and removal issues, code compliance matters) are evaluated with the assistance of professional firms. These entities possess the expertise required to make proper assessments, supply associated advice, and issue reliable cost estimates, further shoring up information needs. Scores of decisions indeed are required throughout the Adaptive Reuse Consideration Framework. While some can be addressed internally with relative ease (e.g., composition of evaluation teams, savings percentages required to select adaptive reuse over new construction, etc.), others call for expertise that might not be available within given healthcare establishments. In such cases, knowledge gaps can be filled with the assistance of external parties, making pursuit of adaptive reuse candidates possible, even for healthcare institutions with little internal expertise on building and construction fronts. Conclusions Evidenced by Willis-Knighton Health System’s associated experiences, adaptive reuse offers a unique and mutually beneficial method for addressing the spatial expansion needs of healthcare institutions, providing those serving in hospitals, medical clinics, and other care providing facilities with an option to consider beyond traditional renovation and new construction pathways. The practice by its very nature coincides nicely with the community-minded, altruistic missions typically espoused by healthcare establishments, affording an exceptional strategic fit when proper circumstances present themselves. While adaptive reuse has received very little attention in the health sciences literature, through the repurposing insights and operational guidance supplied in this article, it is hoped that knowledge and awareness of the practice will be bolstered, permitting healthcare providers to understand and make use of this novel method for addressing spatial expansion needs more affordably, fostering opportunities to expand the delivery of health and medical services. Acknowledgments A special note of thanks is extended to Riley Waddell, Darrell Rebouche, and the greater Willis-Knighton Health System family for their helpful assistance throughout the development and publication of this article. Appreciation also is extended to Professor Peter McGoldrick of the University of Manchester for providing helpful insights which advanced the resulting effort. Page 13 of 38 Funding Article processing charges were funded by Willis-Knighton Health System. Availability of data and materials Not applicable. Authors’ contributions The authors jointly developed the submitted manuscript, with each performing critical roles from early conceptualization through to the production of the full manuscript. The manuscript resulted from a collaborative effort. Both authors read and approved the final manuscript. Authors’ information JKE is President and Chief Executive Officer of Shreveport, Louisianabased Willis-Knighton Health System, the region’s largest provider of healthcare services. With over 52 years of service at the helm of the institution, JKE is America’s longest-tenured hospital administrator. A fellow in the American College of Healthcare Executives, he holds a bachelor’s degree in business administration from Baylor University, a master’s degree in hospital administration from Washington University School of Medicine, and an honorary doctorate of science and humane letters from Northwestern State University of Louisiana. He is the author of Breadcrumbs to Cheesecake, a book which chronicles the history of Willis-Knighton Health System. JLF Jr. is Chair of the James K. Elrod Department of Health Administration, James K. Elrod Professor of Health Administration, and Professor of Marketing in the School of Business at LSU Shreveport where he teaches a variety of courses in both health administration and marketing. He holds a BBA in marketing from the University of Mississippi; an MBA from Mississippi College; a PhD in public administration and public policy, with concentrations in health administration, human resource management, and organization theory, from Auburn University; and a PhD in business administration, with a major in marketing, from the University of Manchester in the United Kingdom. He is the author of six books, including Health Care Marketing: Tools and Techniques, 3rd Edition, published by Jones and Bartlett Learning. JLF Jr. also serves as Senior Advisor for Marketing and Strategy at Willis-Knighton Health System. Competing interests The authors declare that they have no competing interests. Consent for publication Not applicable. Ethics approval and consent to participate Not applicable. About this supplement This article has been published as part of BMC Health Services Research Volume 17 Supplement 1, 2017: Enhancing the depth and breadth of healthcare services in communities: insights, innovations, and applications. The full contents of the supplement are available online at http://bmchealthservres.biomedcentral.com/articles/supplements/ volume-17-supplement-1. Publisher’s note Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Published: 11 July 2017 References 1. Burmahl B, Hoppszallern S, Morgan J. 2017 hospital construction survey. Health Facil Manag. 2017;30(2):18–24. 2. Durham J. 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Health Facil Manage. 2001;14(7):6. Wong L. Adaptive reuse: extending the lives of buildings. Boston: Birkhäuser – De Gruyter; 2016. Remøy H, van der Voordt T. Adaptive reuse of office buildings into housing: opportunities and risks. Build Res Inf. 2014;42(3):381–90. Langston C, Shen L. Application of the adaptive reuse potential model in Hong Kong: a case study of Lui Seng Chun. Int J Strateg Prop Manag. 2007;11(4):193–207. Goodman-Shortall E. Urban regeneration reviving buildings and communities. J Prop Manag. 2016;81(3):11–4. Elrod JK. Breadcrumbs to cheesecake. Shreveport: R&R Publishers; 2013. Russo M. Hotbeds for adaptive reuse. Multi Housing News. 2011;46(3):24–7. Powell K. Architecture reborn: the conversion and reconstruction of old buildings. London: Laurence King; 1999. Warner RP, Warner RM. Saving old buildings makes economic and cultural sense. Harv Bus Rev. 1978;56(2):12–4. Carroon J. Sustainable preservation: greening existing buildings. Hoboken: Wiley; 2010. Rabun JS, Kelso R. Building evaluation for adaptive reuse and preservation. Hoboken: Wiley; 2009. Tan Y, Shen L, Langston C. A fuzzy approach for adaptive reuse selection of industrial buildings in Hong Kong. Int J Strateg Prop Manag. 2014;18(1):66–76. Young RA. Stewardship of the built environment: sustainability, preservation, and reuse. Washington, DC: Island Press; 2012. Yung E, Chan E. Implementation challenges to the adaptive reuse of heritage buildings: towards the goals of sustainable, low carbon cities. Habitat Int. 2012;36(3):352–61. Campbell J. Is your building a candidate for adaptive reuse? J Prop Manag. 1996;61(1):26. Bloszies C. Old buildings, new designs: architectural transformations. New York: Princeton Architectural Press; 2012. Submit your next manuscript to BioMed Central and we will help you at every step: • We accept pre-submission inquiries • Our selector tool helps you to find the most relevant journal • We provide round the clock customer support • Convenient online submission • Thorough peer review • Inclusion in PubMed and all major indexing services • Maximum visibility for your research Submit your manuscript at www.biomedcentral.com/submit BioMed Central publishes under the Creative Commons Attribution License (CCAL). Under the CCAL, authors retain copyright to the article but users are allowed to download, reprint, distribute and /or copy articles in BioMed Central journals, as long as the original work is properly cited. For each module, you are required to supply a journal entry reflecting on the reading materials. The purpose of this entry isn’t to regurgitate content or ask questions, but instead it is to convey your personal thoughts on the content provided, interesting things you discovered, ideas regarding how you might put the information to use, etc. You can view basic instructions for writing a schoolwork-related journal entry here: Journalism for School. Type (or paste) your entry directly into ing window, after which you will submit your work. s of any kind are prohibited and will carry no points value. Your journal entry must be between 300-600 words. The Challenge Your M3 reading assignments include an article on adaptive reuse (see “Adaptive Reuse in the Healthcare Industry: Repurposing Abandoned Buildings to Serve Medical Missions”), a practice which has vast implications for healthcare strategy. It also represents a very good opportunity for you to leave your “desks” and get out into the field to explore possibilities. Here’s the scenario: Place yourself in the role of Strategy Officer for a soon-to-be-established optometry clinic based in the city of your choice. (An actual city must be selected as this assignment calls for formal market research.) This entity will be named Cambridge Optometry and it will offer the usual and customary array of services provided by optometry practices. (If you are unfamiliar with this modality of care and the types of services offered, conduct associated research to gain a proper understanding before completing the assignment.) The owner/optometrist of the forthcoming solo practice desires operational efficiency and also takes opportunities where possible to make environmentally-responsible decisions. Having learned of adaptive reuse, he enlists you to search the city seeking abandoned and available commercial buildings which might be able to be converted into an optometry clinic through adaptive reuse. Your mission is to identify three potential adaptive reuse candidates in your area, identifying their physical address, describing them in detail, and ranking their potential to be converted successfully. The candidates must be actual commercial properties which currently are for sale, so best to consult commercial real estate websites and conduct good old-fashioned, boots-on-the-ground investigations to identify prospects. Feel free to supply links in your text to real estate listings, if available, or other resources to identify your selected candidates. If no such properties exist in the immediate market, expand its boundaries until you find accommodations meeting desired specifications. Note that in the real world, a project such as this would represent quite the undertaking, requiring possession of an extensive array of information (e.g., spatial needs, financial resources available, location preferences, etc.). Such rich detail (and the time needed to make use of it) isn’t available due to obvious course parameters, but you certainly have sufficient time to perform a cursory examination for purposes of identifying a few potential candidates. That’s exactly what you must do and, through this, you’ll have a better understanding of adaptive reuse. The Submission Requirement Your submission in its entirety (i.e., all inclusive) must be at least 1200 words. Your paper must be well referenced, with at least three (3) of the references being from scholarly academic journals. (If you cannot ascertain whether a journal does or does not qualify as scholarly academic, contact the Noel Library and request assistance.) References may be prepared using the style guide of your choice (e.g., APA, MLA); just be sure to consistently use the selected style. As Moodle formatting is limited, style guide requirements apply only to the preparation and presentation of references. Treat this as a formal report, rather than an informal web post. Note that references consisting merely of web links are unacceptable and will result in a 30-point deduction. In presenting your work, identify the title, your name and student ID number, and submission date at the top of your submission and supply the following headings, exactly as they appear below, placing each in bold text: • • • • • Introduction (In this section, supply a brief introduction, helping the reader grasp the intent of the forthcoming work.) Background o City Profile (In this section, supply a brief overview of the city of focus, noting its name, population, demographic characteristics, and any other helpful background information.) o Competitive Landscape (In this section, describe the state of competition in the marketplace by identifying key providers of vision services, painting a detailed picture of the given environment.) Adaptive Reuse Candidates o Candidate 1 (In this section, supply a detailed profile of your first adaptive reuse candidate.) o Candidate 2 (In this section, supply a detailed profile of your second adaptive reuse candidate.) o Candidate 3 (In this section, supply a detailed profile of your third adaptive reuse candidate.) Conclusions (In this section, summarize your candidate rankings, noting your recommended choice, and draw your report to a conclusion.) References (In this section, supply a list of references conforming with the instructions listed elsewhere in this communication.) Assessment Criteria Your submission will be assessed based on the following: • • • Compliance quality: The degree to which your submission complies with noted guidelines, including word count and reference specifications, Communication quality: The degree to which your work meets standards expected in business communications, including matters concerning the use of proper grammar and punctuation, and Content quality: The quality of the content presented in your work. Building a scorecard can help managers link today’s actions with tomorrow’s goals. Using the Balanced Scorecard as a Strategic Management System by Robert S. Kaplan and David P. Norton As companies around the world transform themselves for competition that is based on information, their ability to exploit intangible assets has become far more decisive than their ability to invest in and manage physical assets. Several years ago, in recognition of this change, we introduced a concept we called the balanced scorecard. The balanced scorecard supplemented traditional financial measures with criteria that measured performance from three additional perspectives – those of customers, internal husiness processes, and learning and growth. (See the chart “Translating Vision and Strategy: Four Perspectives.”) It therefore enabled companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they would need for future growth. The scorecard wasn’t a replacement for financial measures; it was their complement. Recently, we have seen some companies move heyond our early vision for the scorecard to discover its value as the cornerstone of a new strategic management system. Used this way, the seorecard addresses a serious deficiency in traditional management systems: their inability to link a company’s long-term strategy with its short term actions. Most companies’ operational and management control systems are huilt around financial measures and targets, which bear little relation to the HARVARD BUSINESS REVIEW Uiniiiary-Fcbruary 1 9 % company’s progress in achieving long-term strategic objectives. Thus the emphasis most companies place on short-term financial measures leaves a gap between the development of a strategy and its implementation. Managers using tbe balanced scorecard do not have to rely on short-term financial measures as the sole indicators of the company’s performance. The seoreeard lets them introduce four new management processes that, separately and in combination, contribute to linking long-term strategic objectives with short-term actions. (See the chart ”Managing Strategy: Four Processes.”) The first new process – translating the vision helps managers build a consensus around the organization’s vision and strategy. Despite the best intentions of those at the top, lofty statements about becoming “best in class/’ “the number one supplier,” Robert S. Kaplan is the Arthur Lowes Dickinson Professor of Accounting at the Harvard Business School in Boston, Massachusetts. David P. Norton is the founder and president of Renaissance Solutions, a consulting firm in Lincoln. Massachusetts. They are the authors of “The Balanced Scorecard – Measures That Drive Performance” (HBR January-February 1992} and “Putting the Balanced Scorecard to Work” (HBR September-October 1993). Kaplan and Norton have also written a book on the balanced scorecard to be published in September 1996 by the Harvard Business School Press. 75 BALANCED SCORECARD Translating Vision and Strategy: Four Perspectives Financial ‘To succeed Objectives financially, Measures 1 Kow should we Targets Initiatives 1 ‘• appear ro out shorekildefs?’ t Customer “Ta achieve Objectives Measures Targets Initiatives our viiion, Internal Business Process “To satisfy our Vision and Strategy how should we appeal to our Objectives Measures Targets Initiotives shareholders and customers, what business processes must customers?” we excel at?” Learning and Orovrth,t,.-:^?^i-;:^ . To achieve Objectives Meosures Torgets Initiatives our vision, wesustoinour ability to change and improve?” or an “empowered organization” don’t translate easily into operational terms that provide useful guides to action at the local level. For people to act on the words in vision and strategy statements, those statements must be expressed as an integrated set of objectives and measures, agreed upon by all senior executives, that describe the longterm drivers of success. The second process – communicating and linkmanagers communicate their strategy up Lofty vision and strategy mance, and individual incentives are tied to shortterm financial goals. The scorecard gives managers a way of ensuring that all levels of the organization understand the long term strategy and that both departmental and individual objectives are aligned with it. The third process – business planning – enables companies to integrate their business and financial plans. Almost all organizations today are implementing a variety of change programs, each with its own champions, gurus, and consultants, and each competing for senior executives’ time, energy, and re,^ sources. Managers find it difficult to don t translate easily achieve their strategic goals-a situation that leads to frequent disappointments with the programs’ results. But when managers use the ambitious goals set for balanced scorecard measures as the basis for allocating resources and setting priorities, they can undertake and coordinate into action at the local level. and down the organization and link it to departmental and individual objectives. Traditionally, departments are evaluated by their finaneial perfor- m integrate those diverse initiatives to •^ HARVARD BUSINES.S REVIEW lanuary-february 1996 only those initiatives that move them toward their provement. [See the chart “How One Company long-term strategic objectives. Built a Strategic Management System.”) The iteraThe fourth proeess – feedback and learning – tive sequence of actions enabled tbe company to gives companies the capacity for what we call strareconsider each of the four new management protegic learning. Existing feedback and review processes two or three times before the system stacesses focus on whether the company, its departbilized and became an established part of National’s ments, or its individual employees have met their overall management system. Thus the CEO was budgeted financial goals. With the balanced scoreable to transform the company so that everyone card at the center of its management systems, a could focus on achieving long-term strategic objeccompany can monitor short-term results from the tives – something that no purely financial framethree additional perspectives – customers, internal work could do. business processes, and learning and growth – and evaluate strategy in the light of recent performance. Tbe scorecard thus enables companies to Translating the Vision modify strategies to reflect real-time learning. The CEO of an engineering construction comNone of tbe more than 100 organizations that we pany, after working with his senior management have studied or with which we have worked impleteam for several months to develop a mission statemented their first balanced seoreeard with the inment, got a phone call from a project manager in the tention of developing a new strategic management field. “I want you to know,” the distraught manager system. But in each one, the senior exeeutives dissaid, “that I believe in the mission statement. I covered that the scorecard supplied a framework want to act in accordance with the mission stateand thus a focus for many critical management ment. I’m here with my customer. What am I supprocesses: departmental and individual goal setposed to do?” ting, business planning, capital allocations, strateThe mission statement, like those of many other gic initiatives, and feedback and learning. Previousorganizations, had declared an intention to “use ly, those processes were uncoordinated and often high-quality employees to provide services that directed at short-term operational goals. By buildsurpass customers’ needs.” But the project manager ing the scorecard, the senior executives started a in the field with his employees and his customer process of change that has gone well beyond the original idea of simply broadening the company’s Managing Strategy: Four Processes performance measures. Translating For example, one insurance fhe Vision company – let’s call it National Insurance-developed its first balD Clarifying tiie vision D Gainif>g consensus anced scorecard to create a new vision for itself as an underwriting specialist. But once National started to use it, the scorecard allowed the CEO and the senior Communicating Feedback and Linking management team not only to inand Learning n Articulating the C CommunicaNng troduce a new strategy for the orshared vision and educating ganization but also to overhaul D Setting goals n Supplying strategic feedback the company’s management sysQ linking rewards ta performonce measures D Facilitating stralagy tem. The CEO subsequently told review and learning employees in a letter addressed to the whole organization that NaBusiness tional would thenceforth use the Planning balanced scorecard and the philosD Setting targets ophy that it represented to manpAligning strategic initiatives age the business. • Allocating resources National built its new strategic • Establishing milestones management system step-by-step over 30 months, witb each step representing an incremental imHARVARD BUSINESS REVIEW January-February 1996 77 BALANCED SCORECARD How One Company Built a Strategic Management System… 2A Communicate to Middle Managers: The top three layers of management (100 people) are brought together to learn obout and discuss the new strategy. The balanced scorecard is tfie communication vehicle. (months 4 – 5] Unit 2B Develop Business Scorecards: Using the corporate scorecard as a template, each busines s unit translotes its strategy into its own scorecard. (months 6 – 9) 5 Refine the Vision: The review of business unit scorecards identifies several cross-business issues not initially included in the corporate strategy. The corporate scorecord is updated, (month 12) Time Frame (in months} 0 1 2 3 4 5 6 Actions: 1 Clarify the Vision: Ten members of a newly formed executive team work together for tfiree months. A balanced scorecard is developed to translate a generic vision into a strategy tfiot is understood and can be communicated. The process helps build consensus and commitment to the strategy. 7 8 3 A Eliminate Nonstrategic Investments: The corporate scorecard, by clorifying strategic priorities, identifies many active programs that are not contributing lo ttie strategy. (month 6) 3B launch Corporate Change Programs: The corporate scorecard identifies the need for cross-business change programs. They are launched while the business units prepare their scorecards. (month 6) 9 10 11 4 Review Business Unit Scorecards: The CEO and the executive team review the individual business units’ scorecards. The review permits the CEO to participate knowledgeably in shaping business unit strategy. (months 9-Uj for the customer-perspective portion of their balanced scorecard, however, it became apparent that although the 25 senior executives agreed on the words of the strategy, each one had a different definition of superior service and a different image of the targeted customers. The exercise of developing operational measures for the four perspectives on the bank’s scorecard forced the 25 executives to clarify the meaning of the strategy statement. Ultimately, they agreed to stimulate revenue growth through new products and services and also 1 agreed on the three most desirable did not know how to translate those words into the appropriate actions. The phone call convinced the CEO that a large gap existed hetween the mission statement and employees’ knowledge of how their day-to-day actions could contrihute to realizing the company’s vision. Metro Bank (not its real name), the result of a merger of two competitors, encountered a similar Building a scorecard enables a company to link its financial , ^ , , with its strategic goals. 0 gap while huilding its balanced scorecard. The senior executive group thought it had reached agreement on the new organization’s overall strategy; “to provide superior service to targeted customers.” Research had revealed five basic market segments among existing and potential customers, each with different needs. While formulating the measures 78 0 customer segments They developed scorecard measures for the specific crnrprarn mpaQiirp*; rnr tfip sneririr products and services that should be delivered to customers in the targeted segments as well as for the relationship the bank should build with customers in each segment. The scorecard also highlighted gaps in employees’ skills and in information systems that the bank would have to close in order to deliver the selected value propositions to the targeted customers. Thus, creating a HARVARD BUSINESS REVIEW Ianuary-February 1996 12 7 Update Long-Range Plan and Budget: Five-year goals are established for each measure. The investments required to meet those goals are identified and funded. The first year of the five-year plan becomes the annual 9 budget, (months 15- 17) 13 14 15 16 17 6 A Communicate the Balanced Scorecard to tbe Entire Company: At the end of one yeor, when tile manogement teems are comfortable with the strategic approach, the scorecard is disseminated to the entire organization. (month ) 2 – ongoing) Conduct Annual Strategy Review; At the start of the third year, the initial strategy has been achieved and the corporate strategy requires updating. The executive committee lists ten strategic issues. Each business unit is asked ta develop a position on each issue as a prelude to updating its strategy and scorecard. (months 25 – 26) 18 8 19 22 Conduct Monthly and Quarterly Reviews: After corporate opproval of tfia business unit scorecards, a monthly review process, supplemented by quarterly reviews that focus more heavily on strategic issues, begins. (month 18 – ongoing) 6B Establish Individual Performance Objectives: The top three layers of management link their individual objectives and incentive compensation to their scorecards. (months 13- 23 24 25 26 10 Link Everyone’s Performance to the Balanced Scorecard: All employees are asked to link their individual objectives to the balanced scarecard. The entire organization’s incentive compensation is linked to the scorecard. (months 25 – 26} 14) Note: Steps 7, 8, 9, and 10 are performed on a regular schedule. The balonced scorecard is now a routine part of the management process. balanced scorecard forced the bank’s senior managers to arrive at a consensus and then to translate their vision into terms that had meaning to the people who w^ould realize the vision. •••Around the Balanced Scorecard Communicating and Linking “The top ten people in the business nov^’ understand the strategy better than ever before. It’s too bad,” a senior executive of a major oil company complained, “that we can’t put this in a bottle so that everyone could share it.” With the balanced scorecard, he can. One company we have worked with deliberately involved three layers of management in the creation of its balanced scorecard. The senior executive group formulated the financial and customer objectives. It then mobilized tbe talent and information in the next two levels of managers by having them formulate the internal-business-process and learning-and-growth objectives tbat would drive the achievement of the financial and customer goals. For example, knowing the importance of satisfying customers’ expectations of on-time HARVARD BUSINESS REVIEW January-February 1996 [Communicating and L 79 BALANCED SCORECARD delivery, the broader group identified several internal business processes – such as order processing, scheduling, and fulfillment-in which the company had to excel. To do so, the company would have to retrain frontline employees and improve the information systems available to them. The group developed performance measures for those critical processes and for staff and systems capabilities. Broad participation in creating a scorecard takes longer, but it offers several advantages: Information from a larger number of managers is incorporated into the internal ohjectives; the managers gain a better understanding of the company’s long-term strategic goals; and such broad participation builds a stronger commitment to achieving those goals. But getting managers to buy into the scorecard is only a first step in linking individual actions to corporate goals. The balanced scorecard signals to everyone what the organization is trying to achieve for shareholders and customers alike. But to align employees’ individual performances with the overall strategy, scorecard users generally engage in three activities: communicating and educating, setting goals, and linking rewards to performance measures. Communicating and Educating, hnplementing a strategy begins with educating those who have to execute it. Whereas some organizations opt to hold their strategy close to the vest, most believe that they should disseminate it from top to bottom. A broad-hased communication program shares with all employees the strategy and the critical objeetives they have to meet if the strategy is to succeed. The balanced scorecard, as the embodiment of business unit strategy, should also be communicated upward in the organization-to corporate headquarters and to the corporate board of directors. With the scorecard, business units can quantify and communicate their long-term strategies to senior executives using a comprehensive set of linked financial and nonfinancial measures. Such communication informs the executives and the board in specific terms that long-term strategies designed for competitive success are in place. The measures also provide the basis for feedhack and accountability. Meeting short-term financial targets should not eonstitute satisfactory performance when other measures indicate that the long-term strategy is either not working or not being implemented well. Should the balanced scorecard be communicated beyond the boardroom to external shareholders? We believe that as senior executives gain confidence in the ability of the scorecard measures to monitor strategic performance and predict future financial performance, they will find ways to inform outside investors about those measures without disclosing competitively sensitive information. Skandia, an insurance and financial services company based in Sweden, issues a supplement to its annual report called “The Business Navigator””an instrument to help us navigate into the future and therehy stimulate renewal and development.” The supplement describes Skandia’s strategy and tbe strategic measures the company uses to communicate and evaluate the strategy. It also provides a report on the company’s performance along those measures during the year. The measures are customized for each operating unit and include, for example, market share, customer satisfaction and retention, employee competence, employee empowerment, and technology deployment. The personal scorecard helps to communicate corporate and unit objectives to the people and teams performing the work. Onetime events such as the distribution of brochures or newsletters and the holding of “town meetings” might kick off the program. Some organizations post bulletin boards that illustrate and explain tbe balanced scorecard measures, then update them with monthly results. Others use groupware and electronic bulletin boards to distribute the scorecard to the desktops of all employees and to encourage dialogue about the measures. The same media allow employees to make suggestions for achieving or exceeding the targets. 80 Communicating the balanced scorecard promotes commitment and accountability to the business’s long-term strategy. As one executive at Metro Bank declared, “The balanced scorecard is both motivating and obligating.” Setting Goals. Mere awareness of corporate goals, however, is not enough to change many people’s behavior. Somehow, the organization’s high-level strategic objectives and measures must be translated into objectives and measures for operating units and individuals. The exploration group of a large oil company developed a technique to enable and encourage individuals to set goals for themselves that were consisHARVARD BUSINESS REVIEW January-February 1996 The Personal Scorecard Corporate Objectives 1 n Double ojr corporate value in seven years, 1 n Increase our earnings by an average of 20% per year. D Achieve an internal rate of relurn 2% obave the cast of capital. n Increase both production ond reserves by 20% in the next decade. Scorecard Measures Corporate Targets 1995 19961199711998119991 100 120 160 180 250 100 450 ?00 210 225 100 85 80 75 70 100 75 73 70 64 100 97 93 90 B? 100 105 108 lOfi no Team/Individual Objecttvss and InitiatTves Business Unit Targets |l995|l996|l997|l998|l999| I. Finoncial Earninqs (in millions oF dollars] Net cosh How Overhead and operatinq expenses Operatinq Production costs per barrel Development costs per barrel Tatql annual production Team/Individual Measures 1. 2. 3. A 12 1 1 13 Tarqets 1 4. 5. Name: 5. Location: tent with the organization’s. It created a small, foldup personal scorecard that people could carry in their shirt pockets or wallets. (See the exhibit “The Personal Scorecard.”) The scorecard contains three levels of information. The first describes corporate objectives, measures, and targets. The second leaves room for translating corporate targets into targets for each business unit. For the third level, the company asks both individuals and teams to articulate which of their own objectives would be consistent witb tbe business unit and corporate objectives, as well as what initiatives they would take to achieve their objectives. It also asks them to define up to five performance measures for their objectives and to set targets for each measure. Tbe personal scorecard helps to communicate corporate and business unit objectives to the people and teams performing the work, enabling them to translate tbe objectives into meaningful tasks and targets for themselves. It also lets them keep that information close at hand-in their pockets. Linking Rewards to Performance Measures. Should compensation systems be linked to balanced scorecard measures? Some companies, believing that tying financial compensation to performance is a powerful lever, have moved quickly to HARVARD BUSINESS REVIEW |anuary-February 1996 establish such a linkage. For example, an oil company that we’ll call Pioneer Petroleum uses its scorecard as tbe sole basis for computing incentive compensation. The company ties 60% of its executives’ bonuses to their achievement of ambitious targets for a weighted average of four financial indicators: return on capital, profitability, cash flow, and operating cost. It bases the remaining 40% on indicators of customer satisfaction, dealer satisfaction, employee satisfaction, and environmental responsibility [such as a percentage change in the level of emissions to water and air). Pioneer’s CEO says that linking compensation to the scorecard has helped to align the company with its strategy. “I know of no competitor,” he says, “who has this degree of alignment. It is producing results for us.” As attractive and as powerful as such linkage is, it nonetheless carries risks. For instance, does the company have the right measures on the scorecard? Does it have valid and reliable data for the selected measures- Could unintended or unexpected consequences arise from the way the targets for the measures are achieved? Those are questions that companies should ask. Furthermore, companies traditionally handle multiple objectives in a compensation formula by 81 BALANCED SCORECARD assigning weights to each objective and calculating incentive compensation hy tbe extent to which each weighted objective was achieved. This practice permits substantial incentive compensation to be paid if the business unit overachieves on a few objectives even if it falls far short on others. A better approach would be to establisb minimum threshold levels for a critical subset of the strategic measures. Individuals would earn no incentive compensation if performance in a given period fell short of any threshold. This requirement should motivate people to achieve a more balanced performance across short- and long-term objectives. Some organizations, however, have reduced their emphasis on short-term, formula-based incentive systems as a result of introducing the balanced scorecard. They have discovered that dialogue among executives and managers about tbe scorecard – both the formulation of the measures and objectives and the explanation of actual versus targeted results – provides a better opportunity to observe managers’ performance and abilities. Increased knowledge of their managers’ abilities makes it easier for executives to set incentive rewards subjectively and to defend those subjective evaluations-a process that is less susceptible to the game playing and distortions associated witb explicit, formula-based rules. One company we have studied takes an intermediate position. It bases bonuses for business unit managers on two equally weighted criteria: their achievement of a financial objective – economic value added – over a three-year period and a subjective assessment of their performance on measures drawn from tbe customer, internal-businessprocess, and learning-and-growth perspectives of the balanced scorecard. That tbe balanced scorecard has a role to play in the determination of incentive compensation is not in doubt. Precisely what that role should be will become clearer as more companies experiment with linking rewards to seoreeard measures. Business Planning “Where the rubber meets the sky”: That’s how one senior executive describes his company’s longrange-planning process. He might have said the same of many other companies because their financially based management systems fail to link change programs and resource allocation to longterm strategic priorities. The problem is that most organizations have separate procedures and organizational units for strategic planning and for resource allocation and budgeting. To formulate their strategic plans, senior executives go off-site annually and engage for several days in active discussions facilitated by senior planning and development managers or external consultants. The outcome of tbis exercise is a strategic plan articulating where the company expects (or bopes or prays) to be in three, five, and ten years. Typically, such plans then sit on executives’ bookshelves for the next 12 months. Meanwhile, a separate resource-allocation and budgeting process run hy tbe finance staff sets financial targets for revenues, expenses, profits, and investments for the next fiscal year. The budget it produces consists almost entirely of financial numbers that generally bear little relation to the targets in the strategic plan. Which document do corporate managers discuss in their monthly and quarterly meetings during the following year; Usually only the budget, because the periodic reviews focus on a comparison of actual and budgeted results for every line item. Wben is the strategic plan next discussed? Probably during tbe next annual off-site meeting, when the senior managers draw up a new set of three-, five-, and tenyear plans. The very exercise of creating a balanced scorecard forces companies to integrate their strategic planning and budgeting processes and therefore helps to ensure that their budgets support their strategies. Scorecard users select measures of progress from all four scorecard perspectives and set targets for each of them. Then they determine which actions will drive them toward their targets, identify the measures they will apply to those drivers from the four perspectives, and establish the short-term milestones that will mark their progress along the strategic paths they have selected. Building a scorecard thus enables a company to link its financial budgets with its strategic goals. For example, one division of the Style Company (not its real name] committed to achieving a seemingly impossible goal articulated by the CEO: to double revenues in five years. The forecasts built into the organization’s existing strategic plan fell $1 billion short of this objective. The division’s managers, after considering various scenarios, agreed to specific increases in five different performance drivers: the number of new stores opened, the number of new customers attracted into new and existing stores, the percentage of shoppers in each store converted into actual purchasers, the portion of existing customers retained, and average sales per customer. By helping to define the key drivers of revenue growth and by committing to targets for each of HARVARD BtJSINESS REVIEW |anuaiy-Fcbruar>’ 1996 them, the division’s managers eventually grew comfortable with One Company Linked Measures the CEO’s ambitious goal. from the Four Perspectives The process of building a balanced scorecard – clarifying the strategic objectives and then identifying the few critical drivers also creates a framework for manreturn on capital employed aging an organization’s various change programs. These initiatives – reengineering, employee empowerment, time-based management, and total quality management, among others – promise to deliver results but also compete with one another for scarce resources, including the scarcest resource of all: senior managers’ time and attention. Shortly after the merger that created it, Metro Bank, for example, launched more than 70 different initiatives. The initiatives were intended to produce a more competitive and successful institution, but they were inadequateInternal ly integrated into the overall stratBusiness Process egy. After building their balanced scorecard, Metro Bank’s managers dropped many of those programssuch as a marketing effort directed at individuals with very high net worth – and consolidated others into initiatives that were better employees’ suggestions aligned with the company’s straLearning and Grovsrth tegic objectives. For example, the managers replaced a program aimed at enhancing existing lowlevel selling skills with a major initiative aimed at retraining salespersons to become trusted financial advisers, capable of selling a broad range of for the balanced scorecard measures. Milestones newly introduced products to the three selected are tangible expressions of managers’ beliefs about customer segments. The bank made both changes when and to what degree their current programs because the scorecard enabled it to gain a better un- will affect those measures. derstanding of the programs required to achieve its In establishing milestones, managers are expandstrategic objectives. ing the traditional budgeting process to incorporate strategic as well as financial goals. Detailed finanOnce the strategy is defined and the drivers are cial planning remains important, but financial identified, the scorecard influences managers to goals taken by tbemselves ignore the three other concentrate on improving or reengineering those balanced scorecard perspectives. In an integrated processes most critical to the organization’s strateplanning and budgeting process, executives contingic success. That is how the scorecard most clearly ue to budget for short-term financial performance, links and aligns action with strategy. but they also introduce short-term targets for meaThe final step in linking strategy to actions is to sures in the customer, imernal-business-process. establish specific short-term targets, or milestones. HARVARD BUSINESS REVIEW lanuary-Febniary 1996 83 BALANCED SCORECARD and learning-and-growth perspectives. With those milestones established, managers can continually test both the theory underlying the strategy and the strategy’s implementation. At the end of the husiness planning process, managers should have set targets for the long-term objectives they would like to achieve in all four scorecard perspectives; they should have identified the strategic initiatives required and allocated the necessary resources to those initiatives,- and they should have established milestones for the measures that mark progress toward achieving their strategic goals. Feedback and Learning “With the balanced scorecard,” a CEO of an engineering company told us, “I can continually test my strategy. It’s like performing real-time research.” That is exactly the capability that the scorecard should give senior managers: the ability to know at any point in its implementation whether the strategy they have formulated is, in fact, working, and if not, why. The first three management processes – translating the vision, communicating and linking, and business planning – are vital for implementing strategy, but they are not sufficient in an unpredictable world. Together they form an important single-loop-learning process – single-loop in the sense that the objective remains constant, and any departure from the planned trajectory is seen as a defect to be remedied. This single-loop process does not require or even facilitate reexamination of either the strategy or the techniques used to implement it in light of current conditions. Most companies today operate in a turbulent environment with complex strategies that, though valid when they were launched, may lose their validity as husiness conditions change. In this kind of environment, where new threats and opportunities arise constantly, companies must become capable of what Chris Argyris calls double-loop learninglearning that produces a change in people’s assumptions and theories about cause-and-effect relationships. (See “Teaching Smart People How to Learn,” HBR May-June 1991.) Budget reviews and other financially based management tools cannot engage senior executives in double-loop learning – first, because these tools address performance from only one perspective, and second, because they don’t involve strategic learning. Strategic learning consists of gathering feedback, testing the hypotheses on which strategy was hased, and making the necessary adjustments. 84 Tbe balanced scorecard supplies three elements that are essential to strategic learning. First, it articulates the company’s shared vision, defining in clear and operational terms the results that the company, as a team, is trying to achieve. The scorecard communicates a holistic model that links individual efforts and accomplishments to business unit objectives. Second, tbe scorecard supplies tbe essential strategic feedback system. A business strategy can be viewed as a set of hypotheses about cause-andeffect relationships. A strategic feedback system should he ahle to test, validate, and modify the hypotheses embedded in a business unit’s strategy. By establishing short-term goals, or milestones, within the business planning process, executives are forecasting the relationship between changes in performance drivers and the associated changes in one or more specified goals. For example, executives at Metro Bank estimated the amount of time it would take for improvements in training and in the availability of information systems before employees could sell multiple financial products effectively to existing and new customers. Tbey also estimated how great the effect of that selling capability would be. Another organization attempted to validate its hypothesized cause-and-effect relationships in the balanced scorecard by measuring the strength of the linkages among measures in the different perspectives. (See the chart “How One Company Linked Measures from the Four Perspectives.”) The company found significant correlations between employees’ morale, a measure in the learning-andgrowth perspective, and customer satisfaction, an important customer perspective measure. Customer satisfaction, in turn, was correlated with faster payment of invoices – a relationship that led to a substantial reduction in accounts receivahle and hence a higher return on capital employed. The company also found correlations between employees’ morale and the number of suggestions made by employees (two learning-and-growth measures) as well as between an increased number of suggestions and lower rework (an internal-business-process measure). Evidence of such strong correlations help to eonfirm the organization’s business strategy. If, however, the expected correlations are not found over time, it should be an indication to executives that the theory underlying the unit’s strategy may not be working as they had anticipated, • Especially in large organizations, accumulating sufficient data to document significant correlations and causation among balanced scorecard measures can take a long time – months or years. Over the HARVARD BUSINESS REVIEW (anuary-February 1996 short term, managers’ assessment of strategic impact may have to rest on subjective and qualitative judgments. Eventually, however, as more evidence accumulates, organizations may be able to provide more objectively grounded estimates of cause-andeffect relationships. But just getting managers to think systematically about the assumptions underlying their strategy is an improvement over the current practice of making decisions based on shortterm operational results. Third, the scorecard facilitates the strategy review that is essential to strategic learning. Traditionally, companies use the monthly or quarterly meetings between corporate and division executives to analyze the most recent period’s financial results. Discussions focus on past performance and on explanations of why financial objectives were not achieved. The balanced scorecard, with its specification of the causal relationships between performance drivers and objectives, allows corporate and business unit executives to use their periodic review sessions to evaluate the validity of the unit’s strategy and the quality of its execution. If the unit’s employees and managers have delivered on the performance drivers (retraining of employees, availability of information systems, and new financial products and services, for instance), then their failure to achieve the expected outcomes (higher sales to targeted customers, for example) signals that the theory underlying the strategy may not be valid. The disappointing sales figures are an early warning. Managers should take such disconfirming evidence seriously and reconsider their shared conclusions about market conditions, customer value propositions, competitors’ behavior, and internal capabilities. The result of such a review may be a decision to reaffirm their belief in the current strategy but to adjust the quantitative relationship among the strategic measures on the balanced scorecard. But they also might conclude that the unit needs a different strategy (an example of double-loop learning) in light of new knowledge about market conditions and internal capabilities. In any case, the scorecard will have stimulated key executives to learn about the viability of their strategy. This capacity for enabling organizational learning at the executive level – strategic learning-is what distinguishes the balanced scorecard, making it invaluable for those who wish to create a strategic management system. Toward a New Strategic Management System Many companies adopted early balanced-scorecard concepts to improve their performance measurement systems. They achieved tangible but narrow results. Adopting those concepts provided clarification, consensus, and focus on the desired improvements in performance. More recently, we have seen companies expand their use of the balanced scorecard, employing it as the foundation of an integrated and iterative strategic management system. Companies are using the scorecard to • clarify and update strategy, n communicate strategy throughout the company, D align unit and individual goals with the strategy, n i i n k strategic objectives to long-term targets and annual budgets, n identify and align strategic initiatives, and D conduct periodic performance reviews to learn about and improve strategy. The balanced scorecard enables a company to align its management processes and focuses tbe entire organization on implementing long-term strategy. At National Insurance, the scorecard provided the CEO and his managers with a central framework around which they could redesign each piece of the company’s management system. And because of the cause-and-effect linkages inherent in the scorecard framework, changes in one component of the system reinforced earlier changes made elsewhere. Therefore, every change made over the 30-month period added to the momentum that kept the organization moving forward in the agreedupon direction. Without a balanced scorecard, most organizations are unable to achieve a similar consistency of vision and action as they attempt to change direction and introduce new strategies and processes. The balanced scorecard provides a framework for managing the implementation of strategy while also allowing the strategy itself to evolve in response to changes in the company’s competitive, market, and technological environments. ^ Reprint 96107 HARVARD BUSINESS REVIEW lanuary-Febmary 1996 For ordering information, seepage 172. 85 Copyright 1996 Harvard Business Publishing. All Rights Reserved. Additional restrictions may apply including the use of this content as assigned course material. Please consult your institution’s librarian about any restrictions that might apply under the license with your institution. For more information and teaching resources from Harvard Business Publishing including Harvard Business School Cases, eLearning products, and business simulations please visit hbsp.harvard.edu.

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