Value Talks Ep 9: The Balanced Scorecard in Business

Hosted by Travis Tasset, the Value Talks podcast explores a range of topics that matter to people, including healthcare, leadership, and culture. In this episode, Travis and John Palumbo, Executive Chairman of ValueHealth, discuss a strategic management system in business they call the Balanced Scorecard.

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Transcript of Episode 9

Welcome to another episode of Value Talks with your host Travis Tasset.

Travis Tasset: Welcome to this episode of Value Talks. My name is Travis Tasset, your host, and I’m sitting here with John Palumbo. John is the Executive Chairman of ValueHealth and NueHealth and serves a number of roles within our companies. John, I just wanted to welcome you to the podcast. Thank you for joining me today.

John Palumbo: Great to be back; love doing these.

Travis Tasset: Second appearance on Value Talks. The first time we talked through your framework of the nine guiding principles for a high performance culture. And the topic for this conversation is going to be about the balanced scorecard in business. Before we dive into that, could you give our audience a little bit of a background and history of who you are and also maybe where this balanced scorecard, this performance management system, kind of came from?

John Palumbo: Sure. I’d be happy to. So, 30 plus years- I’m getting to the point where I don’t count too many past 30 anymore. So, 30 plus years in healthcare and a very interesting opportunity that I’ve had in healthcare over the years of doing combination of start-ups. Start-ups that stayed private, start-ups that we got public and then very large Fortune 100 corporate experience. And as you craft your career, you always try to learn from your wins and losses through the journey. You have a tendency to remember your losses more than your wins. And so, you know, I started way back with a start-up company of note that ultimately became Allscripts and we were- you know, a couple of friends of mine from the Philadelphia area, we started Allscripts. Put some companies together, converted it from, believe it or not, it was a pharmaceutical cabinet that was put in physician offices and it’s now become one of the largest electronic medical record companies in the world.

So it got me into the technology side; I decided that it wasn’t for me to move to Chicago and leave Philadelphia. So I stepped down from my executive role there and joined at the time a healthcare technology company called Shared Medical Systems. I was part of that leadership team that ended up selling that to Siemens Medical Solutions. Obviously Siemens, a worldwide, global company, a massive company that was competing to get into the space in the US. And at that time I had the opportunity to run what was called their National Health Services Business Unit, which was for the first time, believe it or not, really where I had a national organization.

Very remote, spread out. We were serving the largest multi-health hospital health systems in the country, both for profit and not-for-profits, and this was my first attempt at managing something this large. It’s one thing to be in a start-up and you grow it and you have your own pains, and then you have this. And all of a sudden I had seasoned executives all over the country. What was I going to do? And back in the ’90s, two professors out of Harvard Business School, Kaplan and Norton, wrote a book on the balanced scorecard, which is really a – now it’s a proven performance management process and program that really helps execute on strategy by defining critical initiatives that tie to your strategic goals.

And you link measures and very defined targets and you align deep through the organization, all these folks, so that everybody really understands where we’re going, how we’re going to get there, and more importantly, “What’s my role? How do I contribute individually to this greater task and how do I define success? And am I going to be able to have feedback along the way that’s telling me I’m doing the right things, the right way?”

Travis Tasset: So they have that line of sight. Everybody has that line of sight and they know where they’re trending, right? And where we’re trending as a collective group.

John Palumbo: Right, and this was the first concept of you actually build a balanced scorecard around different pillars: the people pillar, the finance, the growth, the service, the quality and the community and, in our case, we’ve sort of tweaked it to us. The original balanced scorecard really had four pillars. It started with people, then it was always really processes, meaning the service and the operational side. Then there was the customer perspective and then there was always the last one you built on was the financial because prior to that most companies really managed their business from a financial view. Financials can only be lagging indicators. They can’t tell you what’s going to happen because you’re not really connecting all of the critical initiatives.

Travis Tasset: Right, they’re not leading indicators, they’re lagging indicators. So those four were people, processes- what was the third one?

John Palumbo: Customer.

Travis Tasset: Customer and then financial.

John Palumbo: Then financial, yes. And the people side has really now morphed into innovation and growth of the human capital, person side of it, the greatest asset that a company has. So I did this out of pure fear of failure.

Travis Tasset: Necessity is the mother of all invention, John.

John Palumbo: “This is beyond my paygrade. I don’t know how I’m going to do this,” and you have to remember, this is the mid-90s. So email was just- I know this will sound implausible to all of us today, with email – you had to dial a different phone number to a different office, there people weren’t connected through VPNs. There was none of this and so, you know, you were still sending mail. “So how am I-?” my goodness, there was no virtual meetings. There was nothing. So you physically had to go to meetings to even begin to explain this to people.

So all of a sudden we became the most successful business unit that Shared Medical Systems and then eventually Siemens ever had. We began to dominate, you know, share capture. We had incredible recurring revenue streams. And so the story then became, “Okay, well…” Nobody else in all of Shared Medical Systems or Siemens did this. Our unit was the only one and I truly did it, truly did it because I was terrified that I was not going to know how to- how would I have a work-life balance that says, “I’ve got all these people everywhere. How do I help them be successful? How will we achieve our goals?” and oh, by the way, I’ve got five kids. At the time I didn’t have five, there were still some coming.

So that had really good success. We ended up selling the company Shared Medical Systems to Siemens. That was just around 2000. I reunited with two friends of mine that we started Allscripts with and we built a company called i-Trax, which we took public and i-Trax became the leader in on-site primary care, closed door pharmacy, pop health (at the time, it was just brand new, “population health”) and occupational health. And basically we merged two companies together to form i-Trax, grew it from a startup to about $150 million dollars in revenue. Ended up selling that to Walgreens as part of their Take Care Health Division.

It was the second time that I tried to do a balanced scorecard and this one did not have quite as much success, organizationally and culturally. We had just put together these companies, there was a lot of management and leadership transition and one of the secrets that I now, having done this several times, have found, that this only works if you really, really get buy-in at the leadership level and then the leadership level forces it up through the organization to the people who make the difference every day, which is the people that either touch a customer, in our case a patient, touch a partner, in our case a physician or a partner and then who actually deal with the internal customers, you know, because there’s many of these initiatives that are cross-collaborations amongst the organization and in our case, companies.

Travis Tasset: Due to the interdependencies and-

John Palumbo: Of course, yes. So it didn’t work really, really well at i-Trax, although we had a successful venture and ended up selling it. That’s the nice end of the story. But I learned a lot on how to make it easier and how to get consensus and how to have other people feel a part of that decision process.

Travis Tasset: John, why do you think that it didn’t have as much traction and get as much success? Is it because of the lack of buy-in at the top? Was that the difference between the two, or what do you attribute that to?

John Palumbo: Clearly that’s a part of it. The companies had just been put together. I don’t think there was truly an alignment as deep as you needed on vision, values, purpose. There hadn’t been a well-defined culture yet. It was still storming, forming, norming-

Travis Tasset: Performing.

John Palumbo: Right, yes and I didn’t have the insight to wait. I just said, “This worked for me before, so let’s go do it.” So I probably did a cram-down at the beginning, which didn’t have a very good reception. So then you end up going, “Okay. Well, is it a people problem? Is it a process problem? What is it?” And so, I had to pull it back and you know, you learn from it. It didn’t work, it didn’t mean the company didn’t, but I mean because of it, you know, I don’t think we ever achieved what we could have achieved, before we ended up selling the company. Because again, it’s really an organizational alignment. When you look at why do 9 out of 10 companies fail to execute on strategy? There’s a vision barrier. There’s a people barrier. There’s a management barrier, right, and then there’s sort of a strategic barrier.

So, you know, you sort of have to blend all those together and then you have to pick the right time and then you have to figure out how deep do you go? So, this is probably way more than you wanted but you’re asking how this got to where it is.

Travis Tasset: Well, yeah, it’s a little bit of everything. I was kind of wanting to go through- one of my- you know how I like quotes and you shared some of your favorite quotes with me, is by Rudyard Kipling and said, “I keep six honest, serving men. They taught me all I knew. Their names are, What and Why and When and How and Where and Who.” So I was thinking okay, we’ve kind of defined the what of the balanced scorecard, which is just a strategic management system. Right?

John Palumbo: Right.

Travis Tasset: And the what of it being, what makes it balanced? Is it because it’s not just financial and it includes other areas, pillars, people. quality?

John Palumbo: Yeah, I mean, that is the truest concept of it. Kaplan and Norton turned it inside out and said, you have to first figure out, what are the most important things you do around your people assets? And now in today’s genre, it’s really focused on innovation and growth of the person. So how do you do that? Well, is it knowledge management? You know, how do you force alignment? How do you force accountability? When I say “force,” I don’t mean force it on the person, it’s how do you force that into your culture, into your DNA, into your operating rhythms? And you know, everybody laughs at it, you know, “Jeez, it was an overnight success.” I shared with our leadership team the real history of, if you took a look at two of our greatest overnight successes, you know, Apple was still fledgling before it released the iPod.

Travis Tasset: That was Jobs’ return to the company.

John Palumbo: That was 25 years after it started. Starbucks, you know, was still at a hundred stores, 25 years after it took and you know, then they began to mature their culture and their business rhythm and all of those things. So to me, that’s what makes it balanced. It forces you as either a sole contributor, as an employee, which we all are. It forces you as a manager or a supervisor or it forces you as an executive leader. It makes you plan your week and your work and your day around multiple important elements of… without forgetting them. Because why? Because they’re measured, your name’s on it and you green, yellow, red scorecard it, which is why it’s called the balanced scorecard and you do that under a meeting rhythm, which is what also a lot of companies fail to do. You know, 85% of all the management teams fail to spend one hour a month discussing strategy. So that’s why nine out of ten fail. Only 60% of organizations link their organizational goals to compensation and recognition. So, I mean, there’s basics and you sit there and go, “Well jeez, that’s easy.” Well, I guess it isn’t.

Travis Tasset: If it was easy, then perhaps we’d be doing more of it.

John Palumbo: Right. So that’s what makes it balanced and that’s how you begin to align those organizational goals and you can build communication programs around it and people begin to gain an understanding of, again, why they’re doing things. Why they’re doing them the way they’re doing them. How they need to hold themselves accountable to it. And at the end of the day the real secret to high performance is, can you look at each individual and go get the answer to these two questions: “Do they need to be managed or are they managing me?” if you’re their supervisor. Because if they’re managing up, then that means you’ve reached alignment, you are eliminating surprises. You’ve built an environment where people are safe to talk and let them know, “Jeez, I’m having a problem with this. I need some help over here.” And that’s the kind of environment we all strive to have and then-

Travis Tasset: They’re bringing questions to you before you’re asking them those questions. They’re out in front of it. They’re thinking through it.

John Palumbo: Right. I don’t have a to-do list for them. They have a to-do list for me, that’s the perfect world because my job is to help everybody else be successful and if we drive that through and up into the organization, that’s great. And then the second question is, does that individual wow you with their critical thinking and their output? And when you can sit there and go “yes” to those two questions, you really feel like you’ve created a high performance team and a high performance culture. And I think the balanced scorecard is that strategic management system that lets you tactically know whether you’re on track or not, from accomplishing your goals the way you want to do it, which is aligned to our culture, aligned to our values and so on.

Travis Tasset: Why do you feel it’s important? I mean, I think you’ve answered this a little bit but I’m just going to go through the who, what, when, where, why and how? And is this important because of the alignment and that results in performance? I mean, what are your thoughts?

John Palumbo: That’s a great question. So I’m probably going to answer it a little differently. So, our vision is to be the most trusted partner in healthcare, as we transform the ambulatory surgical space from fee-for-service, Generation 1, to an entire new way of delivering great patient care, a great patient experience at the best value you can build, which is value-based care. Trusted partner, there’s an annual study that’s done: only 2% of all companies ever achieve a trusted partner status with their customers and or partners. You can be a vendor, you can be a solution provider. You can go up the track. Only 2%.

Travis Tasset: That’s shocking.

John Palumbo: Well, if that’s our vision and that’s what we aspire to be, so why? Because if we don’t execute throughout this organization and if we don’t take the talent that we have here and arm them to be successful and hopefully help them fulfill their aspirations of being great at what they do and help them have a career path to do other things and to grow, if we don’t do that, we have no chance of ever getting to fulfill our vision, which is to be a trusted partner. So I believe that when we rolled this out conceptually to the executive leadership team, I had prepped it with Dan (Tasset), I said, “Dan, you can’t have any unrealistic expectations. We probably won’t be able to do that this year.” It just takes time. I couldn’t believe it.

So I laid out the concept and the ELT, the executive leadership team, which is our acronym for it, they came back and said, “No, we want to do it now.” So we then had every single company within ValueHealth adopt a balanced scorecard. Develop it to meet their own- you know, fulfill the goal of ValueHealth, but then to fulfill the mission of each and every company’s purpose and they have now executed it and actually connected it to our LEM goals and now have it deeply embedded into the organization. Which, if that’s the- if this is the last company I ever get to do it with, I will have declared it a victory.

Travis Tasset: Our listeners, LEM is just a performance management platform that we use that we establish objective goals in and then 90-day plans and so on and so forth. So John, you talked about that a little bit in terms of how it’s deployed. It really starts with the senior leaders and in this case, our ELT, executive leadership team, and then cascades down from there. Any other comments about how that process unfolds that you want to make or share with us?

John Palumbo: So it starts with a strategy map which connects to the what’s called umbrella goals. So the umbrella goals in our case, just simply stated are: we want to grow our EBITDA, our earnings before interest depreciation and taxes, amortization schedules, which is just a common financial term. Which is a target that everybody’s measured by, in terms of how you’re doing. And then secondly, our commitment to transforming the ambulatory surgical segment of the US healthcare, which is arguably almost $900 billion annually. There’s about a $400 billion annual waste because of surgical care being done at the highest cost, arguably lesser quality sites of care, compared to what we can do in our ambulatory surgical centers, especially surgical hospitals and hyper-specialty centers. So you start with creating this strategy map of, in each of those pillars, what are two or three things that are absolutes I have to do, non-negotiable, they will never stop being my priority.

Travis Tasset: So those are mission critical goals for the year?

John Palumbo: Mission critical initiatives. So, it could be a program. It could be a technology software implementation. It could be moving to net promoter score for everything we do and so each organization builds the strategy map. Each organization then says, “To do that initiative, here is the definition which we call a measure of success. That’s how I’m going to define success and oh, by the way, this is my target.” That target could be a monthly target. It could be an annual target. It could be a delivery date, meaning, “I’m going to launch Casetabs in X number of facilities, and I’m going to do that by June 30th.” We could use that as an example.

Travis Tasset: So it’s a SMART goal; specific, measurable, attainable-

John Palumbo: With ownership.

Travis Tasset: Relevant, time bound.

John Palumbo: With ownership. And the way it gets measured is, each month in the executive leadership team meetings, each company presents their scorecard and that becomes our executive lead team meeting. We only talk about, “How are we doing on our scorecard? These are the initiatives we set out. These are the initiatives that the budget supports. How are we doing and did certain ones get completed?” and then they can move off the strategy map or the scorecard. You may replace it or you may not need to replace it. Then those are the non-negotiables and then that helps you to force yourself to manage your time and your priorities because you know, “My role is to deliver on this portion of that strategic initiative.” So it’s really cool to see when it all comes together.

Travis Tasset: And those initiatives, once they’re identified and the measure of success is defined, then the stoplight report – green, we’re trending in the right direction. If we haven’t completed it already, yellow, we’re on par and then of course red, we’re trending in the wrong direction or failed to execute.

John Palumbo: And the best part is, is you actually have reds and yellows because that’s reality. There’s going to be some-

Travis Tasset: It’s in process, right?

John Palumbo: Right, or it’s slowing down or, “Oh my goodness, something happened over here.” And so it helps you feel okay to say, “Hey, listen, I’m just letting you know, I may need some help from other organizations.” It could be as simple as an unexpected cost and that’s just normal. But what happens is, is you help eliminate those surprises. You’re able to build trust through transparency, you’re able to show that you’re engaged and connected to your initiatives, which goes back to sort of the guiding tenets of how we want our company to be: connect, engaged, build trust and transparency and you know, the principles we talked about last time.

Travis Tasset: And so once that scorecard is set up, defined, mission critical initiatives are defined and identified, then how does that cascade down?

John Palumbo: So I think that’s where the LEM platform has been great for us because that’s company-wide, all the companies adopted the LEM platform. So all of this is then translated into both your performance plan, then your performance evaluation, and then it also effects potentially how you get bonused, if you’re in a qualified bonus plan. So you connect it all the way through, it allows you to do your 90-day plan. It allows you to do your iterative report card scoring and whether you use the LEM platform for all of it, it just makes you understand, “Every time we meet we’re going to be talking about this.”

Travis Tasset: I mean, you can be doing it in an Excel document if you wanted to.

John Palumbo: Of course.

Travis Tasset: The platform is irrelevant.

John Palumbo: If it helps you be more efficient at it, then go for it. So I think the coolest part is, I’ve never seen a leadership team, I’ve never seen a company advance this far this fast, utilizing a balanced scorecard approach. And I feel that when I go around and get an opportunity to talk to people, I think really people begin to be able to say who we are, what we do, how we do it and why people are doing it with us and that defines our purpose and that defines the kind of contribution we want to make to making a difference in healthcare.

Travis Tasset: Perfect. John, I think we covered kind of the who, what, when, where, why and how. Any closing comments you want to make about the balanced scorecard approach or just anything, any favorite leadership quotes or anything you’d like to leave with us?

John Palumbo: I think the most important thing is to ask every one of our associates and colleagues, “Okay, you’re living it. Now tell us how you can make it better.” The real goal here is for everybody to outthink the person next to them and it’s doesn’t always mean you have to outwork them because if you outthink ’em, you can work maybe even smarter. So make it better, challenge your managers and most important, you have to hold your managers accountable because the balanced scorecard is two directions. It works from the manager to the associate that they’re coaching and mentoring and it also empowers the employee to go manage their manager, and so I’d ask everybody to keep us challenged and keep us honest.

Travis Tasset: Lastly John, what’s the leadership quote you’ve been sharing, “Actions speak so…”?

John Palumbo:: Oh yes, “I can’t hear what you say because your actions speak so loudly.”

Travis Tasset: Talk is cheap. John, I just want to thank you for all that you say and be and do for our companies. Thanks for joining me today.

John Palumbo: Thanks for having me again. I look forward to coming back. Thanks guys.