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Performance measurement system for healthcare processes

Article  in  International Journal of Productivity and Performance Management · March 2007

DOI: 10.1108/17410400710731446

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REFLECTIVE PRACTICE Performance

measurement for
Performance measurement healthcare
system for healthcare processes
241
Shankar Purbey, Kampan Mukherjee and Chandan Bhar
Indian School of Mines, Dhanbad, Jharkhand, India Received November 2006
Accepted November 2006

Abstract
Purpose – The purpose of this article is to provide an overview and evaluation of performance
measurement systems and also present a framework for the selection of an appropriate performance
measurement system for healthcare processes.
Design/methodology/approach – The paper provides a brief review of the existing performance
measurement frameworks. On the basis of review, performance measurement system criteria are
identified and accordingly a framework has been proposed for measuring performance in healthcare
processes.
Findings – The measurement of performance of a healthcare organization is still an unresolved issue.
A performance measurement system should be sensitive to changes in the external and internal
environment of an organization. The proposed framework measures performance from a multi and
interrelated perspective, namely efficiency, effectiveness and flexibility.
Practical implications – The study will help the healthcare organization to know how they are
performing; it will also help in benchmarking the organization so that customers know the value of the
money they pay for the service.
Originality/value – The framework presented provides a performance measurement system for
healthcare processes that is sensitive to change in the external and internal environment of an
organization.
Keywords Performance measures, National health services, Strategic planning
Paper type Research paper

Background
The design of an effective performance measurement system, that includes the
selection of appropriate measures and approaches for analyzing results, is central to
aligning an organization’s operations with its strategic direction. Despite its
importance, this is one area that many organizations fail to address effectively.
Performance measurement is an established concept that has taken a renewed
importance in varieties of organizations (Camarata and Camarata, 2000). Historically,
performance measurement systems were developed as a means of monitoring and
maintaining organizational control, which ensures that an organization pursues
strategies that lead to the achievement of overall goals and objectives of the
organization (Nani et al., 1990). The development of performance measurement system
in management has followed a path that has been influenced by general push to
International Journal of Productivity
improve quality of service while meeting cost parameters. Bititcti et al. (2000) identified and Performance Management
that performance measurement system needs to have the following characteristics: Vol. 56 No. 3, 2007
pp. 241-251
.
being sensitive to changes in the external and internal environment of an q Emerald Group Publishing Limited
1741-0401
organization; DOI 10.1108/17410400710731446
IJPPM .
reviewing and reprioritizing internal objectives when the changes in the external
56,3 and internal environment are significant enough;
.
deploying changes to internal objectives and priorities to critical parts of the
organization, thus ensuring alignment at all times; and
.
ensuring that gains achieved through improvement programs are maintained.
242 Performance measurement provides the basis for an organization to assess how well it
is progressing towards its predetermined objectives, helps to identify areas of
strengths and weaknesses, and decides on future initiatives, with the goal of improving
organizational performance. Performance measurement is not an end in itself, but a
tool for more effective management. Results of performance measurement indicate
what happened, not why it happened, or what to do about it. In order to make an
organization effective, the performance measurement outcomes must be able to make
the transition from measurement to management. It must also be able to anticipate the
changes needed in the strategic direction of the organization and have a methodology
in place for effecting strategic change. This concept is identified as performance
management in performance measurement literature.
Organizations which do not integrate ongoing performance measurement and
feedback into their management development programs tend to experience lower than
expected performance improvements and higher dissatisfaction and turnover of
employees (Longenecker and Fink, 2001).

Healthcare sector: an overview

The healthcare sector is one of the fastest growing areas of the economy of most
developed countries. Governments (and taxpayers) invest larger amounts of money in
it, either directly or indirectly, and expect a high quality services from this sector. In
reality, the performance of this sector is quite different and is characterized by long
waiting times, inefficiency, low productivity, stressed medical staff and dissatisfied
patients.
The healthcare system is composed of a complex set of entities, activities and
processes – at the core of which inevitably are the clinical ones and involves a wide
range of participants, each of them carrying to the system a different set of needs,
priorities and evaluation criteria (Kanji Quality Culture).
Like other business organizations, increasing levels of competition, patient service
alternatives, joint ventures, quality initiatives and emphasis on continuous
improvement evidences dramatic changes in the operation of healthcare
organizations. One of the important changes in today’s healthcare industry, is an
increasingly knowledgeable consumer with intensifying demands to have information
available for helping them to make appropriate health care decisions.
Good management requires reliable and timely information on facts for making
decisions. In spite of the unquestionable truth of this statement, there is a prevalent
tendency to rely on intuition and opinions and to assume that the organization is
“doing the right things right” without any support from facts.
Performance measurement provides hospital administrations with hard evidence
about existing practices, values, beliefs, and assumptions and enables the
administration to develop a systematic means of identifying shortfalls and improve
its future performance. This paper starts with the review of some well-known literature
on performance measurement of service sector and a framework has been suggested Performance
for performance measurement of healthcare sector. measurement for
Existing performance measurement frameworks
healthcare
Various authors have suggested different performance measurement frameworks for
measuring performance of an organization. Some of the important performance
measurement frameworks are discussed below. 243
Balanced performance measurement matrix
Keegan et al. (1989) presented a balanced performance measurement matrix. This
matrix is simple and easy to use for performance measurement (Neely, 2002). This
approach includes the measures like financial as well as non-financial indicators.
However, the matrix could have been developed further to incorporate certain element
of lead measures, refined, within their dimensions. Lead measures are those measures
that focus on analyzing forward looking, predictive and future performance
comparisons (Anderson and McAdam, 2004). Further, the matrix does not make
explicit links between different dimensions of business performance, which makes the
measurement of performance of a system complex.

Performance measures for time-based competition

Azzone et al. (1991) have attempted to be more prescriptive, by proposing a detailed
and specific performance measurement framework based on time. These measures
consider internal configuration and external configuration as dimensions of
performance that reflect the efficiency and effectiveness of the organization. This
framework has the potential to respond to diversity or change and takes into
consideration the lead performance dimensions to enable a better competitive
advantage.

Performance pyramid system

The performance pyramid system (PPS) was originally developed by Judson (1990) and
later improved by Lynch and Cross (1991). This framework distinctly ties together the
hierarchical view of business performance measurement with the business process
view (Neely et al., 2001). It is also useful for describing how objectives are
communicated down to the troops and how measures can be rolled up at various levels
in the organization. This system monitors performance at different levels of
organization. It makes clear-cut difference between measures that are of interest to
external parties – customer satisfaction, quality and delivery, and measures that are
primarily of interest within the business – products, cycle time and waste. Bond (1999)
argues that direct personnel measures have not been considered in this approach as
well as in balanced scorecard approach. Hudson et al. (2001) outlined the main problem
with this approach. He identified that this approach fails to specify the detail relating to
the form of measures of performance or the process for developing them, with no
apparent scope for lead measures of performance.

Balanced scorecard framework

Kaplan and Norton (1992) presented balanced scorecard framework for measuring
performance of an organization. The balanced scorecard approach allows the
IJPPM managers to look at a business from four important perspectives – financial
56,3 perspective, internal perspective, customer perspective and learning and growth
perspective. Neely et al. (2001) identified that the strength of this framework is the way
in which it integrates different classes of organizational performance. The balanced
scorecard shows a multi-facet view of an organization’s performance (Atkinson and
Brown, 2001). This framework explicitly links different dimensions of business
244 performance measurement to organizational strategy and integrates four ways of
looking at performance of the organization (Neely, 2002). Anthony and Govindorajan
(1998) comprehend that it is a tool for focusing an organization, improving
communication, setting organizational objectives and providing feedback on strategy.
It also measures how employees performed in relation to corporate strategy. The
balanced scorecard is conceptually and intuitively appealing, however, the culture and
needs of an organization needs to be considered before designing a balanced scorecard.
Neely et al. (1995) states that there is a serious flaw is the absence of competitiveness
dimension in this framework, which is also outlined by Fitzgerald et al. (1991). The
balanced scorecard also shows a lack of consideration to the measurement of human
resources, employee satisfaction, supplier performance, product/service quality, and
environmental/community perspective (Brown, 1996; Lingle and Schiemann, 1996;
Maisel, 1992). Failure of the scorecard to consider these dimensions limits its
comprehensiveness (Neely, 2002). An additional deficiency outlined by Hudson et al.
(2001) is the lack of integration between the top level, strategic scorecard and
operational level measures, which makes the execution of strategy problematic.
Furthermore, it fails to specify a user centered development process. It is evident from
the balanced scorecard that some reference is made to lead performance measures
within the non-financial dimensions like innovation, learning, and customers.
Therefore, lead elements were present in this approach, but were not fully developed.

Brown’s input, processes, outputs and outcomes framework

This framework is conceptually appealing and useful, as it highlights the difference
between input, process, output and outcome measures (Neely et al., 2001). Brown (1996)
argues that each stage of this framework is the driver of performance for the next. The
framework develops the concept of linking measures through cause and effect
relationships. Lead benchmarking can be included within Brown’s input and
processing dimensions in order to create better output and outcome goals and results
for organizations.

Performance prism
Neely (2002), and Kennerley and Neely (2001) outlined that the performance prism is a
multi-faceted framework, which attempts to address the shortcomings of the
frameworks that are currently available. Neely (2002) argues that the performance
prism can be considered as a second-generation performance management framework.
The framework has been deliberately designed as a highly flexible so that it can
provide a broad as well as narrow focus. The performance prism consists of five
interrelated perspectives namely stakeholder satisfaction, strategies, processes,
capabilities and stakeholder contributions.
These five perspectives provide a comprehensive and an integrated framework for
thinking about organizational performance. Neely (2002) and Wivel, Senior Partner in
the Danish Arm of Ernst and Young, argued that “It will not be possible to create Performance
shareholder value without creating stakeholder value”. The performance prism
provides a broader view of stakeholders than the balanced scorecard, which makes
measurement for
reference only to customers and shareholders. In the tomorrow’s company report, the healthcare
Royal Society of Arts, Manufacturer and Commerce (RSA) suggested that competitive
success in future would depend on management taking an inclusive approach in
meeting the needs and indeed, requirements of all stakeholders. The performance 245
prism also considers both regulators and pressure groups that are stakeholders with
growing significance and power in the current dynamic business environment. The
performance prism enables to provide a balanced picture of the business, significantly
highlighting external and internal measures, as well as enabling financial and
non-financial measures and measures of efficiency and effectiveness (Neely et al., 2001).
These could be easily developed into lead measures of organizational performance.
Although such performance measurement frameworks are undoubtedly valuable,
their adoption is often constrained by the fact that they are simply frameworks. They
suggest some areas in which measures of performance might be useful, but provide
little guidance on how the appropriate measures can be identified, introduced and
ultimately used to manage the business (Medori and Steeple, 2000).

Criteria for performance measurement system design

The review of the recommendations made by various authors, already mentioned
throughout this critique, has been used designing the performance measurement
system for healthcare processes. In 1980s and 1990s, the process of deciding what to
measure became topical – with several authors discussing it, sometimes in a quite
frivolous manner. Keegan et al. (1989) outline three distinct steps for developing
performance measurement system:
(1) defining strategic objectives of the firm and deciding how they can be
translated into divisional goals and individual management actions;
(2) deciding what to measure; and
(3) installing performance measurement system into management thinking,
possibly through the budgeting process.

Wisner and Fawcett (1991) suggested a nine-step process for performance

measurement system design. This process is similar to that of the process suggested
by Keegan et al. (1989), but it makes explicit that the system be regularly reviewed and
updated. Kaplan and Norton (1992) paid no attention to the design of performance
measurement system, but in 1993 they developed an eight-step process, which they
believed that it enables management to design balanced measurement systems. A more
dynamic approach to performance measurement design needs to be developed to
withstand the evolving changes in organizational performance measures.
Beamon (1999) presents a set of characteristics that are found in effective
performance measurement systems, and can therefore be used in evaluation of the
measurement systems. These characteristics include: inclusiveness (measurement of
all pertinent aspects), universality (allow for comparison under various operating
conditions), measurability (data required are measurable), and consistency (measures
consistent with organization goals). However, the characteristics suggested by Beamon
dose not consider applicability, i.e. the extent to which the measurement system is
IJPPM applicable. The following characteristics may be considered for the evaluation of the
56,3 existing performance measurement systems:
.
inclusiveness;
.
universality;
.
measurability;
246 .
consistency; and
.
applicability.

On the basis of the above characteristics a comparison may be made between the
existing performance measurement frameworks.

Proposed framework for performance measurement system

Most of the existing performance measurement systems used in organizations lack the
flexibility to change as they focus on the past as opposed to the future. In today’s
highly dynamic environment, it is not appropriate to view the design and
implementation of a performance measurement system as a sequential process. The
design, implementation and use of measurements should be a simultaneous and
continuously evolving process in which changes in the strategic direction and learning
requirements of an organization are constantly accounted for. It ensures a speedy and
effective implementation of the formulated strategy (Feurer and Chaharbaghi, 1995).
A critical examination of above literatures suggest that a good system of
performance measurement should exhibit the following characteristics:
.
measure performance from a multi and interrelated perspective;
.
be valid, reliable and easy to use;
. be linked to the organization’s value and strategy;
.
being sensitive to changes in the external and internal environment of an
organization i.e. contains lead measures of performance;
.
enable comparisons to be made and progress to be monitored; and
.
be based on the critical success factors or performance drivers.

According to framework proposed by WHR2000 (WHO, 2000), performance is

equivalent to the concept of efficiency. It is a function of the system’s contributions to
intrinsic goals taking into account the inputs used to achieve them. The health system
contributes towards many outcomes that are socially desirable, including improving
health, educational attainment, and individual incomes.
After reviewing different performance measurement models, it has been observed
that the WHR performance measurement framework includes lead performance
measure dimension as well as dimensions, which will show effectiveness parameters.
The performance measurement parameters can be categorized into following three
categories:
(1) efficiency;
(2) effectiveness; and
(3) flexibility.
The first dimension i.e. efficiency is a parameter that is already included in WHR2000. Performance
This parameter measures the output obtained in relation to consumption of input measurement for
(resources). This parameter also appears in Fitzgerald et al. (1991) model in
determinants heading as resource utilization. Efficiency measure deals with the healthcare
success with which hospital management uses its funds or resources to produce
outputs or outcomes. This is measured, wherever possible, in terms of inputs by
output. Efficiency may be measured in terms of quantity of output (highest level of 247
output for a given set of inputs) or by cost (least cost or cost of inputs associated with
producing a given level of output). The implicit assumption in any such comparison of
efficiency is that the quality is comparable. So any assessments must simultaneously
draw an analysis of the effectiveness indicators. Efficiency measurement consists of
following sub-indicators:
.
Resource utilization: In case of a hospital where there is in- patient department,
bed utilization rate is one such criterion; and
. Cost reduction: Service rate can be one of the measures for the same.

The second dimension of performance measurement is effectiveness. The review of

literatures indicates that effectiveness will include dimensions like customer
satisfaction, quality of service etc. In balanced scorecard approach Kaplan and
Norton (1992) have also considered these dimensions under different perspective like
customer perspective and internal perspective. Effectiveness of a service is indicated
by its overall outcomes or impacts. In healthcare context, effectiveness indicates the
extent to which an intervention achieves health improvements and can be measured in
terms of various outcomes such as cases of disease prevented, years of life saved etc.
effectiveness can be measured by measuring the following dimensions:
.
service quality;
.
customer satisfaction;
.
growth; and
.
safety.

Further, these dimensions can be measured by expressing them into measurable units.
Service quality of any hospital can be measured by quality of care, quality of clinical
investigations, cleanliness of hospital environment etc. Waiting time may be one of the
criteria for customer satisfaction measure. In the case of private hospitals (profit
organizations) growth can be measured by financial indicator like income, profit of
hospital. Safety may be measured by reduction in number of cases of bacterial infection
in the hospital due to introduction of efficient infection control system.
Different reviewers have suggested that flexibility can also be considered as lead
performance measures (Anderson and McAdam, 2004). In manufacturing sector
already this dimension has been considered in supply chain by different authors
(Beamon, 1999; Chan, 2003). Kaplan and Norton (1992) took the innovation and
learning perspective as lead measure in balance scorecard approach. Flexibility is a
lead performance measure, which focuses on analyzing forward looking, predictive
and future performance comparisons. This can measure a system’s ability or the
adaptability to respond to diversity or change. There are very few literatures are
available to measure flexibility in service sector, though many researchers have
IJPPM identified this dimension as lead performance measure in manufacturing sector. Slack
56,3 (1991) identified two types of flexibility measures for manufacturing sector: range
flexibility and response flexibility. Range flexibility is defined as to what extent the
service can be changed. Response flexibility is defined as the ease (in terms of cost,
time, or both) with which the service can be changed. On the same line the flexibility
measures have been identified that should be included in the proposed framework for
248 its potential to adapt changes:
.
professional flexibility;
.
instrument flexibility;
.
process flexibility;
.
volume flexibility;
. mix flexibility;
.
expansion flexibility; and
.
new service flexibility.

A performance system shall be so designed that the adaptability of performance

measurement system in an organization should not incur high cost. In order to achieve
that each dimensions of flexibility can be measured in two ways: one relating to range
aspects and other relating to response aspects. Professional flexibility can be measured
by type of different (department like orthopedic, pediatric etc.) cases treated by doctors
and time or cost or both spent for consulting specialized doctors not available in the
hospital. Instrument flexibility can be measured by time saved by particular
instrument in conducting test as well as number of tests conducted by a particular
instrument. The number of cases that has been transferred to other specialized
hospitals and time taken to transfer those cases to other hospital can be used to
measure process flexibility. Volume of demand (number of patients) may change and
healthcare organization may have to respond quickly and efficiently to this change in
(either increase or decrease) in aggregate demand levels. The extent of change and the
degree of fluctuations in aggregate output level, which the system can accommodate
without incurring high cost or large changes in performance outcomes, can be
measured as the volume flexibility. This can be measured with the help of measuring
maximum number of patients that can be treated in each department per day and
average number of patients treated in each department per day.
In a hospital, number of patients visiting different departments may not be same
everyday. In a particular day patient workload may be high in a particular department
than other departments. This fluctuation in workload may require more number of
professionals in that particular department on that day. The additional requirement of
professionals in that department may be fulfilled by drawing professionals from the
department where the workload is low. The possibility of transferring professionals
from one department to other at the time of need gives rise to mix flexibility. Further, it
is important to expand the hospital with state of the art technology to sustain its
competitive advantage. The hospital may consider number and variety of expansions
that can be accommodated without incurring high cost or large changes in
performance outcomes. Number of new services that can be launched by the hospital
may be one indicator of new service flexibility.
Conclusion Performance
Performance measurement system comprise a set of coherent activities designed to measurement for
enable management to determine, directly or indirectly, how an organizational system
is performing – improving or deteriorating, in or out of control – whilst providing healthcare
information in support of decisions and actions aimed at improving performance of the
system. A performance measurement system embraces the things we do to find out
how we are doing and decide how we can do better. This paper presents the 249
development of a proposed performance measurement framework for healthcare sector
by reviewing various well-known performance measurement frameworks available for
service sector. The proposed framework broadly categorizes performance
measurement parameters into three categories namely efficiency, effectiveness and
flexibility. These parameters are further sub-divided to give a detailed description of
these parameters. The first dimension efficiency measures the output obtained in
relation to consumption of input (resources). Efficiency measure deals with the success
with which hospital management uses its funds or resources to produce outputs or
outcomes. Second dimension effectiveness of a service is indicated by its overall
outcomes or impacts. In healthcare context, effectiveness indicates the extent to which
an intervention achieves health improvements and can be measured in terms of various
outcomes such as cases of disease prevented, years of life saved etc. Flexibility, the
third dimension, is a lead performance measure, which focuses on analyzing forward
looking, predictive and future performance comparisons. This can measure a system’s
ability or the adaptability to respond to diversity or change. Further division of these
parameters will help the healthcare units to directly use the framework for assessment
of their performance. This framework will help the health care organizations to know
their performance and also it will help in benchmarking the organization so that
customers can know the worth of money they pay for the service.

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About the authors

Shankar Purbey is pursuing his PhD from Department of Management Studies Indian School of
Mines, Dhanbad. He is the recipient of a National Doctoral Fellowship Award during his research
at the Indian School of Mines Dhanbad. Shankar Purbey is the corresponding author and can be
contacted at: meetspurbey@gmail.com
Professor Kampan Mukherjee is Chair of Professor and he is the Founder Head of the
Department of Management Studies. Dr Mukherjee was under visiting assignment at Paris as
Senior Scientist Fellow of French Government in 1998 and at Curtin Business School, Australia
in 2001. He taught in management programs as Visiting Professor at Germany in 2000-2001 and
also in 2004. Dr Mukherjee delivered talks in various universities of Europe. His research papers
have been published in Indian and International journals like, Omega, European Journal of
Operations Research, International Journal of Production Economics, etc. He is reviewer for
reputed journals like International Journal of Production Economics, International Transactions
of Operations Research, Vision and IIMB Management Review.
Dr Chandan Bhar has 20 years of teaching experience and actively engaged in consultancy
and research in the areas of Long-Range Planning, System Dynamics and Productivity
Management. Prior to joining this institute, he served Coal India Limited for approximately
seven years. He has undertaken two research projects financed by AICTE, GOI and ISM,
Dhanbad, India in the areas of productivity improvement in coal mining industry and
development of computerized safety management system for collieries for. He has been guiding
several research scholars in the areas of long-range planning for the coal industry, as well as for
technical education sector, performance assessment of service sector industries, technology
transfer in small-scale industries etc.

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