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Hospital Management and The Balanced Scorecard

for Healthcare in Japan

Toshiro Takahashi

BSC
BSC

BSC BSC
BSC

Keywords
Balanced Scorecard (BSC), Hospital Management, Effects of Implementing BSC, Nationwide Survey,
Performance Measurement, Management Movement

Introduction and overview of the current status of healthcare in Japan


The healthcare system takes a variety of forms depending on the history of and cultural
background in each country. Based on this recognition, I now undertake an overview of the current
status of healthcare in Japan.
Looking at the relationship between residents and healthcare service providers in Japan, everyone
can receive healthcare services provided through the health insurance system, anytime and
anywhere, thanks to the established universal healthcare system, or universal health insurance
coverage. Also, everyone can receive medical treatments as an outpatient at any hospital, medical
clinic, and specialized hospital. That is, free access to these facilities is guaranteed. Nevertheless,
such advantages can sometimes lead to the degradation of healthcare and be a hindrance to the
provision of efficient medical care. This is in marked contrast to the fact that, in many countries
overseas, except for some emergency cases, the very first point at which patients access the medical
delivery system is limited to a primary physician.
In Japan, there are 7.7 hospitals per 100,000 population, which is considerably larger than in
other developed countries; for example, the number is 1.9 in the United States and 2.3 in
Germany1). Why are there so many hospitals in Japan? In sparsely populated areas, for example,
there has been an intentional increase, for political or electoral reasons, in the number of

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small-sized hospitals replacing medical clinics, which is partially responsible for the shortage of
doctors and medical specialists in such districts. That is, there is a tendency in healthcare
administration in Japan that, because there are so many hospitals, doctors are deployed in small
numbers in much larger areas. Unlike medical clinics, under the Medical Law hospitals are subject to
certain minimum standards with respect to the number of doctors available to treat inpatients and
outpatients. Increasingly more hospitals are receiving governmental instruction because they do not
have an adequate number of doctors to meet such medical standards. Additionally, combined with
such factors as the education of doctors children, there has been a considerably serious uneven
distribution of doctors between urbanized areas and other less-populated districts.
In Japan, the matter of medical mishaps has been discussed enthusiastically for the last ten years
or so. There is a dormant structural problem in the healthcare system in Japan that serves as the
backdrop for repeated medical mishaps here. Japan has an established public healthcare system, or
universal health insurance coverage, so there are fixed official prices for both pharmaceutical prices
and medical service fees. A major reason for this could be a fact that, amid the administrative
convoy-fleet approach2), there has been very little competition among hospitals. Non-profitability is
the only cause that has kept orders in the healthcare system, but this cause is now only a very thin
substance, except for some hospitals.
As far as the healthcare system and medical mishaps in Japan are concerned, the problems that
we can point out are sizable variations in the quality of doctors and other medical specialists and
the absence of an adequate system to bolster quality. One reason for this shortcoming could be the
fact that the Ministry of Health, Labor and Welfare has been punting the matter of post-graduate
education following qualification to certain professional or specialist organizations, not siding with
Japanese citizens. Most certainly, there would be far fewer problems if the autonomy of such
professional or specialist organizations had been more functional, but Im afraid that the reality is
something different. Very belatedly post-graduation education for the doctors has begun being
provided, but it still fails to go further into post-intern training.
Specifics about receiving healthcare services in Japan have all been up to the doctor and
patients have not so often interfered in what the doctors do for them. Yet, an increase in patients
awareness of their rights and changes in their demands for the quality of healthcare have been
causing gradual changes in the healthcare system in Japan.

Need for balanced scorecards (BSC) in the business administration


of healthcare institutions
Against a backdrop of implementing BSC in hospitals in Japan, one compelling issue was that
management wanted to acquire a framework for carrying out their business strategies. The Medical
Law stipulates that the managers of hospitals in Japan must be doctors. As such, it was only after
such uneducated business managers came to hold business management positions that they realized
the need for a business management framework.
This means there is growing demand by doctors and scientists for the conduct of well-grounded

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business administration. From the viewpoint of hospital management, there has been increasing
demand to conduct performance evaluation of doctors working for the hospital. In practice, they
were required to correct imbalances in terms of the quality of healthcare and efficiency between
the clinical field and management.
Other driving factors include the fact that every hospital is required to perform multidimensional
and multifaceted performance evaluation such items as the pursuit of its mission, management of
costs, improvements in quality, and securing profits for future growth, as well as the fact that both
ideas and mechanisms have yet to be established for the conduct of performance evaluation of
results distribution to hospital staff members. That is to say, as a non-profit organization, the
hospital must be run on the principle of not distributing the profit it has attained, and also of
returning such profits to staff members and the local community. Another problem with hospitals
in Japan is that their financial data is not consolidated with other data such as patient and clinical
data.
Against this backdrop, there is an increasing need to consolidate the fragmented business
administration system. Although there has been a reality that hospitals in Japan have failed to
establish their own strategies and there has been the sense that business administration may be
exactly the same as other hospitals done in accordance with direction provided by the Ministry of
Health, Labor and Welfare, the situation has changed a great deal. That is to say, every hospital is
required to plan and establish its own strategies and carry them out.
This means that the conditions are in place to disseminate BSC as a management tool.

Motivation of the studies


In medical circles here in Japan, in recent years there has been growing interest in BSC as a viable
and effective tool for business administration. In addition, in the welfare and health segments
executives and managers at various institutions and facilities are also expected to start working on
BSC from this point on.
Meanwhile, in reality, there are a number of barriers to implementing BSC, both for hospitals
and other such segments. Who in the organization should play the role of promoting BSC? When
should they start and what should they begin with? How should they take the lead in the
discussions at each level of expertise? What specific metrics are necessary to measure performance
and how should these metrics be set? What sort of linkage is required between BSC and existing
business administration skills in order to maximize synergistic effects? How can they infiltrate BSC,
which can crisscross vertically integrated hospital organizations that have a function-based
structure? Is it really possible to conduct stable monitoring activities while clearing various issues
and problems that may be confronted in operating BSC? In these difficult circumstances, we can
anticipate a variety of moves and developments, both positive and negative. To be more specific,
can they implement BSC after successfully resolving such problems one by one, or will they only
realize they cannot resolve all these problems and end up hesitating to implement BSC? Will they
just thrust themselves into the new world of BSC and then start thinking it over in a hit-or-miss

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fashion? Or will they stop moving forward without doing anything on BSC and just wait and watch
as their business begins to go downhill? Now, amid these circumstances, I would like to start
analyzing our questionnaire results so that we can explore how, as a business tool, BSC has
penetrated in hospitals here in Japan and also how BSC will evolve in future.
In order for us to implement BSC with the confidence that it is a great tool that enables
innovation in business administration in the 20th century and get it entrenched in the organization,
it is essential to clarify implementation barriers and figure out viable countermeasures to deal with
them. Meanwhile, based on the recognition that BSC is nothing more than a tool for business
innovation, it is also important to consider the implementation and operation of a medical BSC to
clarify certain key points, such as how BSC should be used in resolving business administration
issues and basically what sort of skills are used as existing management tools in medical business
administration.
Against this backdrop, Takahashi Laboratory (Professor Toshihiro Takahashi) at Nihon
University Graduate School of Business Administration and JMA Research Institute at Japan
Management Association have conducted joint research by carrying out three rounds of
questionnaires each year starting in 2004. These fact-finding questionnaires have been designed to
identify various business administration issues and problems hospitals encounter and also to
understand realities such as how they are making use of their existing management skills, then
clarify critical points such as their awareness of BSC, what specific interests they have in BSC, how
they are working on BSC, what sort of benefits they can expect by implementing BSC and what
specific barriers they face.

Overview of Research (Table 1)


1st Round of Questionnaires: We conducted our 1st round of questionnaires in August 2004.
In setting up samples, we paid attention mainly to such attributes as the scale of the organization,
entities of establishment, and regional characteristics, then extracted samples at random from
medical institutions and forwarded our questionnaire cards to 2,169 hospitals nationwide. We were
able to collect replies from 440 hospitals (a 20.3% collection rate).
2nd Round of Questionnaires: We conducted our 2nd round of questionnaires in August
2005. In setting up samples, as with the 1st round of questionnaires, we mainly paid attention to
such attributes as the scale of the organization, entities of establishment, and regional
characteristics, then extracted samples at random from medical institutions and forwarded our
questionnaire cards to 2,267 hospitals nationwide. We were able to collect replies from 442 hospitals
(a 18.6% collection rate).
3rd Round of Questionnaires: We conducted our 3rd round of questionnaires in August 2006.
In setting up samples, as with the 1st and 2nd rounds of questionnaires, we mainly paid attention to
such attributes as the scale of the organization, entities of establishment, and regional
characteristics, then extracted samples at random from medical institutions and forwarded our
questionnaire cards to 2,320 hospitals nationwide. We were able to collect replies from 309 hospitals

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(a 13.3% collection rate).

Table 1 Basic Numeric Data From Three Rounds of Questionnaires


1st 2nd 3rd
2004 2005 2006
Total number of hospitals in Japan 9,077 9,026 8,997
Number of questionnaire cards we sent out 2,169 2,267 2,320
Number of replies we obtained 440 442 309
Percentage of replies 20.3 18.6 13.3
Total number of hospitals in Japan: Data obtained from the medical institution census conducted by the
Ministry
of Health, Labor and Welfare
Each statistical value represents one survey in October 2004, one in October 2005, and one in June 2006
Source: Prepared by the author

Findings from our Questionnaires Limits and Possibilities


In conducting the three rounds of questionnaires, we extracted approximately 2,600 hospitals at
random from approximately 9,000 hospitals nationwide and forwarded our questionnaire cards,
requesting that they return their reply via postal mail or facsimile. Reply percentages were 20.3
percent (2004), 18.6 percent (2005) and 13.3 percent (2006). As such, the joint research we
conducted this time cannot necessarily be said to exactly represent facts and realities surrounding
BSC in all hospitals in Japan; however, we did try our best to ensure that the samples we extracted
are free from any particular bias.
As shown in Table 2, we compared the number of hospitals and their scale in Japan in 2004 with
data from those hospitals that replied to our questionnaire. Looking at the scale of hospitals in
terms of the total number of beds, 3,625 hospitals have 20 to 99 beds (39.9), 2,700 have 100 to
199 beds (29.7), 1,151 have 200 to 299 beds (12.7), 775 have 300 to 399 beds (8.5), 352 have
400 to 499 beds (3.9), and 479 have 500 or more beds (5.3).

Table 2 In terms of the number of beds, percentage of hospitals that replied to our three rounds
of questionnaires
2004 2004 2005 2006
Nationwide Responding Responding Responding
hospitals hospitals hospitals
99 or fewer beds 39.9 20.2 20.4 20.5
100 to 299 beds 42.4 29.3 30.4 28.9
300 to 499 beds 12.4 28.2 28.4 27.9
500 or more beds 5.3 20.1 20.1 22.4
Source: Prepared by the author

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(1) Main Attributes of Replied Hospitals (Table 2 and Table 3)
The main attributes of hospitals that replied to our questionnaires are described below.
In the 1st round of questionnaires, hospitals that have beds for acute-phase general patients and
call themselves a core hospital in their respective region account for approximately 70 percent of
the replies received. In terms of scale, hospitals with 500 or more beds account for approximately
20 percent, 300 to 499 beds make up 30 percent, 100 to 299 beds comprise approximately 30
percent, and 99 or less beds came in at approximately 20 percent, indicating that there were more
replies from larger-scale medical institutions.
As in the 1st round of questionnaires, in the 2nd round approximately 70 percent of hospitals
have beds for acute-phase general patients and call themselves a core hospital in their respective
region. Hospitals with 500 or more beds account for approximately 20 percent, 300 to 499 beds
make up approximately 29 percent, 100 to 299 beds comprise approximately 30 percent, and 99 or
less beds came in at approximately 20 percent, thus the results we obtained were almost the same as
those in the previous round.
In the 3rd round of our questionnaire there were no noticeable changes in each percentage of
replying hospitals in terms of scale as defined by number of beds.
As shown in Table 3, in our 2004 research there were more replies from public and
publicly-owned medical institutions in terms of the entity of establishment, namely public hospitals
account for 57.0 percent of replies received, publicly-owned hospitals make up 9.7 percent,
healthcare corporation hospitals comprise 22.2 percent, and university and other hospitals came in
at 10.6 percent.
In our 2005 research, there were more replies from public and publicly-owned medical
institutions in terms of the entity of establishment, namely public hospitals account for 55.3
percent of replies received, publicly-owned hospitals make up 9.5 percent, healthcare corporation
hospitals comprise 23.5 percent, and university and other hospitals came in at 11.0 percent. In this
way, we obtained almost the same compositions as those in our previous research.

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Table 3 Entities of Establishment of Hospitals Replied in 2004, 2005 and 2006
Public Publicly- Healthcare University No
owned corporation and others reply
Percentage of total number of 14.7 3.6 62.2 19.5
hospitals throughout Japan in 2004
Percentage of number of hospitals 57.0 9.7 22.2 10.6 0.5
that replied in 2004
N=440
Percentage of number of hospitals 55.3 9.5 23.5 11.0 0.7
that replied in 2005
N=422
Percentage of number of hospitals 54.4 11.3 22.7 11.3 0.3
that replied in 2006
N=309
In this table, each column (category) includes the following types of hospitals.
Public: This category includes those hospitals run and/or administered by the Ministry of Health, Labor
and Welfare, prefecture governments, communities, the National Hospital Organization, and the Japan Labor
Health and Welfare Organization, but do not include national university hospitals and public university
hospitals, which are listed in a separate column.
Publicly-owned: This category includes those hospitals run and/or administered by the Japan Red Cross
Society, Saiseikai (Social Welfare Gift Bestowed Foundation), and organizations associated with social
insurance.
Healthcare corporation: Healthcare corporations mean those institutions that use healthcare
corporation as their official hospital name.
University and others: This category includes national university hospitals, private university hospitals,
public university hospitals, public benefit corporations, social welfare corporations, companies, consumer
cooperatives, and personal practices.
Source: Prepared by the author

In our 2006 research as well, there were more replies from public and publicly-owned medical
institutions in terms of the entity of establishment, namely public hospitals accounted for 54.4
percent of replies, while publicly-owned hospitals made up 11.3 percent, healthcare corporation
hospitals comprised 22.7 percent, and university and other hospitals came in at 11.3 percent. In this
way, we obtained almost the same composition as that in our previous two questionnaires.

Matters Related to the Questionnaire


In order to see whether the total values obtained from hospitals responding to this questionnaire
are applicable as values representing the entire hospital segment in Japan, we have conducted

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statistical examinations. To be more specific, of all the data we obtained in this survey, we have
compared the data on patient accommodation capacity in terms of the number of beds and the
entities of establishment with those of the 2004 Ministry of Health, Labor and Welfare final data,
and used goodness-of-fit test techniques to see whether these two different data sets have the
same distribution. The result is that the survey results this time cannot be said to have the same
distribution as the 2004 official final data.
In the context of a comparison with respondent hospitals, of the hospitals we sent our
questionnaire to this time, the larger the scale of their organization, the keener they recognize the
need for administrative techniques, with many of them proactively making an effort to reply. To
the contrary, smaller-scale hospitals are less interested in BSC itself, and this is considered to be a
reason for the smaller percentage of replies from them. Meanwhile, national and public hospitals
have some issues that they currently need to address, such as the implementation of an independent
corporation by the National Hospital Organization, support for DPC 3), and financial crisis. Local
municipality hospitals are required to initiate actions to improve their business administration amid
reductions in the provision of general accounting and cuts to grants ordered by mayors and
prefecture governors in the last few years. As such, there have been positive and active debates on
such measures as implementing BSC, and it is assumed that this is the reason why the percentage of
replies from them is very high.
Meanwhile, looking at healthcare corporations and personal practices, there are many cases in
which a gap in the scale leads to a gap in the quality of doctors and clerical staff. As such, smaller
hospitals or such other hospitals often running deficits have no time for BSC and many are too
busy with their day-to-day operations, which resulted in a smaller percentage of replies. Besides,
many personal practices run their hospitals as personal assets. From these facts, frankly speaking,
they have little interest in BSC related to optimization of the whole organization and information
disclosure

Result and Analysis


A survey conducted in 2006 revealed that 58 hospitals, corresponding to 18.8 percent of
respondent hospitals, already have BSC in place. The percentage is on the rise year by year, from 5.0
percent in 2004 and 11.4 percent in 2005 (Fig. 1).

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3rd (2006 n=309) 18.8 10.4 56.9 12.3 1.6

2nd (2005 n=422) 11.4 15.4 58.3 14.9 0.0

1st (2004 n=440) 5.0 14.8 45.2 34.8 0.2

0% 20% 40% 60% 80% 100%

Already involved internally or at related facilities


Reading related literature and attending seminars
Know the name and its broad ideas
This is the first time to hear the name
No reply
Fig.1 Changes in BSC Involvement

On the other hand, focusing on a yardstick for future dissemination of BSC, there is actually a
gradual decline, only 10.4%, in the number of hospitals that lag or are playing catch-up at the stage
of collecting information on related literature and participation in seminars as well as educating
their staff members. Meanwhile, those hospitals that already implemented BSC and those still
playing catch-up, when totaled, represent 19.8 percent in 2004 and 26.8 percent in 2005, with a
further rise to 29.2 percent in 2006, indicating the very fast dissemination of BSC into Japanese
medical circles.
Now, looking at the efforts under way at those hospitals where BSC is already in place, there is an
increase in the percentage of implementation by the whole corporation or hospital. This fact tells
us that the dissemination of BSC into hospitals here in Japan is in full swing (Fig. 2).

Already implemented across the



corporation (multiple hospitals,
etc.)
50 Already implemented in another 46.6
corporation within the group
45 41.4
Already implemented across the 39.6
40 36.4 hospital

35

30

25

18.2 18.8
20

15

10
3.4
5 2.1
0.0
0
1st (2004 n=22) 2nd (2005 n=48) 3rd (2006 n=58)
Fig. 2 Change in BSC Implementation

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Regarding how they use BSC and what they aim at through use of BSC, the top ranked item is
use as a strategic management system, followed by use for organizational reform. Use of BSC for
performance evaluation is still limited, but it must be noted here that such a low percentage is just
because this indicates a case in which BSC is used only for the purpose of performance evaluation.
Since it is self explanatory that performance evaluation serves as the base for strategy management,
thus serving as basic data for organizational reform, is it now clear that each hospital in Japan is
placing increasing importance on multidimensional performance evaluation (Fig. 3).

For strategic hospital



management
77.6

For organizational 48.3



reform

For performance

20.7
evaluation

Others 5.2

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0


Multiple answers OK: Select all appropriate items n=58


Fig.3 Points prioritized in implementing and making use of BSC

Now focusing on the aims of implementing BSC at those hospitals that have already introduced
BSC and are still studying introduction (n = 90), about 80 percent of them are aiming at the
promotion of changes in the mindset and structural vitalization, and more than 50 percent of
them are interested in using BSC to secure execution of their annual business plan as well as
enhancing and securing objective management. These figures are also on the rise year over year,
indicating that they are expecting BSC to help them beef up of management power rather than
manage their business strategies (Fig. 4).

(n=90) (n=90)
14.2
28.9 76.7
Changes in mindset and structural vitalization
12.4 26.7
Secure execution of annual business plan 52.2
18.6
33.3
Management of objectives 51.1
6.2 18.9
Beef up supervision over corporation/hospital 38.9 Initial objectives and aims
14.2
16.7
Formulate mid-term business plan 34.4
4.4 Attained objectives and aims
Promote team-based healthcare 12.2
26.7
8.8 17.8 Previous status of attainment
Department management 25.6
0 10 20 30 40 50 60 70 80

Fig.4 Effects of Implementing BSC

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Now, looking at the effects obtained from implementing BSC evaluated qualitatively at 58
hospitals that already have BSC in place, the top ranked item is the sharing of visions, strategies,
and the sense of values, followed by participation in business management by staff members and
coordination awareness, clarification and reestablishment of vision and strategies, and a raised
sense of unity in the hospital as a whole. Comparing the second and third surveys, there is a sharp
increase in the sharing of visions, strategies, and the sense of values from 29.2 percent to 48.3
percent. There are also noticeable increases in participation in business management by staff
members and coordination awareness from 20.8 percent to 39.7 percent, and raised sense of
unity in the hospital as a whole, from 4.2 percent to 20.7 percent. These increasing trends clearly
show that the effects of implementing BSC have been made much clearer in terms of the
penetration of vision and changes in mindset among staff members.
Meanwhile, we cannot say that adequate effects have been brought about by functions of
management tools such as linkage among the business plan, budget, and vision and securing the
attainment of visions and strategies. (Fig.5).

48.3
Sharing of vision, strategies, and sense of values
29.2
Participation in business management by staff members and coordination 39.7
awareness 20.8 27.6
Clarification and reestablishment of vision and strategies
31.3
Raised sense of unity in hospital as a w hole 20.7
4.2
Improved effectiveness of goal management program 19.0
12.5
13.8
Linkage among business plan, budget, and vision
16.7 Previously (n=48)
5.2
Secure attainment of vision and strategies 8.3
5.2 This time (n=58)
Eliminate ambiguities in strategies and goal setting 8.3
0 5 10 15 20 25 30 35 40 45 50

Multiple answers OK: Select up to 5 items

Fig. 5 Effects obtained from Implementing BSC

The top ranked item here is disclosing management information such as performance
evaluation indicators and the like to staff members with the help of the implementation of BSC,
at 37.9 percent, followed by increasing the percentage of the management class conveying
messages to the staff members, at 34.5 percent. As seen from these figures, a mechanism has been
established in Japan in which, in addition to the top-down conveyance of decisions, the middle class
moves up and down to extract ideas from the bottom. (Fig. 6)

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(n=58)
op 10 Itemss only (Multiple answers OK: Select all appropriate items)]
Disclosed management information (such as BSC performancece 37.9
evaluation indicators and the like) to staff members
Increased the percentage of management classto 34.5
conveying messages to staff members
Increased opportunities for staff members to express theiron
opinions on management and operation
31.0

Studied issues across all departments involveded 31.0


Reviewed and implemented objective management
m 25.9
program
Implemented ablity to exchange opinions between 19.0
ts
departments
Implemented mechanism to enable committeeth 19.0
activities to link up with BSC
Reviewed and implemented personnel evaluation
programm
10.3

Positioned clinical indicators in BSCC 10.3


Reviewed communication and reporting capabilitiesen 10.3
between departments
0 5 10 15 20 25 30 35 40

Top 10 Itemss only (Multiple answers OK: Select all appropriate items)
Fig. 6 Mechanism that have been changed through BSC implementation

As many as 88 percent of hospitals who have already introduced BSC or are still studying
introduction positively evaluate the effectiveness of BSC on the business administration front, and
50 percent of all responding hospitals give BSC high marks. Such a high evaluation could translate
to the fact that they have been disclosing their instances and research results adequately to make
such an evaluation. (Fig. 7)

(n=58)

No reply
9%
Not effective at all
0%
Not effective Very effective
0% 5%
(n=58)
Not very effective
3%

Effective
Somewhat effective 45%
38%

Fig. 7 Effectiveness of BSC as a Tool for Hospital Management

As far as Japan is concerned, a high evaluation is given to the use of BSC in medical circles, and
at hospitals in particular. BSC is also now enjoying wider use in social welfare facilities. From these

17 66
facts, we can safely say that BSC in Japan is being spread more widely and faster in terms of its use
in units of organizations such as hospitals than in similar cases observed with non-medical business
companies. Yet, I must note here that the use of BSC lags a great deal in terms of its use in
healthcare policy.

Reasons for Quick Dissemination of BSC among Hospitals in Japan


To this point, I have attempted some analysis of the penetration of BSC, how it is used, and
major achievements it has made in hospitals in Japan. There are a myriad of possible reasons why
the implementation of BSC in hospitals in Japan has progressed more quickly than in the industrial
world. Behind such developments, there is an environment in which many hospitals in Japan have
needed virtually no business administration-oriented management techniques that may be dubbed
business administration skills. That is to say, in such a management environment, hospitals have
been open to much less competition than the industrial world, or they have been in some
advantageous situations in which they do not need to pay as much attention to such business
administration techniques and skills if they operate in line with the policies established by the
Ministry of Health, Labor and Welfare. Based on these realities, the discussions to follow explore
some reasons why BSC has made such quick penetration in hospitals here in Japan.

(1) Management systems have not made deep inroads into hospitals to date.
Setting aside some advanced hospitals, hospitals in general have been more or less unfamiliar
with management systems. In recent years, however, the healthcare management environment has
been getting more and more challenging, and this has made all levels of expertise start to think that
they have to do something new to survive. Such a move has created a chance for BSC to come to
the forefront, because the concept is easy to understand and logical. This could be one reason.
Another reason could be how handy BSC is for conducting measurement, analysis, and
improvement through quantification in numeric terms.

(2) There have been some changes in the field enabled by the process of incorporating
BSC and the sense of becoming aware of it.
There have been many cases in which staff members in the field are not involved in the process
of determining the hospitals goals. In a hospital that may be dubbed a vertically integrated and
functionally separated organization, a process that allows everyone to take part in the decisions is
very fresh, which has led to the very quick dissemination of BSC.
In addition, many hospitals have a business practice in which the goal setting process is taken
care of by managers whereas the execution process is assigned to frontline staff members, and in
many cases this separation of responsibility has caused frontline staff to lack understanding of
these goals, which has hindered the creation of hospital values that patients can perceive. Using
BSC requires frontline staff to take part in both of these processes, and this has created the
opportunity for such staff members to become aware of it and also enabled the sharing of a

67 17
wide variety of information. This could be another reason.

(3) There has been a situation in which the middle class is required to take part in
business administration.
Conventionally, mission statements and short-term goals are known to most staff members but
for some are only known as messages of less importance to them that are originated by the director.
That is to say, many staff members have never gone beyond simply performing their assigned work,
and there has been some sense that clerical work staff members have been satisfied with
performing their daily work, such as that required in the medical practice section, management of
articles, and accounting, whereas doctors, nurses, and co-medicals have been only required to
handle patient care. Following the collapse of the bubble economy, however, the easygoing way of
thinking that hospitals would not suffer was overturned by such bitter facts as bankruptcy,
consolidation of hospitals, and renewal as medical clinics. Previously hospitals were able to pull in
patients spontaneously, but these gentle circumstances collapsed due to the development of new
situations such as the increase of adult-onset diseases, the fact that patients have both the time and
environment to search and select advanced hospitals and good doctors best suited for curing their
conditions, and also by the fact that the development of transportation has allowed patients to
select hospitals and act on their own. These changes in circumstances have also caused hospital
management, which formerly was only in the hands of top management, to be shared by the
middle class and clerical work staff members, thus creating more abundant information related to
hospital management. This could be another reason.

(4) Every hospital has originally had a number of and large volume of multidimensional
qualitative data, which has not been in frequent use for hospital management.
There has been a variety of data at every hospital, including data just thrown away immediately
after being created. These data have not been made good use of on the management and clinical
fronts. In recent years, there has been a tendency to place much importance on clinical indicators,
but they have not yet been disseminated at the nationwide level. Here is another chance for BSC to
come to the forefront. In an approach that uses BSC, both clinical data and management data are
quantified when they are generated, which makes these values easy to understand for everyone,
making it easier for all staff members to gain understanding.

(5) Many individuals have a science-oriented way of thinking. In this sense, with the
help of BSC, data can be a common language.
Hospitals are characterized by great differences in language and education from one medical
department or division to another. In particular, hospitals often have no common language in place.
Making the situation worse, hospitals have a function-based organizational structure that has made
it difficult to cultivate and grow an internal common language. Against such a backdrop, it is
important to make sure that doctors understand that BSC can foster a common language used for
communication. In this sense, strategy maps and scorecards can function as tools that can be used

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by people with all types of expertise when they are used as a common language in hospital
management and operation.

(6) BSC has satisfied a desire of the healthcare management class to acquire a
standard (or typical) framework as a tool for conducting business administration.
For doctors, nurses and clerical work staff members who have never experienced systematic
learning about business administration, BSC satisfies the basic requirements for a tool to allow
them to analyze things scientifically and theoretically. At the same time, under the Medical Law, a
doctor who is the administrator of a hospital is termed a manager or administrator. Without being
constrained by such narrow-mindedness, which is typical of Japan, however, in medical circles
wherein the dominant major players are public hospitals that seek humanity-based non-profitability
and private hospitals that formally also profess to seek the same thing, BSC is an effective tool for
transcending a situation in which public health administration is granted asylum in a place where
nobody seriously wants business administration tools.

Reasons for Slow Dissemination of BSC among Businesses in Japan


My judgment is that business companies have been much slower in implementing BSC than
hospitals in Japan. Companies here have taken it for granted that they need to operate by putting
much emphasis on an array of both financial and non-financial indicators. Besides, many of them
are in a very stringent competitive environment in the global market and even those only oriented
toward domestic sales are also open to very fierce competitive. In addition, these companies
inevitably need to deal with more complaints and claims from consumers and pressure groups than
hospitals do. Furthermore, their business administration environment changes much faster, and this
has made them prepare various types of business administration tools to cope with the speed of
such change. As such, they feel and actually have no pressing need to implement BSC anew. Based
on these facts, the following discussions attempt to explore some reasons why BSC has made such
slow penetration among business companies in Japan.
The first reason is that it takes a long time before BSC is accepted by company employees and
some effects can be expected. In many cases, management expects some short-term results while
still being conscious of long-term achievements. That is to say, management is obliged to track
day-to-day sales and profits, give instructions in real time, and improve the situation so as to
improve profitability. One Japanese business manager left me this very impressive phrase I think
BSC is a very good tool. Nevertheless, although BSC is helpful in stopping to look at the path of
our growth, it is not a tool to keep track of day-to-day changes in conducting the business. In this
sense, I think I need a tool other than BSC to grasp everyday trends. 4)
There is an undeniable sense that the season for BSC is already over for business companies.
Seemingly, there are not all that many companies who will want to implement BSC in future.
Against this backdrop, BSC researchers have shifted their target to non-profit organizations,
hospitals, and municipalities.

69 17
As such, the possibilities, if any, of businesses implementing BSC in the future could be limited
to medium- and small-scale businesses, municipalities and public businesses where the management
is less conscious, or other cases such as a company introducing BSC not for company-wide
implementation but for some particular purpose in different ways of implementation. As a matter
of fact, I have heard that in an increasing number of cases a business consulting company does not
use the name BSC when making a proposal to its clients even if the proposal is based on a BSC
approach.
The second reason is that every company has already been tackling a number of different
management skills and, as such, expects to produce respectable results if it tries anything new, and
so, if it is working on ISO and TQM now, it cannot chase two rabbits at the same time, so it is
inevitable that it choose the major tool.
The third reason is that the idea of BSC is basically close to some ideas that many Japanese
businesses have practiced until now. Profit-making naturally requires every business to identify
customer needs, manufacture quality products and provide good services, and for that purpose,
such activities as reviewing business practices and developing human resources are functioning as
routine mechanisms. For many successful businesses in Japan, although the term BSC may sound
like something new, some similar mechanisms may already be in place.
The fourth reason is that, in general, businesses have a much more complex structure than
hospitals, with an extremely large and complicated organization. As one such case, for example, a
business may use BSC to develop the goals (visions) of particular divisions, whereas its business
administration planning office creates a companywide map by integrating the maps generated in
each division. (In this case, however, there is no companywide common recognition in place, and
the company only manages the logic, not indicators.) Businesses primarily have many indicators to
be managed (and so do each of their divisions). As such, if one of their divisions is to implement
BSC, addition of new BSC indicators to existing indicators naturally causes double entry of
managed indicators, thus causing frontline staff members to complain, asking why they have to
work on two similar streams of tasks. In this case, what the company gains is nothing more than
backward-looking BSC activities in which its staff members only temporarily do what top
management has told them to do.
The fifth reason is that implementing BSC requires businesses to give up styles that they are
already familiar with, which requires top management to have a strong will to change them. In
reality, however, very few businesses dare to take such additional steps. There are many cases where
they alter BSC itself in their own way for convenience, which is something like mistaking the means
for the end.
Let's look at an example of this. Ricoh is highly regarded for its success in implementing BSC as
a business operating in Japan. Ive heard that Ricoh currently has no map in place (although maps
may have been absent in the first place) and they are operating only on BSC5). In addition, they
have established a style in which each division sets and manages their performance evaluation
indicators from four different perspectives toward their mid-term management plan. Of course
they have done so only after thoroughly understanding BSC, and implemented BSC as a result of

17 70
feeling a deep sympathy with the idea of BSC. Nonetheless, agreeing to the idea in general does not
necessarily facilitate implementation in practice. Thats the reality with BSC, and I feel this may stem
from some differences in organizational structures between the United States and Japan.
Private businesses are already using a variety of business administration techniques and have
appropriate business administration frames in place as their basic business environment. As such,
there is a strong tendency among them to introduce BSC ideas as supplements to brush up such
frames.
Besides, for many big businesses, it is quite challenging to deploy BSC across the company
gracefully unless they have overwhelming cohesive power. On the contrary, there has been an
atmosphere for the last couple of years that BSC is the only choice as a business administration tool
in medical circles, including promotions conducted by the Japan Association for Healthcare
Balanced Scorecard Studies6) and the way of addressing BSC. That is a big difference from the case
with private businesses. And, in a sense, there has been an atmosphere in which BSC appears to be
something good, so they gave it a try. (Such a style of decision-making is hard to realize for large
business organizations, including the flow of approval by top management, except for a
top-to-bottom approach).

Conclusion
The dissemination of BSC in medical circles in Japan has served as a trigger that has made all
concerned people reconsider not only financial data but also non-financial indicators. That is to say,
BSC has given them an opportunity to think over the values of the hospital that do not appear on
the profit and loss statement. In addition, it has been proven that BSC has marvelous characteristics
as a tool to cultivate a common language in the hospital in pursuit of optimization as a whole as
well as in bettering communication among all concerned individuals. Meanwhile in Japan, there has
not yet been much progress in the use of BSC at a system level, namely its comprehensive use in
local communities for medical policy-oriented purposes, and research has just begun.
The adoption of BSC in medical circles in Japan is driving a management movement to allow all
concerned to make a concerted effort to think over hospital management theoretically using
adequate evidence. This may be said to closely resemble activities in which, after the statistical way
of quality management was introduced from the United States, such a way of doing things has been
driven in the direction of making everyone unite their effort to think over everything and then
spread to QC circles and TQC circles.
In any event, in order to further develop BSC in future, it is essential to carefully create a
balanced selection of financial, non-financial and clinical indicators, and relate them to strategies to
incorporate visible result measurement and evaluation into BSC.
So far I have discussed some reasons for the quick implementation of BSC by hospitals as well as
the slow pace at which it is implementing among business companies in Japan. Now I would like to
add one more reason for such quick BSC implementation by hospitals here. That is, their hospital
organizations are not as mature as those of business companies from a business administration

71 17
viewpoint. Nevertheless, in my belief, it depends on how field staff members recognize how
satisfactory BSC will be as a framework for their day-to-day business practices, regardless of
whether hospital chairmen and directors can become aware that BSC is very useful as a practical
guideline in hospital management. As things stand now, it would be safe to say that, in the case of
hospitals that have above-average organizational strength, the biggest factor for implementing BSC
is the sense of crisis that their directors, who are also doctors, have in hospital management.

Note
1) These figures are calculated from the OECD 2006 data.
2) Once hospitals were able to keep themselves up and running without competition with others as long as
they did things in a way similar to what others did under the instructions of the Ministry of Health and
Welfare. In Japan, financial institutions including banks, healthcare institutions including hospitals, and
educational institutions including schools all belong to this category.
3) DPC is short for Diagnosis Procedure Combination. Unlike the conventional "fee-for-service payment"
system in which fees are calculated for each medical intervention performed, this new system calculates
fees by combining: the comprehensive evaluation portion (which includes medication, injection, treatment,
and hospitalization fees) comprising an amount per day specified by the Ministry of Health, Labor and
Welfare based on each inpatients name of the disease, its symptom and therapeutic intervention; with the
fee-for-service evaluation portion (including surgical operation, anesthesia, rehabilitation, and
instruction/guidance fees).
4) This remark is from a November 2006 interview with the president of a mid-sized manufacturer.
5) Similar remarks are made in a number of publications. For the purposes of this article, reference should
be made to publication numbers (67) and (68).
6) Japan Association for Healthcare Balanced Scorecard Studies (HBSC) was established 2003. There are
two types of members who are individual members and supporting members. Supporting member is
mainly hospitals and companies.

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