COVER STORY A SYSTEM DYNAMICS APPROACH TO STRATEGIC PLANNING AND PERFORMANCE IN HEALTHCARE: DYNAMIC BALANCED SCORECARD LEVERAGED WITH CORPORATE SOCIAL RESPONSIBILITY Abstract The balance scorecard (hereinafter called BSC) is a powerful concept for performance measurement. However, it suffers from some drawbacks regarding quality of the BSC. System dynamics overcomes these shortcomings with a Dynamic Balanced scorecard (DBS). In this article we elaborate how a Dynamic Balanced scorecard can be used in the healthcare sector including its connectivity with Corporate Social Responsibility as a strategy in the changed regulatory regime in India particularly after enactment of Companies Act 2013, and section 135 and schedule VII in particular. The pandemic of 2020 has challenged us to look into CSR not only for a facelift for the stock market but to make the core of organizations strong. Healthcare specially will be the center of focus for coming days and reason why our article has special focus on this sector. Sustainability measures have been researched by scholars and it has been found that companies who factor in sustainability measures in their performance do better (Nidumoli, 2013) than those who do not. The DBS technique is a powerful tool to capture the CSR and sustainability measures. Our article aims at presenting a framework to implement this in organizations in health care. CMA Raja Ghosh Sarojkant Singh AGM (F&A) RE Hqs WBSEDCL Kolkata rajaghosh70@rediffmail.com Group Head Business Strategy & Risk McNally Bharat Engg Co. Ltd. Kolkata saroj.singh@mbecl.co.in Literature Survey: ielsen, 2009) shows how return on capital is influenced by skill, customer and work in progress. It uses a system dynamics framework to overcome the difficulty of (N 32 The Management Accountant - February 2021 BSC to foresee the time lag dimension of various indicators. (Oorschot) shows the limitations of BSC and how system dynamics overcomes this drawback. (Ting Lin Lee1) apply the dynamic BSC to the Taiwan pharma industry. It amends the policy direction for enhancing future performance. www.icmai.in COVER STORY (TRI GUNARSIH1, 2015, April (2016)) explains a hybrid system dynamics and balance scorecard technique for health sector. (LINARD) explains the dynamic interrelationships in organization design, in particular, the interrelationships between an organization’s profitability, internal structure , relationship building measures with customers and investment in people competence. (Jackson, The Balanced Scorecard In Healthcare) explains how a BSC is strategic to healthcare and what harm it is for not having a strategic plan. (Robert S. Kaplan) elaborates healthcare M&A integration. The balanced score card A balanced scorecard is a framework or strategy map to implement and manage strategy. It links vision to strategic objectives, measures and initiatives. An example given below by Albert Einstein (Grout, 2013): “Any intelligent fool can make things bigger and more complex. It takes a touch of genius – and a lot of courage – to move in the opposite direction” It is a tool with which a company can create value through 4 major perspectives of Financial, Customer Internal processes and organizational capacity. These perspectives are both financial and non-financial as is evident from their description. Healthcare Sector: The healthcare sector is a closely associated with human interactions and the non-financial perspective take a front seat. The goal created by a healthcare group is better organized using a BSC (Jackson, The Balanced Scorecard In Healthcare). In India the BSC technique is acknowledged by (Srinivasan, 2009) in Dr. Reddy Labs, BM Birla , TATA medical , Arvind Eye Care and identification of KPIs are critical. It is still to take –off fully in India Performance Management and BSC Kaplan and Norton introduced the concept of balance score card in 2001 (Kaplan, 2001). They informed that only financial parameters are inadequate to measure performance of a business. A BSC is a tool easy to understand and instead of dealing with numerous parameters now managers focus on 5 perspectives instead. It has a systemic perspective. However, BSC is unable to distinguish delays between action and impact on performance as it focusses on unidirectional causality. To overcome this we use the System Dynamics approach. (Oorschot) undertake a case study in an insurance company and we propose a similar approach to the healthcare sector. System Dynamics JW Forester introduced System Dynamics in 1950’s at MIT Sloan. Since then it has found applications in policy making in energy, health, project management and strategy. However, the subject is still not extensively used in industry. It is a very powerful tool and we explain how it can be utilized in building a Dynamic Balance Score Card. Furthermore, we extend this to corporate social responsibility and how a dynamic balance scorecard can be implemented as a strategic planning. Causal Loops System dynamics approach uses stock and flows and causal www.icmai.in loops to analyze a system interaction. Figure 1: Source;https://thesystemsthinker.com/stepby-step-stocks-and-flows-converting-from-causal-loopdiagrams/ The example shows if Buying increases, Installed base increases. Such CLDs can be linked to get a stock flow diagram: Figure 2: https://thesystemsthinker.com/step-by-stepstocks-and-flows-converting-from-causal-loop-diagrams/ The final CLD is obtained with the step-by-step approach; 1. Units assignment for variables ( eg nos., m3/hr etc.) 2. Identify and create stocks (potential customers/ installed base) 3. Identify the flows (these are variables that add or subtract the stock) (People buying products) 4. Connect the stock and flows where required. 5. Include auxiliary variables for calculation or constants. 6. Specify equations 7. Include additional variables where required. The Dynamic Balance Score Card: The balance score card suffers from some drawbacks. It ignores time delay and studies static performance management. The BSC introduces non-financial perspectives and compensates from shortage of myopic financial measures only. With the strategic map managers can focus on critical factors of performance which may not be only financial. However, the static measures have a drawback and to overcome this the dynamic score card is useful. The system dynamics perspective is used to develop the dynamic balanced score card. Size of Healthcare sector and Prospects in India: Niti Aayog has in its 2022 put up the healthcare strategy in which priority is to public healthcare system revamp and implement preventive healthcare (Gopal, 2019). The healthcare February 2021 - The Management Accountant 33 COVER STORY market is expected to reach USD 372 Billion by 2022 (IBEF, 2020). Government has taken initiatives of AYUSH,PPP model and National health policy to address the healthcare industry needs. Balanced Scorecard & Corporate Social Responsibility: CSR has come a long way from philanthropy to a very vital business and corporate strategy which is now used as a synergy in almost all the business round the globe. Corporate social responsibility (hereinafter called CSR) is a strategy in international businesses that aims to contribute to social needs, goals and objectives of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically-oriented practices. CSR has come a long way from philanthropy to a very vital business and corporate strategy which is now used as a synergy in almost all the business round the globe. It is now not only a business strategy around the world but also a mandatory requirement for certain class of industries particularly in a developing country like India, where only the Government cannot contribute in all development and social development activities. What is required is a partnership of the public and private sector in the hitherto unattended or vital sector/areas of the economy and the society. In India, and in most of the countries it has been observed that the CSR activities has been mostly concentrated in few areas only. Healthcare and health sector has been one of the most sectors which has received a major chunk of the CSR expenditure in the last six to seven years. In India, CSR expenditure includes education, healthcare, environment and rural development. After India got liberalized, the healthcare sector (services and facilities) has accelerated over last 20 years. Several drawbacks inflict the health sector like lack of funding cost, asymmetry in infrastructure, lack of human resources, absenteeism amongst doctors, deficiency in hiring contractual staff, lack of training, low outreach, underdeveloped and crowded hospitals, low purchasing power by the client, lack of holistic approach and reactive than preventive functions. (Shashi Lata Yadav, 2019) In this context of institutional reforms, corporate level CSR function is being given more importance by the Government O to generate better outcomes and mitigate suffering. The TATA group is the pioneer in this area and has been providing assistance to NGOs in education, health care and employment sectors. The Birla Group has developed an exemplary case in education, health care and family welfare. The Infosys Science Foundation is supporting cultural, rural development and health related programmes. Mahindra & Mahindra supports education of over 75,000 underprivileged girls via its Nanhi Kali programme. In view of governmental limitations in many areas, the corporate sector should contribute more towards public health particularly in a country like India where majority of people still are not covered under medical insurance and lack of basic healthcare facilities down the line. With CSR an organization can measure the 3 dimensions of economic impact, environmental performance and social impact. The measurement of CSR’s three dimensions is commonly called the triple bottom line (TBL) (Scaletta). However the measurement of CSR impact is still a matter 34 The Management Accountant - February 2021 of research and great concern amongst the researchers and the corporates who are involved in CSR activities. Balanced Scorecard improves strategic alignment. In the past, management and cost accounting principles were exclusively relied upon for performance measurement systems, and with an emphasis on tangible resource management and short-term results. Financial metrics could do this easily, but failed to longterm value creation from intangible resources was lacking. In the field of corporate social responsibility (“CSR”) initiatives BSC has been extremely useful, given that the BSC framework explicitly incorporates and balances shareholder, customer and employee perspectives. Researchers and commentators have advised that combining the BSC with CSR can and should begin with financial measures and expand to include CSR-driven market forces (e.g., “green” consumers and energy crunch), thus broadening the performance measurements to include the non-financial parameters like targets taken from the Global Reporting Initiative’s Sustainability Guidelines. Improved quality results from insisting on supplier performance related to environmental and social commitments and also attract new customers that base their buying decisions on trust in the responsible business practices of vendors. TBL indicators are more efficiently reported by BSC since the scorecard illustrates the cause-and-effect relationship between being an honest corporate citizen and being a successful business. The authors recommend that, organizations should introduce a BSC that includes and integrates key economic process driving CSR. The authors also suggest that using the BSC framework, CSR initiatives can overcome resistance among various stakeholders in business. For example, the balanced scorecard couples cost-competitiveness and competitive advantage, highlighting importance of investing in new technology. BSC can also provide better ecological protection and better risk management procedures that lowers the organization cost of capital. A differentiation-based strategy can also be pursued through community building activities following the BSC metrics. Relevance of System Dynamics: (Nidumoli, 2013) illustrates a qualitative research on 30 Global 500 companies that use sustainability to drive www.icmai.in COVER STORY business innovation published in Harvard Business Review 2009 showing that sustainable companies outperform other companies in long run. In another research by Harvard Business school 90 companies which volunteered environmentally and socially sustainable practices was compared with 90 companies which do not follow such practices. The research revealed that sustainable companies ran their businesses differently and outperformed in market value. For eg. a Rs. 1 Cr. investment in 1993 for a portfolio of sustainable companies would have increased to Rs. 22.6 Cr. by end of 2010, while that in those without sustainability focus would yield Rs. 15.4 Cr. A stooping 47% in market share! With a system dynamics approach we can join the aspects of healthcare, sustainability and the balance score card measures together. (Linard, 2020) researches with building a simulator which helps managers understand the interrelation between profitability and people competence , internal structure and relation building measures with customers. Many of these measures are coinciding with the BSC measures. It factors the soft values in value creation. It explains about the 10 knowledge strategy issues. With a system dynamics approach it tracks the stock of individual competence, Value adding capacity and most wanted clients. Then it models the 10 knowledge strategies with the system dynamics approach. The system dynamics flight simulator is thus useful for the managing partners to assess likely pay-offs of the soft values and strategies. (Hirsch, 2006) shows how system dynamics is suited to handle complexity for public health issues. Hirsch notes that system dynamics modelling can capture multiple interacting diseases and risks, the interaction of diseased populations and delivery systems, and national and state policy matters. The research shows that the complete view of population health dynamics can be extended to guide national and state level health policies, addressing underinsurance in population, excessive health care cost, and the under availability of healthcare workers. Figure 3 Hirsch 2006: A simple model of chronic disease prevention. Methodology: We first build the causal loop diagrams for each perspective of balance score card. For eg for financial perspective as shown below: www.icmai.in Figure 4: Source : https://www.researchgate.net/ publication/303121822_A_hybrid_balanced_scorecard_ and_system_dynamics_for_measuring_public_sector_ performance Similarly develop for each perspective and link them. The final model is thus developed as depicted below: F i g u r e 5 : h t t p s : / / w w w. r e s e a r c h g a t e . n e t / publication/303121822_A_hybrid_balanced_scorecard_ and_system_dynamics_for_measuring_public_sector_ performance Conclusion: The article provides a perspective to implement a dynamic balance score card to measure strategic performance in healthcare industry. Corporate social responsibility can be utilized to leverage the strategic planning and the system dynamics model can factor in CSR into the model. CSR is closely associated with sustainability and the dynamic scorecard is ideally suited to capture the soft values of the sustainability factors. The article cites why such factors are critical for the long run for organizations. The healthcare sector is more dependent on soft values and these factors become more prominent for healthcare sector. The article shows how CSR can be measured with the ideally suited BSC technique and how the system dynamics model can build a model for dynamic balanced score card. Bibliography 1. Gopal, K. M. (2019). Strategies for Ensuring Quality Health Care in India: Experiences From the Field. Indian J Community Med., 44(1): 1–3. 2. Grout, P. (2013). Pam Grout. Retrieved from https:// February 2021 - The Management Accountant 35 COVER STORY 11. Nielsen, S. N. (2009). The pamgrout.com/2013/06/13/ Corporate social Balanced Scorecard – A System it-takes-a-touch-of-genius-andresponsibility can be utilized Dynamics Modelling Approach. a-lot-of-courage-to-move-into leverage the strategic Emerald Insight. the-opposite-direction-albertplanning and the system 12. Oorschot, H. A. (n.d.). einstein/ dynamics model can factor Developing a balanced scorecard 3. Hirsch, J. H. (2006). System with system dynamics. Dynamics Modeling for Public in CSR into the model. Health: Background and CSR is closely associated 13. Robert S. Kaplan, P. (n.d.). Opportunities. AMJ Public the Balanced Scorecard with sustainability and the Using Health, 452-458. for Successful Health Care M&A dynamic scorecard is ideally Integration. Retrieved from https:// 4. IBEF. (2020). Retrieved from https://www.ibef.org/industry/ suited to capture the soft catalyst.nejm.org/doi/full/10.1056/ healthcare-india.aspx values of the sustainability CAT.20.0286 14. Scaletta, C. a. (n.d.). The 5. Jackson, T. (n.d.). factors. Balanced Scorecard and Corporate Retrieved from https://www. Social Responsibility: Aligning Values clearpointstrategy.com/ for Profit. CMA Management. the-balanced-scorecard-in-healthcare/ 15. Shashi Lata Yadav, B. V. (2019). Do health care 6. Jackson, T. (n.d.). The Balanced companies of India fulfil government’s new Scorecard In Healthcare. Retrieved from orientation towards CSR activities: A special https://www.clearpointstrategy.com/ the-balanced-scorecard-in-healthcare/ consideration towards maternal health. 16. Srinivasan, ‘. M. (2009). Balanced Score Card and 7. Kaplan, R. a. (2001). Leading change with the balanced scorecard. . Financial Executive 17, 64-66. its Relevance. . 17. Ting Lin Lee1, S.-J. Y. (n.d.). Using Balanced 8. Linard, K. (2020). Building a knowledge based Scorecard and System Dynamics in Exploring. strategy A system dynamics approach for adding 18. TRI GUNARSIH1, C. S. (2015, April (2016)). A value added capacity. HYBRID BALANCED SCORECARD AND SYSTEM 9. LINARD, K. (n.d.). System Dynamics Modeling, DYNAMICS FOR MEASURING PUBLIC SECTOR Balanced Scorecard (BSC) & Knowledge Based PERFORMANCE. Journal of Engineering Science Strategy. and Technology Special Issue on ICE & ICIE , 65 - 86. 10. Nidumoli, R. (2013). Two Birds in a tree. San Francisco: BK Koehler. Kind Attention !!! 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