Strategy implementation in healthcare –

A case study
R ainer Lueg 1,2,*

1
Leuphana University (Department of Accounting), Professor of Managerial Accounting
Universitätsallee 1, 21335 Lüneburg (Germany) e-mail: lueg@leuphana.de
2
University of Southern Denmark (Department of Accounting)
Universitetsparken 1, 6000 Kolding (Denmark), e-mail rlueg@sam.sdu.dk
* Corresponding author

Abstract
This case study deals with a urology division in a hospital that intends
to use the Balanced Scorecard, the Boston Consulting Group Matrix,
and Value-based Management. The case study can serve as a discussion
basis in class or as an exam for students in management, operations,
and accounting. The open questions at the end of the case study allow
for an adjustment to the level of knowledge of the students. They also
serve the purpose of raising students’ awareness of the limits of cash-
based incentive systems. Students will need to reflect on how a
mechanical application of strategic control practices can lead to
dysfunctional behavior.

K eywords: Health care; consultants; Balanced Scorecard; Boston

Consulting Group Matrix; Value-based Management; Economic Value
Added; restructuring; case study; teaching notes; shareholder value.

Electronic copy available at: https://ssrn.com/abstract=3716762

1 Introduction

SCRUB is a local hospital that treats emergencies and common diseases. MADDOX
Corporation, a listed, private hospital operator, has just acquired SCRUB. Over the past
decade, SCRUB has specialized in urological surgery, for which it offers traditional inpatient
treatments, as well as technically more advanced ambulatory treatments that will become
the new standard for many treatments within the next decade. SCRUB also offers general
medical services, such as an emergency room (ER) that is vital to the medical care. For this
reason, the regional government has obligated MADDOX to continue providing this general
care at the appropriate quality level, or it will revoke MADDOX’ license to operate the
hospital. MADDOX uses a fine-tuned management accounting system to ensure that all of
its hospitals operate at the same standard and intends to restructure SCRUB accordingly
over the coming year.

2 Balanced Scorecard (approx. 40 minutes)

MADDOX sends a team of consultants, headed by an MBA graduate, to start implementing

a Balanced Scorecard (BSC) at SCRUB.

Required
1) A physician at SCRUB feels offended by this engagement. She says: “This is a hospital
that is run by medical professionals to benefit patients. It is not bank that managers can
run by numbers to serve shareholders. So this BSC-thing cannot be applied here!” How
can you, as a member of the consulting team, tell this physician to give the BSC a
chance? Elaborate on two issues.
2) Your colleague boasts: “BSC engagements are easy. Let’s see what key performance
indicators they have here at SCRUB, put them into the four generic perspectives that are
in all the BSC books, and we are done.” Is this a suitable approach? How would you
derive the perspectives of the BSC?
3) Your team agreed to a set of perspectives for the BSC. Now describe each of the four
categories you have to determine for every perspective.
4) What problems may occur when implementing and/or using the BSC in a hospital. Think
about three relevant pitfalls your team and SCRUB’s employees might encounter.

Electronic copy available at: https://ssrn.com/abstract=3716762

3 Value-based Management (approx. 40 minutes)

MADDOX wants the consultant team to convince SCRUB thata hospital needs to be
efficient. Hospitals bears a responsibility not only towards patients but also towards the
society (taxpayers) and the shareholders. For this purpose, MADDOX wants to calculate
the current profitability of SCRUB. SCRUB´s Total Assets of the last period report at 300
million EUR of which current liabilities are 100.4 million EUR. The weighted cost of capital
(WACC) amounts to 5% and SCRUB had an Operating income (OI) of15 million EUR last
year. SCRUB made an investment of 0.8 million EUR for special training for medical staff
(human capital). The chief of medicine expects to see profits resulting from this investment
this and the next year.

Required
5) Calculate residual income (RI), assuming MADDOX defines SCRUB’s investment as
total assets.
6) As a next step, calculate economic the value added (EVA) for the year. The investment
in human capital should be deducted for both the year-end assets and the operating
income and capitalized in an asset as well as amortized in the income statement on a
straight-line basis over 2 years.
7) Discuss the difference between the results of RI and EVA. Which measure would you
recommend? Why?
8) The janitor at SCRUB runs his department as a cost center. He wants to know why his
annual bonus will not depend on the EVA of his cost center. He demands a thorough
explanation.

Electronic copy available at: https://ssrn.com/abstract=3716762

4 BCG matrix (approx. 40 minutes)

MADDOX wants to visualize the expected development of SCRUB’s three main services
using the original BCG Matrix: general care (incl. the emergency room), inpatient urological
surgery, and ambulatory urological surgery. The following data is available:

Electronic copy available at: https://ssrn.com/abstract=3716762

 GENERAL INPATIENT AMBULATORY
(incl. ER) (urology) (urology)
Revenue SCRUB [in million EUR] 180.0 90.0 30.0
Revenue largest hospital within 250 km [in 550.0 75.0 5.0
million EUR]
Contribution to total Economic Value Added 2.0 3.2 0.4
[EVA; in million EUR]
Expected real market growth of this medical 7% 5% 17%
field [in %]
Relative market share

Required
9) Name the quadrants (pay attention that the x-axis is inverse, so the “zero” is on the
right hand side!)
10) State in which of the quadrants each service of SCRUB would be (note: it is NOT
necessary to make a drawing, a number will do!). Note: show your calculations for
partial points.
11) In one sentence, describe each generic strategy per quadrant as proposed by the BCG.
12) Evaluate if these generic strategies make sense for SCRUB’s services, or if MADDOX
should follow different strategies. For this, firstly, base your evaluation on the “life cycle
theory” of these medical services, and, secondly, discuss the role of cash flows (assume
that EVA represents free cash flows).
13) Elaborate on two pitfalls of the BCG matrix other than those that you have already
addressed.

5 Discussion of the case

A suggested solution is available from the author upon request.

Electronic copy available at: https://ssrn.com/abstract=3716762

Suggested Readings
Albertsen, O. A., & Lueg, R., "The Balanced Scorecard’s missing link to compensation: a literature review
and an agenda for future research", Journal of Accounting and Organizational Change, 10(4), 2014,
431-465.
Burkert, M., & Lueg, R., "Differences in the sophistication of Value-based Management – The role of top
executives", Management Accounting Research, 24(1), 2013, 3-22.
Dammand, J., Hørlyck, M., Jacobsen, T. L., Lueg, R., & Röck, R. L., "Lean management in hospitals: evidence
from Denmark", Administration And Public Management Review, 12(23), 2014, 19-35.
Halkjær, S., & Lueg, R., "The effect of specialization on operational performance: a mixed-methods natural
experiment in Danish healthcare services", International Journal of Operations & Production
Management, 37(7), 2017, 822-839.
Jakobsen, M., & Lueg, R., "Balanced scorecard and controllability at the level of middle managers – The case
of unintended breaches", Journal of Accounting and Organizational Change, 10(4), 2014, 516-539.
Kaplan, R. S., & Norton, D. P., Strategy Maps: Converting Intangible Assets Into Tangible Outcomes,
Harvard Business Press, Boston, MA, 2004.
Kaplan, R. S., & Norton, D. P., The Execution Premium: Linking Strategy to Operations for Competitive
Advantage, Harvard Business Press, Boston, MA, 2008.
Lueg, R., Value-based Management: Empirical Evidence on its Determinants and Performance Effects, WHU
Otto Beisheim School of Management, Vallendar, 2008.
Lueg, R., "Führt der Einsatz externer Berater zur Überimplementierung innovativer Steuerungsinstrumente?",
Zeitschrift der Unternehmensberatung, 4(6), 2009, 249-253.
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Cum Laude 2008: Wirtschaftswissenschaften (pp. 284-285). Darmstadt: Roter Fleck Verlag
Lueg, R., "Customer accounting with budgets and activity-based costing: a case study in retail banking",
Journal of Academy of Business and Economics, 15(2), 2015a, 41-48.
Lueg, R., "Product customization: A case study on choosing the right costing system", International Journal
of Business Strategy, 15(2), 2015b, 63-68.
Lueg, R., "Strategy maps: the essential link between the Balanced Scorecard and action", Journal of Business
Strategy, 36(2), 2015c, 34-40.
Lueg, R., & Carvalho e Silva, A. L., "When one size does not fit all: A literature review on the modifications
of the balanced scorecard", Problems and Perspectives in Management 11.2013(3), 2013, 86-94.
Lueg, R., & Julner, P., "How are Strategy Maps linked to strategic and organizational change? A review of
the empirical literature on the Balanced Scorecard", Corporate Ownership & Control, 11(4), 2014, 439-
446.
Lueg, R., & Lueg, K., "The Balanced Scorecard and different Business Models in the textile industry - A case
study", International Journal of Strategic Management, 13(2), 2013, 61-66.
Lueg, R., & Malmmose, M., "Customer accounting with budgets and activity-based costing: a case study in
electronic commerce", International Journal of Strategic Management, 14(2), 2014, 25-36.
Lueg, R., & Nørreklit, H. (2012). Performance measurement systems – Beyond generic strategic actions. In F.
Mitchell, H. Nørreklit, & M. Jakobsen (Eds.), The Routledge Companion to Cost Management (pp.
342-359). New York, NY: Routledge.

Electronic copy available at: https://ssrn.com/abstract=3716762

Lueg, R., & Radlach, R., "Managing sustainable development with management control systems: a literature
review", European Management Journal, 34(2), 2016, 158-171.
Lueg, R., & Vu, L., "Success factors in Balanced Scorecard implementations – A literature review",
management revue: socio-economic studies, 26(4), 2015, 306-327.
Malmmose, M., & Lueg, R., "Costing allocation and different implications in a small clothing manufacturing
company – A case study ", European Journal of Management, 14(2), 2014, 51-62.
Nørreklit, H., "The balance on the Balanced Scorecard: a critical analysis of some of its assumptions",
Management Accounting Research, 11(1), 2000, 65-88.

Electronic copy available at: https://ssrn.com/abstract=3716762