HR Scorecard

By: Moustafa Mahmoud Ghanim

To Prof. Sherif Delawar

The HR Scorecard argues that HR measurement systems must be based on a clear understanding of organizational strategy and the capabilities and behaviors of the workforce required implementing that strategy. Thus, an HR Scorecard is a mechanism for describing and measuring how people and people management systems create value in organizations, as well as communicating key organizational objectives to the workforce. It is based on a strategy map which is a visual depiction of what causes what in an organization, beginning with people and ending with shareholder or other stakeholder outcomes. The HR Scorecard is built around a series of examples and a process that helps managers to do this work in their own firms designing an HR architecture that relentlessly emphasizes and reinforces the implementation of the firms strategy.

What is balanced scorecard? The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.

Scorecard History
It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance. While the phrase balanced scorecard was coined in the early 1990s, the roots of the this type of approach are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950s and the work of French process engineers (who created the Tableau de Bord literally, a "dashboard" of performance measures) in the early part of the 20th century. The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system. The new balanced scorecard transforms an

organizations strategic plan from an attractive but passive document into the "marching orders" for the organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies. This new approach to strategic management was first detailed in a series of articles and books by Drs. Kaplan and Norton. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective. The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise. Kaplan and Norton describe the innovation of the balanced scorecard as follows: "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

Components of the Balanced Scorecard

A balanced scorecard is a system used by organizations for strategic management and planning. It's a performance measurement tool that focuses on improving an organization's performance through the strategies the company uses. A balanced scorecard is made up of four components: mission, perspectives, objectives and measures. Mission The highest level of the scorecard is the organization's mission. This component answers what the company's mission is and why the company exists. A company's mission is the overall highest goal the organization is trying to reach. All components of the balanced scorecard keep this mission in mind. The mission is used for planning and for creating strategies to use for business processes and practices. Perspectives Perspectives is the second component on a balanced scorecard. This component looks into the influences on a company's performance regarding the ability to accomplish its mission. Various categories of perspectives are investigated in this section of the balanced scorecard. An organization focuses on customer perspectives and what's important to the customer. Internal process perspectives focus on what the organization must do to fulfill customer needs. The perspective of learning and growth focuses on how an organization is doing with innovations and improving the processes used. The internal process perspective focuses on achieving the overall mission of the company. Objectives Organizations use this vital component to identify objectives under each of the different perspectives used. It works by starting with each different perspective. The company then analyzes what must be done to achieve the company's mission under each perspective. Goals and objectives are then created to offer guidance for the company. Under a balanced scorecard system, all goals and objectives are created by keeping the company's overall mission in mind at all times.

Measures The last component of a balanced scorecard is measures. Measures are ways an organization determines if it's achieving the objectives created. This component is vital for organizations so they can tell if what they're doing is working. Measures should be created prior to working toward the goals. If one goal is to decrease defects in manufacturing, managers should study the number of defects found at the end of the manufacturing process. The number should consistently decrease, which is found through measuring goals.

The HR Scorecard has five key elements:

The first element is what we called Workforce Success. It asks: Has the workforce accomplished the key strategic objectives for the business? The second element is we called Right HR Costs. It asks: Is our total investment in the workforce (not just the HR function) appropriate (not just minimized)? The third element we describe as Right Types of HR Alignment. It asks: Are our HR practices aligned with the business strategy and differentiated across positions, where appropriate? The fourth element is Right HR Practices. It asks: Have we designed and implemented world class HR management policies and practices throughout the business? The fifth element is Right HR Professionals. It asks: Do our HR professionals have the skills they need to design and implement a world-class HR management system?

How to Implement an HR Scorecard in a Business Organization as an HR Management Function

Tracking and monitoring Human Resource (HR) functions in a business organization typically involves creating a scorecard or report that lists key performance indicators, such as benefit costs as a percentage of operating expenses. By aligning HR strategic goals with the company's, HR professionals ensure that their efficiency contributes to the company's overall profitability. The scorecard, usually a spreadsheet of data, helps these managers prove that effective HR strategies represent a competitive

advantage due to cost savings or cost avoidance. By linking the HR activities with the strategic goals, HR managers ensure that their work gets noticed by company executives. Step 1 Define your business strategy. Effective human resource professionals establish specific, measurable, achievable, realistic and timely objectives. For example, if your company wants to reduce its health costs per employee, you need to identify the cost of employee benefits and then define specific ways of reducing that cost, such as choosing another plan provider or offering different services. Step 2 Identify your business indicators. Leading indicators include data, such as the number of building permits, which reflects current economic conditions. Lagging indicators, such as unemployment rates, confirm trends. In the past, human resource professionals functioned primarily in an administrative capacity handling benefits and payroll. More recently, HR professionals have started to be seen as business partners enabling the hiring and developing of critical personnel, arranging for appropriate compensation for exceptional accomplishments and promoting the training and development of employees directly responsible for innovative business improvements. Step 3 Create the measurement system for the HR scorecard. Typically, HR professionals need to show how they control costs by eliminating inefficiencies. For example, HR professionals strive to minimize employee turnover, which results in the need to recruit, interview and train new employees at considerable expense to the company. HR professionals create presentations, spreadsheets and other documents to list data. They distribute these through email and websites. Step 4 Conduct regular meetings to review progress. By reviewing the scorecard on a regular basis with sponsors and stakeholders, such as other leaders in the business organization, HR professionals ensure their results align with the company's strategic efforts. When deficiencies occur, HR professionals

identify the performance gaps. By providing skills training to employees and giving opportunities to them to enhance their competency in specific areas, such as project management or quality management, HR professionals help companies attract and retain the most talented employees to help fulfill strategic goals.

Pitfalls of Implementing a Balanced Scorecard

Dr. Robert Kaplan and Dr. David Norton designed the balanced scorecard as a tool for evaluating performance. The balanced scorecard combines financial and nonfinancial metrics as a method of evaluating the company's overall performance. Managers who implement a balanced scorecard in their own companies should be aware of potential pitfalls. Lack of Strategy Prior to creating a balanced scorecard, senior management should define the company's strategy and communicate this strategy to all employees. The metrics used for the balanced scorecard are selected based on the company's strategy and are used to measure the company's progress. When the company has not identified its strategy or communicated the strategy, the balanced scorecard metrics lack any connection to the company's success. The balanced scorecard will not lead to results that further the company's strategy and could fail. Lack of Senior Management Support Senior management support is essential for the implementation of a balanced scorecard. Employees must understand that the company takes the balanced scorecard seriously. A senior management team that does not communicate the importance of the balanced scorecard to the rest of the company sends the message that this is not a high priority. Employees viewing the balanced scorecard as a low priority will not exert the effort to make it successful. Selection of Metrics The balanced scorecard identifies both financial and nonfinancial metrics, which evaluate the company's performance in pursuing the company's strategy. Employees should consider carefully which metrics to include on the balanced scorecard. Some items can be measured easily, but

will not support the company with its strategy. Eliminate these items from the list. Items that may be more difficult to measure, but support the company's strategy, should be included. Lack of Periodic Review The economy, the industry and the company experience continuous change. Senior management may decide to change the direction of the company and revise the strategy. These factors impact the usefulness of the balanced scorecard. If the balanced scorecard is never reviewed, the metrics used will be of little value. The balanced scorecard should be reviewed periodically and be revised if necessary.

HR Scorecards as Business Tools

The use of business scorecards has emerged as a means for organizations to quantitatively measure the results of its efforts. For the human resources (HR) function, the use of scorecards can help to track such activities as hiring effectiveness, turnover, training outcomes, benefits costs and a range of other critical tasks that can have a positive impact on the organization. Hiring Effectiveness The use of a scorecard can readily be applied by HR to track hiring effectiveness. A variety of measures may be scored, including the number of open positions, length of time to hire, number of applicants per position and quality of applicant hired (as evaluated through assessments by peers and supervisors or managers). Selecting the most appropriate measures can be determined based on discussions with internal stakeholders -- hiring managers, business leaders and employees themselves. Turnover Using scorecards to measure turnover can provide HR professionals and business leaders with an indication of their ability to retain staff based on both voluntary and involuntary departures. Voluntary departures may indicate issues related to realistic job previews or the ability of the organization to provide meaningful work and reward to employees.

Involuntary turnover (layoffs and terminations) may provide an indication of areas where hiring practices or training may need improvement. Metrics for monitoring turnover through a scorecard approach may include percentage of turnover overall, by department, by length of tenure or by job classification. Training Outcomes HR has a responsibility for providing training to employees both to maintain current skills and to develop new skills. Measuring the effectiveness of the training provided -- whether delivered internally or through attendance at classes provided through universities, colleges or professional training organizations -- can provide an indication of the value achieved through training activities. Scorecard metrics might include a combination of employee evaluation of the training effort, skills gained during training as measured through some type of assessment tool, on-thejob performance improvements as measured by supervisors or managers or employee output information (e.g. increased productive outputs), or overall impact on the organization (e.g. increase in customer service ratings or decrease in product defects). Benefit Costs Benefit costs represent a significant investment on the part of any organization. Controlling those costs while, at the same time, ensuring employee satisfaction with the benefits provided are important challenges for HR professionals. Scorecards in this area might measure such things as percentage increase or decrease in annual costs by benefit, employee level of satisfaction with benefits provided or comparisons between the organizations benefits and those provided by competitors. Organizations also may choose to measure such things as employees' understanding of the benefits provided to them and the number or percentage of employees who choose to participate in specific benefit options.

The Disadvantages of an HR Scorecard

HR scorecards emerge out of the balanced scorecard theory founded by management consultant Arthur M. Schneiderman. Schneiderman originated the balanced scorecard out of a work assignment to connect the dots between his employers quality improvement and strategic goals. The end goal for an HR scorecard is to establish a linkage between HR and organizational goals in support of strengthening the employer-employee relationship, creating a productive work environment and improving the bottom line. For example, one of the categories that HR scorecards measure is employee turnover. Through measuring turnover, an HR scorecard evaluates how turnover impacts the companys profits, how much it costs to replace employees, the effect turnover has on remaining employees morale and, thus, the organizations strategic goal to foster a productive work environment. Intangibles One of the disadvantages of the HR scorecard is that measuring intangibles is difficult, if not impossible, without imparting a degree of subjectivity on the part of HR staff. Subjectivity undermines the validity of data and, therefore, limits the credibility of HR and its ability to prove its worth to an organization. The very things HR is charged with and the organization believes HR can do well are the most difficult to measure, such as issues related to employee concerns. Accuracy Employees have been known to fudge on exit interviews and workplace surveys, which results in inaccurate HR scorecards that propose measurements of employee sentiment. Employees may not intentionally attempt to skew survey results; however, they may provide distorted answers to questions about their employment experiences to appease HR staff or their supervisors and managers. They might pretend they are perfectly happy with the workplace when they are actually dissatisfied with certain aspects of the employment experience. The clear disadvantage of HR scorecards is that they cannot be 100 percent accurate.

Interpretation HR practitioners who fully understand the implications of workplace metrics should interpret HR scorecard results. If metrics contained in an HR scorecard are produced or synthesized by an outside consultant, it can result in complex or even inaccurate interpretations. HR scorecards are more effective and more useful when theyre produced in -house by HR staff who are familiar with the organizations goals from an insiders point of view. Action The term HR scorecard can be a misnomer because it suggests that measurement is the only expectation. Another disadvantage to HR scorecards is that their usefulness can be limited by both HR staff and the companys leadership. Ideally, an HR scorecard doesnt just contain metrics related to HR functionality and the linkages between HR, the workforce and the organizations business goals. The extended purpose of an HR scorecard is to develop action plans for the HR department and the companys leadership team. For example, instead of simply measuring the impact of turnover on the organizations workforce goals, use HR scorecard metrics in drafting an action plan for turnover reduction.