You are on page 1of 11

-1–

HR Balanced Scorecard

University of Arid Agriculture


Rawalpindi (UAAR).

Subject:

Human Resource Management

Presentation On:

HR Balanced Scorecard

Balanced Scorecard

 Definitions

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.

 Business Definition For Balanced Scorecard

“A system that measures and manages an organization's progress


toward strategic objectives is balanced scorecard”. The balanced
scorecard incorporates not only financial indicators but also three
-2–
HR Balanced Scorecard
other perspectives: customer, internal business, and
learning/innovation. The scorecard shows how these measures are
interlinked and affects each other, enabling an organization's past,
present, and potential performance to be tracked and managed.

 History

In 1992, Robert S. Kaplan and David P. Norton introduced the


Balanced Scorecard, a concept for measuring whether the
activities of a company are meeting its objectives in terms of
vision and strategy. By focusing not only on financial outcomes
but also on the human issues, the balanced scorecard helps to
provide a more comprehensive view of a business which in turn
helps organizations to act in their best long-term interests. The
strategic management system helps managers focus on
performance metrics while balancing financial objectives with
customer, process and employee perspectives. Measures are often
indicators of future performance.

Since the original concept was introduced, balanced scorecards


have become a fertile field of theory and research, and many
practitioners have diverted from the original Kaplan & Norton
articles. Kaplan & Norton themselves revisited the scorecard with
the benefit of a decade's experience since the original article.
Implementing the scorecard typically includes four processes.

 The four processes are:-

 Translating the vision into operational goals.


 Communicate the vision and link it to individual performance.
 Planning of Business.
 Feedback and learning and adjusting the strategy accordingly.

 Innovation of the balanced scorecard

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
-3–
HR Balanced Scorecard
must make to create future value through investment in customers,
suppliers, employees, processes, technology, and innovation."

Adapted from the Balanced Scorecard by Kaplan & Norton

 Perspectives

The balanced scorecard suggests that we view the organization


from four perspectives, and to develop metrics, collect data and
analyze it relative to each of these perspectives:

1) The Learning & Growth Perspective

This perspective includes employee training and corporate cultural


attitudes related to both individual and corporate self-
improvement. In a knowledge-worker organization, people -- the
only repository of knowledge -- are the main resource. In the
current climate of rapid technological change, it is becoming
necessary for knowledge workers to be in a continuous learning
mode. Metrics can be put into place to guide managers in focusing
training funds where they can help the most. In any case, learning
-4–
HR Balanced Scorecard
and growth constitute the essential foundation for success of any
knowledge-worker organization.

Kaplan and Norton emphasize that 'learning' is more than 'training';


it also includes things like mentors and tutors within the
organization, as well as that ease of communication among
workers that allows them to readily get help on a problem when it
is needed. It also includes technological tools; what the Baldrige
criteria call "high performance work systems."

2) The Business Process Perspective

This perspective refers to internal business processes. Metrics


based on this perspective allow the managers to know how well
their business is running, and whether its products and services
conform to customer requirements (the mission). These metrics
have to be carefully designed by those who know these processes
most intimately; with our unique missions these are not something
that cans be developed by outside consultants.
-5–
HR Balanced Scorecard

3) The Customer Perspective

Recent management philosophy has shown an increasing


realization of the importance of customer focus and customer
satisfaction in any business. These are leading indicators: if
customers are not satisfied, they will eventually find other
suppliers that will meet their needs. Poor performance from this
perspective is thus a leading indicator of future decline, even
though the current financial picture may look good.

In developing metrics for satisfaction, customers should be


analyzed in terms of kinds of customers and the kinds of processes
for which we are providing a product or service to those customer
groups.

4) The Financial Perspective

Kaplan and Norton do not disregard the traditional need for


financial data. Timely and accurate funding data will always be a
priority, and managers will do whatever necessary to provide it. In
fact, often there is more than enough handling and processing of
financial data. With the implementation of a corporate database, it
is hoped that more of the processing can be centralized and
automated. But the point is that the current emphasis on financials
leads to the "unbalanced" situation with regard to other
perspectives. There is perhaps a need to include additional
financial-related data, such as risk assessment and cost-benefit
data, in this category.

 Balanced Scorecard Software

The balanced scorecard is not a piece of software. Unfortunately,


many people believe that implementing software amounts to
implementing a balanced scorecard. Once a scorecard has been
developed and implemented, however, performance management
software can be used to get the right performance information to
the right people at the right time. Automation adds structure and
discipline to implementing the Balanced Scorecard system, helps
transform disparate corporate data into information and
knowledge, and helps communicate performance information
-6–
HR Balanced Scorecard

 Why Implement a Balanced Scorecard?

 Increase focus on strategy and results


 Improve organizational performance by measuring what matters
 Align organization strategy with the work people do on a day-to-
day basis
 Focus on the drivers of future performance
 Improve communication of the organization’s Vision and Strategy
 Prioritize Projects / Initiatives

 Business Definition for HR Scorecard

A tool for measuring the contribution of human resource


management practices to the financial performance of an
organization. The HR scorecard was developed by academics
Bryan E. Becker, Mark A. Huselid, and Dave Ulrich and presented
in their book The HR Scorecard: Linking People, Strategy, and
Performance (Harvard Business School Press, 2001). It was
intended as a supplementary tool to Kaplan and Norton's balanced
scorecard, which does not focus on HR practice. The HR scorecard
sees human resource management practices as a strategic asset and
provides a road map of six steps designed to help organizations
integrate human resource systems with organizational strategy.

 Implementation of an HR Scorecard

The 10 Dimensions of Measurement Success are the key to the


successful implementation of an HR Scorecard and Measurement
System. The 10 Dimensions of Successful Measurement are as
follows.

i. Senior Management Champion

As is the case with any organization wide initiative that is expected


to have a lasting and material effect, there needs to be a Champion
from the ranks of senior management. The role of the Champion is
to insure that the measurement process receives constant and
regular visibility, credibility, and priority. Through proactive
communication, consequence management, and recognition, lead
by the Champion, the measurement initiative will provide a level
of importance that all employees can acknowledge.
-7–
HR Balanced Scorecard

ii. Alignment

The foundation for an HR Scorecard or Measurement System is its


alignment with the company’s overall Strategic Plan. Each of the
measures contained in the HR Scorecard must align with at least
one initiative from the Strategic Plan. This alignment will provide
HR with focus, prioritization, and an ability to demonstrate that it
is a Strategic Business Partner. At the point that HR initiatives are
seen as Business initiatives, HR can say that they have not only
aligned with the business strategy, but they have achieved
convergence within the company strategy. Convergence is like a
perfectly complete jigsaw puzzle where every piece interlocks to
form the picture. Each piece of the organizational measurement
puzzle is essential to create the picture that each employee must
see to insure organizational success.

iii. Context
As alignment provides a clear and understandable relationship of
the HR Scorecard measures to organizational performance, context
provides insights into the connection of the specific initiatives and
activities to the culture of the company. For example, a company
who’s Value Disciplines Operational Excellence may design a
compensation process that looks very similar to that of a company
whose Value Discipline is Innovation. However, the measurements
used to determine process effectiveness will be very different.
Process effectiveness in the Operational Excellent Company is
cost as a percent of revenue, while process effectiveness in the
Innovation Company may be number of new products. Adapting
your measurement system to the context of the organization is a
critical component to insuring measurement success and
effectiveness.

iv. Accountability

Who is responsible for the result? There are two types of


accountability embedded in an HR Scorecard and Measurement
System. The first and most important level of accountability
revolves around the successful execution of the initiative. If
retention of High Potential employees is one of the measures, then
who is in the best position to achieve this result. In this case, it is
the line manager. HR has the accountability to implement a policy,
practice or procedure that has the highest likelihood of Retaining
the High Potential Employee, as well as collecting the data to
support the measure. The line manager has the accountability to
-8–
HR Balanced Scorecard
execute the policy, practice, or procedure to ensure retention. The
line manager also has a responsibility to provide feedback to HR
on the policy, practice, and procedure and its likelihood of
producing the desired result. For the result to be achieved there
must be accountability.

v. Validity
Can the numbers be Trusted? The HR measurement system must
contain measures and metrics that are clearly understood,
meaningful to the initiative, and that have been thoroughly
examined. There is nothing that will inhibit the successful
implementation of an HR Scorecard or Measurement System more
than numbers that cannot be verified. If the credibility of the
measures becomes questionable, then the trust in the measurement
system is broken. Broken trust results in failure.

vi. Measure Results

The HR Scorecard and Measurement System must focus on results.


Measuring the time to fill an open job simply tells us the length of
time it took to complete a search. It is a process measure. The more
important measure is productivity of the individual who filled the
position. This is a result measure. Result measures are the primary
way you will be able to determine if the company’s Strategic Plan
will be achieved. Result measures are what senior managers use to
determine if HR is contributing to organizational success. Result
measures will be a determining factor in your ability to be seen as
a Strategic Business Partner. Result measures create the
convergence of HR to the organization.

vii. Lag and Lead Measures

Lag measures tell us what happened in the past. Year end financial
reports are lag measures. We learn the result of our efforts. Lead
measures are an indicator of what the future result might be. Lead
measures tell us either to continue what we’re doing, or stop,
because the result is not what we want. It is very important that our
HR Measurement System contain a combination of Lag and Lead
measures. For example, the results of an Employee Engagement
Assessment may tell us that our employees feel that to meet their
career goals, they have to work in another company. This is a Lead
indicator of turnover. Higher than expected turnover within a
group of employees who have been targeted as High Potentials, is
a Lag indictor that our retention efforts are not working. It is very
-9–
HR Balanced Scorecard
important that your HR Measurement System contain a balance of
Lag and Lead measures. It’s too late to lock the barn door after the
horse has already gotten out.

viii. Actionable

To quote Albert Einstein: “Everything counts, but everything


doesn’t need to be counted.” For an HR Measurement System to be
meaningful, it must contain only those measures that are most
important to the HR Strategy and the Strategic Plan of the
company. One of the failures of many HR Scorecards and
Measurement Systems is the belief that more is better! In reality,
the vital few measures provide much greater insight and the ability
to take action. We all know what happens when we try to address
too many issues at one time: our efforts lack focus, are not of the
highest quality, and fall short of expectation.

ix. Dynamic

Things change. Forces outside our control require us to rethink our


plans. The HR Measurement System must contain the flexibility to
be dynamic in an ever changing world. The “bend but don’t break”
defense is an excellent model to deploy to insure the success of
your HR Measurement System.

x. Distributed

The HR Scorecard and Measurement System must be


communicated throughout the organization. Many of the initiatives
will be carried out and implemented by the line organization. They
must know how these initiatives are going to be measured.
Communication of the HR Scorecard and Measurement System
will also bring valuable visibility to the HR function.
Communicating HR success, done in a positive way, will bring
credibility, respect, and trust to HR. Communication will also go a
long way in enabling HR to be seen as a Strategic Business
Partner, providing additional opportunities to bring convergence
of HR to the business.

Evaluating your current measurement system against these 10


Dimensions will enable you to diagnosis the effectiveness of your
current system. These dimensions should be used as the
cornerstone to build an HR Scorecard, which will provide a strong,
- 10 –
HR Balanced Scorecard
lasting foundation. Whether you are just getting started, your HR
Scorecard is being used successfully, or your results have been less
than you excepted, assessing your efforts against these dimensions
will enable you to strengthen your measurement initiative and
exceed the expectation of senior management. An effective and
efficient HR Scorecard and Measurement System is the surest way
to demonstrate HR Effectiveness.

 Distinguishing characteristics of HR Scorecard

The distinguishing characteristics of HR Scorecard are:

 An HR Scorecard is aligned with the Strategic Plan of the


Company.
 An HR Scorecard provides focus, accountability and prioritization
to all HR initiatives.
 An HR Scorecard is used to determine the individual performance
expectations of HR staff members and line management.
 An HR Scorecard is used by the entire organization, not just HR.
 An HR Scorecard identifies the role employees outside of HR play
to impact results.

 Creating the HR Scorecard reveals

The 'new' skills HR professionals must develop in order to become true strategic assets to
their organizations

 10 international best-practice case studies illustrating how HR can


play a critical role in shaping world-class people strategies for their
companies.
 An explanation of how the ROI of HR programmers can be
assessed and a detailed overview of how to conduct an HR audit
 The demands placed on HR in the current climate and the
challenges involved in becoming a strategic partner
 Complete results, analysis and commentary from a survey of over
200 leading organizations.
- 11 –
HR Balanced Scorecard

 HR Balanced Scorecard Screenshots

 Metrics for HR Measurement

This is the actual scorecard with HR Metrics and performance


indicators. The performance indicators include: "Cost per Hire",
"Turnover Cost", "Turnover Rate", "Time to fill", "and Length of
employ.