Operations management

The HR-scorecard..

.. a tool to measure the

intangible?

Joop Vinke MA 2009

The Netherlands

1
Index
Index.......................................................................................................................................................2
1. Introduction.........................................................................................................................................3
2. De HR-scorecard................................................................................................................................4
3. HR-structure.......................................................................................................................................4
3.1 The HR-function................................................................................................................................5
3.2 The HR-system.................................................................................................................................5
3.3 Employee behaviour ........................................................................................................................5
4. “Performance-drivers” and "possible-makers" in HR-scorecard..........................................................6
5. Value chain.........................................................................................................................................7
6. from value chain to measurable performance-drivers.........................................................................7
7. Performance-drivers and `possible-makers”.......................................................................................8
8. HR-instruments as `possible-makers” ..............................................................................................10
9. Conclusions......................................................................................................................................10
Bibliography..........................................................................................................................................12
Appendix. Complete value-chain.........................................................................................................13

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1. Introduction

My subject for the discipline “Operations management” will be focused on “making the intangible
tangible” One of the most intriguing subjects in operations management according to me.
Operations management has been defined in the last years in many terms. I would like to use the
following definition for this paper:
“The activities, decisions and responsibilities of operations managers”1.

Many times definitions of operations management are quite broad and include the product or service
development and also sometimes the personnel activities in the organizations as part of it. Operations
management is mostly specific related to products and associated with the profit sector.
In my opinion operations management is also relevant to organizations whose purpose is not primarily
for making profits. Managing operations in not for profit organisations is essentially the same as in
commercial organizations
Operations managers in those organisations also have to take the same decisions, actions and also
have responsibilities. It is all about managing the processes on base of input, transformation and
output to customers or clients

I will write this paper on an experience I had with practical operations management during a research I
did in an organization in the Netherlands some years ago. During that research I have made the
decision to introduce a relatively new way of measuring an important part of the processes related with
the personnel, which is called the method of the ‘HR-scorecard’.

This method is developed by Becker, Huselid and Ulrich ·2 and I have used it in this research to
translate the obtained strategies and results of the (theoretical) organisational analysis to an applied
operational plan that was implemented and led to change and improvements.
It becomes therefore an example of applied operation management in a way to find the most effective
and efficient way to apply the recommendations of the research in the most influencing way.

The implementing of the strategies that came out of the (theoretical) analysis could in this way be
related with the other part of the research; the insight in the needs of the employees that came out of
the questionnaires and interviews.

By using the vision, theory and approach behind the HR-scorecard method it was possible for me to
make a lot of vague and mostly intangible parts in the organisation more ‘visible” and therefore
measureable, by formulating so called “ performance-drivers” in a value chain for the organization. In
this way I could make a well planned strategic implementation.
The authors of the HR scorecard explain this also in their book: “A successful implementation of the
strategy is a question of strategically focused employees, a strategic link of the HRM policy and a
balanced performance system” 3

With this approach it was possible to link the theoretical parts of the research to an applied
implementation. The arguments and explanations for the choice I will give in the following parts.

1
“Operations management”, . Stack, N, Chambers,S. Johnston, R. Prentice Hall 2004

2 Becker, B,E, Huselid, M.A., Ulrich, D; HR scorecard, Linking people, strategy and performance, Harvard Business School press, 2001

3 Kaplan, R.S, Norton, D.P, ‘The Balanced Scorecard – Measures That Drive Performance’ Harvard Business Review, jan/febr. 1992, p 53

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2. De HR-scorecard.
The method of the HR-scorecard is in principle developed as adding to the well-known “Balanced
scorecard (BSC)” of Kaplan and Norton4.
Last mentioned, explained after the introduction of the HR scorecard by the authors in Harvard
Business Review that he saw this method as a very powerful adding method on the Balance
Scorecard. Especially the personnel part. In this specific part about the “human capital “ in the
organisation there was, according to Norton a big lack that leads to many problems in organizations.
One of the big issues concerns the defining of measurable indicators.
Norton writes in the introduction of the book the following sentence:
“We can’t manage things that we can’t describe”5

Although the HR score method is in principle made for big profit organizations, it showed me that this
method also can have an added value for organizations that do not work with a fully integrated BSC
system. I had this experience in an organization in the Netherlands. One of the authors, Mark Huselid
explained after seeing this research and the way of using the method that this approach is a perfect
example of translating the ideas behind the HR scorecard to other suitable situations

The HR scorecard method offered me an approach to get indicators to manage the “human capital”6 in
an organization as a “strategic power”. It also gave me the opportunity to make visible in which way
HRM instruments in the organization can be of important stimulators that will benefit the goals and
aims of the organization.
Especially in this organization where I did this research the “human capital” had an important function.
It concerned an organization that is manly working with volunteers and it was useful to get a more
strategic focus from all employees, paid and also the none-paid employees (volunteers).

Beside that I have the opinion that the method itself and the vision behind the HR scorecard also is a
perfect possibility to create a specific rewarding and appraising system for employees. An explanation
of the method and the principles of the HR scorecard method can make this clearer.

3. HR-structure
Becker, Huselid and Ulrich gave an explanation of the HR scorecard method about the “strategic HR
structure”. With this they are pointing at an integrated HR policy that is build up as shown in figure 1.

HR-structure

HR-system
Employee behaviour
HR-function Policies and practice
Strategic relevant
HR employees with with a focus on top
competencies,
strategic performance and
motivation and
competencies agreement with the
behaviour
strategy

Fig. 1 from: “De HR scorecard” B.E. Becker, M.A. Huselid, D.Ulrich (2001)

4 Kaplan, R.S, Norton, D.P, ‘The Balanced Scorecard – Measures That Drive Performance’ Harvard Business Review, jan/febr. 1992, p 71-79

5 Becker, B,E, Huselid, M.A., Ulrich, D; HR scorecard, Linking people, strategy and performance, Harvard Business School press, 2001

6
http://derekstockley.com.au/newsletters-05/018-human-capital.html.

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3.1 The HR-function.
Figure 1 shows that the so called “HR-structure” starts with ‘HR-employees with strategic
competencies”. Talking about HR employees this is understood the employees of special departments
as “Personnel” or “HR”. These employees are in this explanation special focused on their discipline
and are fully led by the targets and goals of the organization.

Because of the lack of these kinds of departments in many small and medium sized organizations this
“HR function” cannot be seen as a separate function and has therefore to be translated to all
employees. Especially to the management of the organization, who have an initiation role in this.
Managers have to be the ones that need to have these strategic focused competencies or at least
need to be busy with getting them.
The importance of investing in this and therefore getting a more strategic focus in the organization is
huge and often underestimated, Managers are in this HR structure of the HR scorecard the ultimate
“performance-drivers” that can help organisations to become strategic focused.

3.2 The HR-system

The authors explain also in the HR structure a system called ‘H.P.W.S.’ (High performance work
system) or, as they call it themselves; “a system for top performance”.
This system is marked within the HR structure as the axis on which strategic influence turns and can
be given. Every element within this system has to be aligned and designed on the highest possible
quality that can be reached by the “human capital”.
To guide this “human capital” to the desired level the following measures are already mentioned:

- Checking the decisions to recruit employees

- Stimulating the needed competencies for employees

- Development of methods to give on time and effective answers on the question whish skills
are required for implementation of the strategy

- Having a policy for rewarding and incentive management with which the organization can get
the best employees and keep them,

The authors explain this subject very clear; “Every organization will have to develop their own system
in that way that it will reward the specific needs in that organization.”7

Concrete this meant for the organization where I did the research that the results of the interviews and
questionnaires of the research on the “needs of the employees”, would give a perfect start to build a,
for that organization specific, HR system as axis to influence strategic focus.

3.3 Employee behaviour

The third component of the HR system in fig. 1 is related to the so called “strategic behaviour” of all
employees. This has been defined in the method as: “Productive behaviour which contributes directly
to the implementation of the strategy of the venture”.
Hereby the following main points are mentioned:

• The importance of each form of behaviour becomes stipulated by the importance for the
implementation of the strategy.

This means concrete that there must be insight within the organization in the way people and
processes have an effective and measurable `creating” value for the output.

• Strategic behaviour is not as separate part meant to influence, but always a final result of the
total HR-structure.

7 Becker, B,E, Huselid, M.A., Ulrich, D; HR scorecard, Linking people, strategy and performance, Harvard Business School press, 2001

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These three elements give the organization a way to reach successfully the objectives in the future by
creating a HR-structure with a clear consistency. Only in this consistent way the implementation of the
organisation’s strategy can lead to successful results as mentioned in the HR scorecard.

To understand an apply that a form of `system thinking"8 must also be implemented in the
organization. Within this way of system thinking, people and processes will be seen as values, as well
as separate individual contributors to the creation of these values. Actually the answer on the problem
for this whole research becomes clearer: For this paper I will not go deeper in this. A more expanded
explanation of this way of thinking can be found in several definitions.9
The problem definition for the research in the non profit organization was:

“ Which measures must the organisation take to obtain and preserve sufficiently qualified
employees?”10

With making an HR-structure according to the previous mentioned method, the organization was able
to set indicators and values to some activities that could not be indicated before. Using an entirely new
coherent policy was necessary in the future to obtain (and remain) the objectives.
An HR-structure that consists of a HR-policy for a strategic focused organisation means that this has
to be made specifically with “strategic focused” employees. The way to do that is explained hereafter.

4. “Performance-drivers” and "possible-makers" in HR-scorecard.

Both, the strategies from the analysis of the research and the insight in the needs and wishes of
employees and volunteers needed a conversion into measurable indicators, In the HR scorecard these
are called: `Performance-drivers” for the organization. This making visible, and, as result, making
measurable, is necessary to make it possible `to manage what we can describe” as Norton earlier
called it.

The question is of course: “How can I make the participation of volunteer work measurable?
The responses on that question that I got frequently were that most volunteers often talked about
`working for fun” or “out of love” and that it was something that an organization “cannot and does not
check!” Most of the times the reactions in the organization were: “Just accept it when it’s given… You
have to be glad that it is done!

Yet, this organization wanted to manage the volunteer work toward a strategic focused organization
and therefore they had to describe the value of all this and, in that way make it visible and measurable
It looked like a dilemma, but during the interviewing part of the research it became clear that a large
part of the employees wanted also to be treated in a more professional way.
It was striking for me that they indicated very clear a lot of professional issues like: descriptions, rules,
measurability and clarity.
Although this was not meant by them to be more `controlled”, it became clear to me that this was
meant to make their specific contribution an important issue that the organization could appreciate as
an important contribution.

With making `measurable” I mean making “visible” the value and in this case specific the `progress
indicators”. These indicate clearly or, when and which value is created in an organisation.
A large issue for many organisations is the measuring of the “vague” and mostly intangible
contributions of individual employees’ to work related subjects. This frequently reflects in separate
(simplistic?) measuring which mostly says nothing concerning the `value” for the organization or the
whole.
Examples for this are:
percentage of employees that have performance appraisals
career interviews, and
sickness / absence percentage within an organisation.

8
http://www.systemthinking.net/
9
http://www.managementhelp.org/misc/defn-systemsthinking.pdf
10
Vinke, J. “Don’t try to motivate people, just try to reward their motives” research 2001 Zutphen, The
Netherlands

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These indicators are often used, however they only indicate a quantity of a separate activity or
component and with that they become mostly aims in itself.
This focus, (the aim at raising or lowering percentage) simply relies on quantitative given figures. This
results and focus misses however the `value” that it has in the whole system.
Managers are overall more targeted on achieving the results then on creating and making visible of
value. (This last, strongly generalising and subjective observation of mine is not meant as a value
judgement but more an observation of an actual fact.)

5. Value chain
Making a `value chain” - also called `strategy card” - for the organisation is no unknown phenomenon.
Many organisations already have made such value chains. It is, in a graphic manner, reflecting the
way in which an organisation creates value.
It mostly concerns here value chains targeted in the direction of the customers in which is explained
which values the organisation creates for them, as indicated by Michael Porter.11.
Based on this I made a different value chain for this organization in which the contribution of the
employees is indicated in values such as `performance-drivers”. See fig.2.

Value chain STOW

Motive Behaviou Visible

r Satisfaction need for
employe employee
clients
client clients
e .

Place

employee
.

Attitude Quality Appreciatio

employee deliverin n society,
volunteer Service/ subsidionar
product g
ies

Value for
clinent

Job
satisfaction

Image for
new
employees

fig. 2 value chain organisation STOW Zutphen

This value chain reflects graphically which importance all separate components have, seen in the
whole of system thinking. It makes clear the total coherency of all factors which are related with the
employees. All these factors lead to the eventual performance (value) of the organisation. Thinking in
one whole system makes the value chain.

The motive of the employee seems, as shown in this way, to have a very important function, as well as
the behaviour and the attitude. They seem the beginning of the range, but I have to stipulate that
within the system thinking this also counts for each other component of the chain.

6. from value chain to measurable performance-drivers

The HR-structure as mentioned before can show the organization all components of the value chain.
Every component is a performance-driver which has influence on the eventual result of the value
11
Porter, M.E., Competitive advantage: creating and sustaining superior performance, The Free Press, New
York, 1985

7
chain. There is a repeating system of value factors which have influence for the next performance-
driver.

The performance-drivers are in the value chain recognizable and visible as “progress indicators”.
Because of this they can be made separately measurable and still count as factors and a total whole
of value creation.
To explain how the mentioned performance-drivers can be seen as measurable progress-indicators I
have made the following list.

Performance drivers progress indicators

Motive employee to participate - Degree of attention to aims in organisation
- Degree recruitment and selection methods
- Results selection interviews
- Results exit interviews
Volunteers/ paid employees - Impact of recruitment campaign
- Increase of the competencies of employees
- Degree in which the organisation learns
Attitude employees - Effectiveness of information exchange
- Degree in which employees are aware of goals
of the organisation
- Degree in which employees are aware of own
goals
- % employees that can explain what strategic
mission and intentions of the organisation are
- Degree of involvement of the employees
Behaviour employees. - Performances of employees.
- Performances of recent recruited employees.
- % employees. that suggests ideas
- Results research participation employees.
Satisfaction employees. - Trainings for employees.
- Employee satisfaction level
- Degree in which essentially human capital is
preserved
Customers - Degree of complaints and praise of customers
- Degree in which the organisation learns from it
Satisfaction - customer satisfaction
Place - Accessibility of the service
- Place of the building.
Service/product -Degree in which the organisation has translated
the vision in strategy and goals
-Results from evaluation of services and products
Value - Appreciation of customers
- Appreciation of society
- Appreciation of environment/ stakeholders
Quality supply - Quality measuring
- Certification
Perceptible need services - Needs and wishes customers
- Needs and wishes financiers
Income subsidies - Degree of financial contributions / income
Attraction for new employees. - Degree of reputation foundation
- Degree of corporate identity (internal entity)
- Degree answer in work for motive of employee
to participate
Fig. 3 Measurable progress indicators for performance-drivers

7. Performance-drivers and `possible-makers”

The indicators in fig. 3 have been reflected behind the separate performance-drivers in a list of
measurable indicators (values) for the organization. The organization does not have to use them all,
but I put this list to get an insight in the amount of `possible makers” that can be generated with these
indicators.

8
In the HR-scorecard approach they are described as the `the amplifiers for the performance-drivers”.
The alignment with HR-instruments has been explained by me in the explanation of the HR-structure
and it makes clear that HR instruments are the “possible-makers” for the performance drivers and with
that therefore the `amplifiers of the whole value chain.

In the total overview that I will present in fig. 4 I can clarify now how I translated the whole results of
the research coherent to a total value chain with performance-drivers, progress-indicators and finally
with “possible makers” in the form of HR-instruments.

Strategies Themes from Checked hypothesis Influence on which HR- instrument

questionnaire performance-driver

Improvement internal Attention for Volunteers too less Attitude/ behaviour -Improvement
communication volunteers attention employees. communication

- empowerment
Visible and latent - Keeping the
needs employee employee in
- performance
appraisals
Organisation has to
give more attention to - Quality of service
Need for attention to the employees. - job descriptions
the employees in the
future - Attraction for new
employees - contract
Management volunteers
more professional Question for more Employees want the
professionalising the use of professional HR - Service / product - responsibility/
work of the volunteers instruments tasks
Use of HR-instruments
integrated - Income/ subsidiaries
- rules and
Strategic focus and regulations
organization
The way that the - Motive employees
organization have to - introduction and
Using volunteers for give the attention to coaching
training employees the employees - Clients/ customers

- training
New employees -Satisfaction
selecting on the base of
competencies - Recruitment and
- Need for services selection
Employees coaching on
new task/ role

Relation between motif and work employees

Fig. 4 overview diagram

The given overview in fig. 4 shows from the left to right and the other way round an overview how all components
of the research can lead to a coherent system. The possible-makers as mentioned in the right column are
HR-instruments that can stimulate the performance drivers. The commitment for these instruments
can count on the results from the interviews and research done with the employees. It concerns the
following instruments:
improve internal communication (for instance: discussion of progress)
 empowerment, work counsels
individual interviews with volunteers (performance appraisals)
 job description/responsibility assignment /task allocation
 recruitment and selection methods
 rules, regulations and directives, policies
 introduction and coaching
 education and training
 service agreement (in fact a form of `employment contract)

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Setting-up these HR-instruments in a concrete HR plan, focused on the indicators given, will help the
volunteers contributing to the strategic focus of the organisation. Beside that there is another important
contribution to make.

Rewarding and appreciating employees

The already existing and well-known methods and systems to reward and appreciate employees in
organisations are mostly based on stimulating employees with financial incentives. This because these
incentives are most strongly related to the company results, shareholder interests etc. Rewarding and
appreciating with gratifications, periodicals, incentives, shares and options are well-known examples.

The volunteer organisation I did the research in, however works mainly with unpaid employees and
does not have these (financial) possibilities. Therefore it has to create another reward and
appreciation system, as mentioned in the HR-scorecard method.
With the making visible and measurable of the separate performance-drivers in progress-indicators for
the total value chain I also already introduced for all employees a particular reward and appreciation
system. This needs some explanation.

For the employees themselves and the environment it becomes more and more visible and
recognizable how the end value is made of the separate values that every employee creates with their
contribution.
At the same time it also makes clear for the individual how he or she contributes to that whole value
chain of the organisation. This requires possibly a higher abstraction level, but perhaps I can clarify
this to refer to the earlier example of the motive of the employee.

Giving an answer on the motives of the volunteers, by rewarding this, is something that strongly will be
seen by employees as an incentive and appreciation. The same of course also applies to other
performance-drivers like attitude, behaviour etc. But it is clear that stimulating the cognitive driver of a
human can have a big impact on the change of behaviour.12.
If the organisation rewards these factors and appreciates attention in the form of making them visible
and recognizable as a value creation, this will lead to more satisfaction for the employee. This is a
strengthening for the other performance-driver in the value chain of the organisation.

The way in which the researched organisation could make the value chain recognizable, visible and
therefore measurable with progress indicators in a clear measuring system is elaborated and
explained in the full value chain in the appendix.

8. HR-instruments as `possible-makers”
Setting-up HR-instruments within the organisation as explained must be linked with the measuring
system for the progress-indicators. This approach can prevent that separate HR-instruments will be
used as an `aim". Firstly therefore the progress-indicators by means of visibility and recognising will
have to be clearly related with the value creation and the performance-drivers in the whole value
chain.
This will make the HR-instrument the “possible-maker for strengthening the performance-driver and
this impact will lead to a successful contribution to the whole value chain.

9. Conclusions

In the applying of the research I have translated this to a concrete action plan with steps to implement
this in the organization. For this paper on the operations management subject HR scorecard it goes
too far to explain this. The meaning of this explanation of the use of the HR score card method is to
make clear in which way Operations management can be of important value for managing the “Human
capital”.

12
Huitt, W. (2006). The cognitive system. Educational Psychology Interactive. Valdosta, GA: Valdosta
State University.

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As stated in the beginning of this paper I mentioned operations management that I used the definition
as the term that is used for “the activities, decisions and responsibilities of operations managers”13.

This research and the approach I used made clear that it also can be used in non profit organizations.
Managing operations in not for profit organisations is essentially the same as in commercial
organizations. Operations managers have to take the same decisions. They manage the process on
base of input, transformation and output to customers and clients

My decision to focus on “making the intangible tangible” is according to me a very important subject in
Operations management. Although many times it is hard to measure the intangible, so called ‘soft
skills” I hope Ii made clear that it is also possible to use special methods and approaches for that. The
use of an instrument like the HR-scorecard makes this clear.

Joop Vinke
Zutphen, the Netherlands,

October 2009

13
“Operations management”, . Stack, N, Chambers,S. Johnston, R. Prentice Hall 2004

11
Bibliography

• Vinke, J., “Don’t try to motivate people, just try to reward their motives”, research 2001,
Zutphen, The Netherlands,

• Stack, N., Chambers,S. Johnston, R. “Operations management”, Prentice Hall 2004

• Thomas, R & D., “The service volunteer’s handbook”, Resource publications, Inc. San Jose,
California, 1998.

• Sagawa, S., Segal, E., “Common interest, Common good, Creating value through business
and social sector partnership,”, Harvard Business School press, Boston Massachusetts, 1999.

• Wilson, T.B., “Innovative reward systems for the changing workplace”, McGraw-Hill, Inc.2/e,
New York, 2002.

• Becker, B.E., Huselid, M.A., Ulrich, D; “HR scorecard, Linking people, strategy and
performance”, Harvard Business School press, 2001

• Becker, B.E., Huselid, M.A., .Beatty,R., ”The Differentiated Workforce”, McGraw-Hill, New
York, 2009

• King et al. (G. King, R.O. Keohane en S. Verba), “Designing social inquiry”, Princeton,
Princeton University Press, 1994.

• Porter, M.E., “Competitive advantage: creating and sustaining superior performance”, The
Free Press, New York, New ed. 2004.

• Clary, E.G., Snyder, M.A., “Functional analysis of altruism and pro-social behaviour”, in: Clark,
M.S. (red.), “Pro-social behaviour”, London: Sage, 1991.

• Kanter, R.M., “Commitment and community”, Cambridge (MA), Harvard University Press,
1972.

• Kaplan, R.S., Norton, D.P., “The Balanced Scorecard – Measures that drive performance,”
Harvard Business Review, Jan. /febr. 1992. & “Using Scorecards for Governance in the
Corporate and Public Sector”, Harvard Business Review, Sept. 2008

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Appendix. Complete value-chain

13