You are seeing our new document Reader view. Click here to revert. Feel free to leave us feedback on this feature here.

Embed Doc
Copy Link
Readcast
Collections

CommentGo Back

Download

The HR Scorecard: LinkingPeople, Strategy, andPerformance

HBSWK Pub. Date: Apr 2, 2001

Maintaining competitive advantage in the new economy will require incorporating HR function into corporate strategy, say Brian Becker, Mark Huselid, and Dave Ulrich in their new book. In this excerpt, the authors explain how to understand and optimize the ways people create value.

by Brian E. Becker, Mark A. Huselid, and David Ulrich

The Evolving Picture of HR: FromProfessional to Strategic Partner

Recent decades have witnessed dramatic shiftsin the role of HR. Traditionally, managers sawthe human resources function as primarilyadministrative and professional. HR stafffocused on administering benefits and otherpayroll and operational functions and didn't thinkof themselves as playing a part in the firm'soverall strategy.Efforts to measure HR's influence on the firm'sperformance reflected this mindset. Specifically,theorists examined methodologies and practices that are focused atthe level of the individual employee, the individual job, and theindividual practice (such as employee selection, incentivecompensation, and so forth). The idea was that improvements inindividual employee performance would automatically enhance theorganization's performance.Although such research attempted to extend the range of HR'sinfluence, it did little to advance HR as a new source of competitiveadvantage. It provided scant insight into the complexities of a strategicHR architecture. And simply put, it didn't encourage HR managers tothink differently about their role.

Page 1 of 521-06-2005http://hbsworkingknowledge.hbs.edu/tools/print_item.jhtml?id=2143&t=bizhistory

In the 1990s, a new emphasis on strategy and the importance of HR

systems

emerged. Researchers and practitioners alike began torecognize the impact of aligning those systems with the company'slarger strategy implementation effort — and assessing the quality ofthat fit. Indeed, although many kinds of HR models are in use today,we can think of them as representing the following evolution of humanresources as a strategic asset:

The personnel perspective

: The firm hires and pays people butdoesn't focus on hiring the very best or developing exceptionalemployees.

The compensation perspective

: The firm uses bonuses,incentive pay, and meaningful distinctions in pay to reward highand low performers. This is a first step toward relying on peopleas a source of competitive advantage, but it doesn't fully exploitthe benefits of HR as a strategic asset.

The alignment perspective

: Senior managers see employees asstrategic assets, but they don't invest in overhauling HR'scapabilities. Therefore, the HR system can't leveragemanagement's perspective.

The high-performance perspective

: HR and other executivesview HR as a system embedded within the larger system of thefirm's strategy implementation. The firm manages and measuresthe relationship between these two systems and firmperformance.We're living in a time when a new economic paradigm —characterized by speed, innovation, short cycle times, quality, andcustomer satisfaction — is highlighting the importance of intangibleassets, such as brand recognition, knowledge, innovation, andparticularly human capital. This new paradigm can mark the beginningof a golden age for HR. Yet even when human resource professionalsand senior line managers grasp this potential, many of them don'tknow how to take the first steps toward realizing it.In our view, the most potent action HRmanagers can take to ensure theirstrategic contribution is to develop ameasurement system that convincinglyshowcases HR's impact on businessperformance. To design such ameasurement system, HR managers mustadopt a dramatically different perspective,

the most potentaction HRmanagers cantake to ensure

Page 2 of 521-06-2005http://hbsworkingknowledge.hbs.edu/tools/print_item.jhtml?id=2143&t=bizhistory

one that focuses on how human resourcescan play a central role in

implementing

thefirm's strategy. With a properly developedstrategic HR architecture, managersthroughout the firm can understand exactly

how people can create value

and

how to measure the value-creation process

.Learning to serve as strategic partners isn't just a way for HR practitioners to justifytheir existence or defend their turf. It hasimplications for the very survival of the firmas a whole. If the HR function can't showthat it adds value, it risks being outsourced.In itself, this isn't necessarily a bad thing;outsourcing inefficient functions canactually enhance a firm's overall bottom line. However, it can wastemuch-needed potential. With the right mindset and measurementtools, the HR architecture can mean the difference between acompany that's just keeping pace with the competition and one that issurging ahead.A recent experience of ours graphically illustrates this principle. In acompany we visited, we asked the president what most worried him.He quickly responded that the financial market was valuing his firm'searnings at half that of his competitors'. In simple terms, his firm's$100 of cash flow had a market value of $2,000, while his largestcompetitor's $100 of cash flow had a market value of $4,000. Heworried that unless he could change the market's perception of thelong-term value of his organization's earnings, his firm would remainundervalued and possibly become a takeover target. He also had alarge portion of his personal net worth in the firm, and he worried thatit was not valued as highly as it could be.When we asked him how he was involving his HR executive ingrappling with this problem, he dismissed the question with a wave ofhis hand and said, "My head of HR is very talented. But this isbusiness, not HR." He acknowledged that his HR department hadlaunched innovative recruiting techniques, performance-based paysystems, and extensive employee communications. Nevertheless, hedidn't see those functions' relevance to his problem of how to changeinvestors' perceptions of his firm's market value.Six months after our meeting, a competitor acquired the firm.The sad truth is that the HR executive in this story missed a valuable

their strategiccontribution isto develop ameasurementsystem thatconvincinglyshowcases HR'simpact onbusinessperformance.

Page 3 of 521-06-2005http://hbsworkingknowledge.hbs.edu/tools/print_item.jhtml?id=2143&t=bizhistory