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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

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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

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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 selfimprovement. 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

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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.

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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

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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-today basis Focus on the drivers of future performance Improve communication of the organizations 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.

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HR Balanced Scorecard
ii. Alignment The foundation for an HR Scorecard or Measurement System is its alignment with the companys 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.

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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 whos 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.

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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

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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 companys 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 were 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

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important that your HR Measurement System contain a balance of Lag and Lead measures. Its too late to lock the barn door after the horse has already gotten out. viii. Actionable To quote Albert Einstein: Everything counts, but everything doesnt 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 dont 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,

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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.

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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.