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A Dissertation Report On "Putting HR On Balanced Scorecard" (A Case Study of Verizon)
A Dissertation Report On "Putting HR On Balanced Scorecard" (A Case Study of Verizon)
Dissertation Report
On
Putting HR on Balanced Scorecard
(A Case Study of Verizon)
(SUBMITTED TOWARDS PARTIAL FULFILLMENT OF POST
GRADUATE DIPLOMA IN MANAGEMENT)
College
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ACADEMIC SESSION
(2008-10)
College Address
PREFACE
Our institution has come forward with the opportunity to bridge the gap
by imparting modern scientific management principle underlying the
concept of the future prospective managers.
On the very outset of this report, I would like to extend my sincere & heartfelt
obligation towards all the personages who have helped me in this endeavor.
Without their active guidance, help, cooperation & encouragement, I would not
have made headway in the project.
At last but not least gratitude goes to all of my friends who directly or
indirectly helped me to complete this project report.
Any omission in this brief acknowledgement does not mean lack of gratitude.
Thanking You
Your Name
CERTIFICATE FROM THE FACULTY GUIDE
The new economic paradigm is characterised by speed, innovation, quality and customer
satisfaction. The essence of the competitive advantage has shifted from tangible assets to
intangible ones. The focus is now on human capital and its effective alignment with the
overall strategy of organisations. This is a new age for Human Resources. The entire system
of measuring HRs contribution to the organisations success as well as the architecture of the
HR system needs to change to reflect the demands of succeeding in the new economy. The
HR scorecard is a measurement as well as an evaluation system for redefining the role of HR
as a strategic partner. It is based on the Balanced Scorecard framework developed by Kaplan
and Norton and is set to revolutionise the way business perceives HR.
Based on various studies, it can be concluded that firms with more effective HR management
systems consistently outperform the competition. However, evidence that HR can contribute
to a firms success doesnt mean it is now effectively contributing to success in business. It is
a challenge for managers to make HR a strategic asset. The HR scorecard is a lever that
enables them to do so. Implementing effective measurement systems for intangible assets is a
very difficult task and demands the existence of a unified framework to guide the HR
managers. It is this difficulty that has been the prime reason why managers tend to avoid
dealing with intangible assets as far as possible. In the process firms under-invest in their
people and at times invest in the wrong ways. Another difficulty is, managers cannot foresee
the consequences of their investments in intangible human assets in a well-defined
measurable manner and they are not willing to take the risk. Thus, the most effective way to
change this mindset is obvious to build a framework just like the balanced scorecard, which
has sound measurement strategies and is able to link HR functions, activity and investment
with the overall business strategy. The HR scorecard framework was specifically designed for
these purposes.
3. To find out how Balanced Scorecard is useful for developing the Human Resource as
a strategic partner.
2.3.Data sources: The research is based on secondary data and the data is collected
from various websites, Journals, Magazines, Articles and Research Paper.
2.4.Data Analysis: The research is divided into the six sections. The First section
deals with the overall introduction of the research and the Second section highlights
the Human Resource as a strategic partner and the traditional human resource and the
human resource in present and the future of the human resource. Third section
explains in detail the HR Architecture as a strategic asset which contains the hr
function, hr system and the employee behavior. Fourth section explains the
background and the concept of balanced scorecard, need of the balanced scorecard in
todays competitive environment, and defines the balanced scorecard as a
measurement tool. Fifth section explains how balanced scorecard can be
implemented into the human resource to develop the HR as a strategic partner. Sixth
section contains the case study of Verizon and explains how Verizon has
implemented the balanced scorecard to human resource to generate the value through
the intangible asset.
1. Is the balanced scorecard HR's ticket to the board? Nelson, Paul. Personnel
Today, 3/5/2002.
The first part of this article gives numbers on the popularity of BCs throughout industry.
From the article: According to a recent survey by the Balanced Scorecard Collaborative and
the Society for Human Resource Management, about one-fourth of HR organizations have
adopted the Balanced Scorecard approach. However, virtually all of the 1,300 respondents
have explored the possibility. The rest of the article has no relation to balanced scorecards.
A synopsis of three scholars (Jac Fitz-enz, David Norton, and Helen Drinanwork) in the field
of HR metrics and analysis, by way of selling the authors upcoming Net Conference.
2. Norton developed the "Human Capital Readiness Report," which provides a snapshot
of an organization's human capital relative to its strategic requirements. It documents
the strategic requirements, then shows, through its measures and programs, how
human capital is being developed.
Objective:- Reasons for and application of using the BSC as a way to measure HR
productivity and effectiveness.
Biggest reason: a move to measuring tangible assets, and a need to turn the intangibility of
HR into something more measurable. Case: Alterra Health Care in Milwaukee, which used
HR as the centerpiece of a larger strategic transformation that targeted the firms 145%
turnover rate.
3. The HR Scorecard must make visible the link from what staff does to strategic
outcomes. Cascading goals, which may be done through the ten-step process, is one
element of successfully creating the link.
The general scenario in most companies is as follows. HR management teams have well-
developed visions of their departments, their roles and responsibilities. But, the senior
management is generally skeptical of HRs role in the firms success. They generally consider
HR to just be another necessary appendage but not something that can contribute to the
success of the company. Even if the senior management does believe that human capital is
their most prized possession and asset, they cannot understand how the HR team can make
this belief come alive.
There is one reason for all of this. Human capital is an intangible asset and HRs influence on
firm performance is difficult to measure. The standard elements of a firms resource
architecture that are measured include total compensation, employee turnover, cost per hire,
percentage of employees that undergo performance appraisals and percentage employee
satisfaction. The question to be asked is: Are these the measures crucial to implementing the
firms strategy? This is clearly not the case. Interesting attributes would include a committed
workforce, competency development programs, etc. But, it is very difficult to imagine
measures for these quantities. Hence, in the current state of HR there is a clear rift between
what is measured and what needs to be measured.
As mentioned in the introduction, the role of HR is no more just administrative. It has a much
broader, connected and strategic role to play. But, these statements must be substantiated. The
reasons why HR must be considered as a strategic asset must be highlighted. A strategic asset
is something difficult to trade or imitate. They are normally a set of scarce, special or even
exotic resources and capabilities that bestow a firm its competitive advantage. An unlikely
paradox is that the very intangibility of human capital that makes it so difficult to measure
and evaluate, also proves to be the one quality that makes it a strategic asset. Consider the
difference between being able to align employee efforts with the companys strategic goals
and instead having innovative policies of performance appraisals. The latter is a policy. It is
visible to competitors and can be easily copied. The former on the other hand is a strategic
move. It is not easy to imitate since it is a very circumstantial effort, which depends on the
specific firm, its goals and its people. This proves to be a strategic asset i.e. something that
competitors cannot see but that can be utilised to gain a competitive advantage. It is thus
Many firms have realised this and have made efforts to measure HRs influence on the firms
performance. However, most of these approaches seem to focus on the individual, as it is
believed that if one can achieve an improvement in individual employee performance, it
would automatically enhance the performance of the organisation. The point that is missed is
the fact that organizational units, be it individuals or teams, do not function in isolation. The
stress is on streamlining and cooperatively working towards a common goal.
5.1.The HR function
Basically, the firm needs to structure all the elements of its HR system in a way that supports
a high-performance workforce. However, systemic thinking implies stress on the
interrelationships of the HR system components and the link between HR and the larger
strategy of the firm. The laws of system thinking imply the following:
1. Problems of today are most likely due to past decisions. It is thus important to look at
the causal nature of past solutions and current problems.
2. One should think twice before taking the easy way out or deciding to go with standard
solutions to any problem as this will most likely lead to a crop of new problems in the
future.
3. Cause and effect are not closely related in time. There is a lag between cause and
effect and HRs influence on firm performance is normally much less direct than that
of other performance drivers. This can make it hard to measure as well as be
misleading. It is thus important to look at the leading indicators and not just the
lagging indicators. Typical financial performance measures are lagging indicators and
in an attempt to solve financial problems, the first step is normally to cut costs. It is
more important to actually pinpoint the cause of the problem and look to long-term
benefits than short term ones.
4. The best strategies are often unobvious. Small changes in how HR drivers are
managed can slowly gather momentum and work their way through the strategy
implementation process.
Firms with high performance work systems tend to devote considerably more resources to
recruiting and selection. There is a strong emphasis on training and performance management
and compensation is tied to performance. Teamwork is encouraged, there is generally less
unionization and they have a large and effective HR team. It is important to note, that all
these factors in tandem, not in isolation, lead to better performance, once again showing the
systemic nature of HRs role in performance enhancement. The effects of these measures are
lower employee turnover, more retention, greater sales per employee and a greater market
value for the firm.
It is also important for the HR system to constantly check for alignment of all its parts i.e.
how much they reinforce or conflict with each other. An example of misalignment is a policy
that encourages teamwork but rewards individual contributions.
In the service sector, the employee-customer relationship is very obvious and visible and so
the impact of value creation is unmistakable. But, in many firms, the value is derived from
the operational processes and quality of work that the employees generate. This is less
obvious to competitors and it cannot be imitated. It is especially in these kinds of firms that
the alignment of HR strategy and policy with the overall strategy of the firm matters the
most.
The alignment process begins with a clear understanding of what kind of value the
organisation is supposed to generate and how it should be generated. In the Balanced
Scorecard, this is referred to as the strategy map that stresses the relationship between the
ultimate goals and the key success factors at the four important levels of customers, internal
operations, people and systems. Once the firm has a clear understanding of the value-creation
process, it can then design an implementation model that specifies needed skills and
competencies and employee behaviours throughout the firm. The HR management section
can then be directed towards generating these necessary competencies and behaviours. The
stress is not just on the creation of sound HR policies and strategies. How these are
A high performance HR system will also tend be unique. This is because it depends on the
particular organisation, its goals, people and strategy. Hence, it proves to be a strategic asset.
5.3.Employee Behaviours
As mentioned above the final results of the strategies are mapped to required employee
behaviours. It is important that each employee be trained not just to do his or her job but also
to have a substantially clear understanding of where he or she stands in the big picture of the
overall strategy of the firm. Strategic behaviours are productive behaviours that directly serve
to implement the firms strategy. There are two basic categories. Core behaviours are
behaviours that are considered fundamental to the success of the firm, across all business
units and levels. Situation-specific behaviours on the other hand, are more circumstantial
behaviours. These are not required all the time but are absolutely necessary in certain
scenarios.
In the dawn of the century, Frederick W. Taylor established the very concepts of resource
allocation in his Principles of ScientJlc Management. In 1920-ics it went around assembly
line and motion studies as the first experience from systematic mass production had given
theorists quite a lot of materials to be analysed from the point of view of using traditional
blue-collar employees more efficiently. In the I 930-ies, the main topic was motivation of
employees, as it turned out that human nature does not enable to work long hours on a
repetitive tasks without frustration level getting so high enough to diminish productivity. In
the l940-ics and 1950-ies, the first statistical and linear methods were introduced in trying to
measure logistics of the operations management and its implications to overall company
success in financial-analysis side. In the beginning of 1980-ics, partly because of introduction
of electronic data processing equipment and quick development of computers, the whole
array of management techniques were initiated. The particular reasons for the vast
development of the new theories were catalyzed mainly by ever growing competition
generated through more systematic use of computers, and of course also by rapid growth of
the importance of human capital.
Industrial age companies created a sharp distinction between two groups of employees. The
intellectual elite managers and engineers used their analytical skills to design products
and processes, select and manage customers, and supervise day-to-day operations. The
second group was composed of the people who actually produced the products and delivered
the services. This direct labour work force was a principal factor of production, which
performed its tasks under supervision of the first group. Today automation and productivity
have increased the number of people performing analytic functions: engineering, marketing,
management and administration. Therefore, the people are more viewed as problem solvers,
not as variable costs. In other words, information age has brought about the concept of
knowledge management.
1. Just-in-time
3. Lean enterprise,
5. Time-based competition,
6. Customer-focused organization,
8. Employee empowerment,
Some of those programmes have meant in practice real breakthrough and improvement,
others have proven to be in the best case just a short-time disturbance, but in the worst cases
total failures resulting in disarray or even bankruptcy of a particular company. The main
reason for that lies in five main implementation problems:
As for today, superior financial performance and efficiency in production are just not enough
to gain sufficient competitive advantage, but more and more attention needs to be paid to
intangible sides of business.
For at least 15 years, the leading management journals have published articles about how to
build up a mechanism that would enable to control all the aspects of a companys
performance. One of the most versatile tools for that purpose is Balanced Scorecard.
The long-term success of any organization is determined by the capabilities and the
competencies it has developed. Todays businesses require a better understanding of their
customers (both existing and potential ) and their needs, better streamlined processes and
highly skilled people for ensuring future survival and sustainable growth.
1. It considers the financial indices as well the non-financial ones in determining the
corporate performance level and
The aim of the Balanced Scorecard is to direct, help manage and change in support of the
longer-term strategy in order to manage performance. The scorecard reflects what the
company and the strategies are all about. It acts as a catalyst for bringing in the change
element within the organization
Balanced Scorecard uses a balanced measurement system that comprises of the old
financial side and four new perspectives of:
4. Learning and Growth Perspective - Can we continue to improve and create value?
Hence, from the above lines we can say that this tool has considered not only the financial
results to be important but also those factors which actually drive an organization towards
future successes as mentioned earlier. The tool has given stress on the other areas which are
required to balance the financial perspective in order to get a total view about the
organizational performance and improve the same.
The Balanced Scorecard emphasises the importance of measuring business performance from
the perspective of strategic implementation, rather than relying solely on financial results.
Senior managers tend to pay far too much attention to the financial dimensions of
performance and not enough attention to the driving forces behind those results. Financial
measures are lagging indicators i.e. backward looking. They are designed to rectify or change
past results. Performance drivers on the other hand are within the control of the management
in the present and the Balanced Scorecard methodology encourages management to look at
these leading indicators as well. By specifying the important process measures, assessing
them, and communicating the firms performance based on these criteria to the employees,
the managers can ensure that the entire organisation participates actively in the strategy
implementation process. It is a unifying tool in strategy implementation.
The next important step is communication. The top management that has done the above
analysis must communicate their findings and decisions to the middle and front-line
managers, who in turn must communicate it to the other employees. In this way, everyone in
the organisation is made aware and can participate in the strategy implementation process.
This also helps allocate resources intelligently and guides employees decisions. The
Balanced Scorecard model recognises the importance of both tangible and intangible assets
and of financial and non-financial measures. It focuses on the complex connections among
the firms customers, operations, employees and technology and places an important role for
HR. The BSC framework highlights the differences between leading and lagging indicators.
Lagging indicators include financial metrics, which typically reflect only what has happened
in the past. Such metrics accurately measure impacts of past decisions but dont help in
making current decisions or guaranteeing future outcomes. The leading indicators are the
unique indicators for each firm. They include process cycle time, customer satisfaction or
employee strategic focus. These indicators assess the status of key success factors that drive
the implementation of the firms strategy and hence emphasise the future rather than the past.
From all the measurement perspectives of a Balanced Scorecard, the financial perspective
needs to be introduced the least as the main financial measurement systems have been
analysed during the past years very thoroughly
The particular financial performance measures for any Balanced Scorecard should define
long-run financial objectives for the organisation. While most of the organisations would
emphasise profitability objectives, other possibilities may also be considered. Businesses with
many products in the early stage of their life cycle can stress rapid growth objectives, and
mature businesses may emphasise maximising cash flow.
Norton and Kaplan recommend to simplify the financial perspective measurement selection
pool to identify first the organisations stage, which would mainly be one of the three:
I. rapid growth organisations - are at the early stages of their life cycle. They may
have to make considerable investments to develop and enhance new products and
serviccs, to construct and expand production facilities, to build operating capabilities,
to invest in systems, infra-structure, and distribution networks that will support
relationships, and to nurture and develop customer relationships.
III. harvest organisations - have reached a mature phase of their life cycle, where the
company wants to harvest the investments made in the earlier to stages. These
businesses no longer warrant significant investment only enough to maintain
equipment and capabilities, not to expand or build new capabilities. Any investment
The financial objectives for businesses in each of these three stages are quite different.
Financial objectives in the growth stage will emphasise sales growth; sales in new markets
and to new customers; sales from new products and services; maintaining adequate spending
levels for product and process development, systems, employee capabilities; and
establishment of new marketing, sales, and distribution channels. Financial objectives in the
sustain stage will emphasise traditional financial measurements, such as return on capital
employed, operating income, and gross margin.
Objectives Measures
The customer perspective addresses the question of how the firm is viewed by its customers
and how well the firm is serving its targeted customers in order to meet the financial
objectives. Generally, customers view the firm in terms of time, quality, performance, and
cost. Most customer objectives fall into one of those four categories.
In the customer perspective of the Balanced Scorecard, managers identify the customer and
market segments in which the business unit will compete and the measures of the business
units performance in these targeted segments.
The customer perspective typically includes several generic measures of the successful
outcomes from a well-formulated and implemented strategy. The genetic outcome measures
include customer satisfaction, customer retention, new customer acquisition, customer
profitability, and market and account share in targeted segments. While these measures may
appear to be generic across all types of organisations, they should be customised to the
targeted customer groups from whom the business unit expects its greatest growth and
profitability to be derived.
Market share, especially for targeted customer segments, reveals how well a company
is penetrating a desired market. For example, a company may temporarily be meeting
sales growth objectives by retaining customers in non-targeted segments, but not
increasing its share in targeted segments. The measure of market share with targeted
customers would balance a pure financial signal (sales) to indicate whether an
intended strategy is yielding expected results.
When companies have targeted particular customers or market segments, they can
also use a second market-share type measure: the account share of those customers
business (some refer to this as the share of the customers wallet). The overall
market share measure based on business with these companies could be affected by
the total amount of business these companies are offering in a given period. That is,
Companies seeking to grow their business will generally have an objective to increase
their customer base in targeted segments. The customer acquisition measure tracks, in
absolute or relative terms, the rate at which a business unit attracts or wins new
customers or business. Customer acquisition could be measured by either the number
of new customers or the total sales to new customers in these segments. Companies
such as those in the credit and charge card business, magazine subscriptions, cellular
telephone service, cable television, and banking and other financial services solicit
new customers through broad, often expensive, marketing efforts. These companies
could examine the number of customer responses to solicitations and the conversion
rate- number of actual new customers divided by number of prospective inquiries.
They could measure solicitation cost per new customer acquired, and the ratio of new
customer revenues per sales call or per dollar of solicitation expense.
Both customer retention and customer acquisition are driven from meeting customers
needs. Customer satisfaction measures provide feedback on how well the company is
doing. The importance of customer satisfaction probably cannot be over-emphasised.
Recent research has indicated that just scoring adequately on customer satisfaction is
not sufficient for achieving high degrees of loyalty, retention, and profitability. Only
when customers rate their buying experience as completely or extremely satisfying
can the company count on their repeat purchasing behaviour.
V. Customer Profitability
Newly acquired customers can still be valued, even if currently unprofitable, because
of their growth potential. But unprofitable customers who have been with the
company for many years will likely require explicit action to cope with their incurred
losses.
While value propositions vary across industries, and across different market segments
within industries, Kaplan and Norton have observed a common set of attributes that
organises the value propositions in all of the industries where we have constructed
scorecards. These attributes are organised into three categories.
Product/Service Attributes
Customer Relationship
Product and service attributes encompass the functionality of the product/service, its
price, and its quality. The image and reputation dimension enables a company to pro-
actively define itself for its customers. The customer relationship dimension includes
the delivery of the product/service to the customer, including the response and
delivery time dimension, and how the customer feels about the experience of
purchasing from the company.
Objectives Measures
In the internal business process perspective, executives identify the critical internal processes
in which the organisation must excel. The critical internal business processes enable the
business unit to deliver on the value propositions of customers in targeted market segments,
and satisfy shareholder expectations of excellent financial returns. The measures should be
focused on the internal processes that will have the greatest impact on customer satisfaction
and achieving the organisations financial objectives.
The internal business process perspective reveals two fundamental differences between
traditional and the Balanced Scorecard approaches to performance measurement. Traditional
approaches attempt to monitor and improve existing business processes.
They may go beyond just financial measures of performance by incorporating quality and
time-based metrics. But they still focus on improving existing processes. The Balanced
Scorecard approach, however, will usually identify entirely new processes at which the
organisation must excel to meet customer and financial objectives. The internal business
process objectives highlight the processes most critical for the organisations strategy to
succeed.
The second departure of the Balanced Scorecard approach is to incorporate innovation
processes into the internal business process perspective. Traditional performance
measurement systems focus on the processes of delivering todays products and services to
todays customers. They attempt to control and improve existing operations - the short wave
of value creation. But the drivers of long-term financial success may require the organisation
to create entirely new products and services that will meet the emerging needs of current and
future customers. The innovation process-the long-wave of value creations, for many
companies, is a more powerful driver of future financial performance than the short-term
operating cycle. But managers do not have to choose between these two vital internal
processes. The internal business process perspective of the Balanced Scorecard incorporates
objectives and measures for both the long-wave innovation cycle as well as the short-wave
operations cycle.
Objectives Measures
Learning and growth metrics address the question of how the firm must learn, improve, and
innovate in order to meet its objectives. Much of this perspective is employee- centered.
The fourth Balanced Scorecard perspective, Learning and growth, identifies the infrastructure
that the organisation must build to create long-term growth and improvement. The customer
and internal business process perspectives identify the factors most critical for current and
future success. Businesses are unlikely to be able to meet their long-term targets for
customers and internal processes using todays technologies and capabilities. Also, intense
global competition requires that companies continually improve their capabilities for
delivering value to customers and shareholders.
Organisational learning and growth come from three principal sources: people, systems, and
organisational procedures. The financial, customer, and internal business process objectives
on the Balanced Scorecard will typically reveal large gaps between existing capabilities of
people, systems, and procedures and what will be required to achieve targets for breakthrough
performance. To close these gaps, businesses will have to invest in re-skilling employees,
enhancing information technology and systems, and aligning organisational procedures and
routines. These objectives arc articulated in the learning and growth perspective of the
Balanced Scorecard. As in the customer perspective, employee-based measures include a
Objectives Measures
Technology Leadership Time to develop new product
Manufacturing Learning Time to new process maturity
Product Focus % of product representing 80% of sales
Figure 2: The Cause and Effect relationships among the four perspectives
3. The next important step is the setting of specific targets around each of the identified
key areas which would act as a benchmark for performance appraisal. Hence, a
performance measurement system is build around these critical factors. Any deviation
in attaining the results should raise a red signal to the management which would
investigate the reasons for the deviation and rectify the same.
4. The appropriate strategies and the action plans that arc to be taken in the various
activities should be decided so that it is clear as to how the organization has decided
to pursue the pre-decided goals. Because of this reason, the Balanced Scorecard is
often referred to as a blueprint of the company strategies.
To illustrate the use of todays main measurement tools, Kaplan and Norton bring
the following example:
Imagine entering the cockpit of a modern jet airplane and seeing only a single
instrument there. How would you feel about boarding the plane after the
following conversation with the pilot?
Q: I am surprised to see you operating the plane with only a single instrument.
What does it measure?
A: Airspeed. I am really working on airspeed this flight.
Q: That good. Airspeed certainly seems important. But what about altitude?
Would an altimeter be helpful?
A: I worked on altitude for the last few flights and Ive gotten pretty good on it.
Now I have to concentrate on proper airspeed.
Q: But I notice you do not even have a fuel gauge. Wouldnt that be useful?
A: You are right; fuel is significant, but I cannot concentrate on doing too many
things well at the same time. So on this flight Im focusing on airspeed. Once I
get to be excellent at airspeed, as well as altitude, I intend to concentrate on fuel
consumption in the next set of flights.
We suspect that you would not board the plane after this discussion. Even if the
pilot did an exceptional job on airspeed, you would be worried about colliding
with tall mountains or running low on fuel. Clearly, such a conversation is a
fantasy since no pilot would dream of guiding a complex vehicle like a jet
airplane through crowded air spaces with only a single instrument. Skilled pilots
are able to process information from a large number of indicators to navigate their
aircraft. Yet navigating todays organisations through complex competitive
environments is at least as complicated as flying a jet. Why should we believe that
executives need anything less than a full battery of instrumentation for guiding
their companies? Managers, like pilots, need instrumentation about many aspects
of their environment and performance to monitor the journey toward excellent
Performance Drivers:
HR enablers:
Ulrich et al. discuss a seven step model for formalising the strategic role of HR.
They are summarised below:
Once a firm clarifies its strategy, HR professionals need to build a clear case for
the strategic role of HR. In concrete terms, they must be able to explain how and
why HR can support the strategy. It is important to look at as much of case
histories and internal as well as external research while going through this phase.
Although it is not wise to imitate others, one can learn a lot by looking through
past experiences of others. Basically, the direct impact on the HR systems high
performance characteristics is non-linearly related to the increase in market value.
This is because in the lower ranges of performance, increase in market value is
basically because HR stops making mistakes it used to make in the past. It is
almost like it is getting out of the way and avoids blunders and wrong practices
that worsen the situation. In the middle range of performance, HR starts
consolidating its efforts. It is learning from its mistakes and in the process does
not actually add much to the market value of the employees and the company, but
once a certain threshold is crossed indicating that the firm has adopted the
appropriate HR practices and implemented them effectively, the market value
soars exponentially. This is mainly because the HR system starts getting
integrated into the overall strategic system of the firm. Basically, the firms must
consolidate the appropriate HR policies and practices into an internally coherent
system that is directly aligned with business priorities and strategies that are most
likely to create economic value. This can lead to significant financial returns to
the company. It is this plan that must be made concrete and shown as a strong
case to make senior management believe in HRs potential.
Processes
On-time Delivery
Customer
Customer Loyalty
Financial
Return on the capital employed
in the business
3. Think about how one can measure progress towards these goals.
These basic questions generate a wealth of information about how well a firms
HR has been contributing to the success of the organisation. Along with these
discussions, it is useful for the company to conduct surveys within the
organisation to identify the extent to which each employee understands the
organisational goals. Once the whole picture of the firms value chain is
highlighted, the firm can then translate the information into a conceptual model
using language and graphics that make sense to the members of the organisation.
The model should then be tested for understanding and acceptance amongst the
leaders and the employees.
HR creates much of its value at the points of intersection between the HR system
and the overall strategy implementation system of the organisation. Thus, to
leverage this to the maximum possible extent it is important that there is a clear
understanding of both sides of this intersection.
In the past, HR managers lacked the required amounts of knowledge about the
business side and general managers did not fully understand the HR side. It is
HRs responsibility to depict HR deliverables including performance drivers as
well as HR enablers in the strategy map of the firm. Performance drivers such as
employee competence, motivation and availability are very fundamental and so it
might be difficult to locate these precisely on the strategy map. It is important to
identify those HR deliverables that support the firm-level performance drivers on
the strategy map. The focus should be on the kind of strategic behaviours that
Basically, highly cohesive HR strategies will work as long as they are aligned
well with the overall strategy of the company. It will fail if it is not periodically
reshaped so as to align it with the overall strategy.
However, for a particular fixed overall strategy, all firms need an internally
aligned HR strategy in order to achieve the overall goals. Misalignment between
the HR system and the strategy implementation system can destroy value. In fact,
the wrong measurement system can have the exact opposite effect than intended.
The first stage is normally the traditional category of measures. These mainly
include operational measures such as cost per hire, activity counts etc. These are
not exactly strategic measures. In the second stage, HR measures have a strategic
importance but they dont help much in making a case for HR as a strategic asset.
Firms may declare several people measures such as employee satisfaction as
strategic measures and these might be included directly into the reward systems.
The next stage represents a transition point whereby the firm includes non-
financial measures such as HR measures into its strategic performance
measurement system. The links between the various measures are also identified
i.e. they are placed appropriately in the strategy map. The HR measures now
actually track HRs contribution to strategy implementation.
The previous step completes the HR scorecard development process. The next
step is to use this powerful new management tool in the right way. This tool not
only helps the firm measure HRs impact on firm performance, but also helps HR
professionals have new insights into what steps must be taken to maintain HR as a
strategic asset. It helps the HR professionals dig deeper into the causes of success
and failure and helps them promote the former and avoid the latter. Implementing
the strategy using the HR scorecard requires change and flexibility as well as
constant monitoring and re-thinking. The process is not a one-time event. HR
professionals must regularly review the measures and their impacts. They must
review the HR deliverables identified as important and see to it that the drivers
and enablers and internally as well as externally aligned. Special reviews of the
HR enablers must be conducted as these have the maximum direct impact on
specific business objectives. Enablers that do not tend to play a positive role
should be replaced.
While management tends to make decisions about how to invest in human capital,
few companies have an effective process to measure the value created by this
most valuable asset. In Verizon, they believed that HR could effectively manage
the value created by thorough investments in employees. Managers knew was
how much was paid to reward, hire, train, develop, and provide benefits to
employees. What managers needed to know, however, was where the investments
5. HR Capability:
develop core HR competencies
identify key talent for growth and development
invest in technology
invest in employee self-service
better understand the relationship of HR actions to business
outcomes
The biggest problem was communicating and reinforcing the linkage between HR
actions and business results. The business had a clear strategy and targeted
business results. The HR Strategy was directly linked to the needs of the business
and expressed in terms of HR strategic thrusts. The prime objective was to
effectively communicate and execute on strategic intent, motivate and track
performance against organisation and business goals, and to align HR actions
with business results.
9.3.The Team
A newly formed HR Planning, Measurement, and Analysis team was created to
design and implement a tool that would quantify HRs contribution to the
business. The Balanced Scorecard model, which was at the time a leading edge
corporate performance assessment tool, was selected as the framework to adapt
and build an HR Measurement model. J. Randall MacDonald served as the senior
executive for the HR measurement initiative. This role was critical to the success
of the project. Randy MacDonald actively influenced his senior leadership team
within HR to secure their buy-in and to hold them accountable for supporting the
project. The newly formed Planning, Measurement, and Analysis team included a
director and four employees solely dedicated to the design, development,
2. Operations Perspective
Measures HRs success in operational excellence. The focus was primarily
in three areas: staffing, technology, and HR processes and transactions.
3. Customer Perspective
Includes measures of how HR is viewed by the key customer segments.
Survey results were used to track customer perceptions of service as well
as assess overall employee engagement, competitive capability, and links
to productivity.
4. Financial Perspective
Addresses how HR adds measurable financial value to the
organisation,including measures of ROI in training, technology, staffing,
risk management, and cost of service delivery.
9.4.The Process
A deliberate approach to the project was clearly defined and communicated to
each member of the team and to the HR organisation. The project was established
and organised into four major components: Planning and Alignment, Assessment,
Development, and Implementation.
1. Planning and Alignment set the foundation for the project. Project plan
objectives, and milestones were established. Team education and training
was imparted on business performance management, the balanced
scorecard methodology, and its application to HR measurement.
2. Assessment focused on understanding what was used at that time as
measure to evaluate HR performance and to assess the relative value to the
business.
3. Development began the actual process of designing the HR measurement
model. Defining the measurement criteria and scorecard measures,
establishing targets, defining the process for collecting and tracking
Output
Clearly defined business goals
Determining HR Deliverables
Output Competitive
Capability Requiremnents
Output
Metrics Model
Metrics Map
Beginning with a clear understanding of the business strategy and goals, the HR
team worked with the business leaders and HR leaders to determine the key
questions to be answered for the business and to determine what key drivers of
the business would translate into clear people requirements. The outcome was an
The people requirements defined the HR Strategy that then translated into specific
HR initiatives that should directly support the attainment of HR Strategy. Having
this alignment allowed Verizon to develop a strategy map, which illustrated the
cause and effect linkage between HR Strategy and business objectives. Using the
strategy map as the guide, they were then able to evaluate the strategic objectives
in terms of measures and outcomes (Fig 9.). They could then further refine these
into lagging measures (which tell how well a company has already done) and
leading measures (which are indicators of future performance).
HR puts together a business strategy document capturing the major insights and points
AJAY KUMAR GARG during
gathered INSTITUTE OF MANAGEMENT
the acquisition of business intelligence Page 54
HR brainstorming Session Line Survey
Contribute to Corporate
Financial Shareholder Value
Operations
Align HR Planning Provide Proactive Ensure a Strategy Develop & Optimize Service
with Business Workforce Focused Enhance World Delivery through
Strategy Solutions Workforce Class Programs Streamlined
Processes
Strategic
As the measurement model was being developed to support the businesss people
requirements, the objectives became clearer. HR recognised that the employees
would need to expand their skills and increase their productivity to provide the
new products and services that business would provide.
3. New incentive systems were needed to encourage the new behaviour and
skill acquisition as well as retention plans for critical skill employees.
9.5.Early Results
An early benefit of the HR Scorecard work was that it provided a process for the
senior HR team to focus on a clear and common objective: to establish a common
strategy for HR in support of business objectives. The high level strategy was for
everyone to be a partner to the business. Rarely, however, did all of the HR
leadership agree on how to implement the strategy because each person had a
different opinion about what being business partner really meant and whom
exactly the customer was. Taking strategy and translating it into a measurement
and management model gave specific and operational definitions for being a
business partner and targeted business customers.
9.6.Communicating the HR Scorecard
Communicating the HR Scorecard across the HR organisation and the business is
a critical aspect of successful implementation. The development process increased
learning and understanding but was only visible to the top leaders within HR and
the business. To use the HR Scorecard to drive change throughout the
organisation, the Planning, Measurement, and Analysis team developed a phased
approach to communicate and train the managers and their departments on this
new management tool. The emphasis on the scorecard was on the value the tool
provided in communicating strategy and alignment to the business. It also served
as a tool that provided proactive solutions to employee issues or deterrents before
a negative impact could occur to the bottom line. Performance measurement was
also an essential component, and all in the HR organisation had their incentive
compensation tied to the results of the HR Scorecard.
Linkages between business processes and value chains to human resource actions
and services were clearly defined as the HR Scorecard became a business tool
understood and used across the HR organisation. Not only are human capital
initiatives needed to increase employee value delivered to the business, they are
vulnerable to business process changes and the measures taken in isolation can be
misleading. For example, in a regional call centre, the external business measures
of customer satisfaction were trending downward and accelerating. When HR
reviewed the call centre results from the HR Scorecard, there was no single
indicator that showed any direct relationship to the customer satisfaction issue;
however, the measures, together with input and analysis by HR professionals and
line management, pointed to both an issue and solution not readily apparent. The
HR metrics showed a very low cost per hire, a very quick cycle time to fill jobs,
and an average employee separation rate. On the surface nothing looked unusual.
Ironically, the staffing metrics showed a high efficiency and cost control. Drilling
deeper showed a high cost of training, a very high separation rate for short service
employees, and declining employee satisfaction for long service employees.
Further analysis revealed that six months prior a significant expense reduction
effort had been put in place for this call centre. HR responded to the required
The underlying technology supporting the virtual briefing book provides links to
Enterprise Resource Planning (ERP) systems (SAP and PeopleSoft) and a data-
warehouse using a data-mining tool to drill down below the HR Scorecard results
to analyse and model cause and effects. Predictive modelling to evaluate
workforce decision impacts (positive and negative) prior to execution is the
primary objective of this investment in technology. Fig. 5 illustrates the
technology architecture. The Employee Data Warehouse provides the intelligence
behind the measures tracked by the HR Scorecard.
The HR professionals have access to a rich base of employee data integrated from
16 different HR systems including 20 years of history. Users have a suite of
reporting tools that enable them to perform sophisticated multidimensional
workforce analysis and predictive modelling. Hidden correlation between
Goals/Measures/Targets
Goals/Measures/Targets
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andCommunication
Communication
Awareness
HRBalanced
BalancedScorecard
Scorecard
HR
Awarenessand
andCommunication
Communication
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RecommendAction
Action Understanding
Recommend Understanding
2. The focus of the organizations is now on human capital and its effective
alignment with the overall strategy of organisations
6. Balanced Scorecard not only focus on the financial measures and but also
on the non-financial measures to measure the organizational performance.
7. To align the Human Resource with the overall strategy of the company,
seven step model is used which is formulated on the basis of the Balanced
Scorecard.
1. The primary source could not be used to collect the data because Balanced
Scorecard concept is not popular among Indian companies.
Business environment and the objectives and strategies will continue to evolve,
and HR managers will continue to be flexible and creative in supporting the
changes. The value of the HR Scorecard as a tool is that it can get HR to the new
goals and measures and through the process ensure continued learning and change
management.
HR Scorecard is not a only solution to align the human resource with the overall
business strategy. It cannot solve all the problems of HR.
HR scorecards are not panaceas. They will not cure a poorly run HR function.
However, they do provide a means by which you can collect rigorous, predictable
RECOMMENDATIONS
8. The major step to welcome the change must be taken by the top
management. The scorecard technique if is to be successful requires the
full support and the commitment of all levels of the management
hierarchy.
9. Many managers believe that they will reap the benefits of the Balanced
Scorecard by using a wide range of non-financial measures. However,
care should be taken to identify not only lagging measures that describe
past performance, but also leading measures that can be used to plan for
future performance.
Nelson, Paul. 3/5/2002. Is the balanced scorecard HR's ticket to the board?
Personnel Today
Bain and Co. 9/1/2003. Bain Study Reveals How Firms Are Using Three Main
Analytic Tools. Accessed from www.bain.com.
2. Websites
SHRM Metrics forum: http://www.shrm.org/metrics/
3. Book