HR Scorecard by Zohra Dhila
Embed Size (px)
Transcript of HR Scorecard by Zohra Dhila
Sr No 1 2 3 4 5 6 7 8 9 10
Particulars Introduction Concept of HR Balanced scorecard How to approach a HR scorecard
5 9 12
HR scorecard design 15 Metrics Creating an ideal HR Scorecard 21 Cost-Benefit Analyses Competencies for HR Professionals Use of HR scorecard Application of HR scorecard 28 22 25 27 18
Case study of FAA Case Study Of US Division
TABLE OF CONTENTS
INTRODUCTION:Recent decades have witnessed dramatic shifts in the role of HR. Traditionally; managers saw the human resources function as primarily administrative and professional. HR staff focused on administering benefits and other payroll and operational functions and didn't think of themselves as playing a part in the firm's overall strategy. 2
Efforts to measure HR's influence on the firm's performance reflected this mindset. Specifically, theorists examined methodologies and practices that are focused at the level of the individual employee, the individual job, and the individual practice (such as employee selection, incentive compensation, and so forth). The idea was that improvements in individual employee performance would automatically enhance the organization's performance. Although such research attempted to extend the range of HR's influence, it did little to advance HR as a new source of competitive advantage. It provided scant insight into the complexities of a strategic HR architecture. And simply put, it didn't encourage HR managers to think differently about their role. In the 1990s, a new emphasis on strategy and the importance of HR systems emerged. Researchers and practitioners alike began to recognize the impact of aligning those systems with the company's larger strategy implementation effort and assessing the quality of that fit. Indeed, although many kinds of HR models are in use today, we can think of them as representing the following evolution of human resources as a strategic asset: The personnel perspective: The firm hires and pays people but doesn't focus on hiring the very best or developing exceptional employees. The compensation perspective: The firm uses bonuses, incentive pay, and meaningful distinctions in pay to reward high and low performers. This is a first step toward relying on people as a source of competitive advantage, but it doesn't fully exploit the benefits of HR as a strategic asset. The alignment perspective: Senior managers see employees as strategic assets, but they don't invest in overhauling HR's capabilities. Therefore, the HR system can't leverage management's perspective. The high-performance perspective: HR and other executives view HR as a system embedded within the larger system of the firm's strategy implementation. The firm manages and measures the relationship between these two systems and firm performance.
We're living in a time when a new economic paradigm characterized by speed, innovation, short cycle times, quality, and customer satisfaction is highlighting the importance of intangible assets, such as brand recognition, knowledge, innovation, and particularly human capital. This new paradigm can mark the beginning of a golden age for HR. Yet even when human resource professionals and senior line managers grasp this potential, many of them don't know how to take the first steps toward realizing it.
In our view, the most potent action HR managers can take to ensure their strategic contribution is to develop a measurement system that convincingly showcases HR's impact on business performance. To design such a measurement system, HR managers must adopt a dramatically different perspective, one that focuses on how human resources can play a central role in implementing the firm's strategy. With a properly developed strategic HR architecture, managers throughout 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 justify their existence or defend their turf. It has implications for the very survival of the firm as a whole. If the HR function can't show that it adds value, it risks being outsourced. In itself, this isn't necessarily a bad thing; outsourcing inefficient functions can actually enhance a firm's overall bottom line. However, it can waste much-needed potential. With the right mindset and measurement tools, the HR architecture can mean the difference between a company that's just keeping pace with the competition and one that is surging ahead. In a company the president was asked what is it that worried him the most. He quickly responded that the financial market was valuing his firm's earnings 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 largest competitor's $100 of cash flow had a market value of $4,000. He worried that unless he could change the market's perception of the long-term value of his organization's earnings, his firm would remain undervalued and possibly become a takeover target. He also had a large portion of his personal net worth in the firm, and he worried that it was not valued as highly as it could be. When we asked him how he was involving his HR executive in grappling with this problem, he dismissed the question with a wave of his hand and said, "My head of HR is very talented. But this is business, not HR." He acknowledged that his HR department had launched innovative recruiting techniques, performance-based pay systems, and extensive employee communications. Nevertheless, he didn't see those functions' relevance to his problem of how to change investors' 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 opportunity. If he had understood and known how to measure the connection between investments in HR architecture and shareholder value, things might have turned out differently. Armed with an awareness of how investors value intangibles, he might have helped his president build the economic case for increased shareholder value. The story of Sears, Roebuck and Co.'s recent transformation stands in stark contrast to this anecdote and shows what companies can achieve when they do align HR with the larger organization's strategy. After struggling with lack of focus and losses in the billions in the early 1990s, Sears completely overhauled its strategy implementation process. Led by Arthur Martinez, a senior management team incorporated the full range of performance drivers into the process, from the employee through financial performance. Then, they
articulated a new, inspiring vision: For Sears to be a compelling places for investors, they said, the company must first become a compelling place to shop. For it to be a compelling place to shop, it must become a compelling place to work. But Sears didn't just leave this strategic vision in the executive suite or type it up on little cards for employees to put in their wallets. It actually validated the vision with hard data. Sears then designed a way to manage this strategy with a measurement system that reflected this vision in all its richness. Specifically, the team developed objective measures for each of the three "compelling." For example, "support for ideas and innovation" helped establish Sears as a "compelling place to work." Similarly, by focusing on being a "fun place to shop," Sears became a more "compelling place to shop." The team extended this approach further by developing an associated series of required employee competencies and identifying behavioral objectives for each of the "3Cs" at several levels through the organization. These competencies then became the foundation on which the firm built its job design, recruiting, selection, performance management, compensation, and promotion activities. Sears even created Sears University in order to train employees to achieve the newly defined competencies. The result was a significant financial turnaround that reflected not only a "strategic" influence for HR but one that could be measured directly. Few firms have taken such a comprehensive approach to the measurement of strategy implementation as Sears has. Granted, retail service industries are characterized by a clear "line of sight" between employees and customers. Thus their value-creation story is easier to articulate. But that doesn't mean that other industries can't accomplish this feat. The challenges may be greater but so are the rewards. We see an interesting paradox when it comes to the reporting of people measures. In many organizations, while HR continues to build its strategic capability and leaders look for ways to build value through their people, HR measurement activities continue to remain focused on evaluating efficiency or accuracy. Calculating the ratio of HR staff to employees, absenteeism, employee turnover, number of payroll errors and the like and benchmarking them against best practice competitors still account for a lot of HR time. These measurements work in a situation where HR and employees are seen as a cost to be managed. Today, when HR is being viewed as a strategic partner, these measures provide little insight into the value HR adds, its linkage to a companys business strategy and the areas it needs to focus on to impact business further. Moreover, this places many HR functions at risk in a number of ways. These are typically lag measures providing no indication of future performance for the management to take action. They can, of course, also reinforce a pattern of leadership behaviour, which views the HR function as a cost. Further, benchmarking focuses on what others are doing and can inhibit innovation and creativity An alternative model of HR measurement is beginning to emerge in which organizations are focusing on the effectiveness of their HR function and not just its efficiency. The starting place for any modern HR measurement needs to be a strategy that makes explicit the role that the HR function plays in the achievement of business objectives.
Many businesses are turning to the development of HR Balanced Scorecards to begin their measurement transformation.
CONCEPT OF HR BALANCED SCORECARD
The Balanced Scorecard is a strategic, business measurement methodology developed by Robert S. Kaplan and David P. Norton. It is on their framework that Hewitt Associates has evolved the HR Balanced Scorecard. It provides business leaders with a tool and a process to measure the performance of people practices and the HR function from multiple perspectives:
HR SCORECARD FROM DIFFERENT PERSPECTIVESStrategic Perspective the results of strategic initiatives managed by the HR group. The strategic perspective focuses on the measurement of the effectiveness of major strategylinked people goals. In the example overleaf, for instance, the business strategy called for major organizational change programs as the business faced major restructuring and multiple mergers and acquisitions. In this context, the organizations change management capability will be a key factor in the success or failure of its execution. Therefore, measuring the ability of the business to manage change effectively is the core measure of
the effectiveness of HR and will be a key strategic contribution to the future success of the business. Operational Perspective the operational tasks at which HR must excel. This piece of the Balanced Scorecard provides answers to queries about the effectiveness and efficiency in running HR processes that are vital to the organization. Examples include measuring HR processes in terms of cost, quality and cycle time such as time to fill vacancies. Financial Perspective this perspective tries to answer questions relating to the financial measures that demonstrate how people and the HR function add value to the organization. This might include arriving at the value of the human assets and total people expenses for the company. Customer Perspective this focuses on the effectiveness of HR from the internal customer viewpoint. Are the customers of HR satisfied with their service; are service level agreements met; do the customers think they can get better service elsewhere? Conducting an HR customer survey might typically arrive at this. All four components of the scorecard are used to define and measure the effectiveness of people-management activities and how the HR function executes them. This provides a strategic measurement and management process to show the connection between a companys business strategies and goals and its HR strategies, activities, and results. The Balanced Scorecard can provide an ideal approach to measure the contribution that human resource management makes to business success. With the HR Balanced Scorecard in place, Hewitt can assist organizations in selecting, designing, and implementing scorecard and analytic software, which allows them to easily monitor the workforce indicators that are key to their business success. Such solutions enhance HRs ability to provide counsel to line management and deliver results that make a difference to the achievement of their goals and strategy and thereby to shareholders.
HOW TO APPROACH A HR SCORECARD
Traditionally, HR functions have struggled with appropriate and meaningful measures to quantify their value, or that of the people engaged within the business. The emergence of the HR scorecard concept has tried to address this point, taking its core design from the established balanced scorecard measurement framework applied in businesses. In short, the balanced scorecard is essentially a framework that attempts to collate measures across four
areas: financial, internal process, customer and (people) learning, and growth rather than just the traditional financial measures (hence the term balanced). Rather than immediately compiling a list of HR measurables that are easy to quantify, it is worth taking a step back and thinking through a checklist of points to address. Understanding the reason for implementing the HR scorecard
First of all, one needs to understand the reason for developing a scorecard. For example, does a wider corporate scorecard necessitate this implementation be spun-off? Or the requirement of operating metrics on a newly established HR shared service centre? Is it a means of prioritizing and reporting an existing collection of HR metrics? Or, a result of the new ERP software providing a range of HR analytics? Asking these questions focuses on the type of measures required, from basic data to operating efficiency measures through to corporate value-based Metrics each perspective having a different focus. It is not unusual to find that there is potentially more than one layer of metrics. A common error is to try and package all relevant measures in one scorecard, rather than a pyramidlayered structure. The HR scorecard metrics hierarchy consists of: Values based HR metrics linked to corporate based metrics that reflect value-based measures HR outcome measures that focus on business outcomes Operational HR metrics that focus on efficiencies HR analytics that focus on workforce data
Understanding the business context of HR
Having understood the context of the HR scorecard rationale it is important to recognise the business context within which HR operates by asking questions such as: What are the value drivers of the business (units)? What is HRs value proposition to the business?
Where are HRs biggest value points? What does the HR function currently measure? What human capital metrics are included in the general business reporting? These questions will define the relevance of certain measures in terms of impact before the next step of defining HR value.
Defining HR value
Unfortunately most current HR metric examples are operational in nature (efficiency metrics) and are of limited or no value. In contrast, deriving HR metrics that relate to outcomes or contribute to value creation are of much more significance. HR value (or contribution to) can be seen and ultimately measured from three different perspectives: The value of the HR function to the business as a whole The value of HR processes as practiced throughout the organization, for example, performance management, and its fit with core fundamentals, such as culture, structure, strategy and so on The quantification of people value to the organisation, and their input to strategic decisionmaking. However, jumping from efficiency metrics to value-based metrics in one leap can be too much and thus a progressive move over time may be the optimum solution. Developing the hr value map and constructing hr metric trees
This is potentially the most difficult step in terms of mapping the touch points those where HR involvement or intervention has impact on business performance. This map provides the base for constructing a hierarchical link of HR metrics with business metrics (financial/process/customer). Selecting the relevant measures and metrics
This step is unfortunately the one in which most scorecard enthusiasts begin! The trick here is to construct a set of relevant metrics that meet with the initial rationale for the HR scorecard design. The outcome of this stage should result in some form of draft scorecard framework. 11
Maintaining a HR scorecard framework
The scorecard is an organic design one that changes with the business. Thus this step is most important in continually updating and reviewing the scorecard framework, ensuring that it continues to report relevant metrics and discontinuing those metrics that are no longer required. This is sometimes the hardest task. Following the steps outlined above, whilst by no means definitive, will at least ensure a HR scorecard design that will be relevant to the business rather than reflective of a loose collection of HR metrics.
HR SCORECARD DESIGNAn example of how HR scorecard was designed by a company. Business context
The team considered two influences on HR effectiveness: External influences - the company's current operating environment Internal influences - how the business perceives HR's capability.
This provided an understanding of what type and "depth" of metrics framework would be possible and palatable. Current HR objectives
The companys HR strategy already included a number of qualitative objectives in the following areas resourcing, performance management, training and development, reward, employee relations, career development and organisation development. This gave us a good initial steer for the areas where measurement is required. Appropriate HR metrics
This session established certain ground rules about the types of metrics that could or should be reported. The team generated an initial list of potential metrics, which, although comprehensive, focused too heavily on data rather than knowledge-based measures. This is a common flaw in companies HR reporting see the panel on Metrics for more detail. By considering which HR metrics would provide a valuable measure for the business, the team was able to create a more balanced list. Scorecard design framework
As a starting point, the team considered the standard four-box scorecard design of Financial, Process, Internal Customer Focus, and People/Human Capital Management It was recognised that this should be adapted to meet the companys specific requirements. Figure 1 below shows the five measurement dimensions that emerged. The Human Capital interventions box was included to address the potential confusion between ongoing reporting metrics (such as sickness absence) and one-off project reporting around specific human capital interventions, for example the introduction of a new appraisal process. The Employer brand dimension evolved to meet a gap identified during the following session. Populating the HR scorecard
Using the output from sessions 3 and 4, the team began to populate the scorecard with a number of metrics. A number of iterations were required to get to a final agreed version. Significantly, no one in the team would have acknowledged at the beginning of the day that employer brand would be a core measurement area. However, it became evident during this session that a number of brand-related metrics were populating the other boxes. This led to the decision to construct andemployer brand cluster, to replace the original process cluster. This highlighted the value of an iterative process and demonstrates that there is no one size fits all a HR scorecard design is context-specific and must reflect the companys needs. 13
The end result
At the end of a very full day, the HR team was satisfied that it had achieved a workable scorecard design, which had direct relevance to the business and provided them with a much clearer line of sight for HR performance reporting. It also became clear during the day that some of the stated HR objectives needed to be reassessed a task the team has taken away with them. .
METRICSOne of the problems for HR is that there is an almost limitless choice of HR metrics, the vast majority of which are meaningless outside the HR function but easy to report. Experience shows that many scorecards include a large percentage of metrics reporting data facts or numbers without context, for example training days delivered. Almost all of the remaining metrics fall into the information category, which is an improvement on data but still limited in terms of business value, for example, training days delivered per employee.
The real aim for HR is to produce a scorecard that contains more knowledge-based metrics that report value or contribution type information. Forexample, training spend per employee per annum, with a five year trend. Although still lacking a value connection, this metric at least supplies the business with useful knowledge regarding training in the organization Selecting Metrics Scorecards succeed because they are simple. But with that simplicity comes an imperative: they must be very carefully designed. First of all, the metrics on your scorecard should be easy to understand. Second, their number should be limited8 to 12 at most. Third, all key players must agree on what exactly should be measured. And, finally, the scorecard needs to hit homein other words, it must be deeply relevant to your unique organization; and it must communicate tangible outcomes, direct future objectives, and generate results in a way that is clear to everyone. Most of all, your metrics should accurately measure the execution of your companys strategy. For example: Cost per hire is a well-known metric. But if your HR strategy is to develop talent from within, it may not be relevant for your scorecardin fact, it may even be misleading. If the scorecard is not in line with strategy, one or both will suffer. It is also important to remember that selecting metrics is a process, not a one-time event. Tomorrows scorecard may need to take into account new strategies or new business realities. Also, it is essential that this process not be skewed in order to secure good results or avoid bad ones. The purpose of the scorecard is to track performance not just collect and show off individual numbers. It is often better to show improvement trends than strong initial results.
SAMPLE METRICSHere are some metrics that are commonly used to gauge HR processes and measure the value of human capital. You can use these as a starting point in designing your own Scorecard: Revenue per employee Income per employee
Human capital ROI Number of employees Member of management Number of customers per HR employee Employee cash compensation Employee benefit costs Training investment per employee Cost per hire And voluntary separation rate.
PUTTING SCORECARD TOGETHER (AND KEEPING IT TOGETHER)Absolute numbers are less meaningful than relative numbers. Data must always be placed within the appropriate context. Factors such as number of employees, revenue, operating expenses, and geographic location can be useful in establishing such context. Many metrics are of limited value if there is no basis for comparison. The data used to calculate the metrics should be easy to collect. 17
Otherwise too much attention is paid to gathering and validating the data, and not enough to analyzing it. Whenever feasible, find ways to automate the collecting process. If possible, embed it into your standard operating procedures. Your data should also be clean and transparent. The data you use is the pillar of your analysisand thus of your ongoing strategy. Therefore, it is critical that the numbers and calculations behind your metrics be unimpeachable, and clearly documented. Metrics need to dovetail with existing measures and tools. If executives or line managers are already relying on certain measurements, then the human capital metrics should relate to them too. And if a performance management system is already in place, or an employee opinion research has already been performed, these results should be incorporated into the scorecard, at least in its early design stages. Focus on outcomes. Executives and line managers tend to focus more on results than on activities. Your metrics should be oriented the same way. Instead of looking solely at program expenses, your scorecard should be helping you answer questions such as: Are we hiring the right people? Are we developing them wisely? Are they staying? Identify a champion. Find someone to own this process, and make sure every relevant member is made aware of that persons responsibility and of theirs. Treat your scorecard as a program, not a project. A scorecard is not an end point, but a point along a dynamic curve. To be successful, the process of designing, generating, communicating, and adjusting the scorecard needs to be woven into the very fibers of your organisation.
CREATING AN IDEAL HR SCORECARD
The ideal scorecard for an HR measurement system will include four themes: identifying the HR deliverables, identifying and measuring the High-Performance Work System elements that generate those deliverables, developing a validated competency model that will focus on outcomes, and identifying HR efficiency measures that link costs and benefits.
In terms of architecture, the scorecard will include the leading indicators of HPWS and HR system alignment, and the lagging indicators of HR efficiency and HR deliverables. A measurement system must strike a balance between cost control and value creation, and it is more important to understand the reasoning behind the scorecard than it is to mimic any particular model. HR doables are cost-focused with little opportunity to impact the bottom line; DR deliverables are benefits-focused with a connection to the overall strategy. Both must be measured, but the emphasis must be on the value creation of deliverables. Measures of the High-Performance Work System reflect more of what should be rather than what is. HR system alignment measures will link directly to specific deliverables in the scorecard. They will prompt managers to routinely think about alignment issues. Efficiency measures come in two categories: core items represent expenditures that are important but do not contribute to strategy implementation, and strategic items that are designed as investments that produce value Measures of HR deliverables identify the ways the HR system creates value; if a metric cannot be tied to the strategy map, it should not be included on the scorecard. Measures that describe HR deliverables only in terms of capabilities tend to miss the connection with strategy. To be concrete, focus on HR drivers and enablers that represent the human capital of the firm. Avoid the temptation merely to fill in the boxes on the scorecard; the key is to ask what you want the tool to do. Each item should: Reinforce the distinction between doables and deliverables Enable cost control and value creation Measure leading indicators Assess contribution to the bottom line Let HR professionals effectively manage their strategic responsibilities Encourage flexibility and change
COST-BENEFIT ANALYSES FOR HR INTERVENTIONS
An HR Scorecard measurement system identifies in quantitative terms the gap between current and ideal HR architecture, and it provides data for either an operational or strategic cost-benefit analysis.
Determining the return on investment (ROI) of specific HR interventions requires knowledge of finance, accounting, and the process of capital budgeting. To identify the most salient doables and deliverables, consider: strategic importance, financial significance, widespread impact, linkage to a business element of considerable variability, and focus on a key issue, problem, or decision facing line managers. HR must take the view of other business disciplines in presenting its case in terms of money that is, the language of capital budgeting in the allocation of capital among competing investments. Identifying costs and benefits requires an understanding of fixed and variable costs, sunk costs, and, the most difficult, the financial impact of employee performance. Calculating benefits less costs in HR programs is difficult because the benefits unfold over more than a single year. The calculation should use multiple time periods as well as the time value of the money in terms of todays dollars an analysis known as net present value (NPV). Most firms do not routinely measure costs or benefits of HR, and therefore are not focused on ROI. The few firms that do calculate HR costs and benefits, and do so on a level that is objective and precise, are able to identify the programs that are providing value and those that should be discarded. Compared to HR Scorecards, cost-benefit analysis are narrower, more project focused, provide only one specific answer, and are generally seen only by the managers involved. Scorecards are developed to identify where the firm should be in the future, and ROI analyses choose the most efficient way to get there.
PRINCIPALS OF GOOD MEASUREMENT
Use the seven steps for linking HR deliverables to strategy implementation. Otherwise, there will be a reliance on available (rather than relevant) data, which is a missed opportunity to articulate how HR causes value creation, a failure to convince other business units that they could benefit in line operation performance, and confusion from trying to combine different types or cycles of data.
A sound performance-measurement system helps focus on creating value, and it can justify resource-allocation decisions. The measurement of attributes, such as employee satisfaction, is the foundation of a measurement system, but it has little value until the attributes show a relationship to some strategic outcome. Foe measurement numbers to have meaning, they must have context, whether by a comparison to the firms historical measurement or to industry standards and benchmarking. Because the relationships among measurements are likely to be firm specific, benchmarking on HR strategic measures is misguided at best and counterproductive at worst. Concepts and visions are important in communicating the essence of ideas, but they are not measurements because they are too abstract. Clarifying these constructs in terms of specific measurements is the first step toward understanding the valuecreation process. The measurement process is not an end in itself; it has value only if it supports subsequent decisions or more effective performance evaluation. Measuring causation in dollars becomes very challenging when dealing in intangible assets because costs are easier to quantify than benefits. Measuring is further complicated by the real world of multiple variables that affect business outcomes. Case studies in the text explain how to analyze these multiples. Among the challenges to implementing a measurement system are: overcoming resistance to change; the temptation to measure everything when wisely using available data can be extremely useful; matching different levels of the organization when comparing data; and accurately gauging the relationship between leading and lagging indicators and the time periods for each. A top-down approach demonstrates an understanding of the value-creation process and the construct-valid measures of that process; a bottom-up approach starts with available measures and tries to make the best of an existing inadequate system.
MEASURING HR ALIGNMENTFor HR to be a strategic asset, it must 1) align the HR system that produces deliverables tied to the firms strategy implementation system, and 2) align the role expectations for the HR function with the individual competencies to put the role into action. 1. A simple measure of internal alignment involves a survey of those who live with the HR system and those whose behaviors the system is designed to influence. A short survey of 100 employees and one or two focus groups can provide enough information. The book contains a chart and case study that reveal the extent to which different HR components fit or do not fit, and the values express the range of each relationship. 21
2. Internal misalignment can occur when there is too much emphasis on operational efficiency and uniformity, or when there is too much emphasis on benchmarking to the neglect of the specific needs of the firms own strategy. Practices are not commodities; what works well in one firm will not necessarily work well in another. 3. Internal alignment flows from the extent to which the HR system is designed to implement the firms strategy. This is the external alignment from which the internal is constructed. 4. The first step in determining external alignment is to assess the fit between HR deliverables and strategic performance drivers. Collect information from focus groups or other cross sections of employees to determine the degree to which each deliverable enables the appropriate driver. The focus should only be on the HR deliverables within the strategy map. 5. The second step in determining external alignment is to measure the extent to which the HR system produces the appropriate human performance required for the deliverables. Again, data can be collected from focus groups, but the test comes from the experiences and impressions of managers and employees outside HR. It does not matter that this could be very subjective. 6. Strategic human focus is a function of three interrelated elements skills, motivation, and understanding of the link to strategy. These three elements must connect to the HR system. 7. There are many interdependent factors within HR and between the HR system and the firms strategy. Any adjustment can have unintended consequences. These can be understood with what the authors call a Systems Alignment Map (SAM), which is a higher form of measurement. 8. Although the Galileo method of measurement is too complex for this book review, this strategy lets managers understand employees perceptions of alignment. The steps are: identify the key strategic drivers, identify the key elements of the HR system expected to enhance strategy implementation, and ask a representative sample of employees to provide a list of paired alignment evaluations for all elements in the first two steps. Regardless of individual misconceptions or biases, the aggregate will be balanced through the correct use of those measurement techniques.
COMPETENCIES FOR HR PROFESSIONALS
1. The last decade, there has been a growing interest in HR as a profession, as evidenced by the Society for Human Resource Management (SHRM) and the certification assessment that it sanctions, and by graduate degrees at a number of prestigious universities. The knowledge and behaviors defined in these programs are competencies. 2. Of several surveys of HR competencies, the authors focus on one conducted by the University of Michigan from 1988 to 1998, which found that HR competencies
could be divided into three domains: knowledge of the business, delivery of HR practices, and the ability to manage change. As the study progressed into 1992 and 1993, other skills were identified, as HR professionals devoted more time to strategic issues and less to more traditional issues. They were becoming more knowledgeable about financial management and external competitive and customer demands. The most recent part of the survey in 1997 and 1998 confirmed the original findings and added two domains: culture management and personal credibility. For the authors, technical competencies need to be in the HR portfolio, but they are probably not essential to the professionals ability to understand the implications for HR of the firms strategy. That is the new competency of the sixth domain: strategic HR performance management. Strategic HR performance management is the process of orchestrating strategy implementation through performance measurement systems. The strategic performance management competency is comprised of: critical causal thinking, understanding principles of good management, estimating causal relationships, and communicating HR strategic performance results to senior line managers. HR has traditionally been the weak link in the effort to adopt strategic performance management as a key competency throughout the firm. HR managers must master what to measure and how to measure it, and they must apply it to the five core competencies. Managing the core competencies includes cultivating the performance of HR professionals, assessing HR performance and rewarding it appropriately, and designing HR development programs.
GUIDELINES FOR IMPLEMENTING AN HR SCORECARD1. A high quality HR Scorecard, one that has all of the clearly defined technical aspects of linking strategy with HR architecture, is 2. nothing without acceptance of the change effort within the firm. 3. Using a checklist any checklist is more important than which checklist is chosen.
4. The authors research provides seven keys and processes for making change happen: Leading change (who is responsible) Creating a shared need (why change) Shaping a vision (what will it look like when finished) Mobilizing commitment (who else needs to be involved) Building enabling systems (how will it be institutionalized) Monitoring and demonstrating (how will it be measured) Making it last (how will it be initialed and sustained) 5. These seven factors: must all be used as a package, can be used to determine the firms capacity for change beyond just HR, provide a disciplined approach to monitoring the key factors that need extra attention, and serve as a powerful new language for talking about the implementation of the HR Scorecard. 6. Each of the keys to making change happen should be applied to each element of the HR Scorecard to improve chances for successful implementation. 7. Early successes in implementing the HR Scorecard, even if modest in scope, can build momentum and expectation for future success. Integrate the HR Scorecard with other measures of management success in order to make it more sustainable. The HR Scorecard will not fix a poorly run HR function, but the process does provide the means by which you can collect data necessary to address the essential elements of HR architecture. The HR Scorecard can help deliver increased value to employees, customers, and investors. The effort to create your own HR Scorecard is technical. The actual delivery requires that HR professionals have a personal commitment to making a difference in linking HR to firm performance.
USE OF HR SCORECARDAs you might imagine an HR scorecard can help you manage those who fall under your human resources umbrella in a feasible and efficient manner. As you well know, human resources typically tracks HR metrics related to performance and other key issues regarding your employees. All this information is worthless if it cannot be viewed and shared in a simple yet effective manner. Fortunately an HR scorecard provides just the
tool. An HR balanced scorecard can be employed to spread information across all levels of the information, ensuring the lines of communication between HR and floor managers are open and clear. Working together a Human Resources manager such as your self and an Operations manager can see to it that the companys human capital its priceless employees are used in an optimal manner. Opens the Line of Communication An HR Scorecard facilitates real time distribution of information. Open access to information vital to the success of the company affords each manager the opportunity to react to issues and problems in a timely matter, meaning no more waiting for time sensitive information to trickle down to the appropriate managers. This open line of communication also ensures everybody is on the same page and that no one is left behind. Improves Performance Management Sharing and distributing real time information across the Human resources and Operations departments results in better performance across the board. Because Operations managers have access to the vital HR metrics, thanks to the HR balanced scorecard, they are able to make the timely decisions which result in higher productivity levels. Streamlines Records of Employees Just as an HR scorecard proves extremely beneficial to an Operations manager it also helps take some of the burden off your own shoulders. As an HR manager you can be confident that you have accurate and updated records of your employees performance and other vital metrics in a centralized location the HR balanced scorecard. When you need information you know where to go. There is no need to store employees records in a file cabinet because the HR scorecard digitalizes all these important records. Your job is too important to rely solely on your own abilities to get the job done. The tools to make your job easier are openly available to you, so you might as well take advantage of them. Not making use of an HR balanced scorecard will not only make your job that much harder, but it will also put you at a disadvantage against your competitors who are surely employing their own HR scorecard solution. And if they arent then you can gain your own competitive advantage by employing an HR balanced scorecard today.
APPLICATION OF HR SCORECARD It distinguishes clearly HR doable from HR deliverables. HR deliverables influence the firms ability to implement strategy while HR doables do not. By making this distinction more clear-cut, HR managers are encouraged to think Strategically instead of simply thinking operationally.
It empowers HR managers to control costs and create value.HR will always be encouraged to control costs as effectively as possible, but the HR scorecard also details HRs complementary strategic role as a value creator. In fact, the HR scorecard approach makes it possible for HR professionals to balance the two objectives realistically. It measures the firms leading indicators. The HR scorecard links HR deliverables with implementation of the firms strategy. The HR management system will have Performance drivers, measures (leading and lagging) and preferred outcomes. The scorecard measures how well all of those factors are aligned and provides ongoing Feedback. It clarifies HRs contribution to profitability. The HR scorecard enables a HR manager to answer the question, What is HRs contribution to firm performance? with measures that are credible, relevant and measurable. In fact, for every measure used, the HR manager will also be able to provide a rationale as well. This will be the framework for a superior system of metrics for quantifying results. It allows HR professionals to manage better. Using the HR scorecard, HR managers can assess precisely how HR decisions will impact on the implementation of the firms strategy. In other words, the scorecard heightens the HR managers strategic awareness and forces them to think systematically. It encourages flexibility and ongoing change. When a performance measurement system becomes institutionalized, it is more likely to inhibit rather than encourage adaptability and change. As a firms strategy evolves in response to changing market conditions, the measurement system needs to move with those changes if it is to remain completely relevant. The HR scorecard actually encourages flexibility and constant evolution because it encourages people to focus on the underlying strategy and not the arbitrary measures being used. By encouraging people to see the bigger picture, the organization is then much better positioned to change direction as required.
HOW TO BUILD ACCEPTANCE FOR A NEWLY DEVELOPED HR SCORECARDImplementing the HR scorecard is more than just a one-off event. Its also more than simply keeping a running total of HR results. Instead, a well-constructed HR scorecard allows HR managers to monitor their input into the firms results on an ongoing basis and
make periodic adjustments to ensure the HR architecture remains aligned with the evolving business strategy of the firm. Find a champion or key executive sponsor. Enlist the aid of a key executive, an influential line manager and the head of HR to champion the implementation of the HR scorecard. Create a need. Either build up the potential of a business threat or focus on the great opportunity that can be exploited if the HR scorecard is put in place and used well. The more compelling the Opportunity or the greater the threat, the more urgency the HR scorecard will have. Shape a vision. Show that with a well-implemented HR scorecard, the firm will have a strong and sustainable competitive advantage. Encourage commitment and involvement. When the people most closely involved have information about the HR scorecard, understand what it will do and have participated in shaping it, they will become committed to it. Make it possible for as many people as possible to generate that kind of commitment. Build the enabling systems. A good HR scorecard always requires financial investment, management support and investment in technology. Put those ancillary systems in place and the scorecard project will be able to move forward rapidly. Have early success and demonstrate progress. If the HR scorecard can solve a long standing problem or do something significant, people will notice. That will create momentum, which can then be strengthened with regular updates and validation programs. Sustain the effort. To keep the HR scorecard relevant, update it frequently. Make an ongoing investment in the methodology. People will gradually get onside with the scorecard as they see what it is achieving.
CASEUsing a Balanced Scorecard to Translate HR Vision Into Action FAAs Office of Human Resources Management Overview: How can you use a balanced scorecard process to tie human resource 27
functions to the strategic goals of the agency? Background The Office of Human Resource Management at FAA comprises about 500 of the agency's 49,000 employees. The Associate Administrator of HR, Glenda Tate, first promoted the use of a HR balanced scorecard at the Department of Transportation and then brought that vision with her to the FAA. The balanced scorecard initiative has been underway for about 18 months. It took about a year to develop the scorecard and implementation is underway. Besides top leadership interest, a key factor in developing the system has been the continual demand for accountability information from stakeholders Congress, the General Accounting Office, the Department of Transportation, the Office of Management and Budget, etc. The balanced scorecard was seen as a possible way of consolidating data interests into a broader framework. The DOT Scorecard is based on survey data from customers, employees and managers. These data are considered "lag" indicators because there is a time lag between performance and when data is available to assess the quality of performance. The Office of Human Resource Management at FAA developed a scorecard that would include both lead as well as lag indicators. Structure of the FAA-HR Scorecard
The FAA HR scorecard was developed around four business strategies: Systems and processes innovation (better using technology) HR human capital (knowledge, skills, talent of the HR staff) Service delivery and execution (meeting objectives, budget) Capacity to transform (creating a model work environment) The Corporate Scorecard tied business strategies and objectives to the following five measurement perspectives: Customers/stakeholders (as seen from customers point of view) Performance results (results compared to budget and costs) Learning and growth (sustaining ability to change and improve) HR Employee satisfaction (morale) Internal processes (what business processes must we excel at) Measures are captured from a number of existing systems, with some new ones developed as a result of the development process. Once the BSC framework was developed, it helped create a conversation that led HR leaders to develop a link between the FAAs strategic goals and the frontline HR performance metrics. Example: How does HR contribute to the overall FAA mission? What can HR do to support the line organizations in reducing delays and 28
improve system efficiency? Lessons Learned Take the time to link BSC measures to strategic goals of the organization Developing measures is an iterative process Identify measures that are going to make a difference, not just those that are easy to measure. Keep the momentum going. It helps to separate customer metrics from stakeholder metrics BSC is just a framework; it takes lots of work to identify the right metrics, get buyin from managers, etc. Impact of Scorecard to Date Since it is still under development, it is not linked to personnel assessments, budgeting, or decision making. However, it has been a very good way of creating a conversation around being more value-added to customers, and on quality and results.
INSIGHTS AND QUESTIONS DISCUSSED AFTER PRESENTATION Developing the perspectives for a staff function is a critical first step FAA HR office recognized FAA units are customers and Congress is a Stakeholder Developing a scorecard involves dealing with many challenges including; Linking staff scorecard to agency strategic plan Finding appropriate quantitative measures Keeping internal and external focus of a staff scorecard clear
Creative data collection is needed Exit interviews are a potential source of information about employee perceptions Level II training assessment (pre/post test) Management support is needed Champions are critical Broad management buy-in is important A plan for involvement is a good approach
Populating the scorecard with preliminary data early is valuable since it Communicates progress and success and demonstrates how the results will be used to Manage the organization. .
CASE STUDY OF US DIVISION
A US division of a worldwide food manufacturer needed an HR scorecard for use at the plant- and region-levels. The measures needed to be useful to the executive management team and President, as well as the head of HR. The following steps were used:
Review existing measures and identify their strengths and weaknesses Identify corporate goals and HRs contribution toward these goals 30
Create a customer diagram and list of results HR produces to support the organization Define measures for each result Define three levels of goals for each measure. Define two tracking reports to communicate actual vs. planned performance.
The head of HR was dissatisfied with HRs performance measures. While some were useful, the list was not a comprehensive picture of HR that helped demonstrate the functions value to executive management. In addition, they didnt help the head of HR manage his function. Heres a sample of the existing measures he used:
Total claims # reportable injuries # lost time injuries # lost time workdays Average cost/claim Cost per hire Lead time for hire Turnover rate Cost for training programs # employees trained
Any new measures should be linked to the corporations four stated goals:
Grow retail business sales Increase profit Increase sales of product X Reduce operating expenses
To accomplish the linking, we asked the question, What does HR produce which contributes to each of these corporate goals? The answers included:
Train employees on new equipment Hire quality managers Train supervisors Staff second shift Conduct safety training Change pay structure to pay-for-performance Hire a market development manager
HR exists to serve the needs of the corporation, both inside and outside the region. These internal customers and their needs could best be illustrated with a customer diagram. HR was placed in the center of the diagram, and the question, Who needs products and
services from HR to do their jobs? was asked. The answers to this question were placed in boxes around the outside of the page. Next the question, What products and services does each customer need from HR? was asked and the answers were placed on the arrows leading from HR to each customers box. The items on the diagram as well as the listing of HRs goals which supported corporate goals was used to create a list of HR results. For each item on the list, the question was asked, If HR did a great job of providing this product/service, what would be left behind that would be of value to the customer? For example looking at the customer diagram, the question If HR did a great job of providing manpower/staffing services, what would be left behind that would be of value to the Plant Manager? was answered with Filled positions. Likewise, looking at the list of HRs goals, the question If HR was successful in training employees on new equipment, what would be left behind that would be of value to the organization? was answered with Maintenance people trained on the new production lines. Each of these answers were recorded, duplicates were eliminated as were any items which were deemed not worth measuring. The final list of value-added results is below. The items lined through are the ones that were not worth measuring. Its not that they wont be produced, its just that the effort involved in measuring them exceeds the value of the data.
Filled positions Maintenance people trained on new lines Pay structure Trained supervisors (in performance management) Trained trainers Pay for Performance system People satisfaction Management compensation program HR policies and procedures Oriented new employees Satisfied employees Competitive benefits programs Compensation programs Trained HR managers Training programs implemented at other facilities Employee activities and recognition
The following is sample of the measures for the first three functions/results which were created prior to developing the feedback reports. Turnover
% annual turnover % monthly turnover % employees lost in first year # terminations per year grouped by reasons for termination # terminations by years of service # transfers to subsidiary by department # transfers to subsidiary by length of service Reasons for transfers to subsidiary
Staffing (positions filled)
Lead time to hire Specific positions filled to support plant and corporate goals
Workers compensation cost
$ losses incurred from accident date $ losses paid through report date # open claims # closed claims # total claims $ open reserves # reportables # lost time injuries # lost time days # restricted days Average cost/claim
Defining goals and creating a tracking report were completed somewhat simultaneously. A rough outline of a tracking report led to a decision to use a traffic light metaphor where green meant success, yellow meant caution, due to below-goal performance, and red was a clear failure to meet the goal, and thus a problem to be solved. Reviewing actual performance data where it existed, and guessing about the level of performance needed to help achieve the organizations goals led to a three-level goal for each measure. The HR Scorecard Tracking Report was designed as a table with seven columns:
Column 1 lists the functions/results expected of HR. Column 2 lists the measures for each function/result. Column 3 lists the actual performance for a given month, quarter, or year. Columns 4, 5 and 6 list the goals for each measure. Column 4 contains the green level which defines the target level of performance. Column 5 contains the yellow level of performance which defines the beginning of a problem. Column 6
contains a definition of the red level of performance which defines a performance problem to be addressed. Column 7 allows room for comments and more free-form notations on the performance.
CONCLUSIONThe HR balanced scorecard helps our HR professionals react more quickly as a whole, from the executive suites to the front lines. Even more important in the business environment of rapidly changing markets and accelerating technology advances. It helps management teams anticipate work force issues so they can plan rather than react. In all previous business environments we often had weeks to make decisions. The Hr balanced scorecard system allows us to rapidly adjust to changes affecting our business in real time. While much of the work of an HR scorecard is technical, the delivery of the scorecard is personal. It requires that HR professionals desire to make the difference align their work to
business strategy, apply the science of research to the art of HR and commit to learning from constant experimentation. HR scorecards are not panaceas. They will not cure purely run HR function. However they do provide means by which one can collect rigorous, predictable and regular date that will help direct the firms attention to the most important elements of HR architecture constructed thoughtfully, the HR scorecard will help the organizations deliver increased value to its employees, customers and investors.