Developing an HR Scorecard

Jon Ingham

Introduction
The HR Scorecard can provide a very useful framework for measuring HR. It can also seriously confuse HR strategy development, and communication of this strategy with business stakeholders. The difference between these two results comes down largely to the perspectives that are chosen to form the scorecard. This presentation explains why the HR scorecards four perspectives need to be: Input, Activity, Outcome and Business Impact if the scorecard is going to become a valuable management tool.

The Balanced Business Scorecard

To demonstrate why this is the case, lets start by reminding ourselves why Kaplan & Nortons Business Scorecard is such a useful tool.

This started as a Measurement tool

Measures whether the organisation is adding value to its customers/ clients

Customer
Measures how well the organisation is managing risk and protecting its assets Measures the efficiency and effectiveness of the service capability provided by the organisation

Measures how well the organisation is meeting its financial objectives

Financial

Vision and Strategy

Internal Business Process

Learning and Growth

Measures whether the organisation has in place the staff capability to support the needs of the business

But soon tuned into one for Strategy

CUSTOMER MEASURE
1.% GROWTH OF DEALS DONE AND VALUE TRANSACTED FROM KEY CLIENTS 2. % OF TARGET MARKET WHO PERCEIVE THE ORGANISATION AS EXPERTS IN TARGETED PRODUCTS/ INDUSTRIES 3. % OF CLIENTS WHO SAY THEY ARE MORE THAN SATISFIED WITH THE SERVICE THEY RECEIVE 4. NUMBER OF TOP LEAGUE TABLE POSITIONS ACHIEVED IN TARGETED INDUSTRIES

TARGET
35% 85% 90% 9

FINANCIAL MEASURE
1. INCOME PER EMPLOYEE 2. % OF ALLOCATED COST FOR WHICH THERE IS A SERVICE LEVEL AGREEMENT IN PLACE 3. % NON DEAL BASED COSTS 4. VALUE OF PIPELINE 5. % OF REVENUE FROM TARGET INDUSTRY SECTORS

INTERNAL PROCESS TARGET

$1M 85% 20% $50m 65%

MEASURE
1. NUMBER OF TRANSACTIONS WITH MULTIPRODUCT SOLUTIONS /COMPONENTS FROM OTHER LINES OF BUSINESS 2. % OF JOINT ORIGINATIONS 3. % OF DEALS MEETING QUALITY STANDARDS 4. % OF DEALS WHERE QUALITY REVIEW PROCESS HAS BEEN CARRIED

TARGET
50 55% 90% 95%

PEOPLE MEASURE
1. % OF STAFF WITH BROAD SECTOR EXPERIENCE

TARGET
50% 12% 85% 100% 85%

2. STAFF TURNOVER RATE 3. %OF STAFF WHO ARE MOTIVATED AND COMMITTED TO THE DIRECTORATE 4. % OF STAFF WHO HAVE A PERSONAL DEVELOPMENT PLAN 5. % OF STAFF WHO BELIEVE THAT THEIR COLLEAGUES LIVE THE VALUES OF THE BANK

Showing the Links between Objectives

Unless we know how objectives relate to each other, multiple interpretations are likely Interpretation 1 Interpretation 2 Interpretation 3
Increase new product introductions by 10 per year

Increase market share by 25%

Increase market share by 25%

Increase profits by 30% Increase profits by 30%

Increase new product introductions by 10 per year

Increase market share by 25%

Increase new product introductions by 10 per year

Increase profits by 30%

Perhaps increasing market share will or maybe enhancing new product result in increased profits, thus development will directly increase both providing funds for increasing new profits and market share ... product development ...

or does increasing profits allow us to buy market share by stepping up advertising and new product development?

Action: Increase advertising

Action: Increase R&D spend

Action: Reduce costs

Source: Kaplan and Norton, Harvard Business Review, May-June 1998.

And published as a Strategy Map

Financial
Maximise Share Owner Value
Manage Cost, Profit & Capital Effectively Expand Share of Worldwide Beverage Sales Increase Volume

Customer

Achieve Pervasive Penetration Continuously Optimise Marketing Spending

Drive Brand Preference

Be Perceived by Consumers as Having the Best Value

Partner Effectively with Customer to Fulfil Demand Enhance Portfolio of Goods & Services ahead of Competitors

Ensure Highest Quality in Products

Internal processes

Create Partnerships and Alignment within TCCS

Maximise Procurement Efficiency/Effectiveness

Maximise Operations Maximise Distribution Efficiency/Effectiveness Efficiency/Effectiveness

People

Enhance Employee Skills

Strengthen and Foster a Culture of Accountability

Use Existing Information to Make Better Decisions

The Strategy Map is now the key tool

The reason that the strategy map, not the scorecard, is now the key tool is that it is not setting measures that is often difficult, it is agreeing what you are going to do: Once the executives agreed to the word statements of what they wanted to accomplish how they wanted to describe success the selection of the measurements became much simpler. And in an interesting twist, the selection of measures became somewhat less consequential.
Source: Kaplan and Norton. Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Harvard Business School Press, 2004

The HR Strategy Map

The same principles apply to HR. An HR Scorecard becomes a much more valuable tool when the measures within it are based on the objectives and links within an HR Strategy Map. The problem with all other forms of HR Scorecard is that they are not based on a Strategy Map.

Some Organisations put all their HR Objectives / Measures in Learning & Growth
Customer

Financial

Internal Business Process

Learning and Growth

And just doing this can be useful as it integrates HR into the Business

Source: Tesco

But there is a Problem

All our objectives fall into the Learning & Growth perspective so there is no Balance. HR does not achieve any of the benefits that the overall business achieves from the Balanced Business Scorecard. A Balanced HR Scorecard has to use more than just one perspective.

Some Organisations try to use the Business Scorecard for HR

Customer
Strategic skills/competencies Leadership Culture and strategic awareness Strategic alignment Strategic integration and learning Internal Business Process

HR effectiveness HR efficiency

Financial

Learning and Growth

Human capital (strategic job families) Organisation capital Information capital

For Example: Kaplan and Nortons Human Capital Readiness Report

Financial
HR Effectiveness Shareholder Value Productivity

Customer

Strategic Skills

Leadership

Culture

Alignment

Learning

HR Competency ProcessesDevelopment HR Learning & Growth

Leadership Development

Culture

Goals & Incentives

Teams & Integration

HR Skills & Leadership

HR Systems

HR Climate

But there is a Problem

These categories work well when applied to an entire firm. They dont perform well, however, when applied to elements of the workforce. We have seen many HR professionals who have tried to apply these four boxes to HR functions and/or the workforce, and they have been consistently frustrated by the outcomes.

The problem is that the categories, which were intended to be used to describe how all of the elements of firm success contribute to the bottom line, dont work well when we are interested in highlighting the contribution of the workforce.
Source: Becker and Huselid

Take this Example

When HR reviewed the call center results from the HR Scorecard...the HR metrics showed a very low cost per hire, a very quick cycle time to fill jobs, and an average employee separation rate ... the staffing metrics showed a high efficiency and cost control." However, the call center accomplished this by changing talent pools and reducing the investments in selection methods [that] kept costs low while bringing in applicants who were ready to start quickly but were harder to train and keep ...a bad tradeoff.
Source: Walker and MacDonald on the GTE/Verizon HR scorecard

Take this Example

GTE / Verizon were encouraged to make a bad decision because their HR Scorecard was not based on a Strategy Map. You do not want to do this!

To get round the problem, Becker and Huselid suggest another HR Scorecard
HR Delivery

HR Efficiency

HR System Alignment

HPWS

And a different Workforce Scorecard

Leadership Workforce Behaviour

Workforce Success

Workforce Competence

Workforce Mindset & Culture

But there is a Problem

The jury is still out as to the reliability of the Scorecard as it has yet to be implemented widely. It has been hailed as a straightforward process, but one HR manager in the US complained that she had trudged her way through the book trying to get to grips with the various models but found it far too scientific and inhuman.

HR consultant Paul Kearns says the Scorecard risks inflicting a complicated solution on a relatively simple problem. He writes off the case study material as unintelligible to anyone without a degree in astro-HR and, ultimately, unconvincing. It is academics going berserk trying to analyse things to the nth degree, he says.

Source: Personnel Today

An HR / HCM Strategy Map

And there is yet another problem. Neither Becker and Huselids HR scorecard Nor the Workforce Scorecard are based on a Strategy Map. This is where we need to start. So what does HRs Strategy Map involve?

There is plenty of evidence in academic research about what HR performs

Source: David Guest, The Future of Work, City of London University

CIPD Black Box

Or more simply

Input / investment Work force Management time Cost HR function

Activity Resourcing Capability Organisation EVP

Outcome Human Capital Organisation Capital

Bus Impact Operations Emp of Choice Customers Financial

Strategic Dynamics, 2011

The HCM Value Chain

A series of activities involving Input, Activity, HCM Activities Outcome and leading onto Business Impact is the strategy map for HR or really HCM, as the focus is on producing human capital or organisational capability as an outcome of HRs activities.

This is a useful shift in thinking.

Outcomes vs Activities
I wanted to define the roles of HR as outcomes HCM Activities more than activities. I saw a lot of work in HR focused on activities (number of hours of training a leader receives; whether a firm is using 360 degree feedback; if it implements performance based pay or competence based hiring). I wanted to shift the focus to outcomes of the activities.

Source: David Ulrich, talking about his HR Champions book

Outcomes vs Activities
The outcomes or targets of HR work: HCM Activities Individual ability Competence Commitment Contribution

Organisation capability Leadership depth

Source: David Ulrich

Outcomes vs Activities
Measuring the value of such intangible assets is the holy grail of accounting If managers could find a way to estimate the value of their intangible assets, they could measure and manage their companys competitive position much more easily and accurately.

Source: Kaplan and Norton

The HR / HCM Strategy Map and Business Strategy are the same thing!
HCM Value Chain
Business strategy map

Business Value Chain

Learning & Growth

Business process

Customer

Financial

HCM value chain

Input

Activity

Outcome

Business impact

Strategic Dynamics, 2011

It is also what we already focus on

Strategy Map
Impact

Kirkpatrick
Results

Outcome
Activity

Performance
Reaction Learning

Input

The HR / HCM Scorecard

Output

Activity Impact

Input

For More Information

jon.ingham@strategic-hcm.com strategic-hcm.blogspot.com blog.social-advantage.com linkedin.com/in/joningham twitter.com/joningham

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