Developing an HR Scorecard

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. Introduction

To demonstrate importance of HR Scorecar let’s start by reminding ourselves why Kaplan & Norton’s Business Scorecard is such a useful tool. The Balanced Business Scorecard

Customer Internal Business Process Vision and Strategy Financial Learning and Growth This started as a Measurement tool Measures how well the organisation is meeting its financial objectives Measures whether the organisation is adding value to its customers/ clients Measures whether the organisation has in place the staff capability to support the needs of the business 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

But soon tuned into one for Strategy INTERNAL PROCESS FINANCIAL 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 CUSTOMER 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 INTERNAL PROCESS 1. NUMBER OF TRANSACTIONS WITH MULTI- PRODUCT 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 PEOPLE 1. % OF STAFF WITH BROAD SECTOR EXPERIENCE 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 MEASURE TARGET MEASURE TARGET MEASURETARGET MEASURE TARGET $1M 85% 20% $50m 65% 35% 85% 90% 9 50% 12% 85% 100% 85% 50 55% 90% 95%

Interpretation 1Interpretation 2Interpretation 3 Increase new product introductions by 10 per year Increase market share by 25% Increase profits by 30% Increase market share by 25% Increase market share by 25% Increase profits by 30% Increase new product introductions by 10 per year Increase new product introductions by 10 per year Perhaps increasing market share will result in increased profits, thus providing funds for increasing new product development... … or maybe enhancing new product development will directly increase both profits and market share... … or does increasing profits allow us to buy market share by stepping up advertising and new product development? Action: Increase advertisingAction: Increase R&D spend Action: Reduce costs Source: Kaplan and Norton, Harvard Business Review, May-June Unless we know how objectives relate to each other, multiple interpretations are likely Showing the Links between Objectives

And published as a ‘Strategy Map’ Internal processes Internal processes People Financial Customer Maximise Operations Efficiency/Effectiveness Enhance Employee Skills Create Partnerships and Alignment within TCCS Continuously Optimise Marketing Spending Maximise Share Owner Value Ensure Highest Quality in Products Use Existing Information to Make Better Decisions Maximise Procurement Efficiency/Effectiveness Strengthen and Foster a Culture of Accountability Increase Volume Manage Cost, Profit & Capital Effectively Achieve Pervasive Penetration Drive Brand Preference Be Perceived by Consumers as Having the Best Value Enhance Portfolio of Goods & Services ahead of Competitors Partner Effectively with Customer to Fulfil Demand Maximise Distribution Efficiency/Effectiveness Expand Share of Worldwide Beverage Sales

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.” The Strategy Map is now the key tool Source: Kaplan and Norton. Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Harvard Business School Press, 2004

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 HR Strategy Map

Customer Internal Business Process Financial Learning and Growth Some Organisations put all their HR Objectives / Measures in Learning & Growth

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

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. But there is a Problem

Customer Internal Business Process Financial Learning and Growth Some Organisations try to use the Business Scorecard for HR Strategic skills/competencies Leadership Culture and strategic awareness Strategic alignment Strategic integration and learning HR effectiveness HR efficiency Human capital (strategic job families) Organisation capital Information capital

Shareholder Value For Example: Kaplan and Norton’s Human Capital Readiness Report HR Processes HR Processes HR Learning & Growth HR Learning & Growth Financial Customer HR Effectiveness Productivity Strategic Skills LeadershipCulture AlignmentLearning Competency Development Leadership Development Culture Goals & Incentives Teams & Integration HR Skills & Leadership HR SystemsHR Climate

“These categories work well when applied to an entire firm. They don’t 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, don’t work well when we are interested in highlighting the contribution of the workforce.” Source: Becker and Huselid But there is a Problem

Take this Example… “When HR reviewed the call centre 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 centre 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!

HR Delivery HR System Alignment HR Efficiency HPWS To get round the problem, Becker and Huselid suggest another HR Scorecard

There is plenty of evidence in academic research about what HR performs Source: David Guest, The Future of Work, City of London University

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

HCM Activities The HCM Value Chain A series of activities involving Input, Activity, 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 HR’s activities. This is a useful shift in thinking.

HCM Activities Outcomes vs Activities “I wanted to define the roles of HR as outcomes 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

HCM Activities Outcomes vs Activities The outcomes or targets of HR work: Individual ability Competence Commitment Contribution Organisation capability Leadership depth Source: David Ulrich

“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 company’s competitive position much more easily and accurately.” Source: Kaplan and Norton Outcomes vs Activities