hr roi presentation

8/6/2019 HR ROI Presentation

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MEASURING HR STRATEGIC ALIGNMENT

THROUGH THE HR SCORECARDJuan I. Sanchez, Ph.D.

Florida International University

ORGANIZATIONS OFTEN CLAIM THAT:

People are our most important asset

But do people understand how the HR function influences

firm performance?

Do HR people feel like they play an important role inimplementing the organizations strategy?

Does HR really matter?


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Whats the perception of the HR function?

List the events that most often trigger the words

lets ask human resources:

Event Perceived HR Role

Discipline problems The police

Personal problems The counselor

Companys party The entertainer

Bureaucratic obstacles The aparatchik


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HR as an administrative function vs.

HR as a strategic partner capable ofenhancing the organizations

performance

WHAT DOES HR STRATEGIC ALIGNMENT MEAN?


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Measuring HRs influence on the organization

Traditional HR Focus: the individual employee

Select the best employee

Find benefits that satisfy the employee

Identify incentives that do motivate the employee

Solve individual skill deficiencies through training

Improving individual employee performance

Does it automatically enhance organizational performance?


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HR as a strategic asset

New HR Focus: multiple levels of analysis:

individual, team, organization

Alignment of HR systems with the companysstrategy

How can HR play a central role in implementing

the organizations vision & strategy?

How do people create value for the organization?

Ho do we measure such value-creation process?


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HR as an investment, not an expense

Conventional accounting was created at a

time when tangible capital (financial &

physical) was the primary source of profits.

Today: Intangibles such as human capital are

the primary source of profits.


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HR as an investment, not an expense

Conventional accounting generates short-term

thinking regarding intangibles, because intangible-

related expenditures are treated as expenses vs.

tangible-related expenditures, which are treated asasset investments (and therefore depreciated over

their useful lives).

Managers whose salaries are tied to earnings

obviously prefer expenditures that can be

depreciated over time rather than people-related

expenditures than are expensed in their entirety

during the current year.


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HR as a source of competitive advantage

Widening in the ratio of market value to book value (based

on intangible assets)

HR is key to flexibility, innovation, and speed to market

HR as competitive advantage: barriers of entry, difficult toimitate.

HR managers can become NUMERATOR managers

(contributing to revenue & growth) rather than just

DENOMINATOR managers (cutting costs & reducingoverhead).

Link performance measurement with strategy

implementation: facilitates communication with

stakeholders.


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HR architecture as a strategic asset

Goal of corporate strategy: create sustained competitiveadvantage.

Goal of HR strategy: maximize the contribution of HR

towards that same goal.

HR FUNCTION

HR professionals with

strategic competencies

(delivery of HR

services in a way that

supports the

implementation of the

firms strategy

HR SYSTEM

High-performance,

strategically aligned

HR policies &

practices

EMPLOYEE

BEHAVIORS

Strategically focused

competencies, motivations,

and associated behaviors

HR ARCHITECTURE


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Strategic HRM requires systems thinking

Systems thinking emphasizes the interrelationships of theHR system components AND the link between HR and the

larger strategy implementation system.

Interactions among components make a system more than

just the sum of its parts.

The laws of systems thinking

Todays problems come from yesterdays solutions (e.g., downsizing)

The easy way out usually leads back in (example: _________)

Cause and effect are not closely related in time & space (HR effects areindirect) (example of indirect HR effect: __________)

Cutting an elephant in half doesnt get you two smaller elephants. (e.g.,

reorganizations due to mergers acquisitions).


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Best HR Practices help almost every business

HR Practice Bottom10%

Top 10%

No. of training hrs. for newemployees

35 117

Percentage of employeesreceiving a performanceappraisal

41% 95%

No. of employees per HRprofessional

254 140

Percentage hired based on avalidated selection test

4% 30%

From Huselid et al., 2000, AMJ


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But strategic HR goes beyond best practices

Behaviors

Result

s

_

+

+_

HR alignment


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What does HR alignment take?

It requires a clear understanding of the value chain: What kind ofvalue the organization generates and exactly how that value is

created.

Be able to describe how ultimate financial goals are linked to key

success factors at the levels of customers, operations, people, andIT systems.

With this shared understanding of the value-creation process, the

organization can design a strategy implementation model that

specifies needed competencies and employee behaviors.The HR system can be geared toward the generation of these

competencies and behaviors.


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VALUE CREATION EXAMPLE

Nordstrom

CUSTOMER RETENTION

ROI

SUPERIOR CUSTOMER SERVICE

UNIQUE INVENTORY

KNOWLEDGEABLE AND

CUSTOMER-ORIENTED EMPLOYEES

Financial

Customer

Internal/business process

Learning and growth


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VALUE CREATION EXAMPLE

Wal-Mart

CUSTOMER SATISFACTION

ROI

SUPPLY-CHAIN MGMT.

RELIABLE EMPLOYEES

Financial

Customer

Internal/business process

Learning and growth

PRICING

TRUSTWORTHY SUPPLIERS

CONVENIENCE


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Inadequacy of Traditional Measurement Systems

1. Financial measures as lagging indicators, not leading

indicators of value creation (Kaplan & Nortons Balanced

Scorecard).

2. Too much attention to financial dimensions ofperformance, and not enough attention to the performance

drivers that determine those results.

3. Uncover the firms value-creation chain (story): business

model.

4. By specifying and assessing the vital process measures of

the value chain, and regularly communicating the firms

performance on these measures, the balanced scorecard

makes strategy everyones business.


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BALANCING COST CONTROL AND VALUE CREATION:

THE HR SCORECARD

1. Do you want HR to be perceived as a cost control or as a

value creation unit?

2. What gets measured gets managed.

3. If you measure only HR costs, your unit will be treated as a

commodity without strategic value.

4. HR must control costs, but also create value.

5. Examples of instances where value was lost due to cost-

control efforts? (throw the baby with the bath water)


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INTEGRATING HR INTO THE VALUE CREATION STORY

Is the HR function providing the company with theemployee competencies and behaviors necessary to

achieve the organizations strategic objectives?

1.HRdeliverables: Outcomes of the HR architecture that serve toexecute the firms strategy.

2.HRdoables: HR efficiency & activity counts.

3.HRperformance drivers: core people-related capabilities or

assets.4.HRenablers reinforce performance drivers (moderators whose

presence activates the HR performance drivers).


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MAPPING THE HR VALUE CREATION STORY

Strategy

implementation

HR Deliverables

HR enablers

HR performance drivers

HR Doables Impact


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Competency Models by Strategy Exercise

Cost-driven organization

Vigorous pursuit of

production/delivery efficiencies.

Tight control over cost of

materials, resources, & overhead.

Minimal expenditure in R&D,

marketing, sales, & service.

Emphasis on large accounts &economies of scale.

Low-cost distribution system

WRITE HR PERFORMANCE DRIVERS (PD),

DELIVERABLES (DE), DOABLES (DO), AND

ENABLERS (EN) FOR THIS STRATEGY

EN

DO

DE

PDType

11

10

8

7

5

4

2

1No. Measure


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Value-driven organizationFocus on developing best-in-

class capabilities in selected

activities.

Promote reputation fortechnological leadership & brand

image.

Emphasize product engineering

or service integration.

Maintain an active basic research

contingent.

Partner with industry, universities,

& research organizations for

mutual benefit.




EN

DO

DE

PD

Type

11

10

8

7

5

4

2

1

No. Measure


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Quality-driven organizationAggressive pursuit of information

on customer careabouts, including

customer involvement in

product/service design.

Efforts to instill a continuous

improvement orientation.

Strict monitoring & screening of

subcontractors, franchises, and

suppliers.

Some investment in R&D,

marketing, service, & training.




EN

DO

DE

PD

Type

11

10

8

7

5

4

21

No. Measure


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Service-driven organizationValue investments in people.

Close monitoring of metrics

tracking service responsiveness.

Cultivate good workingrelationships among associates,

subcontractors, and suppliers.

Creative involvement of R&D and

manufacturing groups in after-

sales support.

Emphasis on customer service

and sales ranks contact with

customers.




EN

DO

DE

PD

Type

11

10

8

7

5

4

2

1

No. Measure


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Speed-driven organizationWillingness to accept risks

associated with delivering

product/service to market ahead

of competitors.

Analysis of market trends.

Aggressive management of new

product development cycles.

Engage in joint ventures to speed

entry in emerging markets.

Create geographical &

technological partnerships to

augment organizational

capabilities.




EN

DO

DE

PD

Type

11

10

8

7

5

4

21

No. Measure


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Focus-driven organizationEmphasis on market research &

micromarket proclivities.

Risk averse & focus on customer

careabouts.Intense management of

product/service modifications to

match profiled customer needs.

Active involvement of targeted

customers in product/service

development.




EN

DO

DE

PD

Type

11

10

8

7

5

4

21

No. Measure


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IN CONCLUSION

People can be our most important asset if we make the HR

function our strategic partner

To download a copy of this presentation, visit

http://cba.fiu.edu/mgmt/sanchezj

Click on HR-ROI presentation, USF Embassy Suites, 1/17/03
http://cba.fiu.edu/mgmt/sanchezjhttp://cba.fiu.edu/mgmt/sanchezj

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