measuring hr strategic alignment through the hr scorecard 1232671113902404 3

MEASURING HR STRATEGIC ALIGNMENT THROUGH THE HR SCORECARDJuan I. Sanchez, Ph.D.Florida International UniversityORGANIZATIONS 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 in implementing the organizations strategy?Does HR really matter?

Whats the perception of the HR function?List the events that most often trigger the words lets ask human resources:

EventPerceived HR RoleDiscipline problemsThe policePersonal problemsThe counselorCompanys partyThe entertainerBureaucratic obstaclesThe aparatchik

HR as an administrative function vs. HR as a strategic partner capable of enhancing the organizations performanceWHAT DOES HR STRATEGIC ALIGNMENT MEAN?

Measuring HRs influence on the organization

Traditional HR Focus: the individual employeeSelect the best employeeFind benefits that satisfy the employeeIdentify incentives that do motivate the employeeSolve individual skill deficiencies through trainingImproving individual employee performanceDoes it automatically enhance organizational performance?

HR as a strategic asset

New HR Focus: multiple levels of analysis:individual, team, organizationAlignment of HR systems with the companys strategyHow 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?

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.

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 as asset 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.

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 marketHR as competitive advantage: barriers of entry, difficult to imitate.HR managers can become NUMERATOR managers (contributing to revenue & growth) rather than just DENOMINATOR managers (cutting costs & reducing overhead).Link performance measurement with strategy implementation: facilitates communication with stakeholders.

HR architecture as a strategic asset

Goal of corporate strategy: create sustained competitive advantage.Goal of HR strategy: maximize the contribution of HR towards that same goal.HR FUNCTIONHR professionals with strategic competencies(delivery of HR services in a way that supports the implementation of the firms strategyHR SYSTEMHigh-performance, strategically aligned HR policies & practicesEMPLOYEE BEHAVIORSStrategically focused competencies, motivations, and associated behaviorsHR ARCHITECTURE

Strategic HRM requires systems thinking

Systems thinking emphasizes the interrelationships of the HR 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 thinkingTodays 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 are indirect) (example of indirect HR effect: __________)Cutting an elephant in half doesnt get you two smaller elephants. (e.g., reorganizations due to mergers acquisitions).

Best HR Practices help almost every business

From Huselid et al., 2000, AMJ

HR PracticeBottom 10%Top 10%No. of training hrs. for new employees35117Percentage of employees receiving a performance appraisal41%95%No. of employees per HR professional254140Percentage hired based on a validated selection test4%30%

But strategic HR goes beyond best practices

BehaviorsResults_++_HR alignment

What does HR alignment take? It requires a clear understanding of the value chain: What kind of value 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, and IT 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.

VALUE CREATION EXAMPLENordstromCUSTOMER RETENTIONROISUPERIOR CUSTOMER SERVICEUNIQUE INVENTORYKNOWLEDGEABLE ANDCUSTOMER-ORIENTED EMPLOYEESFinancialCustomerInternal/business processLearning and growth

VALUE CREATION EXAMPLEWal-MartCUSTOMER SATISFACTIONROISUPPLY-CHAIN MGMT.RELIABLE EMPLOYEESFinancialCustomerInternal/business processLearning and growthPRICINGTRUSTWORTHY SUPPLIERSCONVENIENCE

Inadequacy of Traditional Measurement SystemsFinancial measures as lagging indicators, not leading indicators of value creation (Kaplan & Nortons Balanced Scorecard).Too much attention to financial dimensions of performance, and not enough attention to the performance drivers that determine those results.Uncover the firms value-creation chain (story): business model.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.

BALANCING COST CONTROL AND VALUE CREATION:THE HR SCORECARDDo you want HR to be perceived as a cost control or as a value creation unit?What gets measured gets managed.If you measure only HR costs, your unit will be treated as a commodity without strategic value.HR must control costs, but also create value.Examples of instances where value was lost due to cost-control efforts? (throw the baby with the bath water)

INTEGRATING HR INTO THE VALUE CREATION STORYIs the HR function providing the company with the employee competencies and behaviors necessary to achieve the organizations strategic objectives?

HR deliverables: Outcomes of the HR architecture that serve to execute the firms strategy.HR doables: HR efficiency & activity counts.HR performance drivers: core people-related capabilities or assets.HR enablers reinforce performance drivers (moderators whose presence activates the HR performance drivers).

MAPPING THE HR VALUE CREATION STORYStrategy implementationHR DeliverablesHR enablersHR performance driversHR DoablesImpact

DISTINGUSHING AMONG HR PERFORMANCE DRIVERS (PD), DELIVERABLES (DE), DOABLES (DO), ENABLERS (EN)SURVEY SAYS

MeasurePDDEDOENAverage time for dispute resolutionCost per trainee hourCost per hireTime spent on new employee orientationTroubleshooting skillsAbility to think out-of-the-boxKnowledge of sexual harassment legislationNumber of sexual harassment complaintsSexual harassment awareness trainingRisk-taking cultureNumber of customer complaintsHigh evaluations on teamwork

An example of HR Value Creation StoryInventoryshrinkageEmployee theftRandom drug testingHonest workforcePricingHonesty testingCost per hire (efficiency)What percent of your coworkers are honest?Cost per quarter (efficiency)Cost of missing itemsWhat percent of the items missing in the inventory are stolen by employees?

Competency Models by Strategy ExerciseCost-driven organizationVigorous 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

TypeNo.Measure

PD1

2

DE4

5

DO7

8

EN10

11

Competency Models by Strategy ExerciseValue-driven organizationFocus on developing best-in-class capabilities in selected activities.Promote reputation for technological leadership & brand image.Emphasize product engineering or service integration.Maintain an active basic research contingent.Partner with industry, universities, & research organizations for mutual benefit.