the hr scorecard
DESCRIPTION
TRANSCRIPT
Jon Ingham
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.
This presentation explains why the HR scorecard’s four perspectives need to be: Input, Activity, Outcome and Business Impact if the scorecard is going to become a valuable management tool.
Introduction
To demonstrate why this is the case, let’s start by reminding ourselves why Kaplan & Norton’s Business Scorecard is such a useful tool.
The Balanced Business Scorecard
Customer
InternalBusinessProcess
Visionand
StrategyFinancial
Learningand
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 PROCESSFINANCIAL
1. INCOME PER EMPLOYEE2. % OF ALLOCATED COST FOR WHICH THERE IS A
SERVICE LEVEL AGREEMENT IN PLACE3. % NON DEAL BASED COSTS4. VALUE OF PIPELINE5. % 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 STANDARDS4. % OF DEALS WHERE QUALITY REVIEW PROCESS
HAS BEEN CARRIED
PEOPLE
1. % OF STAFF WITH BROAD SECTOR EXPERIENCE2. STAFF TURNOVER RATE3. %OF STAFF WHO ARE MOTIVATED AND
COMMITTED TO THE DIRECTORATE4. % OF STAFF WHO HAVE A PERSONAL
DEVELOPMENT PLAN5. % OF STAFF WHO BELIEVE THAT THEIR
COLLEAGUES LIVE THE VALUES OF THE BANK
MEASURE TARGET
MEASURE TARGET
MEASURE TARGET
MEASURE TARGET
• $1M• 85%
• 20%• $50m• 65%
• 35%
• 85%
• 90%
• 9
• 50%• 12%• 85%
• 100%• 85%
• 50
• 55%• 90%• 95%
Interpretation 1 Interpretation 2 Interpretation 3
Increase new product introductions by 10 per year
Increase market share by 25%
Increase profits by 30%
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 advertising Action: Increase R&D spend Action: Reduce costs
Source: Kaplan and Norton, Harvard Business Review, May-June 1998.
Unless we know how objectives relate to each other, multiple interpretations are likely
Showing the Links between Objectives
And published as a ‘Strategy Map’
InternalprocessesInternal
processes
People People
Financial Financial
Customer Customer
Maximise Operations Efficiency/Effectiveness
Enhance Employee Skills
Create Partnershipsand Alignment
within TCCS
Continuously Optimise Marketing Spending
Maximise Share Owner Value
Ensure HighestQuality in Products
Use Existing Information to Make Better Decisions
Maximise Procurement Efficiency/Effectiveness
Strengthen and Foster a Culture of Accountability
Increase VolumeManage 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 problem with all other forms of HR Scorecard is that they are not based on a Strategy Map.
The HR Strategy Map
Customer
InternalBusinessProcess
Financial
Learningand
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
InternalBusinessProcess
Financial
Learningand
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
ShareholderValue
For Example: Kaplan and Norton’sHuman Capital Readiness Report
HRProcessesHRProcesses
HR Learning& Growth HR Learning& Growth
Financial Financial
CustomerCustomer
HREffectiveness
Productivity
StrategicSkills
Leadership Culture Alignment Learning
CompetencyDevelopment
LeadershipDevelopment
CultureGoals &
IncentivesTeams &
Integration
HR Skills &Leadership
HR Systems HR 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 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!
HRDelivery
HR System
Alignment
HREfficiency
HPWS
To get round the problem, Becker and Huselid suggest another HR Scorecard
LeadershipWorkforceBehaviour
WorkforceCompetence
WorkforceSuccess
WorkforceMindset
& Culture
And a different Workforce Scorecard
“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
But there is a Problem
And there is yet another problem. Neither Becker and Huselid’s HR scorecard Nor the Workforce Scorecard are based on a Strategy Map.
This is where we need to start. So what does HR’s Strategy Map involve?
An HR / HCM Strategy Map
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
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
Learning & GrowthBusinessprocess
Customer Financial
Input Activity Outcome Business impact
HCM Value Chain Business Value Chain
Bu
sin
ess
stra
teg
y m
apH
CM
valu
e ch
ain
The HR / HCM Strategy Map and Business Strategy are the same thing!
© Strategic Dynamics, 2011
It is also what we already focus on
Strategy Map Kirkpatrick
Impact Results
Outcome Performance
Activity Reaction
Learning
Input
Output
ActivityImpact
Input
The HR / HCM Scorecard
For More Information
strategic-hcm.blogspot.com
blog.social-advantage.com
linkedin.com/in/joningham
twitter.com/joningham
strategic-hcm