HR Scorecard


By

Mr. Nimesh R. Vadhel
Faculty
Sarvoday Charitable M.B.A. College
Kakanpur
 


Introduction

They say that it is impossible to evaluate something without measuring it. In business terms, performance is measured in different values, often by money to time ratio. Thus, to investigate performance of your business, you need to find aspects of the work to be measured. Almost all businesses use IT support. Moreover, many firms use special software to evaluate performance of the company to find out what wants to be improved.

All business professionals would declare that H.R.D. is an important part of any business structure. You may have the best technologies, output capacities and equipment but you may be not getting suitable profits because you personnel is poorly managed. When HR management works at its best you will immediately see positive results. However, the work of HR department also needs to be evaluated. HR managers should always get better and develop performance.

When it concerns companies and departments with 200+ employees it is not so easy to discover out who or what makes the company perform poorer than expected. Employee A is responsible for negotiations, employee B does the calculations, employee C goes through paperwork. If one of them fails, the entire chain fails. This influences the company's overall revenue. Businesses must always get superior; otherwise they will be wiped out by smarter competitors. In terms of HRM, one should always get better way of dealing with people and streaming their skills in the right direction.

Many companies are using Balance Scorecard metrics to evaluate performance of their HR department by key performance factors. So, let's examine how Balance Scorecard metrics can help HR managers and HR departments. In order to perform an overall investigation we need to analyze KPIs, i.e. those factors influencing performance of HR department.

Cost per Hire

By evaluating this factor you will be able to see how costly the recruiting process is. This process starts from posting job offer to the moment when a new person is officially employed in the company. Logically, the shorter this process is, the least expensive is cost per hire. This is a very important value, especially if the company counts hundreds and thousands of employees. This amount includes expenses related to advertising, agent's fees, recruiter pay, relocation etc. to follower the average cost, a new person must be employed as quickly as possible.

Turnover Cost

These are the costs connected to termination, new hire and learning. In other words, these are expenses related to integrating a innovative person into the company.

Turnover Rate

This value represents the condition in your company related to leaving and hiring new employees. Many people would agree that it is not good to change personnel too often. If the earnings rate is very high, then maybe you are treating your personnel wrong? Or is it something wrong with your business in general? Find out.

Time to Fill

Basically, this is the time needed to fill a vacant position in the company. Of course, this time depends on how well HR managers are working with recruiters, publicity and people in general. The shorter this time, the better performance of your HR department.

Length of Employment

This indicator is very easy to understand. It is likely to calculate an average value. For instance, in average an employee works 5 years for your company. Of course, everything depends on the place. If you are changing couriers or secretaries, this is not a big trouble. But if chief managers work for your company less than a year, this is definitely not good.

Training and Development

Even if you hire the best specialist you need to integrate him into your company and guide. Of course, you bear costs, related to preparation. If you manage to cut this cost without injure quality of training, then your HR department is doing a great job.

Salaries, compensation, bonuses

It is very important to know that you are not overpaying and allocating recourses wisely. This also concerns HR department of any company. With Balanced Scorecard you will be able to see how efficiently company's funds are being used in HR branch.

Cost Effectiveness

It all comes to cost efficiency after all. All above-mentioned factors influence performance of HR department which has one goal minimize costs and boost presentation. If you HR department manages to cut costs and at the same time increase effectiveness, you can be proud of your HR specialists who know how to keep pace with the modern bsuiness.

Balanced Scoreboard will help you assess performance of HR managers and find solutions to problems. Once you enter all data, you will see graphs and values in percents which will indicate how well HR department is performing. Sometimes, it is difficult to find what takes the department down or what causes losses. With Balanced Scorecard you will be able to estimate all KPI to see what needs to be improved.

The Seven-Step Model for Implementing HR's Strategic Role

Ulrich et al. discuss a seven step model for formalizing the strategic role of HR. They are summarized below:


Clarify and articulate the business strategy

HR managers should focus on achievement of strategy. By doing so, they can facilitate discussion about how to communicate the firm's goals throughout the organisation. When strategic goals are not developed with an eye towards the implementation detail, they tend to be too generic and abstract. These vague goals will tend to confuse employees and they would not know how exactly to implement the strategies. The important thing for HR managers is to state the goals in such a way that the employees understand what exactly their role in the organisation is and thus the organisation knows how to measure success in achieving these goals.

Develop the business case for HR as a strategic asset:

Once a firm clarifies its strategy, HR professionals need to build a clear case for the strategic role of HR. In concrete terms, they must be able to explain how and why HR can hold the strategy. It is important to look at as much of case histories and internal as well as external research while leaving through this phase. Although it is not wise to imitate others, one can learn a lot by looking through past experiences of others. Basically, the direct impact on the HR systems' high performance characteristics is non-linearly related to the increase in market price. This is because in the lower ranges of performance, increase in market value is basically because HR stops making mistakes it used to make in the past. It is almost like it is getting out of the way and avoids blunders and wrong practices that worsen the situation. In the center range of performance, HR starts consolidating its efforts. It is learning from its mistakes and in the process does not actually add much to the market value of the employees and the company, but once a certain threshold is crossed indicating that the firm has adopted the appropriate HR practices and implemented them effectively, the market value soars exponentially. This is mainly because the HR system starts getting integrated into the overall strategic system of the firm. Basically, the firms must consolidate the appropriate HR policies and practices into an internally coherent system that is directly aligned with business priorities and strategies that are most likely to make economic value. This can lead to significant financial returns to the company. It is this plan that must be made concrete and shown as a strong case to make senior management believe in HR's potential.

It is important to note however, that simple changes in an HR practice do not make a difference. The HR measures explain the whole HR system and changing the system to cross the threshold mentioned above needs time, effort, insight and resolve since results are not directly proportional. This clearly indicates the requirement of an HR transformation rather than a change. It is this very character of transformation, which is difficult and lengthy to achieve, that makes HR a strategic asset.

Along with value creation, there must also be a strong case for HR's role in strategy completion. Strategy implementation rather than strategy content separates the successful from the unsuccessful firms. It is easier to choose an appropriate strategy than to implement one.

This once another time shows the strategic nature of HR's role in performance improvements. Successful strategy implementation is driven by employee strategic focus, HR's strategic alignment and a balanced performance measurement system. The most significant HR performance driver is a strategically focused workforce. Effective knowledge management combined with the above-mentioned factors creates a strategically focused organisation.

Create a strategy map for the firm:

The first two steps clarify the firm's strategy. This paves the way for the achievement process. But, before this is done, the firm must get a clear understanding of its value chain. The value chain is the complex cumulative set of interactions and combinatorial effects that create the customer value in the products and services of the firm. It is important that the firm's performance management structure must account for each of the links and dependencies in the value chain. The Balanced scorecard framework refers to this process and creating a strategy map. These are basically diagrams that show the links in the value chain. It shows how different components in different layers interact. It is what provides managers and employees the big picture of how their tasks affect the other basics in the firm and how it affects overall strategy. This process should involve managers from all over the organisation, not just HR. The broad participation is required to improve the quality of the strategy map. It also allows each member of the team who is an authority in his or her domain to provide his or her own insights into what is accomplishable. The following questions have been recognized as the key ones to be asked during the strategy map creation process.

* Identify the dangerous strategic goals from the generic ones.

* Identify the performance drivers for each goal.

* Think about how one can compute progress towards these goals.

* Identify barriers to the achievement of each goal.

* Recognise the employee behaviours needed to make sure that the company achieves its goals.

* Identify missing employee competencies and check if HR is providing the necessary competencies.

* Finally, decide what needs to change.

These basic questions generate a wealth of information about how well a firm's HR has been contributing to the achievement of the organisation. Along with these discussions, it is useful for the company to conduct surveys within the organisation to identify the extent to which each employee understands the organisational goals. Once the whole picture of the firm's value chain is highlighted, the firm can then translate the information into a theoretical model using language and graphics that make sense to the members of the organisation. The model should then be tested for understanding and acceptance amongst the leaders and the employees.

The strategy map essentially contains predictions about which organisational processes drive firm performance. The company can validate these hypotheses only after achieving the goals set for each of the performance drivers and then measuring their impact on overall firm performance. The graphical nature of the strategy map helps the higher management as well as the employees have more confidence in the strategy implementation plan.

Identify HR deliverables within the strategy map

HR creates much of its value at the points of intersection between the HR system and the overall strategy implementation system of the organisation. Thus, to leverage this to the maximum possible coverage it is important that there is a clear understanding of both sides of this intersection.

In the past, HR managers lacked the required amounts of knowledge about the business side and general managers did not fully appreciate the HR side. It is HR's responsibility to depict HR deliverables including performance drivers as well as HR enablers in the strategy map of the firm. Performance drivers such as employee competence, motivation and availability are very fundamental and so it might be difficult to locate these precisely on the strategy map. It is important to identify those HR deliverables that support the firm-level performance drivers on the strategy map. The focus should be on the kind of strategic behaviours that depend on competencies, rewards and work organisation. E.g. Employee stability improves R&D cycle time, the latter being a firm-level performance driver. Thus, employee stability becomes an significant HR enabler. Once this enabler has been identified, the firm can plan policies such as bonus schemes etc. that would encourage R&D staff to carry on working for the firm.

Align the HR architecture with HR deliverables:

The above-mentioned steps encourage the top-down thinking approach, whereby strategy decides what HR deliverables the firm needs to focus on. It is also important to consider how the HR structure made up of the rewards, competencies; work organisation etc. needs to be structured to provide the deliverables that are recognized in the strategy map. This step enhances the value creation aspect of the firm by aligning the HR system with the firm's larger strategy implementation system. For this, internal alignment and external position are important. Internal alignment refers to the aligning components within the HR system. External alignment refers to the position of the HR system with the other elements in the firm's value creation process. These two are not isolated processes. They are closely related. Internal alignment is necessary but not sufficient in itself for external alignment to occur. Basically, highly cohesive HR strategies will work as long as they are associated well with the overall strategy of the company. It will fail if it is not periodically reshaped so as to align it with the overall strategy. However, for a particular fixed overall strategy, all firms need an internally aligned HR strategy in order to achieve the overall goals. Misalignment between the HR system and the strategy implementation system can destroy value. In fact, the wrong measurement system can have the precise opposite effect than intended.

Design the strategic measurement system:

The above steps guide the development of the HR building and lay the groundwork necessary to measure the performance relationship between HR and the firm's strategy. The next step is to design the measurement system itself. This requires a new, modern perspective on measuring HR performance. It also requires HR to resolve several new technological issues that it might not be familiar with. To accurately measure the HR-firm performance relationship, it is imperative that the firm develops valid measures of HR deliverables. This task has two dimensions. Firstly, HR has to be confident that they have chosen the correct HR deliverables. This requires that HR have a clear understanding of the causality in the value chain for effective strategy implementation. Secondly, HR must choose the correct measures for those deliverables. During this process of rising the HR scorecard, the firm might go through several stages of increasing sophistication. The first stage is normally the traditional category of measures. These mainly include operational measures such as cost per hire, activity counts etc. These are not exactly strategic measures. In the second stage, HR measures have a strategic importance but they don't help much in creation a case for HR as a strategic asset. Firms may declare several people measures such as employee satisfaction as strategic measures and these might be included directly into the reward systems. In this stage, there tends to be a balance between financial and non-financial measures but there is less of an agreement on how exactly they combine together to implement the strategy. These are normally hasty decisions and the firms might have not gone through all the previous steps mentioned above. The next stage represents a transition point whereby the firm includes non-financial measures such as HR measures into its strategic performance extent system. The links between the various measures are also identified i.e. they are placed appropriately in the strategy map. The HR measures now actually track HR's involvement to strategy implementation. In the final stages, the HR measurement system will enable the firm to estimate impacts of HR policies on firm performance. If the value chain is short and the strategy map is relatively simple, the complete impact of HR on the overall performance can be measured. For more complex value chains, the impact can be more exactly measured on local segments or sectors of the strategy map. These local impacts can then be assimilated to give a good measure of the total impact on the firm's performance. Thus, each level of sophistication of the measurement system adds value to the non-financial measures and services in the firm and enables a better performance appraisal.

Execute management by measurement

The previous step completes the HR scorecard development process. The next step is to use this powerful new management tool in the right way. This tool not only helps the firm measure HR's contact on firm performance, but also helps HR professionals have new insights into what steps must be taken to maintain HR as a strategic benefit. It helps the HR professionals dig deeper into the causes of success and failure and helps them promote the former and avoid the later. Implementing the strategy using the HR scorecard requires change and flexibility as well as constant monitoring and re-thinking. The process is not a one-time event. HR professionals must regularly review the procedures and their impacts. They must review the HR deliverables identified as important and see to it that the drivers and enablers and internally as well as externally aligned. Special reviews of the HR enablers must be conducted as these have the maximum direct impact on specific business objectives. Enablers that do not be likely to play a helpful role should be replaced.

Reference:

www.google.com

www.wikipedia.com
 


Mr. Nimesh R. Vadhel
Faculty
Sarvoday Charitable M.B.A. College
Kakanpur
 

Source: E-mail April 3, 2010

          

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