HR Scorecard and Metrics

Session 3- Scorecard Basics

Introduction

• This short introduction forms part of the seminar, and aims to orientate the delegates about the background to, and application of the Balanced Scorecard Approach.

• As such the presentation deals with the following:• The BSC in relation to the classical planning and performance

management process;• The anatomy of the BSC;• The process of implementing the BSC

Classical Planning

• Classically planning dealt (essentially) with the following:• Diagnostics (mostly referred to as environmental

scanning and organization diagnostic studies)• Classification (the most common technique used was the

so called SWOT analysis);• Setting strategic objectives;• Developing implementation plans

Classical Planning

• A fundamental problem with the classical planning approach is its overemphasis on the long term – essentially working from the assumption that the planning environment is static and calls for incremental adjustments to the enterprise

• A further problem is the lack of clear measurement (metrics) and implementation

• Performance management was, and still is the practical system facilitating the implementation of strategic and business objectives of the enterprise;

• Consequently is it necessary to ensure proper alignment of performance objectives, with the strategic and business planning.

Classical Planning

• A major problem, however with the implementation of most performance management systems is indeed the lack of alignment with the vision, strategic and business objectives of the organization;

• In addition also the lack of proper metrics according to which goal achievement and performance can be measured.

Classical Planning

• The BSC addresses the weaknesses of the classical strategic planning approach as well as most performance management systems;

• It provides an integrated visioning, planning, strategizing and performance management process;

• Implementation is facilitated by cascading the scorecard from enterprise to individual level, thereby ensuring optimal integration and alignment.

Classical Planning

What then is the BSC?

“A carefully selected set of measures derived

from an organization’s strategy. The measures

selected for the scorecard represent a tool for

leaders to use in communicating to employees

and external stakeholders the outcomes and

performance drivers by which the organization

will achieve its mission and strategic

objectives.”

Paul Niven, 2002

The BSC Defined

• Strategy

• Measures

• Measurement;

• Reporting

• Communicating

The BSC Defined

Communication ToolCommunication Tool

StrategicManagement System

StrategicManagement System

Measurement System

Measurement System

Balanced ScorecardBalanced Scorecard

The BSC Defined

The name “Balanced Scorecard” reflects the Balance between • short- term and long-term objectives• financial and non-financial measures• lagging and leading indicators• external and internal performance perspectives.

The BSC Defined

Steps in creating the Scorecard

Step 1:

Clarify the Vision

Clarify the Mission or Strategic Value Proposition.

The BSC Process

Step 2:

Create objectives in the four perspectives to realize the Vision and Mission

The BSC Process

• Financial Perspective: Balance revenue growth and production improvement.

• Customer Perspective: Differentiate your organization from competitors.

• Internal Process Perspective: Identify operational, customer-relationship, and innovation

processes to support your customer and financial goals

• Innovation and Learning Perspective:Define the skills, technologies, and corporate culture needed to

support your strategy.

The BSC Process

Step 3:

Define performance measurement to measure objectives or goals

The BSC Process

• Financial Perspective: Balance revenue growth and production improvement.

• Customer Perspective: Differentiate your organization from competitors.

• Internal Process Perspective: Identify operational, customer-relationship, and innovation

processes to support your customer and financial goals

• Innovation and Learning Perspective:Define the skills, technologies, and corporate culture needed to

support your strategy.

The BSC Process

BSC Defined

Causal Relationship

Vision

Vision

And the HR Scorecard?

• Several human resources departments, including Verizon and the United States Department of Transportation, have adopted the balanced scorecard as a tool to measure HR’s contribution to the bottom line.

• The scorecard is used to continually monitor HR’s activities throughout the organization, determining whether the people management systems create value and help to drive the company towards business objectives

The HR Scorecard

• According to Mark Huselid, an Associate Professor of Human Resources Strategy at US-based Rutgers University, the greatest difference between the balanced scorecard approach and traditional human resources management is that entire people management systems and processes are centered around HR’s deliverables rather than sub-sections of the department, such as benefits, recruiting or compensation.

The HR Scorecard

• Literature highlights a debate as to whether the HR department should create a scorecard in advance of, or following, the rest of the organization

• As scorecards normally include details of future business goals and initiatives, and HR activities should be in line with these priorities, some authors suggest that HR scorecards should be developed after scorecards in other parts of the business.

The HR Scorecard

?The HR Scorecard

The HR Scorecard

Do you Have A different Perspective?

The HR Scorecard

Five Minutes

The HR Scorecard

Is it really relevant?

Situation: In 1992, Sears, Roebuck and Company was experiencing a difficult financial condition. The company was losing $3.4 billion annually.

Actions: The CEO and the executive team used the balanced scorecard framework to create a culture of feedback and learning by implementing three strategies to make Sears “a compelling place to shop” (the customer perspective), “a compelling place to work” (the employee perspective), and “a compelling place to invest” (the financial perspective)..Results: By 1999, the company had $2.41 billion in operating earnings and it was named the most innovative general merchandise retailer by Fortune.

Situation: Conventional satisfaction surveys and the Skandia “Navigator” (balanced scorecard) were unable to pinpoint specific cultural hot spots and managers who do not support entrepreneurial and innovative culture, key for future growth and development.Actions: The HR department refocuses employee-sensing efforts by creating an employee survey that focuses on determining whether employees perceive their unit, their work environment, and their managers as fostering and supporting entrepreneurial behavior.Line managers who, appear to have unsatisfactory behavior receive coaching. Line managers who are unable to make the necessary changes in their management style are asked to leave the company. Results: The assessment process enables accurate pinpointing of problem areas, allowing effective and timely interventions.

Situation: After the 2000 merger between GTE and Bell Atlantic, Verizon needed to amalgamate and recalibrate the new HR function with the corporate goals.Actions: Verizon’s HR function formed a core team that identified goals, pertinent metrics and implemented a balanced scorecard composed of HR metrics that link directly to the organization’s business prioritiesResults: Following the creation of a joint scorecard, HR can explain and defend project and staffing decisions that may be out of the ordinary or counter to perceived strategic necessities. HR leaders now have a tool which supports a focus on tactical excellence while ensuring alignment with business strategy.

Key Issue is Alignment of….. to…

Situation: Alterra Health Care, a leading provider of assisted living facilities for the elderly, faced 145 percent turnover and financial losses in 2001. In order to overcome these obstacles, the company needed to transform the HR function to align it with the company’s overall mission and goals.Actions: The Senior Vice President requested assistance from the “Balanced Scorecard Collaborative Incorporated” organization to create an HR Balanced Scorecard. Alterra’s corporate strategy map focused on these elements: financial, customer, business, processes, and organizational learning. To track those elements, the Senior Vice President created a people and culture balanced scorecard that describes HR’s strategic role in improving shareholder value.Results: Within six months, the company had a positive cash flow and the turnover fell 26 percent in 2002 from the year before. Alterra’s customer and employee satisfaction scores show that eight out of ten are “satisfied” or “more than satisfied.”

What Then Are the key Perspectives?

Are people performance and

capabilities aligned

Are people performance and

capabilities aligned

Where must HR excel to ensure that the business meet its

goals

How can HR add financial value to the

business

How do HR improve its standing/status in the eyes of the customer

The Three Critical Decisions that Shape Metrics Selection

Question Decision

Should the process ofidentifying aligned metrics flow from the top down or from the bottom up?

Decision #1—If metrics are to be truly aligned with businessimperatives, identification of metrics must be top down, starting with business strategy and cascading downward into the domain of HR until suitable measurement items can be identified.

Who in the organizationcan and should decidewhich HR metrics arevalue-added?

Decision #2—For the strategic perspective, HR should identify metrics because HR is best positioned to answer people capability questions.Decision #3—For all other categories, line input should drive metrics decisions because only the line can determine which measures will enable it to assess whether HR is meeting its requirements.

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Question Decision

Should the process ofidentifying aligned metrics flow from the top down or from the bottom up?

Decision #1—If metrics are to be truly aligned with businessimperatives, identification of metrics must be top down, starting with business strategy and cascading downward into the domain of HR until suitable measurement items can be identified.

Who in the organizationcan and should decidewhich HR metrics arevalue-added?

Decision #2—For the strategic perspective, HR should identify metrics because HR is best positioned to answer people capability questions.Decision #3—For all other categories, line input should drive metrics decisions because only the line can determine which measures will enable it to assess whether HR is meeting its requirements.

Cascading –Mapping and Linking (metrics)

What are the strategic goals of the business

What Are The People Imperatives to Achieve the

Goals

What Must HR Deliver

How will we measure success

What are the strategic goals of the business

Tools

• Environment• Trade press• Industry publications• Government publications and/or Web sites• Bureau of labor statistics• Company strategy function

• Business strategy• Interviews with line executives• Strategy meetings with line executives• Interview with CEO• Company strategic plan

• Business goals• Interviews with line executives• Strategic plan published for the company and each business unit

What Are The People Imperatives to Achieve the

Goals

Tools

Strategic Imperatives

What Must HR Deliver

Tools

Tools

Result: List of HR DeliverablesHR creates a list of total people and service

requirements thatprovides the basis for HR strategy making and

measurement

Tools

Clustering

Clustering

Tools

Priorities

Priorities

How will we measure success

Tools

Five Minutes