Steps in the HR Scorecard approach to creating HR systems

What Is an HR Scorecard?

The HR Scorecard is a concise measurement system, often summarized on a computer screen in a “digital dashboard”. It shows the quantitative standards or “metrics” the firm use to measure HR activities, and to measure the employee behaviors resulting from these activities, and to measure the strategically relevant organizational outcomes of those employee behaviors.

Information for Creating an HR Scorecard

To create an HR Scorecard, the manager needs three types of information:

•    What the company’s strategy

•    HR scorecard relationships

•    Metrics to measure all the activities and results involved

The Basic HR Scorecard Relationships

HR actives

 -> Emergent employee behaviors -> strategically relevant organizational outcomes 

-> Organizational performance -> Achieve strategic goals

Implementing HR’s Strategic Role:

A Seven-Step Model for human resources to make the maximum contribution toward establishing value for your company and its shareholders, your executives and HR department managers must take the seven steps outlined below.

Step 1: Clearly Define Business Strategy: Business strategies tend to be very generic.
They might be to “maximize operational efficiency” or “increase presence in international
markets” or “improve productivity. “Unfortunately, these goals are so vague that
employees don’t know what they are supposed to do to implement them. Here’s where HR
experts step in. Once you know your company’s business strategy, focus on how to
implement it. The key is to state the company’s goals in such a way that employees
understand their roles, and the organization knows how to measure its success in achieving
them.

Step 2: Build a Business Case for HRAs a Strategic Asset: Human resource professionals need to build a clear business case for why and how HR can support the strategy. That business case must include a recommendation for the implementation or expansion of a High Performance Work System (HPWS).

Step 3: Create a Strategy Map: Develop a strategy map that illustrates how the company creates customer value — essentially a diagram of the value chain. To draw the diagram, you need to ask a series of questions about your company’s strategic objectives, including:                               ● which strategic objectives/goals/outcomes are critical?

● what are the performance drivers for each goal?

● how do we measure progress toward these goals?

● how do employees need to behave to achieve these goals?

● does HR provide employees with the necessary competencies and behaviors?

Once you think you have a picture of the company’s value chain, translate the information
into a conceptual model using language and graphics that make sense in your organization.
Test for understanding and acceptance in small groups of opinion and thought leaders
throughout the firm. The strategy map you create contains hypotheses about which
organizational processes drive firm performance. The map might show, for example, that
a short research and development cycle is key to the performance and success of your
company.

Step 4: Identify HR Deliverables: Within the Strategy Map Think in terms of identifying
strategic behaviors HR can deliver. For example, if your firm decides that achieving a short research and development cycle requires employee stability (in other words, low turnover), you will want to design HR policies that encourage stability.

Step 5: Align HR Architecture with HR Deliverables: Your Company’s HR architecture
must be designed to allow HR to deliver the training, recruiting and retention goals
necessary for the company as a whole to achieve its strategic goals. For example, in step
3, you identified R&D cycle time as an important performance driver. In step 4, you
identified employee stability as the HR deliverable that enables that performance driver. In
step 5, you might identify market rewards and career opportunities as HR system elements
that ensure employee stability and thus improve R&D cycle time. This intersection of the
HR system and the company’s strategy (represented by the strategic performance driver)
is illustrated at left.

Step 6: Design the Strategic HR Measurement System: After you have laid the
groundwork, it’s time to design your HR measurement system. Develop valid measures of the HR deliverables required to meet your strategic objectives. Take the example of employee stability. There are several ways stability can be measured. You will have to define who is a senior staffer (perhaps those with more than five years of professional experience) and what you mean by stability (perhaps all turnover or only voluntary turnover, but not promotions). The HR measurement system you develop will become your HR Scorecard.

Step 7: Implement Management by Measurement: Once the HR Scorecard is developed, you will have a powerful new management tool. A good example is what happened at GTE when it implemented an HR Scorecard system. GTE had always measured turnover rates, but hadn’t really related those rates to the company’s overall profitability. Once the Scorecard was implemented, GTE saw exactly where turnover rates were up. HR interventions were then developed to stem turnover, with dramatic improvement in overall business unit performance.

Creating the HR Scorecard

The HR Scorecard is a strategic HR measurement system that will help you measure, manage and improve the strategic role of your HR department. The Scorecard consists of measurements of:

1. HR deliverables.

2. HR policies, processes and practices.

3. HR system alignment.

4. HR efficiency.

To introduce these four dimensions of the HR Scorecard, we’ll use the case of a company we’ll call HiTech.

HR Deliverables

HiTech wants to focus on its R&D function and explore HR’s potential role in the
company’s strategic plan. The R&D unit has profitability goals for both revenue growth
and productivity improvement. These are the two important performance drivers of its
strategy. HiTech’s revenue growth derives from increased customer satisfaction, which is
boosted by product innovation and reliable delivery schedules. Product innovation depends
on experienced, talented staff in research and development. Reliable delivery depends on
optimal staffing levels in the manufacturing units. HiTech’s productivity improvement
results from optimal production schedules — which also depend on optimal staffing levels
in the manufacturing units. Thus, the two HR deliverables that will support the company’s
strategic goals of revenue growth and productivity improvement are:

● experienced, talented staff in R&D, and

● optimal staffing levels in the manufacturing units.

HR Policies, Processes and Practices

The next question to ask yourself is, “What are the high-performing policies, processes and
practices that will help generate the HR deliverables required to support my company’s
strategy?” The authors call the set of policies, processes and practices that specifically help
to generate strategic HR deliverables a High Performance Work System (HPWS). To
develop and keep an experienced, talented staff in R&D at HiTech, human resources must
create competency-based selection methods and retention programs for prospective and
current employees. This allows only talented employees to be hired. Regular performance
appraisals are also important to ensure that employees are maintaining the required talent
and experience level. A short recruiting cycle — that is, the length of time it takes for HR
to fill vacancies — will maintain staff levels at optimal levels, the second HR deliverable.

HR System Alignment

Here is where you focus on the specific elements of the system that must reinforce each other to produce the HR deliverables. For example, competency-based recruiting is essential to HiTech’s strategic priorities. Therefore, HiTech can measure how well its HR system is aligned to its strategic goals by monitoring how many new employees were selected based on the competency model — and how many of those employees came in at the highest quality level. The HR department must also provide the types of benefits that will retain R&D staff (thus allowing HiTech to meets it product innovation needs). And since the recruiting cycle time for the manufacturing division affects optimal staffing levels, HR must attempt to keep this cycle as short as possible.

HR Efficiency Measures

The final step in developing the measures for an HR Scorecard is to identify the exact tasks
at which HR must be efficient to support the company’s strategic goals. HiTech, for
example, could identify cost per hire as a strategic measure. While cost per hire might be
higher than average, this cost represents a strategic investment in the company — because
the benefits of the company’s hiring processes will also be higher than average.

Implementing the HR Scorecard

Developing an HR Scorecard and actually implementing one are two different things. You will need to build acceptance of the Scorecard within your organization. Change is difficult to implement in any organization. Most problems occur not from misunderstanding of what to do, but from a lack of discipline about how to do what needs doing. Here are seven guidelines for the successful implementation of your Scorecard:

➢ Leading Change. You will need to enlist two sponsors — a line manager and the head of HR. You will also need someone on the team who specializes in HR measurement and an advisory team to supervise the work.

➢ Creating a Shared Need. You must create a business case for the use of the Scorecard. Share this with line management and the HR department and allocate between 3 percent and 5 percent of the HR budget to measurements.

➢ Shape a Vision. You must articulate the desired outcome of using the Scorecard by preparing the key measures to be tracked. Define decisions that will be made based on the measures, and figure out how you will collect the data needed for the measurements.

➢ Mobilize Commitment. Identify the key players whose support you need and engage them.

➢Build Enabling Systems. Put the right people on the project, give them incentives, have them report to the right people, and invest in the technology needed.

 
➢ Monitor and Demonstrate Progress. Develop a project plan.

➢ Make It Last. Start with simple measures, make them visible, post the results and change the measures as required by changing conditions.

ACTIVITY 2.5

1. What is HR Score-Card? Give the basic HR scorecard relationship.

2. Discuss the 7-step model of HR scorecard strategy.

3. Write a note on creating HR score card.

4. Explain the process of implementing HR Score Card.