HR Scorecard & Strategic Human Resources Management

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We are living in a time when a new economic paradigm –characterized by speed, innovation, short cycle times, and quality and customer satisfaction- is highlighting the importance of intangible assets, such as brand recognition, knowledge, innovation, and particularly human capital. This new paradigm can mark the beginning of a golden age of HR.

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  • can you pls share this article to vlnarayanan1611@gmail.com; very useful indeed
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  • Hi, very useful and informative report. Appreciate very much if you could send me a copy by mail: gmrp.1203@yahoo.com. Thank you in advance.
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  • Hello, could i please have a copy of this at cy@fileminders.com.cy? Thanks in advance
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  • You have useful information for MSc Project Management, kindly send me the soft copies of the following materials: IT Tools for Project Management, Project Appraisal & Management, Research Methodology, Human Resource Management and HR Scorecard & Strategic Human Resources Management at onesmusangula8@gmail.com. Thank you.
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  • please send me the soft copy of this at zeeshan1118@yahoo.com
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HR Scorecard & Strategic Human Resources Management

  1. 1. THE HR SCORECARD APPROACH, LINKINGHR STRATEGIES, PEOPLE AND PERFORMANCE CEYDA ÇAKIR 108609017 İSTANBUL BİLGİ ÜNİVERSİTESİ SOSYAL BİLİMLER ENSTİTÜSÜ İŞLETME YÜKSEK LİSANS PROGRAMI METEHAN SEKBAN 2010
  2. 2. THE HR SCORECARD APPROACH, LINKING HR STRATEGIES, PEOPLE AND PERFORMANCE CEYDA ÇAKIR 108609017PROJE DANIŞMANININ ADI SOYADI (İMZASI) :.....................................KOMİSYON ÜYESİNİN ADI SOYADI (İMZASI) :.....................................PROJENİN ONAYLANDIĞI TARİH :..........................................................(bu tarih SBE tarafından yazılacaktır) ii
  3. 3. Dedicated to my daughters, Pelin & Selin … iii
  4. 4. ABSTRACTWe are living in a time when a new economic paradigm –characterized by speed, innovation,short cycle times, and quality and customer satisfaction- is highlighting the importance ofintangible assets, such as brand recognition, knowledge, innovation, and particularly humancapital. This new paradigm can mark the beginning of a golden age of HR.In many firms, executives want to believe that “people are our most important asset”, but theycan‟t understand how the HR function makes that vision a reality. The reason for that problemis that HR‟s influence on firm‟s performance is difficult to measure. It is said that what getsmeasured gets managed, and what gets managed gets accomplished. It is true that developingmeasurement competency is important, because it can add value at the level of the firm.Financial measures such as earnings per share and profit margin tell the tale of businessperformance, and generations of business people have tried to manage their companies usingthese measures. But these traditional measures are not buttons that HR and other managerspush to make things happen – they represent outcomes of dozens of other activities that comebefore. Thus they are backward-looking, the products of past decisions.On the other hand, there is an alternative methodology known as the balanced scorecard –which enables you to measure the activities your company engages in today that will exert themost influence on the firm‟s future financial performance. iv
  5. 5. TABLE OF CONTENTSABSTRACT ...............................................................................................................................ivTABLE OF CONTENTS ........................................................................................................... vLIST OF TABLES................................................................................................................... viiLIST OF FIGURES ............................................................................................................... viiiLIST OF ABBRAVIATIONS ....................................................................................................ixINTRODUCTION ...................................................................................................................... 11. PART I – CHANGING THE ROLE OF HR.................................................................... 2 1.1. Why HR Matters Seen Important Now More Than Ever .................................... 3 1.1.1. Globalization .......................................................................................................... 3 1.1.2. Profitability through Growth...................................................................................... 4 1.1.3. Technology ............................................................................................................ 4 1.1.4. Intellectual Capital .................................................................................................. 4 1.1.5. Change, Change and More Change ......................................................................... 5 1.2. HR’s New Multiple Role Model ............................................................................... 5 1.2.1. HR as a value-adding strategic partner ..................................................................... 7 1.2.2. HR as a change agent............................................................................................. 8 1.2.3. HR as an employee champions................................................................................ 9 1.2.4. HR as an administrative expert .............................................................................. 10 1.3. Clarifying the Strategic Role of HR ...................................................................... 11 1.3.1. HR’s primary goal is to increase workforce productivity ............................................ 12 1.3.2. Who is HR’s customer? ......................................................................................... 12 1.3.3. Ten essential elements of a Strategic HR Department ............................................. 12 1.3.3.1. HR increases employee productivity ................................................................... 12 1.3.3.2. HR has an external focus on impacting business objectives ................................. 12 1.3.3.3. HR uses performance culture tools to improve firms’ performance ........................ 13 1.3.3.4. HR provides a competitive advantage ................................................................. 13 1.3.3.5. HR makes fact-based decisions using metrics ..................................................... 14 1.3.3.6. HR is proactive and future-focused ..................................................................... 14 1.3.3.7. HR makes a coordinated effort ........................................................................... 14 1.3.3.8. HR has a global approach ................................................................................. 14 1.3.3.9. HR builds a brand ............................................................................................. 14 1.3.3.10. Technology permeates everything .................................................................. 14 1.4. How Can HR Achieve New Role Model .............................................................. 15 1.4.1. Defining Properly the Deliverables of HR ................................................................ 15 1.4.2. Measuring HR Performance & Effectiveness ........................................................... 16 1.4.2.1. Reliability and Validity ....................................................................................... 18 1.4.2.2. Quantitative and Qualitative Data ....................................................................... 19 1.4.3. New Technologies and Practices ........................................................................... 20 1.4.4. Upgrade HR professionals ..................................................................................... 202. PART II – STRATEGIC HRM ........................................................................................ 22 2.1. The concept of Strategic Human Resources Management ............................. 22 2.1.1. Definition of SHRM ............................................................................................... 22 2.1.2. Basis of Strategic HRM ......................................................................................... 23 2.1.3. Aims of Strategic HRM .......................................................................................... 23 2.2. The practice of Strategic Human Resources Management ............................. 24 v
  6. 6. 2.2.1. Overall HR Strategies ........................................................................................... 24 2.2.1.1. The High-Performance Management Model ........................................................ 24 2.2.1.2. The High-Commitment Management Model ........................................................ 26 2.2.1.3. The High-Involvement Management Model ......................................................... 26 2.2.2. Specific HR Strategies .......................................................................................... 27 2.3. Strategic HRM in action ......................................................................................... 28 2.3.1. Developing the HR Strategy .................................................................................. 29 2.3.2. Implementing the HR Strategy ............................................................................... 31 2.4. The impact of Strategic HRM ................................................................................ 323. PART III - HR SCORECARD ........................................................................................ 34 3.1. What is a Balanced Scorecard? ........................................................................... 34 3.2. Implementing a Balanced Scorecard Program .................................................. 36 3.2.1. Clarify the vision and strategy ................................................................................ 36 3.2.2. Communicate the vision and strategy ..................................................................... 36 3.2.3. Develop business – unit scorecards ....................................................................... 36 3.2.4. Eliminate non-strategic investments ....................................................................... 37 3.2.5. Review business unit scorecard ............................................................................. 37 3.2.6. Refine the vision ................................................................................................... 37 3.2.7. Cascade the scorecard further ............................................................................... 37 3.2.8. Establish managerial performance objectives .......................................................... 37 3.2.9. Update Long-range plans and budget ..................................................................... 37 3.2.10. Link employee objectives to the scorecard .............................................................. 37 3.2.11. Conduct periodic strategy reviews .......................................................................... 37 3.3. The HR Scorecard .................................................................................................. 38 3.3.1. The Benefits of a HR Scorecard ............................................................................. 39 3.3.2. Questions prior to the creation of the HR Scorecard................................................. 39 3.3.3. Steps for Creating an HR Scorecard ....................................................................... 40 3.3.3.1. Define Company’s Key Performance Drivers ....................................................... 40 3.3.3.2. Identify HR Deliverables .................................................................................... 41 3.3.3.3. Align HR Architecture with HR deliverables ......................................................... 42 3.3.3.4. Design the Strategic HR Measurement System ................................................... 42 3.3.3.5. Implement Management by Measurement .......................................................... 45 3.3.4. Tips for Selecting Metrics ...................................................................................... 45 3.3.5. The HR Scorecard in Action................................................................................... 46CONCLUSION ........................................................................................................................ 48REFERENCES ........................................................................................................................ 49APPENDICES ......................................................................................................................... 51 vi
  7. 7. LIST OF TABLESTABLE 1 - RESEARCH ON THE LINK BETWEEN HRM AND FIRM PERFORMANCE .................................................... 33 vii
  8. 8. LIST OF FIGURESFIGURE 1 - THE EVALUATION OF HR FUNCTION ..................................................................................................... 2FIGURE 2 - CHANGING ROLE OF HR ....................................................................................................................... 6FIGURE 3 - ULRICH’S MATRIX .................................................................................................................................. 7FIGURE 4 - HIGH PERFORMANCE MODEL.............................................................................................................. 25FIGURE 5 - MODEL OF A LINK BETWEEN HRM AND PERFORMANCE ..................................................................... 32FIGURE 6 -A SIMPLE ILLUSTRATION OF VALUE CREATION BASED ON KAPLAN & NORTONS BALANCED SCORECARD MATRIX .................................................................................................................................... 35FIGURE 7 - HR SCORECARD PROCESS ................................................................................................................. 41FIGURE 8 - INTERSECTION OF HR WITH STRATEGY MAP ..................................................................................... 42 viii
  9. 9. LIST OF ABBRAVIATIONSHR: Human ResourcesHRM: Human Resources ManagementSHRM: Strategic Human Resources ManagementBA: Business AdministrationROI: Return on InvestmentHPWS: High-performance work systemsBUs: Business UnitsSBUs: Strategic Business UnitsKSAs: Knowledge, skills, and abilities ix
  10. 10. INTRODUCTIONIn this project, I want to analyze HR‟s new role in new millennium and HR‟s strategiccontribution to overall business performance. This project contains three related parts, the firstHR‟s evaluation, the second Strategic Human Resources Management and the third HRScorecard.Part 1 starts with the changing role of HR and its evolution in time. In this part, it can be seenthat why intangible assets are so important in today‟s business environment and HR‟s crucialrole as a strategic business partner.Part 2 is related to the Strategic Human Resources Management. This part starts with thehistory and definition of Strategic Human Resources Management and then continues with theimplementation of Strategic HRM‟s processes and the models for Strategic HRM, such as theHigh-Commitment Management Model, the High-Involvement Management Model, and theHigh-Performance Management Model.And last part is related to the HR Scorecard Application. 1
  11. 11. 1. PART I – CHANGING THE ROLE OF HRRecent decades have witnessed dramatic shifts in the role of HR. Traditionally, managers sawthe HR function as primarily administrative and professional. HR staff focused onadministering benefits and other payroll and operational functions and did not think ofthemselves as playing a part in the firm‟s overall strategy. New economic realities are puttingpressure on HR to widen its focus from the administrative role it has traditionally played to abroader, strategic role.The HR function is at three different states in its evolution cycle where it starts as a BusinessFunction, becomes a Business Partner and then a Strategic Partner. Figure 1 - The Evaluation of HR FunctionIn each of these cases the role and impact of the HR department becomes progressively morestrategic in nature. At higher levels of maturity, the HR function can add tremendous value tothe leadership potential, top-line, bottom line and long-term sustainability of the organization. 2
  12. 12. 1.1. Why HR Matters Seen Important Now More Than EverHR‟s emerging strategic potential hinges on the increasingly central role of intangible assetsand intellectual capital in today‟s economy. Sustained, superior business performance requiresa firm to continually hone its competitive advantage. Traditionally, this effort took the form ofindustry-level barriers to entry, patent protections, and governmental regulations. Buttechnological changes, rapid innovation, and deregulation have largely eliminated thesebarriers. Because enduring, superior performance now requires flexibility, innovation, andspeed to market, competitive advantage today stems primarily from internal resources andcapabilities of individual organizations – including a firm‟s ability to develop and retain acapable and committed workforce. As the key enabler, human capital, HR is in a primeposition to leverage many other intangibles as well, such as goodwill, research anddevelopment, and advertising.Regardless of their industry, size or location, companies today face five critical businesschallenges. Collectively, these challenges require organizations to build new capabilities. SoHR‟s opportunity to play a leadership role in enabling organizations to meet the followingcompetitive challenges: 1.1.1. GlobalizationWith the rapid expansion of global markets, managers are struggling the balance theparadoxical demand to think globally and act locally. That imperative requires them to movepeople, ideas, productions and information around the world to meet local needs. They mustadd new and important ingredients to the mix when making strategy: volatile politicalsituations, contentious global trade issues, fluctuating exchange rates, and unfamiliar cultures.In short, globalization requires that organizations increase their ability to learn and collaborateand to manage diversity, complexity, and ambiguity. 3
  13. 13. 1.1.2. Profitability through GrowthDuring the past decade, most companies have been using downsizing, reengineering,delayering, and consolidation to increase efficiency and cutting costs. The gains of such yardwork, however, have largely been realized and executives will now have to pay attention tothe other part of the profitability equation: revenue growth.The drive for revenue growth, needless to say, puts unique demand on an organization.Companies seeking to acquire new customers and develop new products must be creative andinnovative, and must encourage the free flow of information and shared learning amongemployees. They must also become more market focused – more in touch with the fastchanging and disparate needs of their customers. And companies seeking growth throughmergers, acquisitions and joint ventures require other capabilities, such as the finely honedskills needed to integrate different organizations‟ work processes and cultures. 1.1.3. TechnologyThe challenge for managers is to make sense and good use of what technology offers. Not alltechnology adds value. But technology can and will affect how and where work gets done. Inthe coming years, managers will need to figure out how to make technology viable, productivepart of the work setting. They will need to stay ahead of the information curve and learn toleverage information for business results. Otherwise, they risk being swallowed by a tidalwave of data – not ideas. 1.1.4. Intellectual CapitalKnowledge has become a direct competitive advantage for companies selling ideas andrelationships and an indirect competitive advantage for all companies attempting todifferentiate themselves by how they serve customers. From now on, successful companieswill be the ones that are the most adept at attracting, developing and retaining individuals whocan drive a global organization that is responsive to both its customers and the burgeoningopportunities of technology. Thus the challenge for organizations is making sure they have thecapability of find, assimilate, develop, compensate and retain such talented individuals. 4
  14. 14. 1.1.5. Change, Change and More ChangePerhaps the greatest competitive challenge companies face is adjusting to – indeed, embracing– nonstop change. They must be able to learn rapidly and continuously, innovate ceaselessly,and take on new strategic imperatives faster and more comfortably. Constant change meansorganizations must create a healthy discomfort with the status quo, an ability to detectemerging trends quicker than the competition, an ability to make rapid decisions, and theagility to seek new ways of doing businesses. To thrive, in other words, companies will needto be in a never-ending state of transformation, perpetually creating fundamental, enduringchange. 1.2. HR’s New Multiple Role ModelThe five challenges described above have one overarching implication for business: the onlycompetitive weapon left is organization. Sooner or later, traditional forms of competitiveness –cost, technology, and distribution, manufacturing, and product features – can be copied. In thenew economy, winning will spring from organizational capabilities such as speed,responsiveness, agility, learning capacity, and employee competence.Successful organizations will be those that are able to quickly turn strategy into action; tomanage processes intelligently and efficiently; to maximize employee contribution andcommitment, and to create the conditions for seamless change.In the past few years, roles for HR professionals were often viewed in terms of transition from Operational to strategic, Qualitative to quantitative, Policing to partnering, Short-term to long-term, Administrative to consultative, Functionally oriented to business oriented, Internally focused to externally and customer-focused, Reactive to proactive, Activity-focused to solutions-focused. 5
  15. 15. Figure 2 - Changing Role of HRMore recently these from….to transitions have been seen as too simplistic: the rolesundertaken by HR professionals are, in reality, multiple, not single. HR professionals mustfulfill both operational and strategic roles; they must be both police and partners; and theymust take responsibility for both qualitative and quantitative goals over the short and longterm. For HR professionals to add value to their increasingly complex businesses, they mustperform increasingly complex and, at times, even paradoxical roles.According to Dave Ulrich, the roles of HR professionals must be redefined to meet thecompetitive challenges organizations face today and are likely to face in the future. Thisframework is called as „Multiple Role Models‟. The axes in this model show how HRpractitioners can be anywhere between having a day-to-day or operational focus and beingmore strategic and future focused and having a focus on HR processes and systems or people.(Figure1.3.) Ulrich describes the four roles as follows: 6
  16. 16. Figure 3 - Ulrich’s Matrix 1.2.1. HR as a value-adding strategic partnerThis role involves systematically assessing and aligning HR practices with business strategy.The primary actions of the Strategic HR Manager translate business strategies into HRpriorities. As strategic partners, HR professionals should be able to identify the HR practicesthat make the strategy happen. The process of identifying these HR priorities is called„organizational diagnosis‟; a process through which an organization is audited to determine itsstrengths and weaknesses.There are many examples for this HR‟s role. For example, Whirlpool sought to gain moreglobal market share in appliances, HR strategies modified hiring practices and career paths toensure multinational competence.The HR executives who designed these new practices are strategic partners: they mastered theskill of organizational diagnosis aligned HR practices with business strategies. Building neworganizational capabilities call for performance management programmes aligned with thedesired outcomes. Here the deliverable outcome is „executing strategy‟. 7
  17. 17. 1.2.2. HR as a change agentThe deliverable in this role is creating a renewed organization. To this end, HR professionalsneed to understand the theory and application of tools for change. They lead transformation bydoing it first within the HR function; they serve as catalysts and facilitators of change.Transformation entails fundamental cultural change within the firm; HR professionalsmanaging transformation become both cultural guardians and cultural catalysts. Change refersto the ability to an organization to improve the design and implementation of initiatives and toreduce cycle time in all organization activities; HR professionals help to identify andimplement processes for change.The deliverable from management of transformation and change is capacity for change. Asfirms undergo transformation, HR executives serve as business partners by helping employeeslet go of old and adapt to a new culture. As change agents, HR executives help organizationsidentify a process for managing change.As change agents, HR professionals face the paradox inherent in any organizational change.HR professionals may need to force or facilitate a dialogue about values as they identify newbehaviors that will help to keep a firm competitive over time. Being change agents is clearlypart of value-added role of HR professionals as business partners.The actions of change agents include identifying and framing problems building relationshipsof trust, solving problems, and creating - and fulfilling – action plans. HR professionals whoare change agents help make change happen; they understand critical processes for changebuild commitment to those processes and ensure that change occurs as intended. 8
  18. 18. 1.2.3. HR as an employee championsIn companies in which intellectual capital becomes a critical source of the firm‟s value, HRprofessionals should be active and aggressive in developing this capital. Listening andresponding employees and finding the right balance between demand on employees andresources available to them are the characteristics of this role.There are many examples of appropriate successful response in this area. Apple has created anemployee services center, which employees can call using an 800 number, staffed by peoplewho can answer questions about company policy and administration. Marriott has organizedemployees within the work teams. Regular employee surveys at Hewlett-Packard monitoremployee concerns and stimulate appropriate responses. In each case, HR professionalsworking as employee champions strive to understand and fulfill employees‟ needs.The key deliverable is increasing employee commitment and capability. HR practices shouldhelp employees to contribute through both their competence to do good work and theircommitment to work diligently. In an era when downsizing has eroded the employer-employee psychological contract, HR executives can be business partners by continuing to beemployee champions who pay attention to employee needs. 9
  19. 19. 1.2.4. HR as an administrative expertThis role is characterized by improving the processes applying the principles of reengineeringto HR processes, creating value in work performance, measuring HR results in terms ofefficiency (cost) and effectiveness (quality).HR professionals accomplish administrative efficiency in two ways.First, they ensure efficiency in HR processes. For example, through reengineering HRprocesses, one firm recently found twenty-four separate registration systems for training; newefficiency and cost-savings were achieved by streamlining and automating them into a singlesystem. Another firm, finding that it required an average of six months to staff key positions,improved the process and cut the time needed to one month.Second way in which HR executives can improve overall business efficiency is by hiring,training and rewarding managers who increase productivity and reduce waste.To be effective as administrative experts, HR professionals need to undertake activitiesleading to continual reengineering of the work processes they administer. In many firms, thisreengineering of HR processes has led to a new HR organizational form called sharedservices, through which HR administrative services are shared across company divisions whilemaintaining service quality for their users. (Line managers, employees, and executives)The deliverables in this role is building an efficient infrastructure. When employees arecommitted and competent, employee intellectual capital becomes significant appreciable assetthat is reflected in a firm‟s financial results. 10
  20. 20. 1.3. Clarifying the Strategic Role of HREven when HR Professionals accept their role in increasing worker productivity and building aperformance culture, they often, not too subtly, complain that it is unfair to expect them tomanage workforce productivity. Their complaint items from the indisputable fact that theactions of managers and employees – and so may other factors – impact HR‟s ability toproduce results.Non-strategic individuals in HR take a narrow perspective and accept responsibility only forthe “operation” of people management systems. This narrow perspective guarantees that HRwill not be considered strategic; the very definition of strategic moves beyond takingresponsibility for the “operation” and instead focuses on taking responsibility for the “results.”You must add to that the broader responsibility for the actions and the performance of theemployees who were hired, trained, apprised and rewarded by those systems. When you adoptthis view, you accept the fact that you must advise, cajole, educate and somehow influencemanagers and employees throughout the organization so that they can execute effectively andproduce the highest workforce productivity.The strategic target for HR is to increase revenues and productivity while simultaneouslymaintaining or reducing your relative labor costs. Short term cost-cutting might actuallyimprove short-term profits, but in the long term, profits may go down. Whenever you increaserevenue in a competitive marketplace it is obvious that you are improving your products orservices, which are long-time competitive advantages. Careless cost-cutting may permanentlyharm your competitive position and image among your customers. Remember that if you firedevery employee, your labor costs would reach zero, but your sales, productivity and productdevelopment would also reach zero. Anyone who has ever worked at a consulting firm or insales knows that the real hero is the one who increases revenues, not the behind the scenesperson who focuses exclusively on cutting costs. 11
  21. 21. 1.3.1. HR’s primary goal is to increase workforce productivityCorporations have some strategic goals and objectives such as profit, productivity, efficiency,customer service and quality. The primary HR goal is to increase workforce productivitybecause that is strategic corporate objective in which HR holds the lead in expertise.Increasing revenues is a more important HR strategic goal because it demonstrates yourorganization is meeting your customer needs. 1.3.2. Who is HR’s customer?HR still provides administrative services, and thus, it maintains that internal customer set.However, the new expectation of improving business performance through people isincompatible with an internal customer model.In today‟s model, the HR generalist is called a “business partner”. Think of the businesspartners of a small business. They are focused on the external customer an on business profits.Their talents and skills are ideally, complementary and they debate and challenge one anotherto surface the best option. Business partners win together and they loose together, also. 1.3.3. Ten essential elements of a Strategic HR Department 1.3.3.1. HR increases employee productivityHR provides programs and services that result in a measurable increase in employeeproductivity, revenue and profit. It also builds a strong business case outlining the dollarimpact of increased worker productivity. 1.3.3.2. HR has an external focus on impacting business objectivesIf HR is to impact the corporate objectives like profit, productivity, quality and customerservices, it must have an external focus on the business problems associated with thoseobjectives. Rather than focusing internal HR objectives, instead the focus is on providingsolutions to the business problems faced by the business units. HR must realize that itsprimary job, after increasing workforce productivity, is to provide solutions that directlyimpact the remaining corporate goals and objectives. 12
  22. 22. In order to ensure that HR impacts corporate goals and objectives, it must continuallyredistribute its HR budget and time allocations so that the highest percentage of resources iscommitted to programs that impact the organization‟s high priority strategic goals.HR must also prioritize its customers and its efforts so that they mirror corporate priorities.HR is continually adding, cutting back or eliminating HR programs based on their return oninvestment (ROI) and business impact.HR must also have a focus outside the corporation. It must continually track shifts in theexternal environment, learn quickly and then shift its strategy to adapt the changing businessworld. 1.3.3.3. HR uses performance culture tools to improve firms’ performanceHR must seize every opportunity it can to improve employee productivity. If an HRdepartment is to qualify as strategic, it does not have to implement a company-wideperformance culture; however, it must implement at least some of the tools that are part of aperformance culture. This is because these performance culture tools have so great impacteven if they are implemented piecemeal.Strategic HR departments develop a performance culture mindset within HR. They alsoeducate managers about the approach and utilize some of performance culture tools likeaccountability, differentiation in rewards, penalties for hoarding and prioritizing customersand services. 1.3.3.4. HR provides a competitive advantageHR has an external focus on the competition. HR continually compares what “we do” in HR towhat “they do” in HR at both the organization‟s product and talent competitors. HR providespeople programs that exploit competitors‟ vulnerabilities and whose output or results aresuperior to the company‟s direct competitors. 13
  23. 23. 1.3.3.5. HR makes fact-based decisions using metricsHR continually measures the business impact of HR programs. It also uses metrics toproactively identify potential problems and opportunities, and to continually improve. Mostpeople management decisions are made based on facts and data, rather than opinions. 1.3.3.6. HR is proactive and future-focusedHR must forecast and anticipate changes in the business environment so that HR programs canadapt in time. Strategic functions must anticipate and prepare for an entire range of possibleoccurrences. They must proactively seek out business problems and opportunities, andaggressively provide solutions. HR makes, rather than facilities, change within thecorporation. 1.3.3.7. HR makes a coordinated effortHR must ensure that its programs and staff coordinate their efforts within HR to ensure results,speed, consistency and the highest user satisfaction. In a strategic HR department, there are nofunctional silos; HR acts as an organization without boundaries. 1.3.3.8. HR has a global approachHR ensures that its programs have a business impact both locally and around the world. 1.3.3.9. HR builds a brandStrategic HR is not satisfied with just running good programs. In addition, HR must build a“great place to work” brand both internally and externally. Building a strong image or brandgives HR stable funding, but it also raises HR‟s business contribution by increasing retentionand providing a steady flow recruits. 1.3.3.10. Technology permeates everythingTechnology is the cornerstone of everything a strategic HR department does because withoutit, the extensive use of the metrics, paperless HR, fact-based decision making, employee andmanager self-service, and globalization would not be possible. 14
  24. 24. 1.4. How Can HR Achieve New Role ModelThe new mandate for HR requires dramatic changes in how HR professionals think andbehave. 1.4.1. Defining Properly the Deliverables of HRTo create value and deliver results, HR professionals must begin not by focusing on theactivities or work of HR but by defining the deliverables of that work. Deliverables guaranteeoutcomes of HR work. With deliverables defined, the roles and activities of business partnersmay be stipulated.HR professionals must focus more on the deliverables of their work and less on just gettingtheir work done. They must articulate their role in terms of the value they create. They mustcreate mechanisms so that business results quickly follow. They must measure theireffectiveness in terms of business competitiveness rather than employee comfort and leadcultural transformation rather than consolidate, reengineer, or downsize in order to turn acompany around.A company has a much better chance of achieving its goals if senior managers statespecifically what they expect from HR and then track, measure, and reward performance. 15
  25. 25. 1.4.2. Measuring HR Performance & EffectivenessThe recognized importance of achieving human capital advantage has led to an interest in thedevelopment of methods measuring the value of that capital for the following reasons: Human capital constitutes a key element of the market worth of a company; People in organizations add value and there is a case for assessing this value to provide a basis for HR planning and for monitoring the effectiveness and impact of HR policies and practices; The process of identifying measures and collecting and analyzing information relating to them will focus the attention of the organization on what needs to be done to find, keep, develop and make the best use of its human capital; Measurements can be used to monitor progress in achieving strategic HR goals and generally to evaluate the effectiveness of HR practices; You cannot manage unless you measure.A focus on activities is appropriate, because they may yield value-added and, in turn have abusiness impact. Activity measures in staffing may include colleges visited, resumes screened,candidates‟ interviews, rejection letters written, and referrals to line managers. Incompensation, activities may include job descriptions reviewed jobs evaluated, surveysupdated, and guidelines developed. In training, activities may include programs designed,programs conducted, number of training completed. Within the function, adoption of newtechnology (e.g. information system) is an activity completed.It is more business-relevant to measure value-added results. The focus is on outcomes oraccomplishments resulting from individual and team activities. Measures typically focus onimproved cost-effectiveness, but broadly address the benefit gained from investment of timeand resources to achieve certain objectives.Value-added is the focus of attention in many human resources functions. In fact, multiplecompany surveys provide external benchmarks for comparison of measures, to supplementyear-to-year comparison to identify improvements. (Fitz-Enz, 1990) 16
  26. 26. Examples are: Reduced costs of hiring, relocations, turnover and terminations. Improved knowledge, capabilities, or performance through training. Improved quality of new hires. Increased competitiveness of compensation Relatedness of pay to performance Improved perceptions by employees in organizational surveys Reduced grievances or complaints.To apply such measures, the management team relies on data from customers (e.g. success inmarketplace), employees (e.g. surveys, feedback, retention of the best talent), and managersand executives (e.g. their performance and development). Recently corporate directors,particularly outside directors, are providing assessments and feedback to guide improvements,including perceptions of executive performance, management depth, and strategy execution.More beneficially, according to Gubman, HR managers should focus instead on the same twomajor issues as their financial colleagues: return and growth. HR-things can only createeconomic value from three sources: Employee turnover and retention Productivity - revenue against employee costs Expenditure on the HR function and related activitiesProviding measures for these three elements does not require any rocket science because theyrelate to three familiar HR goals: Attracting, developing and retaining staff Aligning, engaging, measuring and rewarding performance Controlling or reducing HR costsBusiness plans, including HR strategies, should include relevant objectives or measures ofimpact. When important people-related issues are defined and addressed effectively, businessperformance will improve. 17
  27. 27. 1.4.2.1. Reliability and ValidityTwo critical tenets of effective measurement are reliability and validity. Measures used inevaluating programs must be both reliable and valid. Unfortunately, HR evaluators can easilyoverlook these considerations when developing both quantitative and qualitative measures forevaluations, especially under challenging time and resource constraints.An instrument with good validity is one that measures what it supposed to be measured (e.g. ameasure of coaching skills should actually provide an accurate indication of an individual‟sability to help others enhance their performance, not public speaking ability or generalcharisma.)Reliability refers to the consistency of a measure (i.e. getting the same results under a varietyof conditions). We need assessments that have a high degree of reliability so we can beconfident that if we were to observe the same skill level for the same person under severalconditions we would get essentially the same result.Validity in evaluation is one step more complex than validity of the measures used. Not onlydoes the evaluation need to accurately gauge different levels of performance on relevantcriteria, but it also needs to have a sound basis for determining how meritorious these resultsare. In other words, evaluators not only have to present results (just as applied researchersdo), but we also have to explicitly ascribe value to them in the context of the organization‟sstrategic goals. The step from saying “there was a 15% decrease in turnover” to “this is anexceptional result, given the organization‟s strategic needs and current market conditions” hasto be based systematically on a robust mix of quality information, approximately combined.The reliability of an evaluation goes beyond the reliability of measures. For the HRpractitioner, the reliability of the evaluation may also mean that another evaluator would havedrawn more or less the same conclusions, while validity would mean that those conclusionswere accurate and clearly justifiable. To ensure good reliability and validity of the evaluationoverall, strong evaluations use a meta-evaluator to asses the quality of the evaluation, cross-checking findings as necessary. 18
  28. 28. 1.4.2.2. Quantitative and Qualitative DataExecutives live on numbers, although they sometimes act on feelings. The meaning and valueof data are based to some extent on judgment or opinion, but people often get seduced intothinking that once information is converted into numbers it is somehow more objective than itwas when it was words.We need to quantitative side as a consistent reference set. Turnover is a good example. Itsounds objective because it is based on numbers, and it has direct financial implications, butthere are about a dozen ways to compute turnover. For instance, should the turnover figureinclude people leaving to attend school or change careers? Should it include people who aredemoted? What about layoffs or people who are let go and then rehired subcontractors?The bias in favor of quantitative data can be counter-productive in program evaluation in caseswhere qualitative data are more appropriate. Qualitative data are more useful than quantitativedata when (a) the evaluator needs to obtain the unique perspectives of the participants or (b)we are asking questions about a program for which a wide range of unpredictable responses oroutcomes are possible and are not known at the outset of the study. Conversely, quantitativedata are more appropriate when the evaluator knows in some detail what questions to ask andneeds to access a large number of respondents. Even then, quantitative questions should beaugmented with respondents‟ open-ended comments.The relevant question is not whether to use quantitative or qualitative data, but rather how touse both in a way that will provide the clearest and most accurate conclusions. Including theright combination of quantitative or qualitative data is crucial to reliable and validmeasurement of program impact. It is far more important to find answers to the questions thatmean the most to your organization than to insist on seemingly objective quantitativemeasures. 19
  29. 29. 1.4.3. New Technologies and PracticesInvesting in new HR practices is another way to signal to the organization that HR is worthyof the company‟s money and attention. It is also a way to make sure that HR has the tools,information, and processes that it needs to execute its new mandate.As new practices are identified, line managers should expect HR to adapt to them. Too often,after learning about an innovative idea, HR immediately tries to copy it wholesale. Suchefforts often fail, and at a high emotional cost. Instead, investment in new HR practices shouldfocus on learning not only what works elsewhere but also how a new practice should work inthe company‟s unique competitive situation. 1.4.4. Upgrade HR professionalsFinally, the hardest but perhaps most important thing senior managers can do to drive forwardthe new mandate for HR is to improve the quality of the HR staff itself. When more isexpected of HR, a higher quality of HR professional must be found. Companies need peoplewho know the business, understand the theory and practice of HR, can manage culture andmake change happen, and have personal credibility. Sometimes, such individuals already existwithin the HR function but need additional training. Other times, they have to be brought inform other parts of the company. In still other cases, they must be hired from outside.Regardless, HR cannot expand its role in an organization without the requisite expertise.Becoming a strategic partner demands a degree of knowledge about strategy, markets andeconomy. Becoming an administrative expert demands some knowledge of reengineering, aswell as the intricacies of what the line actually does. If HR is to effect real change, it must bemade up of people who have the skills they need to work from a base of confidence and earnwhat too often it lacks – respect.Weiss argues that HR managers must demonstrate the ability to provide stimulating ideas andchallenge decisions that do not have business value. To do this, they need to perform at thesame intellectual level as their colleagues in an executive meeting. Most importantly, theyneed to wear a business hat rather than a HR hat otherwise they will be relegated to the 20
  30. 30. traditional administrative or tactical (second-level) role that has bedeviled the human resourcefunction for decades. Weiss considers that HR managers need to demonstrate the following toshow their ability to add value: Broad understanding of the business, thus helping the human resource function to contribute to the overall direction of the company; Knowledge of how all activities needs to align, enabling the company to maximize the success of its strategic initiatives; Professionalism in investing in human capital and HR processes, allowing HR to help guide employees and the organizations decision making; A unique perspective, allowing the HR function to become an ideas merchant so that people and the outcomes of organizational processes can be made into strategic advantages.Finally, we can consider Gubmans belief that:"HR needs to keep moving itself forward, toward the strategic partner role, by becoming betterprofit-and-loss business leaders. Be the ones to lead companies back into thinking externally,about customers and markets, and how to create unique value for them. What a surprising andpowerful role that would be for HR leaders! Start measuring HR impacts on real businessresults, not HR activities. Instead of measuring time to hire, measure the people aspects ofopening up a new market and the returns they generate." 21
  31. 31. 2. PART II – STRATEGIC HRMStrategic Human Resource Management is a branch of Human Resource Management. SHRMmeans combination of strategy and HRM. It also refers to linking of human resources withstrategic goals and objectives to achieve goals of an organization it also helps in improving theperformance of innovation flexibility and competitive advantage. 2.1. The concept of Strategic Human Resources Management 2.1.1. Definition of SHRMStrategic HRM is an approach that defines how the organisation‟s goals will be achievedthrough people by means of HR strategies and integrated HR policies and practices.In an organisation SHRM means accepting and involving the HR function as a strategicpartner in the formulation and implementation of the companys strategies through HRactivities such as recruiting, selecting, training and rewarding personnel.The terms „strategic HRM‟ and „HR Strategy‟ are often used interchangeably, but a distinctionbetween them.Strategic HRM can be regarded as a general approach to the strategic management of HR inaccordance with the intentions of the organization on the future direction it wants to take. It isconcerned with longer-term people issues as part of the strategic management processes of theorganization.On the other hand, HR strategies will focus on the specific intentions of the organization as towhat needs to be done and what needs to be changed. The issues with which these strategiesmay be concerned include ensuring that the organization has the people it needs training,motivation, reward, flexibility, team working, and stable employee relations.Strategic HRM decisions are built into the strategic plan while HR strategy decisions arederived from it. 22
  32. 32. 2.1.2. Basis of Strategic HRMStrategic HRM is based on three propositions:  The human resources of an orgnization play a strategic role in its success and are a major source of competitive advantage;  HR Strategies should be integrated with business plans (vertical integration);  Individual HR strategies should cohere by being linked to each other to provide mutual support (horizontal integration)Strategic HRM is not just about strategic planning, it is also concerned with theimplementation of strategy and the strategic behvior of HR professionals to ensure that thebusiness goals of the organization are achieved and its values are put into practices. 2.1.3. Aims of Strategic HRMThe fundamental aim of Strategic HRM is to generate strategic capability by ensuring that theorganization has the skilled, committed and well-motivated employees it needs to achievesustained competitive advantage.The primary goal of SHRM is to increase employee productivity by focusing on businessobstacles that occur outside of human resources. The primary actions of a strategic humanresource manager are to identify key HR areas where strategies can be implemented in thelong run to improve the overall employee motivation and productivity. Communicationbetween HR and top management of the company is vital as without active participation nocooperation is possible. 23
  33. 33. 2.2. The practice of Strategic Human Resources ManagementHR strategies set out what the organization intends to do about its human resourcesmanagement policies and practices and how they should be integrated with the businessstrategy and each other.For the reason that all organizations are different, all HR strategies are different. Somestrategies are simply very general declaration of intent. Others go into much more detail. Buttwo basic types of HR strategies can be identified. There are: 1. Overall strategies such as high-performance working, 2. Specific strategies relating to the different aspects of HRM such as learning and development, talent management and reward strategies. 2.2.1. Overall HR StrategiesOverall strategies describe the general intentions of the organization about how people shouldbe managed and developed and what steps should be taken to ensure that the organization canattract and retain the people it needs and ensure so far as possible that employees arecommitted, motivated and engaged. There are three main models of overall strategies;  The High-Performance Management Model,  The High-Commitment Management Model,  The High-Involvement Model. 2.2.1.1. The High-Performance Management ModelHigh-performance management (called high-performance work systems HPWS) aims to makean impact on the performance of the firm through its people in such areas as productivity,quality, levels of customer service, growth, profits, and ultimately, the delivery of increasedshareholder value. High-performance management practices include rigorous recruitment andselection procedures, extensive and relevant training and management development activities,incentive pay systems and performance management processes. 24
  34. 34. The characteristics of HPWS are; Careful and extensive systems for recruitment, selection and training, Formal systems for sharing information with the individuals who work in the organization, Clear job design, High-level participation processes, Monitoring of attitudes, Performance appraisals, Properly functioning grievance procedures, Promotion and compensation schemes that provide for the recognition and financial rewarding of the high-performing members of the workforce. Figure 4 - High Performance Model 25
  35. 35. 2.2.1.2. The High-Commitment Management ModelHigh-commitment management has been described as a form of management which is aimedat eliciting a commitment so that behavior is primarily self-regulated rather than controlled bysanctions and pressures external to the individual, and relations within the organization arebased on high levels of trust. The approaches to achieving high commitment are:  The development of career ladders and emphasis on trainability and commitment as highly valued characteristics of employees at all levels in the organization;  A high level of functional flexibility with the abandonment of potentially rigid job descriptions;  The reduction of hierarchies and the ending status of differentials;  A heavy reliance on team structure for disseminating information (team briefing), structuring work (team working), and problem solving (quality circles);  Job design as something management consciously does in order to provide jobs that have a considerable level of intrinsic satisfaction;  A policy of no compulsory lay-offs or redundancies and permanent employment guarantees, with the possible use of temporary users to cushion fluctuations in the demand for labor;  New forms of assessment and payment systems and more specifically merit pap and profit sharing;  A high involvement of employees in the management of quality. 2.2.1.3. The High-Involvement Management ModelThis approach involves treating employees as partners in the enterprise, whose interests arerespected and who have a voice in matters that concern them. It is concerned withcommunication and involvement. The aim is to create a climate in which a continuingdialogue between managers and the members of their teams takes place in order to defineexpectations and share information on the organization‟s mission, values and objectives. Thisestablishes mutual understanding of what is to be achieved and a framework for managing anddeveloping people to ensure that it will be achieved. 26
  36. 36. 2.2.2. Specific HR StrategiesSpecific HR strategies set out what the organization intends to do in areas such as:  Human Capital Management – obtaining, analyzing ad reporting on data, which inform the direction of value-adding people management strategic, investment and operational decisions;  High Performance Management – developing and implementing HPWSs;  Corporate Social Responsibility – a commitment to managing the business ethically in order to make a positive impact on society and the environment;  Organization Development –the planning and implementation of programmes designed to enhance the effectiveness with which an organization functions and responds to change;  Engagement – the development and implementation of policies designed to increase the level of employees‟ engagement with their work and the organization;  Knowledge Management – creating, acquiring, capturing, sharing and using knowledge to enhance learning and performance;  Resourcing –attracting and retaining high-quality people;  Talent Management –how the organization ensures that it has the talented people it needs to achieve success;  Learning and Development – providing an environment in which employees are encouraged to learn and develop;  Reward –defining what the organization wants to do in the longer term to develop and implement reward policies, practices and processes that will further the achievement of its business goals and meet the needs of its stakeholders;  Employee Relations – defining the intentions of the organization about what needs to be done and what needs to be changed in the ways in which the organization manages its relationships with employees and their trade unions. 27
  37. 37. 2.3. Strategic HRM in actionThe process of developing HR strategies involves generating strategic HRM options and thenmaking appropriate strategic choices. Choices should relate to also anticipate the critical needof the business. They should be founded on detailed analysis and study, not just wishfulthinking, but also should incorporate the experienced and collective judgment of topmanagement about the organizational requirement while also taking into account the needs ofline managers and employees generally. Consideration needs to be given to the impact of thefive forces on HR policy choice are;  The external environment (political, environmental, social, legal and economic),  The workforce,  The organization‟s culture,  The organization‟s strategy,  The technology of production and organization of work. 28
  38. 38. 2.3.1. Developing the HR StrategyThere is no standard model of how an HR strategy should be set out. It all depends on thecircumstances of the organization. But the following are the typical areas that may be coveredin a written strategy; 1. Basis – business needs in terms of the key elements of the business strategy, – environmental factors and analysis (SWOT / PESTEL) – cultural factors 2. Content – details of the proposed HR strategy 3. Rationale – the business case for the strategy against the background of business needs and environmental / cultural factors 4. Implementation plan – Action program, responsibility for each stage, resources required, project management arrangements 5. Cost and benefit analysis – An assessment of the resource implications of the plan and the benefits that will accrue, for the organization as a whole, for line managers and or individual employees.SHRM plans must be based on organizational strategic plans (i.e. cost leadership ordifferentiation). In reality, this means the objectives of the SHRM plan must be derived fromorganizational objectives.After establishing organizational, divisional and departmental objectives, line or operatingmanagers must determine the knowledge, skills, and expertise required to meet their respectiveobjectives. The key here is not to look at the knowledge, skills, and abilities (KSAs) of currentemployees but to determine the KSAs required meeting the objectives. 29
  39. 39. Once a manager or team has determined the types and numbers of employees required, theymust analyze these estimates in light of the current and anticipated human resources of theorganization. This process involves a thorough analysis of presently employed personnel and aforecast of expected changes.HRM personnel often rely on the use of a skills inventory to analyze current and futurepersonnel changes. A skills inventory provides basic information about the organization‟shuman resources. By combining the forecast for human resources needed with the informationfrom the skills inventory and from anticipated changes (i.e. changes such as retirements,transfers and promotions, resignations, discharges, etc.), managers can make a reasonableprediction of their net human resources requirements for a specified period of time.Once the net human resources requirements have been determined, managers and otherpersonnel must develop specific action plans for achieving the desired HRM results. If the netrequirements indicate a need for additions, decisions must be made about whether to makepermanent hires, temporary hires, or to outsource the work. If the decision is to makepermanent or temporary hires, plans must be made to recruit, select and orient, and train thespecific numbers and types of personnel needed. If the decision is to outsource, then potentialvendors for outsourcing must be identified and evaluated.If a reduction in human resources is necessary, plans must be made to realize the necessaryadjustments. If time is not of the essence natural attrition can be used to reduce laborpersonnel. However, if the organization cannot afford the luxury of the natural attrition, it cancut overhead either by reducing the total number of employees or by making other adjustmentsthat do not result in employees leaving the organization.In successful organizations the SHRM plan provides a roadmap for the future. The planidentifies where employees are likely to be obtained, when employees will be needed, andwhat training and development employees must have. 30
  40. 40. 2.3.2. Implementing the HR StrategyGetting strategies into action is not easy. The problem with strategic HRM is that too oftenthere is a gap between the strategy states will be achieved and what actually happens to it.There are some factors that in below contribute to creating this gap.  The tendency of employees in diverse organizations only to accept initiatives they perceive to be relevant to their own areas;  The tendency of long-serving employees to cling the status-quo;  Complex or ambiguous initiatives may not be understood by employees or will be perceived differently by them, especially in large and diverse organizations;  It is more difficult to gain acceptance of non-routine initiatives;  Employees will be hostile to initiatives if the initiatives are believed to be in conflict with the organization‟s identity, e.g. downsizing in a culture of „job-for-life‟;  The initiative is seen as threat;  Inconsistencies between corporate strategies and values;  The perceived fairness of the initiative;  A bureaucratic culture that leads to inertia.Each of the factors in above can create barriers to the successful implementation of HRstrategies. Other major barriers include failure to understand the strategic needs of thebusiness, inadequate assessment of the environmental and cultural factors that affect thecontent of the strategies, and the development of ill-conceived and irrelevant initiatives. Toovercome these barriers it is necessary to: 1. conduct a rigorous preliminary analysis of needs and requirements, 2. formulate the strategy, 3. enlist support for the strategy, 4. assess barriers, 5. prepare action plans, 6. project management implementation, 7. follow up and evaluate progress so that remedial action can be taken as necessary. 31
  41. 41. 2.4. The impact of Strategic HRMThe assumption underpinning the practice of HRM is that people are the organization‟s keyresource and organizational performance largely depends on them. If, therefore, an appropriaterange of HR policies and processes is developed and implemented effectively, then HR willmake a substantial impact on firm performance.In Guest (2000b) the relationship between HRM and performance was modeled as shown inthe following figure.Figure 5 - Model of a link between HRM and performanceA considerable amount of research has been conducted recently on how strategic HRMimpacts on organizational performance and this is summarized in the following table. 32
  42. 42. Researchers Methodology OutcomesHuselid (1995) Analysis of the responses of 968 Productivity is influenced by US firms to a questionnaire employee motivation; financial exploring the use of HPWS, the performance is influenced by development of synergies employee skills, motivation and between them and the alignment organizational structures. of these practices with the competitive strategy.Huselid & Becker An index of HR systems in 740 Firms with high values on the index(1995) firms was created to indicate the had economically and statistically degree to which each firm higher levels of performance. adopted a HPWS.Becker (1997) Outcomes of a number research HPWS make an impact as long as projects were analyzed to asses they are embedded in the the strategic impact on management infrastructure. shareholder value of HPWS.Patterson (1997) The research examined the link HR practices explained significant between business performance variations in profitability and and organization culture and the productivity. Two HR practices were use of a number of HR practices. particularly significant: 1)the acquisition and development of employee skills; 2)job design, including flexibility, variety.The 1998 An analysis of the survey, which A strong association exists betweenWorkplace sampled some 2.000 workplaces HRM and both employee attitudesEmployee and obtained the views of about and workplace performance.Relations Survey 28.000 employees.(by Guest, 2000a)The Future of 835 private sector organizations A greater use of HR practices isWork Survey (by were surveyed and interviews associated with higher levels ofGuest, 2000b) were carried out with 610 HR employee commitment and professionals and 462 chief contribution and is in turn linked to executives. higher levels of productivity and quality of services.Table 1 - Research on the link between HRM and firm performance 33
  43. 43. 3. PART III - HR SCORECARD 3.1. What is a Balanced Scorecard?Frustrated by the inadequacies of traditional performance measurement systems, somemanagers have shifted their focus from earnings per share and return on equity to theoperational activities that produce them. These managers follow the motto “Make operationalimprovements, and the performance numbers will follow.” But which improvements are themost important? And which are the true drivers of the long-term, bottom-line performance?To answer these questions, Robert Kaplan and David Norton conducted research on a numberof companies with leading-edge performance measures. From this research, they developedwhat they call the Balanced Scorecard, a performance measurement system that gives topmanagers a fast but comprehensive view of the business.Kaplan and Norton‟s Balanced Scorecard includes financial measures that indicate the resultsof past actions. And it complements those financial measures with three sets of operationalmeasures that relate directly to customer satisfaction, internal processes, and theorganization‟s ability to learn and improve – the activities that drive future financialperformance.Kaplan and Norton have compared the balanced scorecard to the dials and indicators in anairplane cockpit: “For the complex task of navigating and flying an airplane, pilots needdetailed information about many aspects of the flight. They need information on fuel, airspeed, altitude, bearing, destination, and other indicators that summarize the current andpredicted environment. Reliance on one instrument can be fatal. Similarly, the complexity ofmanaging an organization today requires that managers be able to view performance in severalareas simultaneously.” 34
  44. 44. Kaplan and Norton‟s Balanced Scorecard uses four perspectives to link performance measuresand to galvanize managerial action. Collectively, these perspectives give top managementtimely answers to four key questions:  How the customers see us? (customer perspective)  What must we do to excel? (internal perspective)  Can we continue to improve and create value? (innovation and learning perspective)  How do we look to our shareholders? (financial perspective)In the following figure, as a matrix combining Customer, Financial, Internal BusinessProcesses, and Learning and Growing Factors, the Balanced Scorecard provides organizationswith feedback on theses systems and the ability to channel feedback into performanceoutcomes. Figure 6 -A simple illustration of value creation based on Kaplan & Nortons Balanced Scorecard Matrix 35
  45. 45. The advantage of the balanced scorecard over traditional measures is that three of fourperspective (customer, innovation, and internal) are more than results – they are levers thatmanagers can use to improve future results. The disadvantage is that scorecard measures notpublic, which makes comparisons between competing enterprises impossible. 3.2. Implementing a Balanced Scorecard ProgramCompanies that decide to implement a balanced scorecard program often progress through aspecific series of steps, which they are summarized below: 3.2.1. Clarify the vision and strategyThe executive committee clarifies the company‟s vision and strategy - how the company plansto achieve that vision – with input from HR and other executives.As a simple example, an organization might decide that better retention of quality personneland a performance-based pay system would enable the firm to enter new markets moresuccessfully, offer more affordable and higher-quality products and services to customers, andthereby boost revenues and reduce operating costs, maximizing shareholder value. 3.2.2. Communicate the vision and strategyExecutives communicate the vision and strategy to middle managers, using their input themake any necessary modifications to the corporate scorecard. 3.2.3. Develop business – unit scorecardsUsing the corporate-level scorecard as a template, each business unit develops a strategy thatsupports the company-level strategy reflected on the corporate strategy. For example, if thecorporate scorecard calls for improving employee retention, the HR department would developstrategies related to that goal. Unit managers also determine the metrics required measureperformance on their unit‟s goals. To illustrate, HR might set a goal of reducing employeeturnover by 5 percent by year end. In this case, the accompanying metrics could be “number ofemployee departures by year end” and “the new hires by year end”.In this way, each unit creates its own scorecard, which cascades from the corporate scorecard. 36
  46. 46. 3.2.4. Eliminate non-strategic investmentsManagers identify and eliminate any active programs and initiatives that don‟t contribute tothe corporate strategy. 3.2.5. Review business unit scorecardExecutives review the scorecards of the individual business units and provide input into theunit‟s strategy. 3.2.6. Refine the visionExecutives update the corporate scorecard based on their review of the business-unitscorecards and the identification of any cross-business issues not initially acknowledged in thecorporate strategy. 3.2.7. Cascade the scorecard furtherOnce the management teams feel comfortable with the scorecard methodology, they let itcascade down to the remaining levels of the organization – to departments, groups and teams,depending on how the company‟s organization hierarchy is structured. 3.2.8. Establish managerial performance objectivesTop managers link their individual objectives and incentive compensation to their scorecards. 3.2.9. Update Long-range plans and budgetManagers establish five-year goals for each metric on their scorecards then identify and fundthe investments required to meet these goals. 3.2.10. Link employee objectives to the scorecardManagers ask all employees to identify individual goals that support their team, department ordivision scorecard. The company ties everyone‟s compensation to the scorecard. 3.2.11. Conduct periodic strategy reviewsExecutives and managers meet monthly and quarterly to discuss the latest performance and, ifnecessary, refine their assumptions of the cause-and-effect conections between their scorecardelements. 37
  47. 47. 3.3. The HR ScorecardThe HR Scorecard builds on the Balanced Scorecard model to provide HR professionals witha unique tool to meet specific HR needs.The HR Scorecard plays a particularly crucial role how HR‟s specific actions and decisionscan support the overall corporate strategy, for several reasons.First, in today‟s business arena, competitive advantage stems less from tangible assets andmore from individual organizations‟ internal resources and capabilities – especially the abilityto develop and retain a capable, committed workforce. Because these intangible assets aredifficult to quantify, rivals can‟t easily imitate them. Thus the HR scorecard documents aparticularly powerful strategic asset.Second, the HR scorecard lays out HR professionals‟ thinking about how their function canhelp other units implement their own strategies.Third, the HR scorecard shows how the components within a company‟s HR system – that is,the firm‟s many different human resources policies an practices – align with one another toenable HR to support other unit‟s strategies as well as the corporate strategy.This alignment among HR policies and practices, top management, and company functionsand units creates a powerful network of cause-and-effect connections. This network enablesall managers and employees to better understand and carry out the firm‟s mission. Equallyimportant, the HR scorecard empowers HR professionals to demonstrate precisely how HRcontributes to the company‟s financial success – in concrete terms that executives andmanagers understand and value.For example, HR managers at Sears developed a HR scorecard that enabled them to cite hardevidence that a 5-point improvement in employee attitudes would drive a 1.3-pointimprovement in customer satisfaction – which in turn would fuel a 0.5 percent increase inrevenue growth. 38
  48. 48. 3.3.1. The Benefits of a HR ScorecardA key benefit of the enterprise Balanced Scorecard, is that it forces the senior team to debateand reach consensual agreement as to exactly what are the key relationships and capabilitiesthat the organization must master from the non-financial perspectives of customer, internalprocess and learning and growth if they are to deliver superior financial results and strategicsuccess.By the same token creating a HR Scorecard forces the HR leadership team to debate and reachagreement as to exactly what value they must deliver to enterprise (outcomes such as talentmanagement, compensation, leadership development, etc) and to determine how theorganization will deliver these interventions and to ask hard questions around whether thefunction has the required skills to do so – and if not, to identify how these will be developed.Not only can the process help create a common purpose within the leadership team, powerfuloutcomes can be achieved when HR leaders spend time with business leaders in focus groupsor one-to-one interviews discussing what is a big discrepancy between what HR thought theywere delivering to the business and the perceptions of line managers. Put another way, HRmight have thought it was delivering value to the organization but their business partnersmight, based on their experiences, think otherwise. 3.3.2. Questions prior to the creation of the HR ScorecardAt the start of the HR Scorecard creation process, HR leaders should ask themselves one keyquestion about the purpose of the scorecard. They have to ask themselves whether they intendthis scorecard to describe and measure the effectiveness of the function itself or whether theintention is that it will describe and measure the effectiveness of the people capabilities withinthe organization. This is a critical question, for it is much easier to create a scorecard that isinwardly focused (and typically administrative in nature) but it will not support and deliver theenterprise-level strategy. 39
  49. 49. Indeed, the difference between the Balanced Scorecard approach and conventional HRmanagement is that, through former, the entire people management and people measurementprocesses are organized around HR‟s deliverables, not around HR‟s sub-functions such asbenefits, recruiting or compensation.This is not to say that there should not be an internal dimension to a functional scorecard. Agood HR scorecard should capture both what HR must to do to meet enterprise-level peopleobjectives and what it must do internally to develop the HR capabilities to deliver to theseobjectives. It is really all about thinking systematically and systematically about how HR – thefunction, the broader HR system, and the resulting employee behaviors- create value.Importantly, when creating their scorecard HR must view the business units as its customers.In essence, the HR scorecard is a framework for delivering a value proposition. 3.3.3. Steps for Creating an HR ScorecardHow to begin creating your HR scorecard? According to Becker, Huselid and Ulrich in HRScorecard, in building your HR scorecard, you would apply the following processes to eachunit in your company. 3.3.3.1. Define Company’s Key Performance DriversClarifying your firm‟s strategy states the stage for implementing that strategy. But it is just thefirst step. In most organizations, the customer value embodied in the firm‟s products andservices is the result of complex, cumulative processes – what Michael Porter refers to as thefirm‟s value chain.A strategy map of the value creation process contain hypothesis or predictions, about whichorganizational processes drive firm performance. Normally, a company validates thesehypotheses only after achieving targets on performance drivers and observing the impact ofthese results on firm performance. However, if the organization can graphically depict therelationships among performance drivers while mapping the firm‟s value chain, it can havethat much more confidence in its strategy implementation plan. 40
  50. 50. Figure 7 - HR Scorecard Process 3.3.3.2. Identify HR DeliverablesTo integrate HR into a business-performance measurement system, managers must identify thepoints of intersection between HR and the organization‟s strategy implementation plan. Thisprocess can be difficult. On the other hand, human resources performance drivers such asemployee competence, motivation, and availability are so fundamental that it may be virtuallyimpossible to know where to locate on the map. To perform this step, it should be asked whichHR deliverables support the firm-level performance drivers depicted in the strategy map.To illustrate, by reducing recruiting cycle time, HR supports stable, high-talent staffing –which in turn supports reliable delivery schedules and thus revenue growth.HR should certainly be held accountable for financial performance. Typically, at least withinpublicly traded organizations, the financial perspective should appear at the top of the HRscorecard. Leaders must be able to describe to their executive colleagues how their function iscontributing to targets for revenue growth or cost control. 41
  51. 51. 3.3.3.3. Align HR Architecture with HR deliverablesNow the question is, “How can the HR system (rewards, competencies, work organization,etc.) be structured so as to provide those deliverables?” – for example, regular performanceappraisals, validated competency models, and retention policies that build experience in theR&D unit.Figure 8 - Intersection of HR with Strategy MapFigure 8 illustrates how a properly aligned HR system creates the HR deliverable (lowturnover among senior R&D employees) that enables a key performance driver (cycle time) inthe strategy map. 3.3.3.4. Design the Strategic HR Measurement SystemThis step is about the creation of strategic measures to support the objectives. To measure theHR-firm performance relationship with precision, you need to develop valid measures of HRdeliverables. This task has two dimensions. First, you have to be confident that you havechosen the correct HR performance drivers and enablers. This requires that you clearlycomprehend the causal chain for effective strategy implementation in your organization.Second, you have to choose the correct measures for those deliverables.As a sample here a metrics that were developed a few years ago by the Saratoga Institute inthe U.S. these metrics are essentially a calculation o the bottom-line value contributed to theorganization by its human capital. It could be said that these are hard measures of how well theHR function does what it is supposed to do (i.e. to enhance the performance of anorganization‟s human capital at the most appropriate price). 42
  52. 52. Measure 1: Revenue Divided By Total FTE (Full-Time Equivalent)This is a straightforward, and simple, performance metric and is used extensively byorganizations. It essentially shows how much money a company makes for each person itemploys. Benchmarking against similar organizations is getting from its staff and thereforeshows how well HR practices are working, and of course, where improvements may berequired.Measure 2: Voluntary Separations Divided By HeadcountsVoluntary separations are those employees who leave the organization through their ownchoice and not because their position was terminated. This is a measure that is becomingincreasingly important in the knowledge economy as „the war for talent‟ intensifies and ismore and more fought on a global scale.Moreover it is becoming a key people cost indicator as companies wake up to the potentiallyhuge costs of replacing existing staff. This measure should also be considered Measure 9; Costof turnover.Measure 3: Human Capital Value Added Re venue OperatingExpenses CompensationCost BenefitsCo st HCValueAdded TotalFTEThis is the prime measure of people‟s contributions to an organization. It answers the question“what are people worth?”Measure 4: Human Capital Return on Investment Re venue OperatingExpenses CompensationCost BenefitsCo stHumanCapitalROI CompensationCost BenefitCos tThis calculation provides an „adjusted profit figure‟ (in that it takes into account people costs),which essentially provides a rate of return on people. This basically answers the decades oldquestion “what is the value of people?” 43
  53. 53. Measure 5: Total Compensation Revenue Percentage CompensationCost BenefitsCo stTotalCompensation Re venuePercentage Re venueThis measure monitors pay and benefits in comparison to revenue per employee. It essentiallyprovides an unambiguous measure of how expenditure on employee compensation andbenefits is affecting revenue figures. As organizations set out to design world-classcompensation packages to attract and retain the best people, this can prove a quick measure ofhow this spending is impacting revenue.Measure 6: Total Labor Cost Revenue Percentage CompensationCost BenefitsCo st OtherLaborCostTotalLaborCost Re venuePercentage Re venueThis measure looks at the complete cost of human capital to an organization, so looks widerthan the compensation and benefits costs accrued from employing permanent staff. The „otherlabor‟ costs will include the cost of temporary workers. This type of measures becomesincreasingly important as more and more companies employ workers who are taking a more„portfolio‟ approach to their carriers (i.e. working for various organizations simultaneously oron a project-by-project basis)Measure 7: Total Training Cost Divided By Headcount totaltrain ing cos tTotaltrain ign cos tperemploy ee headcountThis measure basically shows the cost of employee training. Metrics of training costs are usedextensively within organizations. However, a simple measure of the amount of trainingdelivered is not sufficient to demonstrate the business benefits of that training. Businessmanagers increasingly want to know the bottom line „dollar benefit‟ of the training.Measure 8: Cost per HireCost per hire: Advertising + agency fees +employee referrals + travel cost of applicants andstaff + relocation costs + recruiter pay and benefits divided by operating expenses 44
  54. 54. This provides a clear measure of the cost per hire and along with turnover costs shows thebottom-line hit taken when employees leave.Measure 9: Turnover CostsTurnover costs: Cost to terminate + cost per hire + vacancy cost + learning curve costIn addition to the HR costs of hiring, the figure includes orientation costs, the start-up costs foremployee efficiency, the lost revenue opportunities, and the internal waste in work processesas a result of a fluctuating workforce. 3.3.3.5. Implement Management by MeasurementDesign icons or other visual cues indicating assessment of performance on each metric – forexample, a red circle for “unsatisfactory”, a yellow circle for “cause for concern”, and a greencircle for “satisfactory”. These cues should make it easy for managers to spot actualperformance that fell significantly below the metric‟s target performance (such as twenty-dayrecruiting cycle time versus the intended fourteen days). These visual icons should also enablepeople to identify when actual performance meets or exceeds the targeted performance. 3.3.4. Tips for Selecting MetricsIn building an HR Scorecard, you may be tempted to choose too many metrics or the wrongmetrics – measures that may seem relevant but actually have little connection to the chain ofcause-and-effect connections by which your firm creates value and implements its strategy.Here are some tips for avoiding these common pitfalls:  Focus on those HR elements that make a definable and significant contribution to a particular HR deliverable. This will differ for each organization.  Divide your metrics into two categories: (1) core metrics, which make no direct contribution to your firm‟s strategy implementation. (e.g., benefit costs as a percentage of payroll, or workers compensation cost per employee), and (2) strategic metrics (e.g., cost per hire or cost per trainee hour), which directly measure how well you‟re providing the HR deliverables you‟ve identified. 45
  55. 55.  Select metrics that enable you to describe the actual impact of the related deliverable on firm performance. For example, “HR deliverable A increased X by 20 percent, which reduced Y by 10 percent, which in turn increased shareholder value by 3 percent. 3.3.5. The HR Scorecard in ActionAt GTE (now part of Verizon), the HR department designed an HR Scorecard even though theoverall company had not adopted the methodology. As part of a top-leadership planningprocess, GTE‟s HR managers identified the new behaviors and capabilities required to drivebusiness results over the next five to ten years. They then identified five thrusts for a new HRstrategy: talent, leadership, customer service and support, organizational integration, and HRcapability.These five thrusts were depicted as the foundation of the HR scorecard. Each thrust directlydrove strategic objectives in the operations, customer and financial components of thescorecard. For example, the HR Scorecard showed the hypothesis that strong leadership (in theinnovation and growth perspective of the scorecard) would lead to optimal service deliverythrough streamlined processes (in the operations or processes perspective), which wouldenable GTE to become a low-cost provider (in the customer perspective). Becoming a low-cost provider would in turn minimize HR costs, thereby contributing to shareholder value(both thrusts fit in the financial perspective).Next the HR managers asked GTE‟s business leaders which aspect of each thrust kept themawake at night. The leaders‟ responses – which included concerns such as “Do we have thetalent we need to succeed in the future?” and “Are we managing the cost of turnover?” - ledto the selection of metrics in the HR scorecard. For instance, metrics related to the leadershipobjective included offer acceptance rate and executive retention rate.GTE‟s HR scorecard has generated impressive results. For one thing, it has enabled thecompany‟s HR professionals to react more quickly to changing markets and technologies, aswell as anticipate workforce issues rather than merely reacting to them. It has also saved costs 46
  56. 56. associated with hiring, retention, and grievance filling. Finally, it proved invaluable duringGTE and Bell Atlantic‟s merger into Verizon. Soon after the merger, GTE‟s HR scorecardprovided a way in which Verizon‟s HR leadership team could focus on common objectivesand the future of the newly combined business. A shared sense of HR strategy and focusemerged – which enabled the new entity to move forward with more efficiency and less painthan what most merged companies‟ experience. 47
  57. 57. CONCLUSIONIn this project I described the multiple benefits that an HR organization can realize through thecreation of a dedicated functional Balanced Scorecard and HR Scorecard.Designing any new measurement system for intangible assets is not easy – if it were, mostcompanies would have already done. Embracing this challenge takes time and a carefulthought.The job of HR Manager has become more challenging than ever, more multi-disciplinary anyother discipline, and more demanding than in the past. Hence, HR managers have tocontinuously update and upgrade themselves. 48

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