A fundamental problem with the classical planning approach is its overemphasis on the long term – essentially working from the assumption that the planning environment is static and calls for incremental adjustments to the enterprise
A further problem is the lack of clear measurement (metrics) and implementation
The BSC Defined “ A carefully selected set of measures derived from an organization’s strategy. The measures selected for the scorecard represent a tool for leaders to use in communicating to employees and external stakeholders the outcomes and performance drivers by which the organization will achieve its mission and strategic objectives.” Paul Niven, 2002
Several human resources departments, including Verizon and the United States Department of Transportation, have adopted the balanced scorecard as a tool to measure HR’s contribution to the bottom line.
The scorecard is used to continually monitor HR’s activities throughout the organization, determining whether the people management systems create value and help to drive the company towards business objectives
According to Mark Huselid, an Associate Professor of Human Resources Strategy at US-based Rutgers University, the greatest difference between the balanced scorecard approach and traditional human resources management is that entire people management systems and processes are centered around HR’s deliverables rather than sub-sections of the department, such as benefits, recruiting or compensation.
Literature highlights a debate as to whether the HR department should create a scorecard in advance of, or following, the rest of the organization
As scorecards normally include details of future business goals and initiatives, and HR activities should be in line with these priorities, some authors suggest that HR scorecards should be developed after scorecards in other parts of the business.
Situation: In 1992, Sears, Roebuck and Company was experiencing a difficult financial condition. The company was losing $3.4 billion annually. Actions: The CEO and the executive team used the balanced scorecard framework to create a culture of feedback and learning by implementing three strategies to make Sears “a compelling place to shop” (the customer perspective), “a compelling place to work” (the employee perspective), and “a compelling place to invest” (the financial perspective). . Results: By 1999, the company had $2.41 billion in operating earnings and it was named the most innovative general merchandise retailer by Fortune.
Situation: Conventional satisfaction surveys and the Skandia “Navigator” (balanced scorecard) were unable to pinpoint specific cultural hot spots and managers who do not support entrepreneurial and innovative culture, key for future growth and development. Actions: The HR department refocuses employee-sensing efforts by creating an employee survey that focuses on determining whether employees perceive their unit, their work environment, and their managers as fostering and supporting entrepreneurial behavior. Line managers who, appear to have unsatisfactory behavior receive coaching. Line managers who are unable to make the necessary changes in their management style are asked to leave the company. Results: The assessment process enables accurate pinpointing of problem areas, allowing effective and timely interventions.
Situation: After the 2000 merger between GTE and Bell Atlantic, Verizon needed to amalgamate and recalibrate the new HR function with the corporate goals. Actions: Verizon’s HR function formed a core team that identified goals, pertinent metrics and implemented a balanced scorecard composed of HR metrics that link directly to the organization’s business priorities Results: Following the creation of a joint scorecard, HR can explain and defend project and staffing decisions that may be out of the ordinary or counter to perceived strategic necessities. HR leaders now have a tool which supports a focus on tactical excellence while ensuring alignment with business strategy.
Situation: Alterra Health Care, a leading provider of assisted living facilities for the elderly, faced 145 percent turnover and financial losses in 2001. In order to overcome these obstacles, the company needed to transform the HR function to align it with the company’s overall mission and goals. Actions: The Senior Vice President requested assistance from the “Balanced Scorecard Collaborative Incorporated” organization to create an HR Balanced Scorecard. Alterra’s corporate strategy map focused on these elements: financial, customer, business, processes, and organizational learning. To track those elements, the Senior Vice President created a people and culture balanced scorecard that describes HR’s strategic role in improving shareholder value. Results: Within six months, the company had a positive cash flow and the turnover fell 26 percent in 2002 from the year before. Alterra’s customer and employee satisfaction scores show that eight out of ten are “satisfied” or “more than satisfied.”
The Three Critical Decisions that Shape Metrics Selection
? Question Decision Should the process of identifying aligned metrics flow from the top down or from the bottom up? Decision #1—If metrics are to be truly aligned with business imperatives, identification of metrics must be top down, starting with business strategy and cascading downward into the domain of HR until suitable measurement items can be identified. Who in the organization can and should decide which HR metrics are value-added? Decision #2—For the strategic perspective, HR should identify metrics because HR is best positioned to answer people capability questions. Decision #3—For all other categories, line input should drive metrics decisions because only the line can determine which measures will enable it to assess whether HR is meeting its requirements.
Question Decision Should the process of identifying aligned metrics flow from the top down or from the bottom up? Decision #1—If metrics are to be truly aligned with business imperatives, identification of metrics must be top down, starting with business strategy and cascading downward into the domain of HR until suitable measurement items can be identified. Who in the organization can and should decide which HR metrics are value-added? Decision #2—For the strategic perspective, HR should identify metrics because HR is best positioned to answer people capability questions. Decision #3—For all other categories, line input should drive metrics decisions because only the line can determine which measures will enable it to assess whether HR is meeting its requirements.