“Putting HR on Balanced Scorecard”
(A Case Study of Verizon)
(SUBMITTED TOWARDS PARTIAL FULFILLMENT OF POST
GRADUATE DIPLOMA IN MANAGEMENT)
(Approved by AICTE, Govt. of India)
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Lecturer (college name) Roll: - PGDM-08/012
There is a famous saying “The theory without practical is lame and
practical without theory is blind.”
Alignment of the Human Resource with the overall strategy of the
company is a very big and toughest challenge for the company.
Human resource is an important part of any business and managing them
is an important task.
Our institution has come forward with the opportunity to bridge the gap
by imparting modern scientific management principle underlying the
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and following management technique to the student as integral part of
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TABLE OF CONTENTS
TABLE OF CONTENTS.........................................................................................................4
1.LINK ITS SELECTION AND PROMOTION DECISIONS TO VALIDATED COMPETENCY
FINDINGS OF THE STUDY................................................................................................65
LIMITATIONS OF THE STUDY........................................................................................67
TABLE OF FIGURES
FIGURE 1: HR ARCHITECTURE STRATEGIC COMPONENTS.................................8
FIGURE 3:- THE MAIN FRAMEWORK OF BALANCED SCORECARD..................30
FIGURE 4:- MODEL FOR IMPLEMENTING HR’S STRATEGIC ROLE..................35
FIGURE 5: A HIGH PERFORMANCE WORK SYSTEM..............................................37
FIGURE 6: SIMPLE STRATEGY MAP.............................................................................39
FIGURE 7:- INITIAL MODEL USED TO ALIGN HR STRATEGY TO BUSINESS
FIGURE 8:- THE PEOPLE REQUIREMENT AND BUSINESS DRIVER
FIGURE 9:- THE HR SCORECARD STRATEGY MAP.................................................58
FIGURE 10: HR SCORECARD IMPLEMENTATION ARCHITECTURE..................64
The new economic paradigm is characterised by speed, innovation, quality and customer
satisfaction. The essence of the competitive advantage has shifted from tangible assets to
intangible ones. The focus is now on human capital and its effective alignment with the
overall strategy of organisations. This is a new age for Human Resources. The entire system
of measuring HR’s contribution to the organisation’s success as well as the architecture of the
HR system needs to change to reflect the demands of succeeding in the new economy. The
HR scorecard is a measurement as well as an evaluation system for redefining the role of HR
as a strategic partner. It is based on the Balanced Scorecard framework developed by Kaplan
and Norton and is set to revolutionise the way business perceives HR.
Based on various studies, it can be concluded that firms with more effective HR management
systems consistently outperform the competition. However, evidence that HR can contribute
to a firm’s success doesn’t mean it is now effectively contributing to success in business. It is
a challenge for managers to make HR a strategic asset. The HR scorecard is a lever that
enables them to do so. Implementing effective measurement systems for intangible assets is a
very difficult task and demands the existence of a unified framework to guide the HR
managers. It is this difficulty that has been the prime reason why managers tend to avoid
dealing with intangible assets as far as possible. In the process firms under-invest in their
people and at times invest in the wrong ways. Another difficulty is, managers cannot foresee
the consequences of their investments in intangible human assets in a well-defined
measurable manner and they are not willing to take the risk. Thus, the most effective way to
change this mindset is obvious – to build a framework just like the balanced scorecard, which
has sound measurement strategies and is able to link HR functions, activity and investment
with the overall business strategy. The HR scorecard framework was specifically designed for
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2. RESEARCH METHODOLOGY
1. To highlight the importance of Balanced Scorecard as a measurement tool.
2. To find out the need of Balanced Scorecard in today’s competitive environment.
3. To find out how Balanced Scorecard is useful for developing the Human Resource as
a strategic partner.
4. To find out how Balanced Scorecard can be implemented to Human Resource.
2.2.Type of Research- Exploratory Research
2.3.Data sources: The research is based on secondary data and the data is collected
from various websites, Journals, Magazines, Articles and Research Paper.
2.4.Data Analysis: The research is divided into the six sections. The First section
deals with the overall introduction of the research and the Second section highlights
the Human Resource as a strategic partner and the traditional human resource and the
human resource in present and the future of the human resource. Third section
explains in detail the HR Architecture as a strategic asset which contains the hr
function, hr system and the employee behavior. Fourth section explains the
background and the concept of balanced scorecard, need of the balanced scorecard in
today’s competitive environment, and defines the balanced scorecard as a
measurement tool. Fifth section explains how balanced scorecard can be
implemented into the human resource to develop the HR as a strategic partner. Sixth
section contains the case study of Verizon and explains how Verizon has
implemented the balanced scorecard to human resource to generate the value through
the intangible asset.
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3. LITERATURE REVIEW
1. Is the balanced scorecard HR's ticket to the board? Nelson, Paul. Personnel
Most thoughts comprised of some combination of “BC is a wonderful tool to allow HR to
show its value to a firm”, “BSCs will only work with senior management buy-in” and “BSCs
alone will not bring a firm closer to its goal, contributing to the overall business will”.
2. HR Performance Scoring Demonstrates Results. McKewen, Darren. 2004.
Career Journal.com Accessed from website.
The first part of this article gives numbers on the popularity of BCs throughout industry.
From the article: “According to a recent survey by the Balanced Scorecard Collaborative and
the Society for Human Resource Management, about one-fourth of HR organizations have
adopted the Balanced Scorecard approach. However, virtually all of the 1,300 respondents
have explored the possibility.” The rest of the article has no relation to balanced scorecards.
3. The Balanced Scorecard: Creating a Strategy-Focused Workforce. Frangos,
A synopsis of three scholars’ (Jac Fitz-enz, David Norton, and Helen Drinanwork) in the field
of HR metrics and analysis, by way of selling the author’s upcoming Net Conference.
1. Fitz-enz evaluates a firm’s HR process by cost, duration, accomplishment, error rate,
employee satisfaction, matricing these five over three distinct tasks: acquiring talent,
developing talent, and retaining it.
2. Norton developed the "Human Capital Readiness Report," which provides a snapshot
of an organization's human capital relative to its strategic requirements. It documents
the strategic requirements, then shows, through its measures and programs, how
human capital is being developed.
3. Drinan had been working on a profile of HR leaders
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“So what is the profile of outstanding HR leaders? Among other things, they derive their
agendas from enterprise business objectives; they stay in touch with the workforce; think
"customer focus," not "customer service"; and concentrate on a few strategic priorities.”
4. “A Balanced Scorecard Changes HR Mgmt From Art to Science”. Human
Resource Department Management Report. January, 2003. Issue 1-03, p. 1.
Objective:- Reasons for and application of using the BSC as a way to measure HR
productivity and effectiveness.
Biggest reason: a move to measuring tangible assets, and a need to turn the intangibility of
HR into something more measurable. Case: Alterra Health Care in Milwaukee, which used
HR as the centerpiece of a larger strategic transformation that targeted the firm’s 145%
5. “Understanding the Balanced Scorecard: An HR Perspective”. ICG Research.
Objective:- How to implement the Balanced Scorecard to Human Resource.
1. “Building the Balanced Scorecard should be a team effort at the executive level and
functional heads must not create their bits of Scorecard in isolation. Therefore, HR
can be “custodians” but not owners of the learning and growth perspective.”
2. “Implementation is a bigger issue than scorecard design”. “The difficulty of cultural
change that accompanies Scorecard implementation is typically underestimated. One
of the biggest problems is the (legitimate) fear that the Scorecard will be used to “beat
3. “The HR Scorecard must make visible the link from what staff does to strategic
outcomes. Cascading goals, which may be done through the ten-step process, is one
element of successfully creating the link.”
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6. “Secrets to Success with Balanced Scorecards”. HR Focus. October, 2001 Vol. 78,
no. 10, p. S3.
Summarizes the “10 Commandments of Performance Management” from a book by William
Abernathy: Managing Without Supervising: Creating an Organization- Wide Performance
System. Some of these commandments:
1. “No one should design his or her own incentive plan”
2. “The frequency of measurement feedback is as important as the amount”
3. “Measure only controllable job outputs”
7. “Avoiding performance measurement traps: ensuring effective incentive design
and implementation”. McKenzie F.C. & Shilling M.D. July/August, 1998.
Compensation and Benefits Review. Vol. 30 (4), p. 57-65.
Details methods of performance measurement and the traps associated with each.
Measurements evaluated include: Traditional accounting methods (ROI, EPS, RONA),
Value-Based, such as Economic Value Added, and the Balanced Scorecard. Traps associated
with the BSC are as follows:
1. Assuming the Balanced Scorecard is a perfect tool for compensation.
2. Reduced focus on performance management
3. Using measures that are difficult to quantify
4. Contradicting goals or benchmarking
5. Getting tied-up in implementation
Nine guidelines for effective performance management are outlined:
1. Emphasize a few measures.
2. Focus on measures that participants can control.
3. Avoid “all-or-nothing” programs.
4. Balance accuracy and simplicity.
5. Include an appropriate subjective element.
6. Mind the corporate culture.
7. Communicate up-front, then keep communicating.
8. Revisit the program design often.
9. Integrate with long-term incentives.
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4. HUMAN RESOURCES AS A STRATEGIC PARTNER– THE
PRESENT AND THE FUTURE
The general scenario in most companies is as follows. HR management teams have well-
developed visions of their departments, their roles and responsibilities. But, the senior
management is generally skeptical of HR’s role in the firm’s success. They generally consider
HR to just be another necessary appendage but not something that can contribute to the
success of the company. Even if the senior management does believe that human capital is
their most prized possession and asset, they cannot understand how the HR team can make
this belief come alive.
There is one reason for all of this. Human capital is an intangible asset and HR’s influence on
firm performance is difficult to measure. The standard elements of a firm’s resource
architecture that are measured include total compensation, employee turnover, cost per hire,
percentage of employees that undergo performance appraisals and percentage employee
satisfaction. The question to be asked is: Are these the measures crucial to implementing the
firm’s strategy? This is clearly not the case. Interesting attributes would include a committed
workforce, competency development programs, etc. But, it is very difficult to imagine
measures for these quantities. Hence, in the current state of HR there is a clear rift between
what is measured and what needs to be measured.
As mentioned in the introduction, the role of HR is no more just administrative. It has a much
broader, connected and strategic role to play. But, these statements must be substantiated. The
reasons why HR must be considered as a strategic asset must be highlighted. A strategic asset
is something difficult to trade or imitate. They are normally a set of scarce, special or even
exotic resources and capabilities that bestow a firm its competitive advantage. An unlikely
paradox is that the very intangibility of human capital that makes it so difficult to measure
and evaluate, also proves to be the one quality that makes it a strategic asset. Consider the
difference between being able to align employee efforts with the company’s strategic goals
and instead having innovative policies of performance appraisals. The latter is a policy. It is
visible to competitors and can be easily copied. The former on the other hand is a strategic
move. It is not easy to imitate since it is a very circumstantial effort, which depends on the
specific firm, its goals and its people. This proves to be a strategic asset i.e. something that
competitors cannot see but that can be utilised to gain a competitive advantage. It is thus
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important to align the HR strategy to the overall business strategy signifying a top-down
approach as opposed to a bottom-up approach where each division such as marketing, HR etc.
performs its standard individual roles without a clear outlook towards the firm’s strategy.
Many firms have realised this and have made efforts to measure HR’s influence on the firm’s
performance. However, most of these approaches seem to focus on the individual, as it is
believed that if one can achieve an improvement in individual employee performance, it
would automatically enhance the performance of the organisation. The point that is missed is
the fact that organizational units, be it individuals or teams, do not function in isolation. The
stress is on streamlining and cooperatively working towards a common goal.
5. THE HR ARCHITECTURE AS A STRATEGIC ASSET
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The focus of corporate strategy is to create sustained competitive advantage whereas that of
HR strategy is to maximize the contribution of HR towards the same goal. Thinking about
HR’s influence on the overall strategy of the company requires one to look at all aspects of
the HR architecture. The HR architecture describes the relationship of the HR function, the
HR system and the employee behaviour.
Figure 1: HR Architecture Strategic components
5.1.The HR function
The foundation of a value-creating HR strategy is a management infrastructure that
understands and can implement the firm’s strategy. The professionals in the HR function
would be expected to lead this effort. This clearly implies that HR managers and
professionals need to get a deeper understanding of the HR function. There are two basic
functional categories in HR management. The first is technical. It includes delivery of HR
basics such as recruiting, compensation and benefits. The second is strategic. It involves
delivering the above mentioned services in a way that directly supports the implementation of
the firm’s strategy. Most HR managers are proficient enough in the technical aspect but rarely
do they even know about the strategic aspect. Thus, the competencies that the HR managers
need to develop and the ones that have the largest impact on organisational performance are
the business and strategic competencies.
5.2.The HR system
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In an effective high performance HR system, each element is designed to maximise the
overall quality of human capital throughout the organisation. To build and maintain a set of
talented human capital, the HR system should:-
1. Link its selection and promotion decisions to validated competency models
2. Develop strategies that provide timely and effective support for the skills demanded
by the firm’s overall strategy implementation.
3. Enact compensation and performance management policies that attract, retain and
motivate high-performance employees.
Basically, the firm needs to structure all the elements of its HR system in a way that supports
a high-performance workforce. However, systemic thinking implies stress on the
interrelationships of the HR system components and the link between HR and the larger
strategy of the firm. The laws of system thinking imply the following:
1. Problems of today are most likely due to past decisions. It is thus important to look at
the causal nature of past solutions and current problems.
2. One should think twice before taking the easy way out or deciding to go with standard
solutions to any problem as this will most likely lead to a crop of new problems in the
3. Cause and effect are not closely related in time. There is a lag between cause and
effect and HR’s influence on firm performance is normally much less direct than that
of other performance drivers. This can make it hard to measure as well as be
misleading. It is thus important to look at the leading indicators and not just the
lagging indicators. Typical financial performance measures are lagging indicators and
in an attempt to solve financial problems, the first step is normally to cut costs. It is
more important to actually pinpoint the cause of the problem and look to long-term
benefits than short term ones.
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4. The best strategies are often unobvious. Small changes in how HR drivers are
managed can slowly gather momentum and work their way through the strategy
5. It is important never to dissect the system and view each of its parts independently.
One must look at the system as a whole and the connections between the individual
parts is normally the vital place to look at for a solution to any of the problems.
Firms with high performance work systems tend to devote considerably more resources to
recruiting and selection. There is a strong emphasis on training and performance management
and compensation is tied to performance. Teamwork is encouraged, there is generally less
unionization and they have a large and effective HR team. It is important to note, that all
these factors in tandem, not in isolation, lead to better performance, once again showing the
systemic nature of HR’s role in performance enhancement. The effects of these measures are
lower employee turnover, more retention, greater sales per employee and a greater market
value for the firm.
It is also important for the HR system to constantly check for alignment of all its parts i.e.
how much they reinforce or conflict with each other. An example of misalignment is a policy
that encourages teamwork but rewards individual contributions.
In the service sector, the employee-customer relationship is very obvious and visible and so
the impact of value creation is unmistakable. But, in many firms, the value is derived from
the operational processes and quality of work that the employees generate. This is less
obvious to competitors and it cannot be imitated. It is especially in these kinds of firms that
the alignment of HR strategy and policy with the overall strategy of the firm matters the most.
The alignment process begins with a clear understanding of what kind of value the
organisation is supposed to generate and how it should be generated. In the Balanced
Scorecard, this is referred to as the ‘strategy map’ that stresses the relationship between the
ultimate goals and the key success factors at the four important levels of customers, internal
operations, people and systems. Once the firm has a clear understanding of the value-creation
process, it can then design an implementation model that specifies needed skills and
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competencies and employee behaviours throughout the firm. The HR management section
can then be directed towards generating these necessary competencies and behaviours. The
stress is not just on the creation of sound HR policies and strategies. How these are
implemented is also very important. There has to be a strong alignment with the firm’s
A high performance HR system will also tend be unique. This is because it depends on the
particular organisation, its goals, people and strategy. Hence, it proves to be a strategic asset.
As mentioned above the final results of the strategies are mapped to required employee
behaviours. It is important that each employee be trained not just to do his or her job but also
to have a substantially clear understanding of where he or she stands in the big picture of the
overall strategy of the firm. Strategic behaviours are productive behaviours that directly serve
to implement the firm’s strategy. There are two basic categories. Core behaviours are
behaviours that are considered fundamental to the success of the firm, across all business
units and levels. Situation-specific behaviours on the other hand, are more circumstantial
behaviours. These are not required all the time but are absolutely necessary in certain
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6. THEORY BEHIND THE BALANCED SCORECARD
6.1.Background of the Concept of Balanced Scorecard
Throughout the history of contemporary management theories starting from the ones that
were introduced by the intrusion of the mass production in the beginning of the 20th century
and until today, all the gurus of management have been trying to find uniform solutions on
more efficient allocation and use of very limited resources available to businesses. Those
paths in seeking the Holy Grail of operational efficiency have brought up several new
In the dawn of the century, Frederick W. Taylor established the very concepts of resource
allocation in his Principles of ScientJlc Management. In 1920-ics it went around assembly
line and motion studies as the first experience from systematic mass production had given
theorists quite a lot of materials to be analysed from the point of view of using traditional
blue-collar employees more efficiently. In the I 930-ies, the main topic was motivation of
employees, as it turned out that human nature does not enable to work long hours on a
repetitive tasks without frustration level getting so high enough to diminish productivity. In
the l940-ics and 1950-ies, the first statistical and linear methods were introduced in trying to
measure logistics of the operations management and its implications to overall company
success in financial-analysis side. In the beginning of 1980-ics, partly because of introduction
of electronic data processing equipment and quick development of computers, the whole
array of management techniques were initiated. The particular reasons for the vast
development of the new theories were catalyzed mainly by ever growing competition
generated through more systematic use of computers, and of course also by rapid growth of
the importance of human capital.
Today’s companies are in the midst of a revolutionary transformation. Industrial age
competition is shifting to information age competition. During the industrial age, roughly
from 1850 to about 1975, companies succeeded by how well they could capture the benefits
from economies of scale and scope. Technology mattered, but, ultimately, success accrued to
companies that could embed the new technology into physical assets that offered efficient,
mass production of standard products. During the industrial age, the financial control systems
were developed in major companies to facilitate and monitor efficient allocations of financial
and physical capital. A summary financial measure such as return-on-capital-employed
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(ROCE) could both direct a company’s internal capital to its most productive use and monitor
the efficiency by which operating divisions used financial and physical capital to create value
The emergence of the information era, however, in the last decades of the 2O century, has
made obsolete many of the fundamental assumptions of industrial age competition. The
information age environment for both manufacturing and service organisations requires new
capabilities for competitive success. The ability of a company to mobilise and exploit its
intangible assets has become far more decisive than investing and managing tangible,
Industrial age companies created a sharp distinction between two groups of employees. The
intellectual elite — managers and engineers — used their analytical skills to design products
and processes, select and manage customers, and supervise day-to-day operations. The
second group was composed of the people who actually produced the products and delivered
the services. This direct labour work force was a principal factor of production, which
performed its tasks under supervision of the first group. Today automation and productivity
have increased the number of people performing analytic functions: engineering, marketing,
management and administration. Therefore, the people are more viewed as problem solvers,
not as variable costs. In other words, information age has brought about the concept of
The shift to successful knowledge management has introduced a variety of improvement
2. Total quality management,
3. Lean enterprise,
4. Business process re-engineering,
5. Time-based competition,
6. Customer-focused organization,
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7. Activity-based cost management,
8. Employee empowerment,
9. Living company and many others.
Some of those programmes have meant in practice real breakthrough and improvement,
others have proven to be in the best case just a short-time disturbance, but in the worst cases
total failures resulting in disarray or even bankruptcy of a particular company. The main
reason for that lies in five main implementation problems:
1. current performance measurement systems are based on the traditional financial
accounting model, which does not enable to objectively analyse information-age
2. if some non-financial performance measurement even is made, it is solely based on
employees’ tactical performance, not on strategic performance;
3. majority of management and employee salary-based motivation schemes arc only
short-run profit oriented, that does not enable to align towards long-run goals;
4. overall company strategy is not closely linked to organisational and personal
improvement programmes; and
5. strategy is not generally linked to resource allocation, which results in under-
financing some of the crucial parts of organisation’s development.
As for today, superior financial performance and efficiency in production are just not enough
to gain sufficient competitive advantage, but more and more attention needs to be paid to
intangible sides of business.
For at least 15 years, the leading management journals have published articles about how to
build up a mechanism that would enable to control all the aspects of a company’s
performance. One of the most versatile tools for that purpose is Balanced Scorecard.
The long-term success of any organization is determined by the capabilities and the
competencies it has developed. Today’s businesses require a better understanding of their
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customers (both existing and potential ) and their needs, better streamlined processes and
highly skilled people for ensuring future survival and sustainable growth.
This innovative tool “Balanced Scorecard” developed by Robert S Kaplan and David P
Norton in 1992 is unique in two ways compared to the traditional performance measurement
tools. They are:-
1. It considers the financial indices as well the non-financial ones in determining the
corporate performance level and
2. It is not just a performance measurement tool but is also a performance management
The aim of the Balanced Scorecard is to direct, help manage and change in support of the
longer-term strategy in order to manage performance. The scorecard reflects what the
company and the strategies are all about. It acts as a catalyst for bringing in the change’
element within the organization
Balanced Scorecard uses a balanced measurement system that comprises of “the old”
financial side and four “new” perspectives of:
1. Financial Perspective - How do we look at shareholders?
2. Customer Perspective - How should we appear to our customers?
3. Internal Business Processes Perspective - What must we excel at?
4. Learning and Growth Perspective - Can we continue to improve and create value?
Hence, from the above lines we can say that this tool has considered not only the financial
results to be important but also those factors which actually drive an organization towards
future successes as mentioned earlier. The tool has given stress on the other areas which are
required to “balance” the financial perspective in order to get a total view about the
organizational performance and improve the same.
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The framework tries to bring a balance and linkage between the —
1. Financial and Non-Financial Measures,
2. Tangible and the Intangible measures,
3. Internal and the External aspects and
4. Leading and the Lagging indicators.
The Balanced Scorecard emphasises the importance of measuring business performance from
the perspective of strategic implementation, rather than relying solely on financial results.
Senior managers tend to pay far too much attention to the financial dimensions of
performance and not enough attention to the driving forces behind those results. Financial
measures are lagging indicators i.e. backward looking. They are designed to rectify or change
past results. Performance drivers on the other hand are within the control of the management
in the present and the Balanced Scorecard methodology encourages management to look at
these leading indicators as well. By specifying the important process measures, assessing
them, and communicating the firm’s performance based on these criteria to the employees,
the managers can ensure that the entire organisation participates actively in the strategy
implementation process. It is a unifying tool in strategy implementation.
To achieve strategy alignment, firms must engage in a two-step process. As mentioned
before, first the managers must understand the details of how value is created in their firm.
Once this is done, they can design a measurement system based on their understanding. The
first step focuses the organisation on two dimensions of the strategy implementation process
namely breadth and causal flow. Breadth refers to the fact that companies must study more
than just financial results as outcomes of strategy implementation. It must also focus on other
key performance drivers. Causal flow refers to the series of linkages between financial and
non-financial determinants of firm performance. This gives the managers a deeper
perspective of why certain financial results are the way they are. It allows them to link the
financial measures to the non-financial measures of success. The second point is the design of
a measurement system. This involves attaching metrics to the financial and non-financial
determinants. The Balanced Scorecard identifies four key perspectives that directly and
completely define strategy measurement and analysis. They include the financial perspective,
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the customer perspective (e.g. customer loyalty and satisfaction), the internal processes
perspective (e.g. process quality and process cycle time) and finally learning and growth
perspective (e.g. employee skills) that is the leading indicator.
The next important step is communication. The top management that has done the above
analysis must communicate their findings and decisions to the middle and front-line
managers, who in turn must communicate it to the other employees. In this way, everyone in
the organisation is made aware and can participate in the strategy implementation process.
This also helps allocate resources intelligently and guides employees’ decisions. The
Balanced Scorecard model recognises the importance of both tangible and intangible assets
and of financial and non-financial measures. It focuses on the complex connections among
the firm’s customers, operations, employees and technology and places an important role for
HR. The BSC framework highlights the differences between leading and lagging indicators.
Lagging indicators include financial metrics, which typically reflect only what has happened
in the past. Such metrics accurately measure impacts of past decisions but don’t help in
making current decisions or guaranteeing future outcomes. The leading indicators are the
unique indicators for each firm. They include process cycle time, customer satisfaction or
employee strategic focus. These indicators assess the status of key success factors that drive
the implementation of the firm’s strategy and hence emphasise the future rather than the past.
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6.2. Defining Critical Success Factors and Measures
1. Financial Perspective - How do we look at shareholders?
From all the measurement perspectives of a Balanced Scorecard, the financial perspective
needs to be introduced the least as the main financial measurement systems have been
analysed during the past years very thoroughly
The particular financial performance measures for any Balanced Scorecard should define
long-run financial objectives for the organisation. While most of the organisations would
emphasise profitability objectives, other possibilities may also be considered. Businesses with
many products in the early stage of their life cycle can stress rapid growth objectives, and
mature businesses may emphasise maximising cash flow.
Norton and Kaplan recommend to simplify the financial perspective measurement selection
pool to identify first the organisation’s stage, which would mainly be one of the three:
I. “rapid growth” organisations - are at the early stages of their life cycle. They may
have to make considerable investments to develop and enhance new products and
serviccs, to construct and expand production facilities, to build operating capabilities,
to invest in systems, infra-structure, and distribution networks that will support
relationships, and to nurture and develop customer relationships.
II. “sustain” organisations — organisations that still attract investment and
reinvestment, but are required to cam excellent returns on their invested capital. These
businesses are expected to maintain their existing market share and perhaps grow it
somewhat. Investment projects will be more directed to relieving bottlenecks,
expanding capacity, and enhancing continuous improvement.
III. “harvest” organisations - have reached a mature phase of their life cycle, where the
company wants to harvest the investments made in the earlier to stages. These
businesses no longer warrant significant investment — only enough to maintain
equipment and capabilities, not to expand or build new capabilities. Any investment
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project will have to have very short and definite payback periods. The main goal is to
maximise cash flow back to the organisation.
The financial objectives for businesses in each of these three stages are quite different.
Financial objectives in the growth stage will emphasise sales growth; sales in new markets
and to new customers; sales from new products and services; maintaining adequate spending
levels for product and process development, systems, employee capabilities; and
establishment of new marketing, sales, and distribution channels. Financial objectives in the
sustain stage will emphasise traditional financial measurements, such as return on capital
employed, operating income, and gross margin.
Investment projects for businesses in the sustain category will be evaluated by
standard, discounted cash flow, capital budgeting analyses. Some companies will employ
newer financial metrics, such as economic value added and shareholder value. These metrics
all represent the classic financial objective---earn excellent returns on the capital provided to
The financial objectives for the harvest businesses will stress cash flow. Any investments
must have immediate and certain cash paybacks. The goal is not to maximise return on
investment, which may encourage managers to seek additional investment funds based on
future return projections. Virtually no spending will be done for research or development or
on expanding capabilities, because of the short time remaining in the economic life of
business units in their “harvest” phase.
Some of the objectives together with a measurement measures
Survive Cash Flow
Prosper Increase in Market Share
Profitability Return on Equity
Cost Leadership Unit Cost
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2. Customer Perspective - How should we appear to our customers?
The customer perspective addresses the question of how the firm is viewed by its customers
and how well the firm is serving its targeted customers in order to meet the financial
objectives. Generally, customers view the firm in terms of time, quality, performance, and
cost. Most customer objectives fall into one of those four categories.
In the customer perspective of the Balanced Scorecard, managers identify the customer and
market segments in which the business unit will compete and the measures of the business
unit’s performance in these targeted segments.
The customer perspective typically includes several generic measures of the successful
outcomes from a well-formulated and implemented strategy. The genetic outcome measures
include customer satisfaction, customer retention, new customer acquisition, customer
profitability, and market and account share in targeted segments. While these measures may
appear to be generic across all types of organisations, they should be customised to the
targeted customer groups from whom the business unit expects its greatest growth and
profitability to be derived.
I. Market and Account Share
Market share, especially for targeted customer segments, reveals how well a company
is penetrating a desired market. For example, a company may temporarily be meeting
sales growth objectives by retaining customers in non-targeted segments, but not
increasing its share in targeted segments. The measure of market share with targeted
customers would balance a pure financial signal (sales) to indicate whether an
intended strategy is yielding expected results.
When companies have targeted particular customers or market segments, they can
also use a second market-share type measure: the account share of those customers’
business (some refer to this as the share of the “customers’ wallet”). The overall
market share measure based on business with these companies could be affected by
the total amount of business these companies are offering in a given period. That is,
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the share of business with these targeted customers could be decreasing because these
customers are offering less business to all their suppliers. Companies can measure-
customer by customer or segment by segment-how much of the customers’ and
market segments’ business they are receiving. Such a measure provides a strong focus
to the company when trying to dominate its targeted customers’ purchases of products
or services in categories that it offers.
II. Customer Retention
Clearly, a desirable way for maintaining or increasing market share in targeted
customer segments is to retain existing customers in those segments. Research on the
service profit chain has demonstrated the importance of customer retention.
Companies that can readily identify all of their customers-for example, industrial
companies, distributors and wholesalers, newspaper and magazine publishers,
computer on-line service companies, banks, credit card companies, and long-distance
telephone suppliers- can readily measure customer retention from period to period.
Beyond just retaining customers, many companies will wish to measure customer
loyalty by the percentage growth of business with existing customers
III. Customer Acquisition
Companies seeking to grow their business will generally have an objective to increase
their customer base in targeted segments. The customer acquisition measure tracks, in
absolute or relative terms, the rate at which a business unit attracts or wins new
customers or business. Customer acquisition could be measured by either the number
of new customers or the total sales to new customers in these segments. Companies
such as those in the credit and charge card business, magazine subscriptions, cellular
telephone service, cable television, and banking and other financial services solicit
new customers through broad, often expensive, marketing efforts. These companies
could examine the number of customer responses to solicitations and the conversion
rate- number of actual new customers divided by number of prospective inquiries.
They could measure solicitation cost per new customer acquired, and the ratio of new
customer revenues per sales call or per dollar of solicitation expense.
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IV. Customer Satisfaction
Both customer retention and customer acquisition are driven from meeting customers’
needs. Customer satisfaction measures provide feedback on how well the company is
doing. The importance of customer satisfaction probably cannot be over-emphasised.
Recent research has indicated that just scoring adequately on customer satisfaction is
not sufficient for achieving high degrees of loyalty, retention, and profitability. Only
when customers rate their buying experience as completely or extremely satisfying
can the company count on their repeat purchasing behaviour.
V. Customer Profitability
Succeeding in the core customer measures of share, retention, acquisition, and
satisfaction, however, does not guarantee that the company has profitable customers.
Obviously, one way to have extremely satisfied customers (and angry competitors) is
to sell products and services at very low prices. Since customer satisfaction and high
market share are themselves only a means to achieving higher financial returns,
companies will probably wish to measure not just the extent of business they do with
customers, but the profitability of this business, particularly in targeted customer
segments. Activity-based cost (ABC) systems permit companies to measure individual
and aggregate customer profitability. Companies should want more than satisfied and
happy customers; they should want profitable customers. A financial measure, such as
customer profitability, can help keep customer-focused organisations from becoming
The customer profitability measure may reveal that certain targeted customers are
unprofitable. This is particularly likely to occur for newly acquired customers, where
the considerable sales effort to acquire a new customer has yet to be offset from the
margins earned by selling products and services to the customer. In these cases,
lifetime profitability becomes the basis for deciding whether to retain or discourage
currently unprofitable customers.
Newly acquired customers can still be valued, even if currently unprofitable, because
of their growth potential. But unprofitable customers who have been with the
company for many years will likely require explicit action to cope with their incurred
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VI. Beyond the Core: Measuring Customer Value Propositions
Customers’ value propositions represent the attributes that supplying companies
provide, through their products and services, to create loyalty and satisfaction in
targeted customer segments. The value proposition is the key concept for
understanding the drivers of the core measurements of satisfaction, acquisition,
retention, and market and account share. For example, customers could value short
lead times and on-time delivery. They could value a constant stream of innovative
products and services. Or they could value a supplier able to anticipate their needs and
capable of developing new products and approaches to satisfy those emerging needs.
While value propositions vary across industries, and across different market segments
within industries, Kaplan and Norton have observed a common set of attributes that
organises the value propositions in all of the industries where we have constructed
scorecards. These attributes are organised into three categories.
Image and Reputation
Product and service attributes encompass the functionality of the product/service, its
price, and its quality. The image and reputation dimension enables a company to pro-
actively define itself for its customers. The customer relationship dimension includes
the delivery of the product/service to the customer, including the response and
delivery time dimension, and how the customer feels about the experience of
purchasing from the company.
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In summary, the customer perspective enables business unit managers to articulate their
unique customer and market-based strategy that will deliver superior future financial returns.
Some of the objectives together with a measurement measures
New Product % of sales from new product
Customer Relationship % of retained customer
Responsive Supply On time Delivery
3. Internal Business Processes Perspective - What must we excel at?
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Internal business process objectives address the question of which processes are most critical
for satisfying customers and shareholders. These are the processes in which the firm must
concentrate its efforts to excel.
In the internal business process perspective, executives identify the critical internal processes
in which the organisation must excel. The critical internal business processes enable the
business unit to deliver on the value propositions of customers in targeted market segments,
and satisfy shareholder expectations of excellent financial returns. The measures should be
focused on the internal processes that will have the greatest impact on customer satisfaction
and achieving the organisation’s financial objectives.
The internal business process perspective reveals two fundamental differences between
traditional and the Balanced Scorecard approaches to performance measurement. Traditional
approaches attempt to monitor and improve existing business processes.
They may go beyond just financial measures of performance by incorporating quality and
time-based metrics. But they still focus on improving existing processes. The Balanced
Scorecard approach, however, will usually identify entirely new processes at which the
organisation must excel to meet customer and financial objectives. The internal business
process objectives highlight the processes most critical for the organisation‘s strategy to
The second departure of the Balanced Scorecard approach is to incorporate innovation
processes into the internal business process perspective. Traditional performance
measurement systems focus on the processes of delivering today’s products and services to
today’s customers. They attempt to control and improve existing operations - the short wave
of value creation. But the drivers of long-term financial success may require the organisation
to create entirely new products and services that will meet the emerging needs of current and
future customers. The innovation process-the long-wave of value creations, for many
companies, is a more powerful driver of future financial performance than the short-term
operating cycle. But managers do not have to choose between these two vital internal
processes. The internal business process perspective of the Balanced Scorecard incorporates
objectives and measures for both the long-wave innovation cycle as well as the short-wave
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Some of the objectives together with a measurement measures
Manufacturing Excellence Cycle Time per Unit
Safety incidence Index Number of Accidents
Increased design Productivity Engineering Efficiency
Increased Product Launch Days Actual Launch Days Vs Plan
4. Learning and Growth Perspective - Can we continue to improve and create
Learning and growth metrics address the question of how the firm must learn, improve, and
innovate in order to meet its objectives. Much of this perspective is employee- centered.
The fourth Balanced Scorecard perspective, Learning and growth, identifies the infrastructure
that the organisation must build to create long-term growth and improvement. The customer
and internal business process perspectives identify the factors most critical for current and
future success. Businesses are unlikely to be able to meet their long-term targets for
customers and internal processes using today’s technologies and capabilities. Also, intense
global competition requires that companies continually improve their capabilities for
delivering value to customers and shareholders.
Organisational learning and growth come from three principal sources: people, systems, and
organisational procedures. The financial, customer, and internal business process objectives
on the Balanced Scorecard will typically reveal large gaps between existing capabilities of
people, systems, and procedures and what will be required to achieve targets for breakthrough
performance. To close these gaps, businesses will have to invest in re-skilling employees,
enhancing information technology and systems, and aligning organisational procedures and
routines. These objectives arc articulated in the learning and growth perspective of the
Balanced Scorecard. As in the customer perspective, employee-based measures include a
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mixture of generic outcome measures- employee satisfaction, employee retention, employee
training, and employee skills- along with specific drivers of these generic measures, such as
detailed indexes of specific skills required for the new competitive environment. Information
systems capabilities can be measured by real-time availability of accurate customer and
internal process information to front-line employees. Organisational procedures can examine
alignment of employee incentives with overall organisational success factors, and measured
rates of improvement in critical customer-based and internal processes.
Some of the objectives together with a measurement measures
Technology Leadership Time to develop new product
Manufacturing Learning Time to new process maturity
Product Focus % of product representing 80% of sales
6.3.The Four Perspectives: Cause and Effect Relationship
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The four perspectives as mentioned above are highly interlinked. There is a logical
connection between them. The explanation is as follows If an organization focuses on the
learning and the growth aspect, it is definitely going to lead to better business processes. This
in turn would be followed by increased customer value by producing better products which
ultimately gives rise to improved financial performance.
Figure 2: The Cause and Effect relationships among the four perspectives
6.4.The Balanced Scorecard Model
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Following steps are to be taken so as to utilize the Balanced Scorecard as a strategic
1. The major objectives are to be set for each of the perspectives.
2. Measures of performance arc required to be identified under each of the Objectives
which would help the organization to realize the goals set under each of the
perspectives. These would act as parameters to measure the progress towards the
3. The next important step is the setting of specific targets around each of the identified
key areas which would act as a benchmark for performance appraisal. Hence, a
performance measurement system is build around these critical factors. Any deviation
in attaining the results should raise a red signal to the management which would
investigate the reasons for the deviation and rectify’ the same.
4. The appropriate strategies and the action plans that arc to be taken in the various
activities should be decided so that it is clear as to how the organization has decided to
pursue the pre-decided goals. Because of this reason, the Balanced Scorecard is often
referred to as a blueprint of the company strategies.
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Figure 3:- The Main framework of Balanced Scorecard
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To achieve our vision,
how will we sustain
our ability to change
Learning and Growth
To achieve our vision,
how should we appear to
To Satisfy our
must we excel at?
To succeed financially,
how should we appear to
6.5.Balanced Scorecard as a Measurement Tool
To illustrate the use of today’s main measurement tools, Kaplan and Norton bring
the following example:
Imagine entering the cockpit of a modern jet airplane and seeing only a single
instrument there. How would you feel about boarding the plane after the
following conversation with the pilot?
Q: I am surprised to see you operating the plane with only a single instrument.
What does it measure?
A: Airspeed. I am really working on airspeed this flight.
Q: That’ good. Airspeed certainly seems important. But what about altitude?
Would an altimeter be helpful?
A: I worked on altitude for the last few flights and I’ve gotten pretty good on it.
Now I have to concentrate on proper airspeed.
Q: But I notice you do not even have a fuel gauge. Wouldn’t that be useful?
A: You are right; fuel is significant, but I cannot concentrate on doing too many
things well at the same time. So on this flight I’m focusing on airspeed. Once I
get to be excellent at airspeed, as well as altitude, I intend to concentrate on fuel
consumption in the next set of flights.
We suspect that you would not board the plane after this discussion. Even if the
pilot did an exceptional job on airspeed, you would be worried about colliding
with tall mountains or running low on fuel. Clearly, such a conversation is a
fantasy since no pilot would dream of guiding a complex vehicle like a jet
airplane through crowded air spaces with only a single instrument. Skilled pilots
are able to process information from a large number of indicators to navigate their
aircraft. Yet navigating today’s organisations through complex competitive
environments is at least as complicated as flying a jet. Why should we believe
that executives need anything less than a full battery of instrumentation for
guiding their companies? Managers, like pilots, need instrumentation about many
aspects of their environment and performance to monitor the journey toward
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excellent future outcomes.
7. IMPLEMENTING BALANCED SCORECARD TO HUMAN
7.1.Integrating HR into the performance measurement system
To integrate HR into a business performance measurement system, managers
must identify the points of intersection between the HR and the organisation’s
strategy implementation plan. These points are commonly called the HR
deliverables. They are the outcomes of the HR architecture that serve to execute
the firm’s strategy. This is in contrast to the aspects of HR that focus on HR
efficiency and activity. The deliverables can be classified into two groups, namely
the performance drivers and the enablers. Performance drivers are core people-
related capabilities or assets such as employee productivity and satisfaction.
There is no single correct set of performance drivers. Each firm needs to identify
its own set based on its unique characteristics. Enablers reinforce performance
drivers. E.g. Preventive maintenance can be considered an enabler of on-time
delivery, which is a performance driver. A performance driver can have several
enablers. Most of the time, each enabler separately may seem rather mundane but
it’s the cumulative effect that has strategic importance.
HR managers tend to focus on performance drivers in an attempt to demonstrate
their strategic impact. However, in most cases although they do stress on these
drivers they are unable to make a solid case for it since they do not have the right
measures. Without measures one cannot display HR’s actual contribution to the
overall mission. Most of the measures used are very simplistic and it undermines
HR’s credibility in the organisation. This credibility is very important since it is
what matters when a manager is faced with a conflict between financial and non-
financial reports. For example, if people measures are good but financial
measures are bad, the manager will go for the solution that supports the credibility
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of finance or HR. In most cases it is finance and the immediate decision is
reducing bonuses etc. as the CFO might feel it is not warranted when there is no
proof of performance. The point that is being missed is that the CFO is looking at
the lagging indicators. Balanced performance needs one to look at the leading
indicators such as HR measures as well since these are the ones that create value
in the organisation. High HR scores in the face of low finances actually signal
improved finances in the future (provided other leading indicators are also on the
positive side). Similarly, strong financial measures and weak leading measures
such as HR measures are indicative of a financial problem in time to come. Thus,
managers must interpret these measures in a balanced manner looking at the past
and into the future. Identifying HR performance drivers can be very challenging
since it is unique to the firm. It is important to identify the performance drivers
and integrate them directly into performance criteria giving them equal weight
with the more traditional performance measures. For example, one half of the
bonus pays can be based on the financial results while the other half is based on
the employee’s adherence to the value behaviours.
HR enablers reinforce the core performance drivers. If employee productivity is
identified as a performance driver, re-skilling and training can be considered an
enabler. Some enablers might be specifically HR focused i.e. they enhance the
effectiveness of HR performance drivers. There might also be some HR enablers
that do have profound positive effects with respect to the other perspectives as
well, such as customers, operations and the financial segment. It is important to
identify these and keep them up to date with the current goals of the organisation.
Without the properly aligned enablers, it is not possible to implement new
strategies. The systemic aspect of HR once again comes to the forefront, whereby
the entire HR system can influence employee behaviour from different points.
Thus, HR managers should evaluate the degree to which their firm’s system of
enablers support the HR as well as non-HR performance drivers as listed in their
Balanced Scorecards. By identifying the links between enablers and universal
performance drivers, the HR team can play a much larger role and suggest ideas
that can affect other sectors in the firm as well.
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7.2.The Seven-Step Model for Implementing HR’s Strategic
Ulrich et al. discuss a seven step model for formalising the strategic role of HR.
They are summarised below:
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Figure 4:- Model for implementing HR’s Strategic Role
1. Defining Business Strategy:
HR managers should focus on implementation of strategy. By doing so, they can
facilitate discussion about how to communicate the firm’s goals throughout the
organisation. When strategic goals are not developed with an eye towards the
implementation detail, they tend to be too generic and abstract. These vague goals
will tend to confuse employees and they would not know how exactly to
implement the strategies. The important thing for HR managers is to state the
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goals in such a way that the employees understand what exactly their role in the
organisation is and thus the organisation knows how to measure success in
achieving these goals.
2. Building a case for HR as a strategic asset:
Once a firm clarifies its strategy, HR professionals need to build a clear case for
the strategic role of HR. In concrete terms, they must be able to explain how and
why HR can support the strategy. It is important to look at as much of case
histories and internal as well as external research while going through this phase.
Although it is not wise to imitate others, one can learn a lot by looking through
past experiences of others. Basically, the direct impact on the HR systems’ high
performance characteristics is non-linearly related to the increase in market value.
This is because in the lower ranges of performance, increase in market value is
basically because HR stops making mistakes it used to make in the past. It is
almost like it is getting out of the way and avoids blunders and wrong practices
that worsen the situation. In the middle range of performance, HR starts
consolidating its efforts. It is learning from its mistakes and in the process does
not actually add much to the market value of the employees and the company, but
once a certain threshold is crossed indicating that the firm has adopted the
appropriate HR practices and implemented them effectively, the market value
soars exponentially. This is mainly because the HR system starts getting
integrated into the overall strategic system of the firm. Basically, the firms must
consolidate the appropriate HR policies and practices into an internally coherent
system that is directly aligned with business priorities and strategies that are most
likely to create economic value. This can lead to significant financial returns to
the company. It is this plan that must be made concrete and shown as a strong
case to make senior management believe in HR’s potential.
It is important to note however, that simple changes in an HR practice do not
make a difference. The HR measures describe the whole HR system and changing
the system to cross the threshold mentioned above needs time, effort, insight and
perseverance since results are not directly proportional. This clearly indicates the
requirement of an HR transformation rather than a change. It is this very character
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of transformation, which is difficult and time-consuming to achieve, that makes
HR a strategic asset.
Figure 5: A High Performance Work System
Along with value creation, there must also be a strong case for HR’s role in
strategy implementation. Strategy implementation rather than strategy content
separates the successful from the unsuccessful firms. It is easier to choose an
appropriate strategy than to implement one. This once again shows the strategic
nature of HR’s role in performance improvements. Successful strategy
implementation is driven by employee strategic focus, HR’s strategic alignment
and a balanced performance measurement system. The most important HR
performance driver is a strategically focused workforce. Effective knowledge
management combined with the above-mentioned factors creates a strategically
3. Creating a Strategy Map:
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Employees who are strategically
The Firm’s capacity to
implement the Strategy
The Overall performance of the
The first two steps clarify the firm’s strategy. This paves the way for the
implementation process. But, before this is done, the firm must get a clear
understanding of its value chain. The value chain is the complex cumulative set of
interactions and combinatorial effects that create the customer value in the
products and services of the firm. It is important that the firm’s performance
management system must account for each of the links and dependencies in the
value chain. The Balanced scorecard framework refers to this process and
creating a strategy map. These are basically diagrams that show the links in the
value chain. It shows how different components in different layers interact. It is
what provides managers and employees the big picture of how their tasks affect
the other elements in the firm and how it affects overall strategy. This process
should involve managers from all over the organisation, not just HR. The broad
participation is required to improve the quality of the strategy map. It also allows
each member of the team who is an expert in his or her domain to provide his or
her own insights into what is accomplishable.
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Learning and Growth
Figure 6: Simple Strategy Map
The following questions have been identified as the key ones to be asked during
the strategy map creation process:-
1. Identify the critical strategic goals from the generic ones.
2. Identify the performance drivers for each goal.
3. Think about how one can measure progress towards these goals.
4. Identify barriers to the achievement of each goal.
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Return on the capital employed
in the business
5. Recognise the employee behaviours needed to ensure that the
company achieves its goals.
6. Identify missing employee competencies and check if HR is
providing the necessary competencies.
7. Finally, decide what needs to change.
These basic questions generate a wealth of information about how well a firm’s
HR has been contributing to the success of the organisation. Along with these
discussions, it is useful for the company to conduct surveys within the
organisation to identify the extent to which each employee understands the
organisational goals. Once the whole picture of the firm’s value chain is
highlighted, the firm can then translate the information into a conceptual model
using language and graphics that make sense to the members of the organisation.
The model should then be tested for understanding and acceptance amongst the
leaders and the employees.
The strategy map essentially contains predictions about which organisational
processes drive firm performance. The company can validate these hypotheses
only after achieving the goals set for each of the performance drivers and then
measuring their impact on overall firm performance. The graphical nature of the
strategy map helps the senior management as well as the employees have more
confidence in the strategy implementation plan.
4. Identifying HR deliverables within the strategy map:
HR creates much of its value at the points of intersection between the HR system
and the overall strategy implementation system of the organisation. Thus, to
leverage this to the maximum possible extent it is important that there is a clear
understanding of both sides of this intersection.
In the past, HR managers lacked the required amounts of knowledge about the
business side and general managers did not fully understand the HR side. It is
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HR’s responsibility to depict HR deliverables including performance drivers as
well as HR enablers in the strategy map of the firm. Performance drivers such as
employee competence, motivation and availability are very fundamental and so it
might be difficult to locate these precisely on the strategy map. It is important to
identify those HR deliverables that support the firm-level performance drivers on
the strategy map. The focus should be on the kind of strategic behaviours that
depend on competencies, rewards and work organisation. E.g. Employee stability
improves R&D cycle time, the latter being a firm-level performance driver. Thus,
employee stability becomes an important HR enabler. Once this enabler has been
identified, the firm can design policies such as bonus schemes etc. that would
encourage R&D staff to continue working for the firm.
5. Aligning the HR architecture with the HR deliverables:
The above-mentioned steps encourage the top-down thinking approach, whereby
strategy decides what HR deliverables the firm needs to focus on. It is also
important to consider how the HR system made up of the rewards, competencies;
work organisation etc. needs to be structured to provide the deliverables that are
identified in the strategy map. This step enhances the value creation aspect of the
firm by aligning the HR system with the firm’s larger strategy implementation
system. For this, internal alignment and external alignment are important. Internal
alignment refers to the aligning components within the HR system. External
alignment refers to the alignment of the HR system with the other elements in the
firm’s value creation process. These two are not isolated processes. They are
closely related. Internal alignment is necessary but not sufficient in itself for
external alignment to occur.
Basically, highly cohesive HR strategies will work as long as they are aligned
well with the overall strategy of the company. It will fail if it is not periodically
reshaped so as to align it with the overall strategy.
However, for a particular fixed overall strategy, all firms need an internally
aligned HR strategy in order to achieve the overall goals. Misalignment between
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the HR system and the strategy implementation system can destroy value. In fact,
the wrong measurement system can have the exact opposite effect than intended.
6. Designing the Strategic HR measurement system:
The above steps guide the development of the HR architecture and lay the
groundwork necessary to measure the performance relationship between HR and
the firm’s strategy. The next step is to design the measurement system itself. This
requires a new, modern perspective on measuring HR performance. It also
requires HR to resolve several new technical issues that it might not be familiar
with. To accurately measure the HR-firm performance relationship, it is
imperative that the firm develops valid measures of HR deliverables.
This task has two dimensions.
Firstly, HR has to be confident that they have chosen the correct HR
deliverables. This requires that HR have a clear understanding of the
causality in the value chain for effective strategy implementation.
Secondly, HR must choose the correct measures for those deliverables.
During this process of developing the HR scorecard, the firm might go
through several stages of increasing sophistication.
The first stage is normally the traditional category of measures. These mainly
include operational measures such as cost per hire, activity counts etc. These are
not exactly strategic measures. In the second stage, HR measures have a strategic
importance but they don’t help much in making a case for HR as a strategic asset.
Firms may declare several people measures such as employee satisfaction as
strategic measures and these might be included directly into the reward systems.
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In this stage, there tends to be a balance between financial and non-financial
measures but there is less of an agreement on how exactly they combine together
to implement the strategy. These are normally hasty decisions and the firms might
have not gone through all the previous steps mentioned above.
The next stage represents a transition point whereby the firm includes non-
financial measures such as HR measures into its strategic performance
measurement system. The links between the various measures are also identified
i.e. they are placed appropriately in the strategy map. The HR measures now
actually track HR’s contribution to strategy implementation.
In the final stages, the HR measurement system will enable the firm to estimate
impacts of HR policies on firm performance. If the value chain is short and the
strategy map is relatively simple, the complete impact of HR on the overall
performance can be measured. For more complex value chains, the impact can be
more accurately measured on local segments or sectors of the strategy map. These
local impacts can then be assimilated to give a good measure of the total impact
on the firm’s performance. Thus, each level of sophistication of the measurement
system adds value to the non-financial measures and forces in the firm and
enables a better performance appraisal.
7. Implementing the strategy by using the measures:
The previous step completes the HR scorecard development process. The next
step is to use this powerful new management tool in the right way. This tool not
only helps the firm measure HR’s impact on firm performance, but also helps HR
professionals have new insights into what steps must be taken to maintain HR as a
strategic asset. It helps the HR professionals dig deeper into the causes of success
and failure and helps them promote the former and avoid the latter. Implementing
the strategy using the HR scorecard requires change and flexibility as well as
constant monitoring and re-thinking. The process is not a one-time event. HR
professionals must regularly review the measures and their impacts. They must
review the HR deliverables identified as important and see to it that the drivers
and enablers and internally as well as externally aligned. Special reviews of the
HR enablers must be conducted as these have the maximum direct impact on
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specific business objectives. Enablers that do not tend to play a positive role
should be replaced.
8. BENEFITS OF THE DEVELOPING HR SCORECARD
The HR Scorecard offers the following benefits:
1. It reinforces the distinction between HR do-ables and deliverables:
The HR measurement system must clearly distinguish between the
deliverables that influence strategy implementation and do-ables that do
not. Policy implementation is not a deliverable until it has a positive effect
on the HR architecture and creates the right employee behaviours that
drive strategy implementation. An appropriate HR measurement system
will encourage HR professionals to think both strategically as well as
2. It enables cost control and value creation:
HR is always expected to control costs for the firm. At the same time, HR
has to fulfill its strategic goal, which is to create value. The HR scorecard
helps HR professionals balance the two and find the optimal solution. It
allows HR professionals to drive out costs where appropriate, but at the
same time defend investments in intangibles and HR by outlining the
benefits in concrete terms.
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3. It measures leading indicators:
Just as there are leading and lagging indicators in the overall balanced
performance measurement system, there are drivers and outcomes in the
HR value chain as well. It is thus important to monitor the alignment of
the HR decisions and systems that drive the HR deliverables. Assessing
this alignment provides feedback on HR’s progress towards these
deliverables and lays the foundation for HR’s strategic influence.
4. It assesses HR’s contribution to strategy implementation:
The cumulative effect of the HR Scorecard’s deliverable measures
provides the answer to the question regarding .HR’s contribution to firm
performance. All measures have a credible and strategic rationale. Line
managers can use these measures as solutions to business problems.
5. It lets HR professionals effectively manage their strategic
The scorecard encourages HR managers to focus on exactly how their
decisions affect the successful implementation of the firm’s strategy. This
is due to the systemic nature of the scorecard. It provides a clear
framework to think in a systemic manner.
6. It encourages flexibility and change:
The basic nature of the scorecard with its causal emphasis and feedback
loops helps fight against measurement systems getting too standardised.
Standardisation is good for things that don’t tend to have a dynamic nature
but firm performance is a dynamic phenomenon. Every decision needs to
be taken based on the past and future scenarios. One of the common
problems of measurement systems is that managers tend to get skilled to
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obtain the right numbers once they get used to a particular measurement
system. The HR scorecard engenders flexibility and change because it
focuses on the firm’s strategy implementation, which constantly demands
change. With this framework, measures simply become indicators of the
underlying logic that managers accept as legitimate. It helps them look at
the bigger picture and since there are no perfect numbers it makes it easier
for managers to change direction when needed.
“We see talent as the emerging single sustainable competitive advantage in the
future. To capitalize on this opportunity, HR must evolve from a Business Partner
to a critical ‘asset manager’ for human capital within the business. The HR
scorecard is designed to translate business strategy directly to HR objectives and
actions. We communicate strategic intent while motivating and tracking
performance against HR and business goals. This allows each HR employee to be
aligned with business strategy and link everyday actions with business
– Garrett Walker, Director HR Strategic
Performance Measurement, GTE
9. CASE STUDY: VERIZON
To clarify the HR Scorecard framework it is important to summarise a case study.
This section explains the details of the HR scorecard developed by Verizon, a
leading telecommunications provider in the United States.
Verizon HR has effectively designed and implemented a strategic management
system, which is based upon the balanced scorecard model of Dr. David Norton
and Dr. Robert Kaplan of Harvard Business School. The HR Balanced Scorecard
was conceived with new economy organisational dynamics in mind. The
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scorecard uses a broad range of leading and lagging indicators which include
overall strategy, operational processes, customer perceptions, and financials to
evaluate the effectiveness of HR initiatives to the bottom line. The HR Balanced
Scorecard provides the means to monitor workforce indicators, analyse workforce
statistics, diagnose workforce issues, calculate the negative financial impact,
prescribe solutions, and track improvements. Verizon believed that in the coming
years the primary source of competitive advantage for their business would
continue to increasingly focus on the talent within the organisation, which meant
that the ability to effectively manage the employee talent within the organisation
While management tends to make decisions about how to invest in human capital,
few companies have an effective process to measure the value created by this
most valuable asset. In Verizon, they believed that HR could effectively manage
the value created by thorough investments in employees. Managers knew was
how much was paid to reward, hire, train, develop, and provide benefits to
employees. What managers needed to know, however, was where the investments
were most effective and valuable. Some of the questions that did not have
answers at that time were:
1. Should the business expand the incentive pay program?
2. Should they outsource safety administration?
3. What is the most effective use of training dollars?
4. How much should be spent on recruitment?
5. Should employee services be in-sourced, out-sourced, or co-sourced?
6. Should executive bench strength be built or bought?
7. What is the cost in human capital terms to break into a new market?
8. Is the acquisition target a good fit and does it add or dilute the
competitive advantage in terms of talent?
9. Do the current investments in employees match the strategic
objectives of the business?
10. Is the HR organisation a partner with the business to manage our
employees as assets?
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To answer these questions, management needed more information not just simple
cost figures. Management needed to track the financial results while monitoring
progress in developing human capital and acquiring the talent and capabilities
needed for business success. The Balanced Scorecard was developed by Kaplan
& Norton, 1996 and provided the ideal system that leverages the traditional
financial and efficiency measures that were available for Human Resources with
metrics of performance from three additional perspectives namely, customers,
internal business processes, and learning and growth.
In 1996, J. Randall MacDonald, Executive Vice President–Human Resources of
GTE Corporation (now known as Verizon), was facing the biggest challenge of
his career—to create the HR strategy and plans to support GTE’s workforce
through a major business transformation. The Telecommunications Act was
transforming the regulated world of protected markets and established profit
margins into a highly competitive business environment for the
telecommunications giant. Historically, GTE had emphasised a focus on
infrastructure quality and customer service. GTE’s senior business leaders were
preparing to transform the company into a market-focused organisation that
would be the communications provider of choice to targeted customer markets.
Significant emphasis on new markets and additional services was part of the
strategy. The telecommunications world following deregulation was turbulent.
Technology acceleration, emerging customer needs, and data and video
transmissions were changing how business operated. GTE’s customers were
becoming price sensitive and could now demand superior service and advanced
support. The competition was in price, products, and technology. New mergers
and partnerships were beginning to occur; brand preferences and aggressive
tactics from non-traditional competitors were all part of the mix. GTE Business
Strategies were global in scope and translated directly to clearly communicate
targeted business results. Additionally, the workforce environment was
dramatically different and highly competitive. GTE faced the lowest United
States’ unemployment in 24 years. The employer–employee relationship had
changed; employees were less likely to remain with a single employer;
specialised talent was hard to find; employees expected more work/life balance;
and the diverse talent pool most sought had differing interests and needs. Creating
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the value proposition to acquire the talent to drive the business was more difficult
to define and changed rapidly.
9.2.HR Challenge & Strategy
The Human Resource Challenge was to translate the new business strategies and
targeted business results into human capital needs. Recognising that GTE’s
employees were a critical component in achieving the business goals, GTE HR
leaders inventoried the current skills and abilities that would provide value both in
the short-term and into the future. HR professionals then identified the critical
people imperatives necessary to grow that talent to increase the value delivered by
the workforce. GTE would need new behaviours, actions, and capabilities to drive
the business results. To focus the HR organisation on the achievement of these
people imperatives, GTE developed a new HR strategy to support the specific
people requirements of the business strategy.
This HR strategy was defined in five strategic thrusts:
enlarge the talent pool
invest in employees’ development
establish a system to assess high-potential employees
provide coaching and development
establish accountability and rewards for leadership behaviour
3. Customer Service & Support:
create an environment that fosters employee engagement
increase business intelligence within the workforce
provide solutions to retention issues
4. Organisational Integration:
create better systems for knowledge management
enhance union partnerships
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5. HR Capability:
develop core HR competencies
identify key talent for growth and development
invest in technology
invest in employee self-service
better understand the relationship of HR actions to business
The biggest problem was communicating and reinforcing the linkage between HR
actions and business results. The business had a clear strategy and targeted
business results. The HR Strategy was directly linked to the needs of the business
and expressed in terms of HR strategic thrusts. The prime objective was to
effectively communicate and execute on strategic intent, motivate and track
performance against organisation and business goals, and to align HR actions
with business results.
A newly formed HR Planning, Measurement, and Analysis team was created to
design and implement a tool that would quantify HR’s contribution to the
business. The Balanced Scorecard model, which was at the time a leading edge
corporate performance assessment tool, was selected as the framework to adapt
and build an HR Measurement model. J. Randall MacDonald served as the senior
executive for the HR measurement initiative. This role was critical to the success
of the project. Randy MacDonald actively influenced his senior leadership team
within HR to secure their buy-in and to hold them accountable for supporting the
project. The newly formed Planning, Measurement, and Analysis team included a
director and four employees solely dedicated to the design, development,
implementation, and operation of the HR Measurement System. An HR
Measurement core team included eight subject matter experts representing each of
the functions within HR and the business units. The core team members were
instrumental in assuring alignment of the measurement model and communicating
and training HR departments on the applications and uses of the HR Scorecard.
The Balanced scorecard model complements financial measures of past
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performance with measures of drivers of future performance. Unlike other
accounting models, the Balanced Scorecard incorporates valuation of
organisations’ intangible and intellectual assets such as high-quality products and
services, motivated and skilled employees, responsive internal processes and
innovation and productivity. The HR Scorecard approach used slightly modified
the initial Balanced Scorecard model, which at the time was most commonly used
at the corporate level. The approach, however, remained focused on long-term
strategies and clear connections to business outcomes.
The core team members were selected on the following criteria:
Common link: Selected by functional VP
Knowledgeable on key processes within your HR functional area
Dedicated to building awareness and accountability toward achieving
Focused on measuring what matters to enable better decision making and
Their key responsibilities included
Attend Core Team meetings
Communicating to your function the message of why we are measuring
Establish SMEs within your function
Identify key processes within your function
Establish key performance indicators/measures reflecting key processes
Submit data within designated timeframe
Responsible for overseeing target setting process for your functional area
The HR Balanced Scorecard includes four perspectives:
1. Strategic Perspective
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Measures success in achieving the five strategic thrusts. Since the basis for
the HR Balanced Scorecard is achieving business goals, the aligned HR
Strategic objectives are the drivers for the entire model.
2. Operations Perspective
Measures HR’s success in operational excellence. The focus was primarily
in three areas: staffing, technology, and HR processes and transactions.
3. Customer Perspective
Includes measures of how HR is viewed by the key customer segments.
Survey results were used to track customer perceptions of service as well
as assess overall employee engagement, competitive capability, and links
4. Financial Perspective
Addresses how HR adds measurable financial value to the
organisation,including measures of ROI in training, technology, staffing,
risk management, and cost of service delivery.
A deliberate approach to the project was clearly defined and communicated to
each member of the team and to the HR organisation. The project was established
and organised into four major components: Planning and Alignment, Assessment,
Development, and Implementation.
1. Planning and Alignment set the foundation for the project. Project plan
objectives, and milestones were established. Team education and training
was imparted on business performance management, the balanced
scorecard methodology, and its application to HR measurement.
2. Assessment focused on understanding what was used at that time as
measure to evaluate HR performance and to assess the relative value to the
3. Development began the actual process of designing the HR measurement
model. Defining the measurement criteria and scorecard measures,
establishing targets, defining the process for collecting and tracking
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results, and creating the communications strategy were the key
deliverables in this phase.
4. Implementation operationalised the HR Scorecard from the drawing board
to a management tool for HR to assess performance and value added to
the business. Data collection, results reporting, evaluation, and analysis all
came together as the scorecard was implemented. Communications and
training were delivered to the HR organisation as the HR Scorecard rolls
out. Once the team was selected, and the mission and objectives were
established and communicated, the work to link Business Strategy to HR
Strategy began. Fig.7 illustrates the initial model used to align Business
Strategy to HR Strategy and Actions and lists the specific outputs within
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Figure 7:- Initial model used to align HR strategy to business strategy
Beginning with a clear understanding of the business strategy and goals, the HR
team worked with the business leaders and HR leaders to determine the key
questions to be answered for the business and to determine what key drivers of
the business would translate into clear people requirements. The outcome was an
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Undestanding the Business
Clearly defined business goals
Undestanding the Business
Clearly defined business goals
Identifying Detailed Metrics
Clearly defined business goals
Identifying Detailed Metrics
Clearly defined business goals
Determining HR Deliverables
Determining HR Deliverables
Translating HR Deliverables into HR
Clearly defined business goals
Translating HR Deliverables into HR
Clearly defined business goals
understanding of what questions need to be answered and of the competitive
capabilities required for current and future business success. This provided the
detail to build a strategy map, which would support the design and development
of the HR Balanced Scorecard.
The people requirements defined the HR Strategy that then translated into specific
HR initiatives that should directly support the attainment of HR Strategy. Having
this alignment allowed Verizon to develop a strategy map, which illustrated the
cause and effect linkage between HR Strategy and business objectives. Using the
strategy map as the guide, they were then able to evaluate the strategic objectives
in terms of measures and outcomes (Fig 9.). They could then further refine these
into lagging measures (which tell how well a company has already done) and
leading measures (which are indicators of future performance).
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Understanding the Business
HR puts together a business strategy document capturing the major insights and points
gathered during the acquisition of business intelligence
Figure 8:- The People Requirement and Business Driver Determination
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Result: List of HR Deliverables
HR draws up list of total people and
services requirement that provide the
basis for the measurement model
Comparison and Consolidation of HR and
HR checks for overlaps and
contradictions between its own and the
HR conducts “reality check”: do the
required outcomes /deliverables map
back to business strategy?
HR brainstorming Session
“What people outcomes must be
produce to help the business deliver
against its strategy and goals?”
HR conducts a survey of line
executives, asking “What kind of
people, skills and services do you
need from HR?”
List of HR Outcomes
HR draws up a list of the skills
needed in the organization now and
List of HR Performance
Line provides a series of questions
that captures how the line will
assess whether HR is delivering
In addition to aligning the scorecard measures to the business objectives, they
developed causal links between the objectives and the measures. For example,
one of the financial objectives, Minimise HR Cost, was expected to be an
outcome of the HR Strategy. To create a clear line of sight across the
perspectives, they linked Minimise HR Cost back to objectives in the Customer,
Operations, and Strategic Perspectives that were performance drivers for these
outcomes. This cause and effect relationship described that if HR integrated the
organisation, implemented technology enablers and optimised service delivery
through streamlined processes the costs for service delivery would decrease and
reduce overall HR expense.
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