The document discusses using an HR scorecard to measure HR performance and strategy. It explains that an HR scorecard is most useful when based on an HR strategy map that shows the links between objectives across four perspectives: input, activity, outcome, and business impact. Without a strategy map to provide context, an HR scorecard can confuse strategy and lead to misguided decisions if measures are not well aligned with objectives. The key is developing an HR strategy map first to identify the strategic activities, outcomes, and impacts of HR before defining scorecard measures.

1. Jon Ingham Developing an HR Scorecard

2. The HR Scorecard can provide a very useful framework for measuring HR. It can also seriously confuse HR strategy development, and communication of this strategy with business stakeholders. The difference between these two results comes down largely to the perspectives that are chosen to form the scorecard. This presentation explains why the HR scorecard’s four perspectives need to be: Input, Activity, Outcome and Business Impact if the scorecard is going to become a valuable management tool. Introduction

3. To demonstrate why this is the case, let’s start by reminding ourselves why Kaplan & Norton’s Business Scorecard is such a useful tool. The Balanced Business Scorecard

4. Customer Internal Business Process Vision and Strategy Financial Learning and Growth This started as a Measurement tool Measures how well the organisation is meeting its financial objectives Measures whether the organisation is adding value to its customers/ clients Measures whether the organisation has in place the staff capability to support the needs of the business Measures how well the organisation is managing risk and protecting its assets Measures the efficiency and effectiveness of the service capability provided by the organisation

5. But soon tuned into one for Strategy FINANCIAL 1. INCOME PER EMPLOYEE 2. % OF ALLOCATED COST FOR WHICH THERE IS A SERVICE LEVEL AGREEMENT IN PLACE 3. % NON DEAL BASED COSTS 4. VALUE OF PIPELINE 5. % OF REVENUE FROM TARGET INDUSTRY SECTORS CUSTOMER 1. % GROWTH OF DEALS DONE AND VALUE TRANSACTED FROM KEY CLIENTS 2. % OF TARGET MARKET WHO PERCEIVE THE ORGANISATION AS EXPERTS IN TARGETED PRODUCTS/ INDUSTRIES 3. % OF CLIENTS WHO SAY THEY ARE MORE THAN SATISFIED WITH THE SERVICE THEY RECEIVE 4. NUMBER OF TOP LEAGUE TABLE POSITIONS ACHIEVED IN TARGETED INDUSTRIES INTERNAL PROCESS 1. NUMBER OF TRANSACTIONS WITH MULTI-PRODUCT SOLUTIONS /COMPONENTS FROM OTHER LINES OF BUSINESS 2. % OF JOINT ORIGINATIONS 3. % OF DEALS MEETING QUALITY STANDARDS 4. % OF DEALS WHERE QUALITY REVIEW PROCESS HAS BEEN CARRIED PEOPLE 1 . % OF STAFF WITH BROAD SECTOR EXPERIENCE 2. STAFF TURNOVER RATE 3. %OF STAFF WHO ARE MOTIVATED AND COMMITTED TO THE DIRECTORATE 4. % OF STAFF WHO HAVE A PERSONAL DEVELOPMENT PLAN 5. % OF STAFF WHO BELIEVE THAT THEIR COLLEAGUES LIVE THE VALUES OF THE BANK MEASURE TARGET MEASURE TARGET MEASURE TARGET MEASURE TARGET $1M 85% 20% $50m 65% 35% 85% 90% 9 50% 12% 85% 100% 85% 50 55% 90% 95% INTERNAL PROCESS

6. Showing the Links between Objectives Interpretation 1 Interpretation 2 Interpretation 3 Increase new product introductions by 10 per year Increase market share by 25% Increase profits by 30% Increase profits by 30% Increase market share by 25% Increase market share by 25% Increase profits by 30% Increase new product introductions by 10 per year Increase new product introductions by 10 per year Perhaps increasing market share will result in increased profits, thus providing funds for increasing new product development ... … or maybe enhancing new product development will directly increase both profits and market share ... … or does increasing profits allow us to buy market share by stepping up advertising and new product development? Action: Increase advertising Action: Increase R&D spend Action: Reduce costs Source: Kaplan and Norton, Harvard Business Review, May-June 1998 . Unless we know how objectives relate to each other, multiple interpretations are likely

7. And published as a ‘Strategy Map’ Internal processes People Financial Customer Maximise Operations Efficiency/Effectiveness Enhance Employee Skills Create Partnerships and Alignment within TCCS Continuously Optimise Marketing Spending Maximise Share Owner Value Ensure Highest Quality in Products Use Existing Information to Make Better Decisions Maximise Procurement Efficiency/Effectiveness Strengthen and Foster a Culture of Accountability Increase Volume Manage Cost, Profit & Capital Effectively Achieve Pervasive Penetration Drive Brand Preference Be Perceived by Consumers as Having the Best Value Enhance Portfolio of Goods & Services ahead of Competitors Partner Effectively with Customer to Fulfil Demand Maximise Distribution Efficiency/Effectiveness Expand Share of Worldwide Beverage Sales

8. The reason that the strategy map, not the scorecard, is now the key tool is that it is not setting measures that is often difficult, it is agreeing what you are going to do: “ Once the executives agreed to the word statements of what they wanted to accomplish – how they wanted to describe success – the selection of the measurements became much simpler. And in an interesting twist, the selection of measures became somewhat less consequential.” The Strategy Map is now the key tool Source: Kaplan and Norton. Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Harvard Business School Press, 2004

9. The same principles apply to HR. An HR Scorecard becomes a much more valuable tool when the measures within it are based on the objectives and links within an HR Strategy Map. The problem with all other forms of HR Scorecard is that they are not based on a Strategy Map. The HR Strategy Map

10. Customer Internal Business Process Financial Learning and Growth Some Organisations put all their HR Objectives / Measures in Learning & Growth

11. And just doing this can be useful as it integrates HR into the Business Source: Tesco

12. All our objectives fall into the Learning & Growth perspective – so there is no ‘Balance’. HR does not achieve any of the benefits that the overall business achieves from the ‘Balanced’ Business Scorecard. A Balanced HR Scorecard has to use more than just one perspective. But there is a Problem

13. Customer Internal Business Process Financial Learning and Growth Some Organisations try to use the Business Scorecard for HR Strategic skills/competencies Leadership Culture and strategic awareness Strategic alignment Strategic integration and learning HR effectiveness HR efficiency Human capital (strategic job families) Organisation capital Information capital

14. Shareholder Value For Example: Kaplan and Norton’s Human Capital Readiness Report HR Processes HR Learning & Growth Financial Customer HR Effectiveness Productivity Strategic Skills Leadership Culture Alignment Learning Competency Development Leadership Development Culture Goals & Incentives Teams & Integration HR Skills & Leadership HR Systems HR Climate

15. “ These categories work well when applied to an entire firm. They don’t perform well, however, when applied to elements of the workforce. We have seen many HR professionals who have tried to apply these four ‘boxes’ to HR functions and/or the workforce, and they have been consistently frustrated by the outcomes. The problem is that the categories, which were intended to be used to describe how all of the elements of firm success contribute to the bottom line, don’t work well when we are interested in highlighting the contribution of the workforce.” Source: Becker and Huselid But there is a Problem

16. Take this Example… “ When HR reviewed the call center results from the HR Scorecard...the HR metrics showed a very low cost per hire, a very quick cycle time to fill jobs, and an average employee separation rate ... the staffing metrics showed a high efficiency and cost control." However, the call center accomplished this by “changing talent pools and reducing the investments in selection methods [that] kept costs low while bringing in applicants who were ready to start quickly but were harder to train and keep ...a bad tradeoff.“ Source: Walker and MacDonald on the GTE/Verizon HR scorecard

17. Take this Example… GTE / Verizon were encouraged to make a bad decision because their HR Scorecard was not based on a Strategy Map. You do not want to do this!

18. HR Delivery HR System Alignment HR Efficiency HPWS To get round the problem, Becker and Huselid suggest another HR Scorecard

19. Leadership Workforce Behaviour Workforce Competence Workforce Success Workforce Mindset & Culture And a different Workforce Scorecard

20. “ The jury is still out as to the reliability of the Scorecard as it has yet to be implemented widely. It has been hailed as a straightforward process, but one HR manager in the US complained that she had trudged her way through the book trying to get to grips with the various models but found it far too scientific and inhuman. HR consultant Paul Kearns says the Scorecard risks inflicting a complicated solution on a relatively simple problem. He writes off the case study material as unintelligible to anyone without a degree in astro-HR and, ultimately, unconvincing. ‘It is academics going berserk trying to analyse things to the nth degree,’ he says. ” Source: Personnel Today But there is a Problem

21. And there is yet another problem. Neither Becker and Huselid’s HR scorecard Nor the Workforce Scorecard are based on a Strategy Map. This is where we need to start. So what does HR’s Strategy Map involve? An HR / HCM Strategy Map

22. There is plenty of evidence in academic research about what HR performs Source: David Guest, The Future of Work, City of London University

23. CIPD – Black Box

24. Or more simply Input / investment Work force Management time Cost HR function Activity Resourcing Capability Organisation EVP Outcome Human Capital Organisation Capital Bus Impact Operations Emp of Choice Customers Financial © Strategic Dynamics, 2011

25. HCM Activities The HCM Value Chain A series of activities involving Input, Activity, Outcome and leading onto Business Impact is the strategy map for HR – or really HCM, as the focus is on producing human capital or organisational capability as an outcome of HR’s activities. This is a useful shift in thinking.

26. HCM Activities Outcomes vs Activities “ I wanted to define the roles of HR as outcomes more than activities. I saw a lot of work in HR focused on activities (number of hours of training a leader receives; whether a firm is using 360 degree feedback; if it implements performance based pay or competence based hiring). I wanted to shift the focus to outcomes of the activities.” Source: David Ulrich, talking about his HR Champions book

27. HCM Activities Outcomes vs Activities The outcomes or targets of HR work: Individual ability Competence Commitment Contribution Organisation capability Leadership depth Source: David Ulrich

28. “ Measuring the value of such intangible assets is the holy grail of accounting … If managers could find a way to estimate the value of their intangible assets, they could measure and manage their company’s competitive position much more easily and accurately.” Source: Kaplan and Norton Outcomes vs Activities

29. The HR / HCM Strategy Map and Business Strategy are the same thing! Learning & Growth Business process Customer Financial Input Activity Outcome Business impact HCM Value Chain Business Value Chain Business strategy map HCM value chain © Strategic Dynamics, 2011

30. It is also what we already focus on Input Reaction Learning Activity Performance Outcome Results Impact Kirkpatrick Strategy Map

31. Output Activity Impact Input The HR / HCM Scorecard

32. For More Information [email_address] strategic-hcm.blogspot.com blog.social-advantage.com linkedin.com/in/joningham twitter.com/joningham strategic-hcm