IV. The HR Scorecard Approach
HR creates value by engaging in activities that produce the employee behaviors the company needs to achieve strategic goals. Managers use an HR Scorecard to measure the HR function’s effectives and efficiency in producing these employee behaviors and thus in achieving the company’s strategic goals. The HR Scorecard – shows the causal link between the HR activities, and the emergent employee behaviors, and the resulting firm-wide strategic outcomes and performance.
A. Creating a HR Scorecard - Three types of information are needed to create a HR Scorecard.
1. Company strategy information
2. Causal links between HR activities, employee behaviors, organizational outcomes, and the organization’s performance
3. Metrics that can be used to measure HR activities, emergent employee behaviors, strategically relevant organizational outcomes, and organizational performance.
B. Using the HR Scorecard Approach – There are ten steps involved in using the HR Scorecard to create a strategy-oriented HR system (see Figure 3.11)
1. Define the business strategy – In this step, management translates its broad strategic plans into specific actionable goals.
2. Outline the company’s value chain – Here the manager identifies the strategically relevant outcomes and required employee behaviors by identifying the value chain, which identifies the primary activities that create value for customers and the related support activities. The value chain is a tool for identifying, isolating, visualizing, and analyzing the firm’s strategic activities and strategic costs. This step allows managers to better understand the activitiesthat drive performance in their company.
3. Outline a Strategy Map – A summary of the chain of major activities that contribute to a company’s success, the strategy map shows the “big picture” of how each department’s performance contributes to the achievement of company goals.
4. Identify the strategically required organizational outcomes – In order to achieve its strategic goals, every company must produce critical, strategically relevant outcomes.
5. Identify the required workforce competencies and behaviors – Competencies and behaviors such as personal accountability, working proactively, motivation, courteous behavior, and commitment drive organizational performance by producing strategically relevant organizational outcomes.
6. Identify the required HR system policies and activities – The question in this step is “what HR system policies and activities will enable us to produce those workforce competencies and behaviors?” The answer might include things like special training programs or changing the compensation plan. These policies and activities are often referred to as “HR enablers”, which create and make possible the HR “performance drivers” – the workforce competencies and behaviors that produce the strategically relevant organizational outcomes. Once these enablers are identified, the next question that follows is, what specific form should these policies and activities take? How and to what end should systems and processes be changed? The HR system must be aligned with the company’s specific strategic needs. At this point, the HR manager must become precise about the actual form and design of the firm’s HR deliverables.
7. Create the HR Scorecard – In this step, the question is how are the organizational outcomes, workforce competencies and behaviors, and HR system policies and activities measured? Just a few sample measures for assessing HR performance drivers could be employee attitude surveys, employee turnover, level of organizational learning, employee productivity, percentage of retention of high performing key employees, number of hours of training employees receive every year, and percentage of the workforce routinely working in a self managed team. These types of measures allow the company to assess HR’s performance objectively and quantitatively, and also enable the HR manager to build a measurable and persuasive business case for how HR contributes to achieving the company’s strategic financial goals.
8. Design HR Scorecard Measures – Find a balance of financial and non-financial goals, with both short and long-term foundations.
9. Summarize the Scorecard Measures a in a Digital Dashboard – A digital dashboard usually presents information in a way that grabs management’s attention. It displays a “bird’s eye view” of how the HR function is doing.
10. Monitor, Predict, Evaluate - The HR Scorecard’s various measures will not always stay the same, and should be evaluated periodically to ensure they are still valid.
C. The Hotel International: An Example
This example illustrates how the multi-stop process for developing an HR Scorecard works. As a corporate strategy, the management and owners want to continue to expand geographically, believing that doing so will allow them to capitalize on their reputation for good service, by producing multi-city alternatives for guests. The challenge is that their reputation for good service has been deteriorating, thereby making the expansion strategy a risk since guest might actually prefer other hotels after trying the Hotel International. This example walks students through the steps involved in developing an HR management system.
1. The Strategy - The strategy chosen by management is to use superior guest services to differentiate their properties, and increase the length of stays and return rate of guests, thereby boosting revenues and profitability.
2. The Value Chain – Figure 3.12 outlines the value chain. Inbound logistics activities (getting guests from the airport and checked in, operations activities (cleaning the guest’s room); outbound logistics activities (picking up baggage), marketing and sales activities (attracting guests to the hotel), service activities (travel awards) and support activities (purchasing, information systems, HR). The question for the HR manager is “given our strategic goals, how can HR management help our hotel achieve its goals by adding value to each of the hotel’s core value chain activities?”
3. The Strategically Required Organizational Outcomes – the outcomes that the Hotel International is seeking includes fewer customer complaints, more written compliments, more frequent guest returns, longer stays, and higher guest expenditures per visit.
4. The Strategically Relevant Workforce Competencies and Behaviors – Based on the value chain analysis, competencies and behaviors identified are “high quality front-desk customer serivce”, “taking calls for reservations in a friendly manner”, “greeting guests at the front door”, and “processing guests’ room service meals efficiently”.
5. The Strategically Relevant HR System Policies and Activities – Here HR deliverables are identified to produce the crucial workforce competencies and behavior. For example, in order to produce “high quality front-desk customer service,”, an HR deliverable of instituting practices to improve disciplinary fairness and justice in the company with the aim of improving employee morale is identified.
6. The HR Scorecard – Metrics are selected to show the links among the HR activities, workforce behaviors and organizational outcomes. The Scorecard is illustrated in Figure 3.13. For example, metrics of grievance activitiy, scores on attitude surveys, and customer complaints are chosen for inclusion in the scorecard.
Improving Productivity Through HRIS: Software Systems for Managing Scorecard Programs. The balanced scorecard does for the company as a whole what the HR scorecard does for the HR function. It is a management tool (usually a computerized model) that traces a multitude of performance measures simultaneously and shows their interactions across the company. The balanced scorecard includes multifunctional metrics that top management believes contribute to the company’s strategic success.