A RESEARCH PAPER ON HR SCORE CARD

BY KANIKA SEHGAL ENROLLMENT NO. 01012303910

DELHI INSTITUTE OF ADVANCED STUDIES (Affiliated to Guru Gobind Singh Indraprastha University) Plot no. 6, Sector 25, Rohini, New Delhi 110085

TABLE OF CONTENTS

TOPICPAGE NO. Abstract.............................................................................................................................4 Introduction.......................................................................................................................5-7 Essence of the HR scorecard.............................................................................................7-8 The seven step model for designing the HR scorecard......................................................8-14 Benefits of the HR scorecard............................................................................................14-16 Making the HR scorecard last............................................................................................16-17 Sample HR scorecard.........................................................................................................18 Caselets on HR scorecard..18-19 Illustration on application of HR scorecard...19-20 Conclusion..........................................................................................................................21 References..........................................................................................................................22

TABLE OF FIGURES

TOPICPAGE NO. Fig. 1 HR Scorecard...5 Fig. 2 The seven step model for designing the HR scorecard8 Fig. 3 Developing the business case for HR as a strategic asset.....9 Fig. 4 A simple strategy map..10 Fig. 5 Identifying HR deliverables within the strategy map......11 Fig. 6 Sample HR scorecard...18

ABSTRACT
HR scorecard measures the HR function's effectiveness and efficiency in producing employee behaviors needed to achieve the company's strategic goals. In order to achieve that one needs to: - Know what the company's strategy is - Understand the causal links between HR activities, employee behaviors, organizational outcomes, and the organization's performance - And have metrics to measure all the activities and results involved. This study examines the HR scorecard and its importance. It helps in analyzing why an HR scorecard is needed in an organization and what are the steps involved in designing an HR scorecard. A focus is placed upon the benefits of the scorecard and a few steps to make the scorecard last in an organization. A sample HR scorecard has also been shown. A few caselets have also been added to show how the HR scorecard has been designed in a few organizations. Apart from this, an illustration has been given to explain how an HR scorecard could be used to assess the impact of the human resource on the organizations performance. The conclusion is that the HR scorecard is crucial for the success of an organization and should show the actual impact of HR deliverables on the firms performance.

INTRODUCTION
If we are not keeping score, we are just practicing -Vinci Lombardi The HR (human resources) scorecard matches business strategy against HR deliverables and objectives to provide a statistical basis by which HR efficiency and contribution to strategy implementation can be measured. It helps turn the spotlight onto HRs contribution to the success of the organization and discover the powerful role played by performance measurement in enabling HR to reposition itself as a key strategic business partner. The HR Scorecard argues that HR measurement systems must be based on a clear understanding of organizational strategy and the capabilities and behaviors of the workforce required to implement that strategy. Thus, an HR Scorecard is a mechanism for describing and measuring how people and people management systems create value in organizations, as well as communicating key organizational objectives to the workforce. It is based on a strategy map which is a visual depiction of what causes what in an organization, beginning with people and ending with shareholder or other stakeholder outcomes. The HR Scorecard is built around a series of examples and a process that helps managers to do this work in their own firms designing an HR architecture that relentlessly emphasizes and reinforces the implementation of the firms strategy.

Fig. 1 http://www.russellconsultinginc.com/docs/PDF/HR%20Scorecard.pdf

The HR Scorecard has five key elements:

The first element is what we called Workforce Success. It asks: Has the workforce accomplished the key strategic objectives for the business?

The second element is we called Right HR Costs. It asks: Is our total investment in the workforce (not just the HR function) appropriate (not just minimized)?

The third element we describe as Right Types of HR Alignment. It asks: Are our HR practices aligned with the business strategy and differentiated across positions, where appropriate?

The fourth element is Right HR Practices. It asks: Have we designed and implemented world class HR management policies and practices throughout the business?

The fifth element is Right HR Professionals. It asks: Do our HR professionals have the skills they need to design and implement a world-class HR management system?

The Human Resource Scorecard can be classified into four perspectives (Walker & MacDonald, 2001): a. Strategic Perspective This perspective measures company success in achieving 5 strategic thrusts (talent, leadership, customer service and support, organizational integration, and Human Resource Capability). b. Operations Perspective This perspective measures Human Resource success in operational excellence. The focus here is primarily in three areas: staffing, technology, and Human Resource processes and transactions. c. Customer Perspective This perspective measures how Human Resource is viewed by company key customer segment. Survey results are used to track customer perception of service as well as assessing overall employee engagement, competitive capability, and links to productivity. d. Financial Perspective This perspective measures how Human Resource adds measurable financial value to the organization, including measures of ROI in training, technology, staffing, risk management and cost of service delivery.
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The contents of the HR Scorecard are :a) Objective (in relation to business (internal & external), your own job role.) b) Weightage c) Measurable scale for Objective d) Target time/ date e) Target Achieved time/ date f) % for point (e) g) Score i.e point (b)*(f)

ESSENCE OF THE HR SCORECARD

The HR scorecard is a management tool which allows a business to: 1. Manage HR as a strategic asset and a source of competitive advantage. 2. Quantitatively demonstrate HRs contribution to the firms financial results and bottom-line profitability. 3. Create and measure the degree of alignment between the strategy of the business and its HR architecture. 4. Illustrate how HR can play a critical role in shaping world-class people strategies for their companies. 5. Explain how the ROI of HR programmes can be assessed and gives a detailed overview of how to conduct an HR audit. 6. Also reveals the demand placed on HR in the current climate and the challenges involved in becoming a strategic partner. 7. Help the HR managers focus on and manage their strategic responsibilities. 8. Reveals the 'new' skills HR professionals must develop in order to become true strategic assets to their organizations. 9. Encourages HR flexibility and change. When used effectively, HR scorecards link the things people do with the strategy of the company. The HR scorecard also allows an HR architecture to evolve which is measurement managed and systematic. And the HR scorecard allows the human resource function to fill a

strategic role in the business participating fully in the balanced goals of cutting costs and creating added value. In total, the HR scorecard makes it possible for HR to enhance its role as a strategic business asset.

THE SEVEN STEP MODEL FOR DESIGNING THE HR SCORECARD

Fig. 2 http://hattonconcepts.com/media/papers/booksummaries/The%20HR%20Scorecard.PDF STEP 1 - Clarify and articulate the business strategy Until a firm clarifies its business strategy precisely and in a way that employees understand, it will be impossible to measure how successful the organization is. Therefore, before focusing on
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implementing the strategy of the business, there must be the capacity to definitively state the preferred business strategy clearly, concisely and free of ambiguities. And therefore, the first step in developing better ways to position HR as a strategic asset of the firm is to clearly understand what the strategy of the business is. Without that, any HR scorecard will have nothing to aim for. STEP 2 - Develop the business case for HR as a strategic asset Once a firm has clarified its strategy, HR professionals need to be able to build a compelling business case for why and how HR can support that strategy. The overriding theme of this business case should be implementation of the firms strategy, and HRs contribution to implementation through: Creating value with good HR alignment. Controlling costs, thereby enhancing operational efficiency. When developing the HR business case, the emphasis should be more on strategy implementation and less on strategy content. Successful strategy implementation will always require good strategic focus, which in turn is dependent on three key factors: An effective knowledge management system. Alignment of the HR architecture. A balanced performance measurement system.

Fig. 3 http://hattonconcepts.com/media/papers/booksummaries/The%20HR%20Scorecard.PDF

STEP 3 - Create a strategy map for the firm A strategy map (or a value chain) shows how the firm creates value in terms managers and employees can relate to. In other words, the strategy map details which organizational processes and capabilities drive firm performance. To state that clearly: Indicators are specified which either drive performance (leading) or measure results (lagging). The complete spectrum of results are incorporated, both those that are readily visible and quantifiable (tangible) and those that arent (intangibles). Every firm has a value chain even those companies which have never taken the time or effort to articulate the process by which they embed added value within their products and services. A strategy map details each link in that chain.

For example, a simple strategy map would be:

Fig. 4 http://hattonconcepts.com/media/papers/booksummaries/The%20HR%20Scorecard.PDF

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STEP 4 - Identify HR deliverables within the strategy map Most HR outputs are created wherever the HR system intersects the strategy implementation system. Thus, HR managers should identify all HR performance drivers and HR enablers or deliverables which exist within the strategy map. By identifying those drivers and enablers, HR policies which enhance those factors can then be developed.

To be able to correctly identify where HR creates most of its value, HR managers must understand the business intimately and in detail. That will then give them the insight to see precisely where HR deliverables are supporting the firm level performance drivers in the strategy map. For example:

Fig. 5 http://hattonconcepts.com/media/papers/booksummaries/The%20HR%20Scorecard.PDF

To be able to link HR deliverables and the strategy map, analytical methods are required to assess the short- and long-term payoffs. In practice, this is usually achieved using a cost-benefit analysis the costs of the HR deliverables are weighed against the benefits generated for the firm. And that, in turn, should allow the return on investment (ROI) in HR to be calculated. STEP 5 - Align the HR architecture with HR deliverables To align the HR system with the firms strategy implementation system, a competency model and development program will be needed to generate the requisite HR deliverables. This will

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require internal alignment (between all three components of the HR architecture) and external alignment with all other elements in the value chain. 1. Internal The ability and potential for the firm to use HR as a strategic asset. Internal alignment is measured by evaluating the feedback from those who interact with the HR system on a daily basis line managers and front-line employees. If those people feel there is a high degree of fit and consistency, then there is most likely a strong correlation between the HR architecture and its deliverables. 2. External The extent to which the HR system is designed to implement the firms strategy. External alignment measures the match between the firms strategic value drivers and the HR deliverables which contribute to each driver. To make this measurement, both scale (the measurement tool used) and perspective (individual viewpoints) are required. External alignment is usually measured by making tests.

In essence, unless there is alignment (with the periodic reshaping that will be required as firms change their business strategies), the HR strategy will not only fail to create value but may even destroy value. STEP 6 - Design the strategic measurement system A viable HR strategic measurement system: Measures the correct HR performance drivers and enablers. Chooses the correct measures for each deliverable. Ideally, the HR scorecard will accurately measure the impact of all HR policies on firm performance and capture the full impact of HR. The more sophisticated and detailed this measurement is, the greater the potential benefits are. A well thought-out HR scorecard has four basic dimensions: 1. HR Deliverables - These help you identify the causal relationships through which HR generates value in the firm, with an emphasis on HR performance drivers and HR enablers. 2. The High-Performance Work System - Once the HR deliverables have been clearly defined, the High-Performance Work System (consisting of HR policies, processes and practices) implements the business strategy and generates the deliverables specified.
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3. External HR System Alignment Measures - This dimension measures how well the HR system is aligned with the firms key performance drivers. When properly aligned, the HR system should be making a definable and significant contribution to the value creation process. 4. HR Efficiency Measures - These are the metrics, benchmarks and standards by which the HR systems performance will be gauged and evaluated. Most HR managers divide their key efficiency metrics into two categories: Core efficiency measures significant expenditure items which make no direct contribution to the firms strategy implementation. Some examples: benefit costs, workers compensation costs and percentage of correct entries on data input systems. Strategic efficiency measures HR activities and processes designed to produce HR deliverables for direct application in strategy implementation. Some examples: cost per new hire, costs per trainee hour, HR expenses per employee. STEP 7 - Execute management by measurement Implementing the HR scorecard is more than just a one-off event. Its also more than simply keeping a running total of HR results. Instead, a well constructed HR scorecard allows HR managers to monitor their input into the firms results on an ongoing basis and make periodic adjustments to ensure the HR architecture remains aligned with the evolving business strategy of the firm. To build acceptance for a newly developed HR scorecard: 1. Find a champion or key executive sponsor. Enlist the aid of a key executive, an influential line manager and the head of HR to champion the implementation of the HR scorecard. 2. Create a need. Either build up the potential of a business threat or focus on the great opportunity that can be exploited if the HR scorecard is put in place and used well. The more compelling the opportunity or the greater the threat, the more urgency the HR scorecard will have. 3. Shape a vision. Show that with a well implemented HR scorecard, the firm will have a strong and sustainable competitive advantage.

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4. Encourage commitment and involvement. When the people most closely involved have information about the HR scorecard, understand what it will do and have participated in shaping it, they will become committed to it. Make it possible for as many people as possible to generate that kind of commitment. 5. Build the enabling systems. A good HR scorecard always requires financial investment, management support and investment in technology. Put those ancillary systems in place and the scorecard project will be able to move forward rapidly. 6. Have early success and demonstrate progress. If the HR scorecard can solve a long standing problem or do something significant, people will notice. That will create momentum, which can then be strengthened with regular updates and validation programs. 7. Sustain the effort. To keep the HR scorecard relevant, update it frequently. Make an ongoing investment in the methodology. People will gradually get onside with the scorecard as they see what it is achieving.

BENEFITS OF THE HR SCORECARD

The benefits of constructing and maintaining a good HR scorecard are :-

1. It distinguishes clearly HR doables from HR deliverables. HR deliverables influence the firms ability to implement strategy while HR doables do not. By making this distinction more clear-cut, HR managers are encouraged to think strategically instead of simply thinking operationally.

2. It empowers HR managers to control costs and create value. HR will always be encouraged to control costs as effectively as possible, but the HR scorecard also details HRs complementary strategic role as a value creator. In fact, the HR scorecard approach makes it possible for HR professionals to balance the two objectives realistically.

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3. It measures the firms leading indicators. The HR scorecard links HR deliverables with implementation of the firms strategy. The HR management system will have performance drivers, measures (leading and lagging) and preferred outcomes. The HR scorecard measures how well all of those factors are aligned and provides ongoing feedback. 4. It clarifies HRs contribution to profitability. The HR scorecard enables a HR manager to answer the question, What is HRs contribution to firm performance? with measures that are credible, relevant and measurable. In fact, for every measure used, the HR manager will also be able to provide a rationale as well. This will be the framework for a superior system of metrics for quantifying results.

5. It allows HR professionals to manage better. Using the HR scorecard, HR managers can assess precisely how HR decisions will impact on the implementation of the firms strategy. In other words, the scorecard heightens the HR managers strategic awareness and forces them to think systematically.

6. It encourages flexibility and ongoing change. When a performance measurement system becomes institutionalized, it is more likely to inhibit rather than encourage adaptability and change. As a firms strategy evolves in response to changing market conditions, the measurement system needs to move with those changes if it is to remain completely relevant. The HR scorecard actually encourages flexibility and constant evolution because it encourages people to focus on the underlying strategy and not the arbitrary measures being used. By encouraging people to see the bigger picture, the organization is then much better positioned to change direction as required.

7. It opens the Line of Communication. An HR Scorecard facilitates real time distribution of information. Open access to information vital to the success of the company affords each manager the opportunity to react to issues and problems in a timely manner, meaning no more waiting for time sensitive information to trickle

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down to the appropriate managers. This open line of communication also ensures everybody is on the same page and that no one is left behind.

8. It improves Performance Management. Sharing and distributing real time information across the Human resources and Operations departments results in better performance across the board. Because Operations managers have access to the vital HR metrics, thanks to the HR balanced scorecard, they are able to make the timely decisions which result in higher productivity levels.

9. It streamlines Records of Employees. Just as an HR scorecard proves extremely beneficial to an Operations manager it also helps take some of the burden off your own shoulders. As an HR manager you can be confident that you have accurate and updated records of your employees performance and other vital metrics in a centralized location the HR balanced scorecard. When you need information you know where to go. There is no need to store employees records in a file cabinet because the HR scorecard digitalizes all these important records.

MAKING THE HR SCORECARD LAST

Change is more likely to happen when a change effort garners early success, builds in continuous learning about what is working and what is not, adapts to changing conditions, celebrates progress, and can be integrated with other work For doing all of this, one must make ongoing investments in the HR Scorecard. Here are some hints for making the scorecard last: 1. Ensure early successes Many companies face a dilemma: Should they invest in developing a complete, fully researched, and comprehensive HR Scorecard that takes months to develop? Or should they limit the effort to just those measures that let them evaluate critical capabilities right away, based on available data? The suggestion is to choose the option that lets you rack up some early successes, even if they are relatively small in scope. For some firms, this might mean running simultaneous experiments to identify which HR data exert the most impact on business results. It might also mean experimenting with various tracking methods (e.g. should you measure employee
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commitment by a pulse check, retention, or productivity?) and seeing which method best predicts business results. Having internal case studies that specifically demonstrate which HR data influence business success builds credibility for the entire Scorecard process. 2. Maintain investment in the scorecard Once the HR Scorecard is established, the initiative team should remain intact. As the company continues to use the Scorecard, these team members will need to continue to update and modify it. In addition, the firm should make regular investments, in the form of data collection, people, and money in order to ensure that the Scorecard remains robust, up to date, and relevant. 3. Integrate the scorecard with other work The HR Scorecard should be integrated with other measures of managerial success. To illustrate, a meeting in which participants examine the links among HR, customer, investor, and business process measures is far more valuable than one in which attendees focus only on HR measures. The more a company can integrate its HR Scorecard with existing and ongoing measurement efforts, the more sustainable the Scorecard will be. 4. Learn from experience With any change effort, you need to conduct periodic check-ups to examine what is and what is not working. Likewise, make a commitment to examine HR Scorecard effort every six or twelve months. During these assessments, the Scorecard team should answer questions such as the following: *What has worked in the HR Scorecard initiative to date?

* What hasnt worked? What explains any lack of success? Were data not available, not collected, and not tied to results, not monitored, not part of existing management practices? * What can we do differently, based on our experiences so far with this initiative? Addressing these questions on a regular basis, the HR Scorecard will become increasingly ingrained in the management process.

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SAMPLE HR SCORECARD

Fig. 6 http://www.experiment-resources.com/example-of-a-research-paper.html Metrics for HR Measurement This is the actual scorecard with HR Metrics and performance indicators. The performance indicators include: "Cost per Hire", "Turnover Cost", "Turnover Rate", "Time to fill", "Length of employment".

CASELETS ON HR SCORECARD
1. Borealis, a manufacturer of polyolefin plastics, has created an HR scorecard that supports the corporate strategy and is focused on performance improvement against best-in-class benchmarks. Within HR itself, country-based HR teams have created their own scorecards. These support both the higher-level HR scorecard and local business unit scorecards.

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2. The HR Community within the Canadian utility company BC Hydro and Power Authority has built a scorecard that delivers to a well-defined, five-pronged customer value statement, fully aligned to the organization-wide strategic objective. The scorecard captures key HR priority areas and helps ensure BC Hydro recruits, retains, develops and competitively compensates the people it needs to deliver to its business goals. 3. Verizon Communications, the largest provider of wireline and wireless communications in the US, is a recognized exemplary exponent of the HR scorecard methodology. To built the HR scorecard 17 key questions were articulated to focus scorecard creation onto compelling and strategically critical business imperatives. 4. Financial services provider First Union Corporation has created an HR scorecard that sets out to show how the function is answering 12 critical questions about its performance. Successfully building an HR scorecard here was essentially a two-phase project. Lessons learnt in phase 1 helped shape the scorecard creation process for phase 2.

ILLUSTRATION ON APPLICATION OF HR SCORECARD

A fictitious company The Hotel Paris International started as a single hotel in a Paris suburb in 1990 and now comprises a chain of nine hotels, with two in France, one each in London, and Rome and others in New York, Miami Washington, Chicago and Los Angeles. Lisa is the HR Director of this company. Based on her experience and discussions with the firms other managers, she formulates the following hypothesis about how human resources affects hotel performance: Improved grievance procedures cause improved morale, which leads to improved front desk service, which leads to increased guest returns, which leads to improved financial performance. The HR director then chooses metrics to measure each of the factors. For example, she decides to measure improved disciplinary procedures in terms of how many grievances employees submit each month. She measures improved morale in terms of score on the hotels semiannual attitude survey and measures high quality front desk customer service in terms of customer complaints per month.
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She moves onto quantifying the cause and effect links among these measures. She shows the top management that there is a measurable sequential link between improved disciplinary procedures, high morale, improved front desk service, number of guest return visits and hotel financial performance (revenues and profits). This shows human resources measurable contribution to the hotels bottom line financial performance. She uses statistical methods such as correlation analysis to determine if links exist, and (if so) what their magnitudes are. She finds that a 10% improvement in grievance rates is associated with an almost 20% improvement in morale. Similarly a 20% improvement in morale is associated with a 30% reduction in customer front desk complaints. Furthermore a 30% reduction in complaints is associated with a 20% increase in guest returns visits, and a 20% increase in return rate is associated with a 6% rise in hotel revenue. It appears that a relatively small HR effort in reducing grievances has a considerable effect on the hotels bottom line. There are several things that complicate this measurement process. It is risky to raw cause effect conclusions from correlation measures like these (for example do fewer grievances lead to higher morale, or vice versa) Furthermore its rare that a single factor (such as grievance rates) will have such effects alone, so we may want measure of the effects of several human resources policies and activities on morale simultaneously. And (given the huge number of things that influence hotel performance) it may not always be possible to confirm all the links in the measurement chain. Computerization enables the HR director for the Hotel Paris to create a more comprehensive HR scorecard, one that might accommodate links among dozens of cause and effect metrics. For example, with computerization the HR director need not limit herself to assessing the effects of the handful of employee behaviors (such as percentage of calls answered on time). Instead, she could include metrics covering dozens of activities, from recruitment and election through training, appraisal, compensation, and labor relations. Her Scorecard model could also include the effects of all these activities on a wide range of workforce competencies and behaviors and thus on organizational outcomes and on the companys performance. In this way her HR scorecard would become a comprehensive model representing the value adding effects of the full range of Hotel Paris human resource activities.
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CONCLUSION
The HR SCORECARD is a measurement as well as an evaluation system for redefining the role of HR as a strategic partner. The HR scorecard allows the human resource function to fill a strategic role in the business-i.e. by participating fully in balanced goals of cutting costs and creating added value. As far as possible the HR SCORECARD should show what the actual impact of HR deliverables is on the firms performance. That way, the HR professional should be able to confidently make the statements like. HR deliverable..increased.by 20 %, which in turn reduced.by 10 %, resulting in a 3% increase in shareholder value for the firm in the financial year ended A successful HR Scorecard program starts with a recognition that it is not a metrics project . Its a change process.

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