HR as a Strategic Partner and Measurement Challenge:

The human resources architecture of any organisation comprises of three features. They are: The sum of the HR function The broader HR system and The resulting employee behaviour But not many no! their importance to e"cel in the mar et place. Many HR management teams have a !ell#developed vision of their department$s strategic value but the C%& and the senior line managers are at best s eptical of HR$s role in the firm$s success. The root cause of the problems can be stated as: HR$s influence on firm performance is difficult to measure. Most HR professionals can list a number of attributes that are considered crucial to the implementation of the firm$s competitive strategy. But not many of them may be a!are if the e"isting HR measures capture the 'strategic HR drivers(. )s a result there has al!ays been disconnection bet!een what is measured and what is important. These *uestions are important as the primary source of production is gradually shifting from physical to intellectual capital. Therefore+ HR professionals have to demonstrate how they create value for their organisations. The challenge is to serve as strategic partners in running the business. ,rom Professional To Strategic Partner Recent decades have !itnessed dramatic shifts in the role of HR. Traditionally managers sa! the human resource function as primarily administrative and professional. -t provided scant insight into the comple"ities of strategic HR architecture. -t didn$t encourage HR managers to thin differently about their role. .iberalisation era emphasised on strategy and the importance of HR systems. The need for assessing the impact and *uality of fit after aligning the systems !ith the company$s larger strategy gained prominence. The assessment can broadly be categorised into the follo!ing four perspectives:

The personnel perspective: The firm hires and pays people but does not focus on hiring the very best or developing e"ceptional employees. The compensation perspective: The firm uses bonuses+ incentive pay and meaningful distinctions in pay to re!ard high and lo! performers. This is a first step to!ards relying on people as a source of competitive advantage+ but it doesn$t fully e"ploit the benefits of HR as a strategic asset.

The alignment perspective: Senior managers see employees as strategic assets+ but they don$t invest in overhauling HR$s capabilities. Therefore+ the HR system can$t leverage management$s perspective The high performance perspective: HR and other e"ecutives vie! HR as a system embedded !ithin the larger system of the firm$s strategy implementation. The firm manages and measures the relationship bet!een these t!o systems and firm performance.

The most potent action HR managers can ta e to ensure their strategic contribution is to develop a measurement system that sho!cases HR$s impact on business performance. -ntangible )ssets /enerate Tangible Business Research suggests that 012 of an investor$s decision is based on non#financial information. The most important intangible has been the ability to implement strategy. By aligning the HR architecture !ith the firm$s overall strategy+ HR professionals could play a ey role in shaping those perceptions. -ts !idely no!n that !hat gets measured gets managed and !hat gets managed gets accomplished. But does measurement of organisational processes provide competitive advantage3 4es+ undoubtedly it does. Since 'performance drivers( are !ithin management$s control no!+ the Scorecard approach encourages managers to engage in strategy implementation process rather than simply monitor financial results. Thus+ the Scorecard approach it ensures that strategy is everybody$s business.

The Seven#Step Model for -mplementing HR5s Strategic Role

Clarify and articulate the business strategy HR managers should focus on achievement of strategy. By doing so+ they can facilitate discussion about ho! to communicate the firm5s goals throughout the organisation. 6hen strategic goals are not developed !ith an eye to!ards the implementation detail+ they tend to be too generic and abstract. These vague goals !ill tend to confuse employees and they !ould not no! ho! e"actly to implement the strategies. The important thing for HR managers is to state the goals in such a !ay that the employees understand !hat e"actly their role in the organisation is and thus the organisation no!s ho! to measure success in achieving these goals. 7evelop the business case for HR as a strategic asset: &nce a firm clarifies its strategy+ HR professionals need to build a clear case for the strategic role of HR. -n concrete terms+ they must be able to e"plain ho! and !hy HR can hold the strategy. -t is important to loo at as much of case histories and internal as !ell as e"ternal research !hile leaving through this phase. )lthough it is not !ise to imitate others+ one can learn a lot by loo ing through past e"periences of others. Basically+ the direct impact on the HR systems5 high performance characteristics is non# linearly related to the increase in mar et price. This is because in the lo!er ranges of performance+ increase in mar et value is basically because HR stops ma ing mista es it

used to ma e in the past. -t is almost li e it is getting out of the !ay and avoids blunders and !rong practices that !orsen the situation. -n the center range of performance+ HR starts consolidating its efforts. -t is learning from its mista es and in the process does not actually add much to the mar et 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 mar et value soars e"ponentially. 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 !ith business priorities and strategies that are most li ely to ma e economic value. This can lead to significant financial returns to the company. -t is this plan that must be made concrete and sho!n as a strong case to ma e senior management believe in HR5s potential. -t is important to note ho!ever+ that simple changes in an HR practice do not ma e a difference. The HR measures e"plain the !hole HR system and changing the system to cross the threshold mentioned above needs time+ effort+ insight and resolve since results are not directly proportional. This clearly indicates the re*uirement of an HR transformation rather than a change. -t is this very character of transformation+ !hich is difficult and lengthy to achieve+ that ma es HR a strategic asset. )long !ith value creation+ there must also be a strong case for HR5s role in strategy completion. Strategy implementation rather than strategy content separates the successful from the unsuccessful firms. -t is easier to choose an appropriate strategy than to implement one. This once another time sho!s the strategic nature of HR5s role in performance improvements. Successful strategy implementation is driven by employee strategic focus+ HR5s strategic alignment and a balanced performance measurement system. The most significant HR performance driver is a strategically focused !or force. %ffective no!ledge management combined !ith the above#mentioned factors creates a strategically focused organisation. Create a strategy map for the firm: The first t!o steps clarify the firm5s strategy. This paves the !ay for the achievement process. But+ before this is done+ the firm must get a clear understanding of its value chain. The value chain is the comple" cumulative set of interactions and combinatorial effects that create the customer value in the products and services of the firm. -t is important that the firm5s performance management structure must account for each of the lin s and dependencies in the value chain. The Balanced scorecard frame!or refers to this process and creating a strategy map. These are basically diagrams that sho! the lin s in the value chain. -t sho!s ho! different components in different layers interact. -t is !hat provides managers and employees the big picture of ho! their tas s affect the other basics in the firm and ho! it affects overall strategy. This process should involve managers from all over the organisation+ not 8ust HR. The broad participation is re*uired to improve the *uality of the strategy map. -t also allo!s each member of the team !ho is

an authority in his or her domain to provide his or her o!n insights into !hat is accomplishable. The follo!ing *uestions have been recogni9ed as the ey ones to be as ed during the strategy map creation process. : -dentify the dangerous strategic goals from the generic ones. : -dentify the performance drivers for each goal. : Thin about ho! one can compute progress to!ards these goals. : -dentify barriers to the achievement of each goal. : Recognise the employee behaviours needed to ma e sure that the company achieves its goals. : -dentify missing employee competencies and chec if HR is providing the necessary competencies. : ,inally+ decide !hat needs to change. These basic *uestions generate a !ealth of information about ho! !ell a firm5s HR has been contributing to the achievement of the organisation. )long !ith these discussions+ it is useful for the company to conduct surveys !ithin the organisation to identify the e"tent to !hich each employee understands the organisational goals. &nce the !hole picture of the firm5s value chain is highlighted+ the firm can then translate the information into a theoretical model using language and graphics that ma e 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 !hich 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 higher management as !ell as the employees have more confidence in the strategy implementation plan. -dentify HR deliverables !ithin the strategy map HR creates much of its value at the points of intersection bet!een the HR system and the overall strategy implementation system of the organisation. Thus+ to leverage this to the ma"imum possible coverage it is important that there is a clear understanding of both sides of this intersection. -n the past+ HR managers lac ed the re*uired amounts of no!ledge about the business side and general managers did not fully appreciate the HR side. -t is HR5s responsibility to depict HR deliverables including performance drivers as !ell 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. -t is important to identify those HR deliverables that support the firm#level performance drivers on the strategy map. The focus should be on the ind of strategic behaviours that depend on competencies+ re!ards and !or organisation. %.g. %mployee stability improves R;7 cycle time+ the latter being a firm#level performance driver. Thus+ employee stability becomes an significant HR enabler. &nce this enabler has been identified+ the firm can plan policies such as bonus schemes etc. that !ould encourage R;7 staff to carry on !or ing for the firm. )lign the HR architecture !ith HR deliverables: The above#mentioned steps encourage the top#do!n thin ing approach+ !hereby strategy decides !hat HR deliverables the firm needs to focus on. -t is also important to consider ho! the HR structure made up of the re!ards+ competencies< !or organisation etc. needs to be structured to provide the deliverables that are recogni9ed in the strategy map. This step enhances the value creation aspect of the firm by aligning the HR system !ith the firm5s larger strategy implementation system. ,or this+ internal alignment and e"ternal position are important. -nternal alignment refers to the aligning components !ithin the HR system. %"ternal alignment refers to the position of the HR system !ith the other elements in the firm5s value creation process. These t!o are not isolated processes. They are closely related. -nternal alignment is necessary but not sufficient in itself for e"ternal alignment to occur. Basically+ highly cohesive HR strategies !ill !or as long as they are associated !ell !ith the overall strategy of the company. -t !ill fail if it is not periodically reshaped so as to align it !ith the overall strategy. Ho!ever+ for a particular fi"ed overall strategy+ all firms need an internally aligned HR strategy in order to achieve the overall goals. Misalignment bet!een the HR system and the strategy implementation system can destroy value. -n fact+ the !rong measurement system can have the precise opposite effect than intended. 7esign the strategic measurement system: The above steps guide the development of the HR building and lay the ground!or necessary to measure the performance relationship bet!een HR and the firm5s strategy. The ne"t step is to design the measurement system itself. This re*uires a ne!+ modern perspective on measuring HR performance. -t also re*uires HR to resolve several ne! technological issues that it might not be familiar !ith. To accurately measure the HR# firm performance relationship+ it is imperative that the firm develops valid measures of HR deliverables. This tas has t!o dimensions. ,irstly+ HR has to be confident that they have chosen the correct HR deliverables. This re*uires 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. 7uring this process of rising 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 e"actly strategic measures. -n the second stage+ HR measures have a strategic

importance but they don5t help much in creation a case for HR as a strategic asset. ,irms may declare several people measures such as employee satisfaction as strategic measures and these might be included directly into the re!ard systems. -n this stage+ there tends to be a balance bet!een financial and non#financial measures but there is less of an agreement on ho! e"actly 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 ne"t stage represents a transition point !hereby the firm includes non#financial measures such as HR measures into its strategic performance e"tent system. The lin s bet!een the various measures are also identified i.e. they are placed appropriately in the strategy map. The HR measures no! actually trac HR5s involvement to strategy implementation. -n the final stages+ the HR measurement system !ill enable the firm to estimate impacts of HR policies on firm performance. -f the value chain is short and the strategy map is relatively simple+ the complete impact of HR on the overall performance can be measured. ,or more comple" value chains+ the impact can be more e"actly 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 firm5s performance. Thus+ each level of sophistication of the measurement system adds value to the non#financial measures and services in the firm and enables a better performance appraisal. %"ecute management by measurement The previous step completes the HR scorecard development process. The ne"t step is to use this po!erful ne! management tool in the right !ay. This tool not only helps the firm measure HR5s contact on firm performance+ but also helps HR professionals have ne! insights into !hat steps must be ta en to maintain HR as a strategic benefit. -t helps the HR professionals dig deeper into the causes of success and failure and helps them promote the former and avoid the later. -mplementing the strategy using the HR scorecard re*uires change and fle"ibility as !ell as constant monitoring and re#thin ing. The process is not a one#time event. HR professionals must regularly revie! the procedures and their impacts. They must revie! the HR deliverables identified as important and see to it that the drivers and enablers and internally as !ell as e"ternally aligned. Special revie!s of the HR enablers must be conducted as these have the ma"imum direct impact on specific business ob8ectives. %nablers that do not be li ely to play a helpful role should be replaced.

What is a HR Scorecard??
The HR scorecard focuses on clearly lin ing and defining the organi9ation$s strategic business goals. -t also provides a direct line of vision to HR team on !hich activities are essential to support the ob8ectives.

7efinitions The balanced scorecard is a strategic planning and management system that is used e"tensively in business and industry+ government+ and nonprofit organi9ations !orld!ide to align business activities to the vision and strategy of the organi9ation+ improve internal and e"ternal communications+ and monitor organi9ation performance against strategic goals. Business 7efinition ,or Balanced Scorecard ') system that measures and manages an organi9ation5s progress to!ard strategic ob8ectives is balanced scorecard(. The balanced scorecard incorporates not only financial indicators but also three other perspectives: customer+ internal business+ and learning=innovation. The scorecard sho!s ho! these measures are interlin ed and affects each other+ enabling an organi9ation5s past+ present+ and potential performance to be trac ed and managed. History -n >??@+ Robert S. Aaplan and 7avid P. Borton introduced the Balanced Scorecard+ a concept for measuring !hether the activities of a company are meeting its ob8ectives in terms of vision and strategy. By focusing not only on financial outcomes but also on the human issues+ the balanced scorecard helps to provide a more comprehensive vie! of a business !hich in turn helps organi9ations to act in their best long#term interests. The strategic management system helps managers focus on performance metrics !hile balancing financial ob8ectives !ith customer+ process and employee perspectives. Measures are often indicators of future performance.

Since the original concept !as introduced+ balanced scorecards have become a fertile field of theory and research+ and many practitioners have diverted from the original Aaplan ; Borton articles. Aaplan ; Borton themselves revisited the scorecard !ith the benefit of a decade5s e"perience since the original article. -mplementing the scorecard typically includes four processes. The four processes are:# Translating the vision into operational goals. Communicate the vision and lin it to individual performance. Planning of Business. ,eedbac and learning and ad8usting the strategy accordingly.

-nnovation of the balanced scorecard Aaplan and Borton describe the innovation of the balanced scorecard as follo!s: CThe balanced scorecard retains traditional financial measures. But financial measures tell the story of past events+ an ade*uate story for industrial age companies for !hich investments in long#term capabilities and customer relationships !ere not critical for success. These financial measures are inade*uate+ ho!ever+ for guiding and evaluating the 8ourney that information age companies must ma e to create future value through investment in customers+ suppliers+ employees+ processes+ technology+ and innovation.C

)dapted from the Balanced Scorecard by Aaplan ; Borton

Perspectives The balanced scorecard suggests that !e vie! the organi9ation from four perspectives+ and to develop metrics+ collect data and analy9e it relative to each of these perspectives: >D The .earning ; /ro!th Perspective This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self# improvement. -n a no!ledge#!or er organi9ation+ people ## the only repository of no!ledge ## are the main resource. -n the current climate of rapid technological change+ it is becoming necessary for no!ledge !or ers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds !here they can help the most. -n any case+ learning

and gro!th constitute the essential foundation for success of any no!ledge#!or er organi9ation. Aaplan and Borton emphasi9e that 5learning5 is more than 5training5< it also includes things li e mentors and tutors !ithin the organi9ation+ as !ell as that ease of communication among !or ers that allo!s them to readily get help on a problem !hen it is needed. -t also includes technological tools< !hat the Baldrige criteria call Chigh performance !or systems.C @D The Business Process Perspective This perspective refers to internal business processes. Metrics based on this perspective allo! the managers to no! ho! !ell their business is running+ and !hether its products and services conform to customer re*uirements Ethe missionD. These metrics have to be carefully designed by those !ho no! these processes most intimately< !ith our uni*ue missions these are not something that cans be developed by outside consultants.

0D The Customer Perspective Recent management philosophy has sho!n an increasing reali9ation of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied+ they !ill eventually find other suppliers that !ill meet their needs. Poor performance from this perspective is thus a leading indicator of future decline+ even though the current financial picture may loo good. -n developing metrics for satisfaction+ customers should be analy9ed in terms of inds of customers and the inds of processes for !hich !e are providing a product or service to those customer groups. FD The ,inancial Perspective Aaplan and Borton do not disregard the traditional need for financial data. Timely and accurate funding data !ill al!ays be a priority+ and managers !ill do !hatever necessary to provide it. -n fact+ often there is more than enough handling and processing of financial data. 6ith the implementation of a corporate database+ it is hoped that more of the processing can be centrali9ed and automated. But the point is that the current emphasis on financials leads to the CunbalancedC situation !ith regard to other perspectives. There is perhaps a need to include additional financial#related data+ such as ris assessment and cost#benefit data+ in this category. Balanced Scorecard Soft!are The balanced scorecard is not a piece of soft!are. Gnfortunately+ many people believe that implementing soft!are amounts to implementing a balanced scorecard. &nce a scorecard has been developed and implemented+ ho!ever+ performance management soft!are can be used to get the right performance information to the right people at the right time. )utomation adds structure and discipline to implementing the Balanced Scorecard system+ helps transform disparate corporate data into information and no!ledge+ and helps communicate performance information

 6hy -mplement a Balanced Scorecard3 -ncrease focus on strategy and results -mprove organi9ational performance by measuring !hat matters )lign organi9ation strategy !ith the !or people do on a day#to# day basis ,ocus on the drivers of future performance -mprove communication of the organi9ation$s Hision and Strategy Prioriti9e Pro8ects = -nitiatives

Business 7efinition for HR Scorecard ) tool for measuring the contribution of human resource management practices to the financial performance of an organi9ation. The HR scorecard !as developed by academics Bryan %. Bec er+ Mar ). Huselid+ and 7ave Glrich and presented in their boo The HR Scorecard: .in ing People+ Strategy+ and Performance EHarvard Business School Press+ @II>D. -t !as intended as a supplementary tool to Aaplan and Borton5s balanced scorecard+ !hich does not focus on HR practice. The HR scorecard sees human resource management practices as a strategic asset and provides a road map of si" steps designed to help organi9ations integrate human resource systems !ith organi9ational strategy. -mplementation of an HR Scorecard The >I 7imensions of Measurement Success are the ey to the successful implementation of an HR Scorecard and Measurement System. The >I 7imensions of Successful Measurement are as follo!s. i. Senior Management Champion )s is the case !ith any organi9ation !ide initiative that is e"pected to have a lasting and material effect+ there needs to be a Champion from the ran s of senior management. The role of the Champion is to insure that the measurement process receives constant and regular visibility+ credibility+ and priority. Through proactive communication+ conse*uence management+ and recognition+ lead by the Champion+ the measurement initiative !ill provide a level of importance that all employees can ac no!ledge.

ii.

)lignment The foundation for an HR Scorecard or Measurement System is its alignment !ith the company$s overall Strategic Plan. %ach of the measures contained in the HR Scorecard must align !ith at least one initiative from the Strategic Plan. This alignment !ill provide HR !ith focus+ prioriti9ation+ and an ability to demonstrate that it is a Strategic Business Partner. )t the point that HR initiatives are seen as Business initiatives+ HR can say that they have not only aligned !ith the business strategy+ but they have achieved convergence !ithin the company strategy. Convergence is li e a perfectly complete 8igsa! pu99le !here every piece interloc s to form the picture. %ach piece of the organi9ational measurement pu99le is essential to create the picture that each employee must see to insure organi9ational success.

iii.

Conte"t )s alignment provides a clear and understandable relationship of the HR Scorecard measures to organi9ational performance+ conte"t provides insights into the connection of the specific initiatives and activities to the culture of the company. ,or e"ample+ a company !ho$s Halue 7isciplines &perational %"cellence may design a compensation process that loo s very similar to that of a company !hose Halue 7iscipline is -nnovation. Ho!ever+ the measurements used to determine process effectiveness !ill be very different. Process effectiveness in the &perational %"cellent Company is cost as a percent of revenue+ !hile process effectiveness in the -nnovation Company may be number of ne! products. )dapting your measurement system to the conte"t of the organi9ation is a critical component to insuring measurement success and effectiveness.

iv.

)ccountability 6ho is responsible for the result3 There are t!o types of accountability embedded in an HR Scorecard and Measurement System. The first and most important level of accountability revolves around the successful e"ecution of the initiative. -f retention of High Potential employees is one of the measures+ then !ho is in the best position to achieve this result. -n this case+ it is the line manager. HR has the accountability to implement a policy+ practice or procedure that has the highest li elihood of Retaining the High Potential %mployee+ as !ell as collecting the data to

support the measure. The line manager has the accountability to e"ecute the policy+ practice+ or procedure to ensure retention. The line manager also has a responsibility to provide feedbac to HR on the policy+ practice+ and procedure and its li elihood of producing the desired result. ,or the result to be achieved there must be accountability. v. Halidity Can the numbers be Trusted3 The HR measurement system must contain measures and metrics that are clearly understood+ meaningful to the initiative+ and that have been thoroughly e"amined. There is nothing that !ill inhibit the successful implementation of an HR Scorecard or Measurement System more than numbers that cannot be verified. -f the credibility of the measures becomes *uestionable+ then the trust in the measurement system is bro en. Bro en trust results in failure. vi. Measure Results The HR Scorecard and Measurement System must focus on results. Measuring the time to fill an open 8ob simply tells us the length of time it too to complete a search. -t is a process measure. The more important measure is productivity of the individual !ho filled the position. This is a result measure. Result measures are the primary !ay you !ill be able to determine if the company$s Strategic Plan !ill be achieved. Result measures are !hat senior managers use to determine if HR is contributing to organi9ational success. Result measures !ill be a determining factor in your ability to be seen as a Strategic Business Partner. Result measures create the convergence of HR to the organi9ation. vii. .ag and .ead Measures .ag measures tell us !hat happened in the past. 4ear end financial reports are lag measures. 6e learn the result of our efforts. .ead measures are an indicator of !hat the future result might be. .ead measures tell us either to continue !hat !e$re doing+ or stop+ because the result is not !hat !e !ant. -t is very important that our HR Measurement System contain a combination of .ag and .ead measures. ,or e"ample+ the results of an %mployee %ngagement )ssessment may tell us that our employees feel that to meet their career goals+ they have to !or in another company. This is a .ead indicator of turnover. Higher than e"pected turnover !ithin a

group of employees !ho have been targeted as High Potentials+ is a .ag indictor that our retention efforts are not !or ing. -t is very important that your HR Measurement System contain a balance of .ag and .ead measures. -t$s too late to loc the barn door after the horse has already gotten out. viii. )ctionable To *uote )lbert %instein: '%verything counts+ but everything doesn$t need to be counted.( ,or an HR Measurement System to be meaningful+ it must contain only those measures that are most important to the HR Strategy and the Strategic Plan of the company. &ne of the failures of many HR Scorecards and Measurement Systems is the belief that more is betterJ -n reality+ the vital fe! measures provide much greater insight and the ability to ta e action. 6e all no! !hat happens !hen !e try to address too many issues at one time: our efforts lac focus+ are not of the highest *uality+ and fall short of e"pectation. i". 7ynamic Things change. ,orces outside our control re*uire us to rethin our plans. The HR Measurement System must contain the fle"ibility to be dynamic in an ever changing !orld. The 'bend but don$t brea ( defense is an e"cellent model to deploy to insure the success of your HR Measurement System. ". 7istributed The HR Scorecard and Measurement System must be communicated throughout the organi9ation. Many of the initiatives !ill be carried out and implemented by the line organi9ation. They must no! ho! these initiatives are going to be measured. Communication of the HR Scorecard and Measurement System !ill also bring valuable visibility to the HR function. Communicating HR success+ done in a positive !ay+ !ill bring credibility+ respect+ and trust to HR. Communication !ill also go a long !ay in enabling HR to be seen as a Strategic Business Partner+ providing additional opportunities to bring convergence of HR to the business. %valuating your current measurement system against these >I 7imensions !ill enable you to diagnosis the effectiveness of your

current system. These dimensions should be used as the cornerstone to build an HR Scorecard+ !hich !ill provide a strong+ lasting foundation. 6hether you are 8ust getting started+ your HR Scorecard is being used successfully+ or your results have been less than you e"cepted+ assessing your efforts against these dimensions !ill enable you to strengthen your measurement initiative and e"ceed the e"pectation of senior management. )n effective and efficient HR Scorecard and Measurement System is the surest !ay to demonstrate HR %ffectiveness. 7istinguishing characteristics of HR Scorecard The distinguishing characteristics of HR Scorecard are: )n HR Scorecard is aligned !ith the Strategic Plan of the Company. )n HR Scorecard provides focus+ accountability and prioriti9ation to all HR initiatives. )n HR Scorecard is used to determine the individual performance e"pectations of HR staff members and line management. )n HR Scorecard is used by the entire organi9ation+ not 8ust HR. )n HR Scorecard identifies the role employees outside of HR play to impact results.

Creating the HR Scorecard reveals The 5ne!5 s ills HR professionals must develop in order to become true strategic assets to their organi9ations >I international best#practice case studies illustrating ho! HR can play a critical role in shaping !orld#class people strategies for their companies. )n e"planation of ho! the R&- of HR programmers can be assessed and a detailed overvie! of ho! to conduct an HR audit The demands placed on HR in the current climate and the challenges involved in becoming a strategic partner Complete results+ analysis and commentary from a survey of over @II leading organi9ations.

 HR Balanced Scorecard Screenshots

Metrics for HR Measurement This is the actual scorecard !ith HR Metrics and performance indicators. The performance indicators include: CCost per HireC+ CTurnover CostC+ CTurnover RateC+ CTime to fillC+ Cand .ength of employ.

Measuring HR alignment Two dimensions of alignment

>. M%)SGR-B/ HR STR)T%/-C ).-/BM%BT THR&G/H TH% HR SC&R%C)R7 Kuan -. Sanche9+ Ph.7. ,lorida -nternational Gniversity &R/)B-L)T-&BS &,T%B C.)-M TH)T: ' People are our most important asset( But do people understand ho! the HR function influences firm performance3 7o HR people feel li e they play an important role in implementing the organi9ation$s strategy3 7oes HR really matter3

@. 6hat$s the perception of the HR function3 .ist the events that most often trigger the !ords 'let$s as human resources(: Perceived HR Role %vent ' The aparatchi ( Bureaucratic obstacles ' The entertainer( Company$s party ' The counselor( Personal problems ' The police( 7iscipline problems

0. HR as an administrative function vs. HR as a strategic partner capable of enhancing the organi9ation$s performance 6H)T 7&%S HR STR)T%/-C ).-/BM%BT M%)B3

F. Measuring HR$s influence on the organi9ation Traditional HR ,ocus: the individual employee Select the best employee ,ind benefits that satisfy the employee -dentify incentives that do motivate the employee Solve individual s ill deficiencies through training -mproving individual employee performance 7oes it automatically enhance organi9ational performance3

1. HR as a strategic asset Be! HR ,ocus: multiple levels of analysis: individual+ team+ organi9ationM )lignment of HR systems !ith the company$s strategy Ho!

can HR play a central role in implementing the organi9ation$s vision ; strategy3 Ho! do people create value for the organi9ation3 Ho do !e measure such value#creation process3

N. HR as an investment+ not an e"pense Conventional accounting !as created at a time !hen tangible capital Efinancial ; physicalD !as the primary source of profits. Today: -ntangibles such as human capital are the primary source of profits.

O. HR as an investment+ not an e"pense Conventional accounting generates short#term thin ing regarding intangibles+ because intangible#related e"penditures are treated as e"penses vs. tangible#related e"penditures+ !hich are treated as asset investments Eand therefore depreciated over their useful livesD. Managers !hose salaries are tied to earnings obviously prefer e"penditures that can be depreciated over time rather than people#related e"penditures than are e"pensed in their entirety during the current year.

P. HR as a source of competitive advantage 6idening in the ratio of mar et value to boo value Ebased on intangible assetsD HR is ey to fle"ibility+ innovation+ and speed to mar et HR as competitive advantage: barriers of entry+ difficult to imitate. HR managers can become BGM%R)T&R managers Econtributing to revenue ; gro!thD rather than 8ust 7%B&M-B)T&R managers Ecutting costs ; reducing overheadD. .in performance measurement !ith strategy implementation: facilitates communication !ith sta eholders.

?. HR architecture as a strategic asset /oal of corporate strategy: create sustained competitive advantage.

/oal of HR strategy: ma"imi9e the contribution of HR to!ards that same goal. HR ,GBCT-&B HR professionals !ith strategic competencies Edelivery of HR services in a !ay that supports the implementation of the firm$s strategy HR S4ST%M High#performance+ strategically aligned HR policies ; practices %MP.&4%% B%H)H-&RS Strategically focused competencies+ motivations+ and associated behaviors HR )RCH-T%CTGR%

>I. Strategic HRM re*uires systems thin ingM Systems thin ing emphasi9es the interrelationships of the HR system components )B7 the lin bet!een HR and the larger strategy implementation system. -nteractions among components ma e a system more than 8ust the sum of its parts. The la!s of systems thin ing Today$s problems come from yesterday$s solutions Ee.g.+ do!nsi9ingD The easy !ay out usually leads bac in Ee"ample: QQQQQQQQQD Cause and effect are not closely related in time ; space EHR effects are indirectD Ee"ample of indirect HR effect: QQQQQQQQQQD Cutting an elephant in half doesn$t get you t!o smaller elephants. Ee.g.+ reorgani9ations due to mergers ac*uisitionsD.

>>. Best HR Practices help almost every businessM ,rom Huselid et al.+ @III+ )MK 0I2 >FI ?12 >>O Top >I2 F2 Percentage hired based on a validated selection test @1F Bo. of employees per HR professional F>2 Percentage of employees receiving a performance appraisal 01 Bo. of training hrs. for ne! employees Bottom >I2 HR Practice

>@. But strategic HR goes beyond 'best practices(M Behaviors Results Q R R Q HR alignment

>0. 6hat does HR alignment ta e3 -t re*uires a clear understanding of the value chain: 6hat ind of value the

organi9ation generates and e"actly ho! that value is created. Be able to describe ho! ultimate financial goals are lin ed to ey success factors at the levels of customers+ operations+ people+ and -T systems. 6ith this shared understanding of the value#creation process+ the organi9ation can design a strategy implementation model that specifies needed competencies and employee behaviors. The HR system can be geared to!ard the generation of these competencies and behaviors.

>F. H).G% CR%)T-&B %S)MP.% Bordstrom CGST&M%R R%T%BT-&B R&- SGP%R-&R CGST&M%R S%RH-C% GB-TG% -BH%BT&R4 AB&6.%7/%)B.% )B7 CGST&M%R#&R-%BT%7 %MP.&4%%S ,inancial Customer -nternal=business process .earning and gro!th

>1. H).G% CR%)T-&B %S)MP.% 6al#Mart CGST&M%R S)T-S,)CT-&B R&- SGPP.4#CH)-B M/MT. R%.-)B.% %MP.&4%%S ,inancial Customer -nternal=business process .earning and gro!th PR-C-B/ TRGST6&RTH4 SGPP.-%RS C&BH%B-%BC%

>N. -nade*uacy of Traditional Measurement Systems ,inancial measures as lagging indicators+ not leading indicators of value creation E Aaplan ; Borton$s Balanced ScorecardD . Too much attention to financial dimensions of performance+ and not enough attention to the performance drivers that determine those results. Gncover the firm$s value#creation chain EstoryD: 'business model.( By specifying and assessing the vital process measures of the value chain+ and regularly communicating the firm$s performance on these measures+ the balanced scorecard ma es strategy everyone$s business.

>O. B).)BC-B/ C&ST C&BTR&. )B7 H).G% CR%)T-&B: TH% HR SC&R%C)R7 7o you !ant HR to be perceived as a 'cost control( or as a 'value creation unit3 6hat gets measured gets managed. -f you measure only HR costs+ your unit !ill be treated as a commodity !ithout strategic value. HR must control costs+ but also create value. %"amples of instances !here value !as lost due to cost# control efforts3 E'thro! the baby !ith the bath !ater(D

>P. -BT%/R)T-B/ HR -BT& TH% H).G% CR%)T-&B ST&R4 -s the HR function providing the company !ith the employee competencies and behaviors necessary to achieve the organi9ation$s strategic ob8ectives3 HR deliverables : &utcomes of the HR architecture that serve to e"ecute the firm$s strategy. HR doables : HR efficiency ; activity counts. HR performance drivers : core people#related capabilities or assets. HR enablers reinforce performance drivers Emoderators !hose presence activates the HR performance driversD.

>?. M)PP-B/ TH% HR H).G% CR%)T-&B ST&R4 Strategy implementation HR 7eliverables HR enablers HR performance drivers HR 7oables -mpact

@I. 7-ST-B/GSH-B/ )M&B/ HR P%R,&RM)BC% 7R-H%RS EP7D+ 7%.-H%R)B.%S E7%D+ 7&)B.%S E7&D+ %B)B.%RS E%BD SGRH%4 S)4SM High evaluations on team!or Bumber of customer complaints Ris #ta ing culture Se"ual harassment a!areness training Bumber of se"ual harassment complaints P7 Ano!ledge of se"ual harassment legislation )bility to thin out#of#the#bo" Troubleshooting s ills Time spent on ne! employee orientation Cost per hire Cost per trainee hour )verage time for dispute resolution %B 7& 7% Measure

@>. )n e"ample of HR Halue Creation StoryM -nventory shrin age %mployee theft Random drug testing Honest !or force Pricing Honesty testing Cost per hire EefficiencyD 6hat percent of your co!or ers are honest3 Cost per *uarter EefficiencyD Cost of missing items 6hat percent of the items missing in the inventory are stolen by employees3

@@. Competency Models by Strategy %"ercise Cost# driven organi9ation Higorous pursuit of production=delivery efficiencies. Tight control over cost of materials+ resources+ ; overhead. Minimal e"penditure in R;7+ mar eting+ sales+ ; service. %mphasis on large accounts ; economies of scale. .o!#cost distribution system

@0. Competency Models by Strategy %"ercise Halue# driven organi9ation ,ocus on developing best#in#class capabilities in selected activities. Promote reputation for technological leadership ; brand image. %mphasi9e product engineering or service integration. Maintain an active basic research contingent. Partner !ith industry+ universities+ ; research organi9ations for mutual benefit.

@F. Competency Models by Strategy %"ercise Tuality#driven organi9ation )ggressive pursuit of information on customer careabouts+ including customer involvement in product=service design. %fforts to instill a continuous improvement orientation. Strict monitoring ; screening of subcontractors+ franchises+ and suppliers. Some investment in R;7+ mar eting+ service+ ; training.

@1. Competency Models by Strategy %"ercise Service#driven organi9ation Halue investments in people. Close monitoring of metrics trac ing service responsiveness.

Cultivate good !or ing relationships among associates+ subcontractors+ and suppliers. Creative involvement of R;7 and manufacturing groups in after#sales support. %mphasis on customer service and sales ran s$ contact !ith customers.

@N. Competency Models by Strategy %"ercise Speed# driven organi9ation 6illingness to accept ris s associated !ith delivering product=service to mar et ahead of competitors. )nalysis of mar et trends. )ggressive management of ne! product development cycles. %ngage in 8oint ventures to speed entry in emerging mar ets. Create geographical ; technological partnerships to augment organi9ational capabilities.

@O. Competency Models by Strategy %"ercise ,ocus# driven organi9ation %mphasis on mar et research ; micromar et proclivities. Ris averse ; focus on customer careabouts. -ntense management of product=service modifications to match profiled customer needs. )ctive involvement of targeted customers in product=service development.

@P. -B C&BC.GS-&BM ' People can be our most important asset if !e ma e the HR function our strategic partner