Scorecard Metrics for HR

Get yourself swot analysis guide

AKS-LABS continues to stay in touch with its customers and readers of company websites.  This time a new product is under the focus: SWOT analysis guide which is now available in free and paid versions.  What is SWOT?  SWOT stands for strengths, of weaknesses, opportunities and threats.  As the name suggests, the company top management would analyze strong and weak points as well as those areas where the company may improve its performance and develop further.

SWOT analysis is a popular methodology applied by thousands of top rated companies.  This analysis type is very helpful in development of strategic goals.  As known, it is impossible to plan something for future without knowing car and conditions of the company.  SWOT analysis it is the perfect solution which can be used in combination with the popular Balanced Scorecard.

SWOT analysis guide from AKS-LABS contains templates, frequently asked questions and some case studies on application of this methodology.  Besides you’ll find there an extensive SWOT analysis guide in pdf format which contains some valuable information for top managers and business owners.

By using templates it is possible to create own sports analysis and have a look at the company’s strengths, weaknesses, opportunities and threats.

Download free version of SWOT analysis guide here or purchase it from this page.

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Evaluation of the company financial potential and financial results seems very easy.  It looks like top managers do not need any special tools.  To financial figure’s a very easy to calculate.  But is the money the only capital the company has?  Does the money only create value for the company?  There is a definite answer to this question – no!

It appeared that intellectual potential and intangible assets are equally important for the company.  But the problem is that they are not so easy to evaluate.  For example, there is no problem in calculating net profit or total losses for the accounting period.  But it is rather problematic to measure such things as employee satisfaction or customer retention rate.  Moreover, it is even more difficult to understand how nonfinancial indicators influence financial performance of the company.  Evaluation of human resource performance requires a lot of nonfinancial indicators.  Of course, of financial results in HR performance are very important.  But humans cannot be measured with financial figures only.  That’s why an increasing number of companies are using balanced scorecard system to measure performance of their human resource departments.

Some of major HR KPIs

The major problem with human resource management is employment, education and retention of highly competent employees.  Sure, you have heard about headhunting which sometimes looks like a real war.  Those companies who have the most of intellectual potential have competitive advantage.  Efficient human resource department creates working conditions and salary packages for employees so that they show their best performance.

HR tasks

Balanced scorecard does not only evaluate human resource performance but also helps align human resource goals, objectives and measures with the company strategy, mission and values.  Thus, everything done by human resource department directly or indirectly influences total performance of the company and approaches or distances the company from strategic goals.

It is very important to select the right key performance indicators for human resource management.  It is recommended to follow the principle of four categories of the balanced scorecard: financial, customer, internal business processes, learning and growth.  The company should also set priorities for each category and indicator.  For example, for some companies it is more profitable to hire inexperienced employees and then educate them, while others have no time to instruct new hires, and thus they require experienced professionals.

Learning and growth category offers key performance indicators which characterize education and training of personnel which is very important for any company that wants to maintain its competitive advantage or even improve it.

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It seems like no one can deny the importance of HR management.  Sure, there are some business owners and top managers who still think that the supreme value for their company is money, investments, equipment and production facilities, real estate etc.  But the recent economic crisis has proved that those companies who possessed the most efficient and intelligent human resources managed to survive, and some of them even managed to conquer new market shares and attract new customers.  Business is run by people, no matter how efficient and smart IT solutions can be.  For this reason, it is important to measure performance of human resource department.  The problem is that HR department does not earn money, and just to the contrary it spends it in order to hire, educate and retain the best professionals in a certain business area.  This is sort of investment in human resources, which proved to be one of the most effective long-term investment tools.

HR BSC implementation

Poorly performing human resource department may waste company money even if HR managers hire competent employees.  There are so many factors to be taking into account when working with personnel.  Using balanced scorecard system, it is possible to evaluate human resource performance and align HR goals with the strategic goals of the company, its mission and values.

Balanced scorecard evaluates key performance indicators which represent critical success factors for a certain company.  The right choice of KPIs is the first correct step in the process of BSC implementation.  Of the choice of key performance indicators in human resource management depends on the company strategy and its organization structure.  For some companies, it is cheaper and more convenient to hire inexperienced employees and then educate them, while others are looking for experienced professionals who don’t need any education and start-up courses.  As said above, it depends on company strategy, goals, its structure and specific character of the business area.

Major HR tasks

Evaluation of HR performance is a must for big companies with numerous departments, branches and business units.  Excellent HR performance contributes to improvement in communication and feedback system, the system of education, training and coaching. Proper HR policy improves organization climate and employee satisfaction.  As known, satisfied employees usually have satisfied customers who then turn into regular customers for the company.

Use of balanced scorecard for HR performance is recommended for heads of human resource departments and top managers of big companies who want to optimize work of their enterprises and firms.

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It is very difficult to evaluate human resource performance.  Why is that?  Well, most indicators in human resource scorecard are nonfinancial.  Let’s not forget that balanced scorecard was the first performance evaluation system that included nonfinancial indicators to the set of key performance indicators in the four categories: financial, customer, internal processes, learning and growth.  It is easy to calculate revenue or expenses.  But non-material assets are not so easy to measure.  To think of such indicators as organization climate, employee loyalty, new higher turnover rate, talent retention rate and similar KPIs.  It will be quite difficult to organize all of them, divide between categories, set necessary values etc.  That’s why some top managers and business owners do not pay due attention to human resource development.  As a result the company spends too much to hire, educate, train and retain personnel.  Moreover, personnel which is not satisfied with the working condition of compensation system is less likely to show top performance.

What makes an effective HR scorecard

Development of the right human resource scorecard is a real challenge.  However, with the right approach and tools it is possible to create effective key performance indicators for this extremely important element of business organization and management.

It may happen, that business owners set the ride financial goals, established good relations with customers, planned to hit the market with new products and services at competitive prices and developed the right internal procedures to reach the above goals.  But this may fail just because the company personnel is not ready to operate on a new level.  The company may lack competent personnel or spend too much to pay employees.

HR indicators have a great influence of financial results of the company

Human resource perspective may be included to the general Balanced Scorecard of the company, and performance of HR department can be also evaluated.  And effectively work in human resource department spends minimal amount of money to hire, train and retain the best professionals in a certain business area.  By monitoring and evaluating human resource KPIs, HR managers will be able to control employee discipline, their attitude to work as well as their loyalty.  That’s a fact that the most satisfied employees have the most satisfied customers. A satisfied customer is likely to become a regular customer for the company, which is always good for any business.

When developing human resource KPIs it is necessary to somewhat distract from financial indicators and focus on nonmaterial assets and intellectual potential the company has.

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Recently released BSC library reviews some really useful ideas about using of Balanced Scorecard in HR. Learn more in the HR section of the library.

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What is the most common mistake in implementation of balanced scorecard system?  As in any business venture, it is especially dangerous to make the wrong steps in BSC implementation.  This is exactly like building a house with a poorly build foundation.  Sooner or later such a house will collapse, there is no doubt about it.  So there is no reason to further construct such a house.

The same applies to implementation of balanced scorecard.  If the initial steps are wrong the entire process will be a complete failure for business owners and top managers.  What are initial steps of BSC implementation?  Of course, everything starts with goal setting.  Balanced Scorecard is a strategic management tool.  It links operational in strategic management in order to track company progress on the way to implementation of strategic goals.  In other words, it puts strategy into action and visualizes strategic vision of the company.  Of the evaluation process is conducted through measurement of key performance indicators which have the greatest impact on key success factors in a definite business area.

4 BSC perspectives

Thus, if certain mistakes were made at the goal setting stage there a very few reasons to believe that implementation of balanced scorecard will be a great success.  Just to the contrary, unsuccessful implementation of balanced scorecard will result in loss of time and money (sometimes really huge money).

When designing balanced scorecard for human resource department, it is imperative to set strategic goals in this direction.  Moreover, HR goals should 100% compliant with the general strategy of the company, its mission and values.  Sometimes, local and strategic goals of human resource management conflict with the company strategy.

Stages of BSC implementation

It should be mentioned that such goals as “earning one million dollars” or “employing the best professionals” of a very vague.  They’re nothing to do with reality and with the company mission.  So, if we’re talking about human resource management it would be reasonable to talk about such goals as improvement of personnel professional level, decreasing personnel turnover rate, increasing new hires retainment etc.

Each goal should be represented with a several indicators which all together will make a complete picture of HR policy and HR strategy of the company.  Of moreover, each goal of human resource management should lead to implementation of strategic goals and improvement of financial results of the company.  It is not a secret that any commercial business aims at making money.

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What does usually company management of the take when the company faces obstacles or even severe crisis?  Top managers hold a meeting at which the attempt to find solutions to current problems.  Sure thing, most of the solutions require investments, but still all decisions and ideas come from employees at all levels.  Sometimes, the best and the most creative ideas come from ordinary front line managers who directly contact customers.  But what should one do to create such conditions in which an employee feels free to express himself?  An employee should be satisfied with his work, compensation and working conditions.  The task of human resource management is to provide employees with excellent working conditions and organization climate and offer them competitive salary and bonus systems.

The problem is that human resource department is not earning money.  That’s why inefficient human resource department only wastes money.  For example, the company may spend too much to find and hire professional personnel in such expenses will not be justified in the long term.  There is another example: human resource department conducts training session for employees but such training gives no visible results (increase of revenue, improvement in customer satisfaction etc).  This means that the company wasted money which is unacceptable, taking into account global recession.  That’s why the company should measure efficiency of HR department, as well as align HR measures and goals with the company strategy.

Different business areas required different approaches in evaluation of HR performance.  However, most businesses are using balanced scorecard system as this is a perfect tool to measure business performance and link operational in strategic management.  Differences in evaluation of HR in various business areas are choices of different key performance indicators.  In wholesale business these KPIs may look like this:

1. Average telecommunication costs per employee. Very often managers occupied in wholesale trade are looking for new customers via phone.  They call companies and businessmen who might be potentially interested in the products wholesale company is offering.  Telephone is a must have tools for any wholesale manager.  Sometimes telecommunication costs constitute the bulk of expenses.  Of course, there should be no restrictions as to communication via phone, but at the same time these expenses must be kept at a reasonable level.  For example the company should encourage use of online communication means, e-mail etc.  By optimizing telecommunication expenses the company can have additional costs which can be used for some other purposes (for instance, for bonuses and compensation packages).
2. Revenue per employee. This is a very important indicator in HR evaluation in wholesale business.  The wholesale company generates revenue by selling huge amounts of products.  There are managers who are responsible for sales, and these managers bring money to the company.  By tracking average revenue per employee it is possible to evaluate efficiency of sales managers.  If this indicator is constantly going down then something is wrong with a sales process, pricing policy, sales methods etc.  It is recommended to measure revenue per employee in the end of each reporting period.

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Evaluation of human resource management is equally important in all business areas.  Sure, some businesses require greater participation of people in production process, while other businesses are fully automated.  In both cases human factor plays different roles, but still, the business is run by people.  Some business owners tend to forget that their business is not only capital, real estate, production facilities, but people who work for the company.  Recent financial meltdown turned out to be a good lesson for many companies that did not value intellectual potential they had.  Many companies turned bankrupts just because they had no idea what to do in the new business reality, of while other businesses manage to survive and even expand.

Human resource management is all about recruiting, employing educating and retaining of personnel.  These processes seem quite easy and a first glance.  But nowadays it is not so easy to find a professional employee and create suitable working conditions for him.  Headhunting is very popular in certain business areas.  That’s why due attention should be given to human resource management at any midsize and large company.

Human resource policy and methods should be clear and understood for employees.  Only in such a way the feedback system will work which is very important for any company.  At the same time, performance of HR department should be evaluated.  Ineffective human resource management will not only result in loss of money but it can also weaken company position in the market.  Lots of competitive advantage is the worst thing that can happen to any business.

When evaluating human resource management in logistics/transport business it is imperative to take into account peculiarity is of this kind of work.  Logistics services require thorough planning and a very serious approach.  When using balanced scorecard system for HR evaluation in logistics it is recommended to measure the following indicators:

1. Average travel costs per employee.  Many logistics specialists have to accompany cargoes on the way to end customers.  The distance can be measured in thousands of miles.  A certain balance is to be kept here: logistics specialist should use convenient means of transportation but at the same time expenses should be reasonable.  By decreasing value of this indicator logistics department may save additional costs which can be used for special bonus and compensation programs.  Sometimes, there is no necessity or urgency for a logistics specialist to accompany cargoes.  In such cases the entire delivery process may be managed remotely.
2. Employee lateness.  This indicator is applicable in any business.  Being late for work is not good.  But lately is in logistics business may lead to failure of the entire delivery chain.  For example, logistics specialist is 1 hour late for work.  The cargo came late to airport terminal and thus it will come late for seaport.  Of this is a breakdown of the entire delivery scheme.  That’s why employee lath should be strictly controlled by HR department.  Those employees who were regularly late for work should be punished, while punctuality must be encouraged.

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Every successful company and business should pay due attention to human resource management.  The company may lose money, customers and partners but still have chances for survival if it has highly qualified and professional personnel.  It is people who can change situation and overcome crisis.  Sometimes the most creative and innovative ideas come from the lowest level of the company.  It is very important two professionally work with employees, measure their performance, evaluate their needs and attitudes.  There is nothing better than a loyal and satisfied employee.  Statistics show that the most satisfied employees have the most satisfied customers.  A satisfied customer is a loyal and regular customer for the company.  As known, a regular customer is a regular source of income.  So, the company is interested in having professional and loyal employees.

Human resource management, as a part of any management system, needs to be evaluated.  It should be noted that evaluation of human resource management more difficult as compared to evaluation of financial indicators.  Indeed, it’s not easy to measure such things as employee satisfaction or organization climate.  However, with the help of balanced scorecard this is possible.  BSC is known as the best performance evaluation tool that links operational and strategic planning.  In other words, it puts strategy into action.  BSC can also be applied to human resource management.

Different business areas require different approaches and methods of HR evaluate.  The differences lie in various key performance indicators.  In the field of tourism evaluation of HR it especially important since human factor plays an important role in this business area.  Thus, the following indicators may be used in HR evaluation in tourism/hotels business.

1. Employee satisfaction.  As already said above, satisfied employees have satisfied customers.  Many people return to the same hotels every year just because they like service, attitude, atmosphere etc.  So, the entire serving personnel should be satisfied with their work to offer guests a welcoming atmosphere.  Employee satisfaction is measured through surveys.  It needs saying that sometimes this indicator may not be 100% accurate as not all employees will tell the entire truth.  However, experience proves that measurement of employee satisfaction positively affects employee performance and facilitates decision-making for top management.  A satisfied employee is loyal towards the company he works for, and of top management may expect new interesting ideas coming from the lowest level (doorman, girl at reception etc.)
2. Percentage of employees receiving regular performance reviews. Hotel business faces very tough competition, and that’s why employee performance must be regularly reviewed.  Of course, it is not possible to evaluate the entire personnel, but human resource department must do everything possible to measure performance of as many employees as possible.  The higher this indicator the more efficiently human resource department works.  This indicator may be measured once a month, quarter or a year.  Higher percentage means that the greater number of employees undergo performance reviews and thus they are aware of own strong and weak points.  Such evaluation is good for top management as well.

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Those who did not pay due attention to human resource management paid a very high price.  Most businesses have learned a very serious lesson from the recent financial meltdown.  It appeared that only those companies can survive and even the success during the recession time that have the most professional, loyal and creative personnel.  It is that simple!  Investments and new production facilities can do their job, but still all decisions are to be made by employees.  If company personnel is reluctant to offer new ideas and implement ambitions plans the company is doomed to fail.

That’s why human resource management gain popularity in the last decade.  Tough competition in the market forces companies to improve all the time.  Improvements should start with self employment, i.e. improvement of personnel.  If you want to invest you’d better invest in the people who work for your company.  But naturally business owners expect returns on investments in human resources.  Expected revenue pretty much depends on how human resource department works.

There is no unified were universal approach to evaluation of human resource performance for all business types.  Every business and every company is individual and it requires different approaches to human resource management and its evaluation, in particular.  However, use of balanced scorecard system can be recommended to all businesses that want to measure HR performance and align human resource measures and goals with strategic goals of the company.

When evaluating the HR performance in telecommunication business it is important to remember that people employed with telecom companies require special knowledge and experience.  Headhunting is especially popular in this business area.  What key performance indicators (KPI) might be helpful to measure efficiency of HR department in a telecommunication company?

1. New hires achieving 12 month service.  Peculiar feature of telecommunication business is use of high tech.  Even people with proper education need experience especially in telecommunication business.  Besides, telecom technologies and solutions are changing all the time.  Thus, employees should learn to use them in their work.  When a company hires a new specialist it spends some money to train him and educate.  Of course, when such an employee leaves within one year, the companies suffer losses (education costs+ recruitment costs for a new employee).  That’s why it is very important to regularly measure this indicator which can also represent employee loyalty to the company, as well as employee satisfaction (as satisfied employee will obviously not leave the company).  The lower this indicator, the better work of HR service.
2. Percentage of employees with their performance increased compared to last review.  Improvement of personnel skills is a priority task for any company.  It especially concerns telecommunication business were tough competition is observed.  If company personnel is performing better the company is likely to attract new customers/subscribers which means increased revenue.  It is important to regularly evaluate professionalism and competence of personnel, and keep this indicator at the highest possible level.  If the value of this indicator is going down, company management should look for the root of the problem.

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