Scorecard Metrics for HR

HR evaluation methods and approaches differ in various industries. One of the most common mistakes is application of the same HR assessment methods in different companies that operate in different markets and have different problems, challenges, strengths and weaknesses. Obviously, every company has own peculiarities and internal problems. Thus, use of someone else’s experience cam be the wrong decision to make.

BSC for HR management

Personnel evaluation with BSC is individual for every company. KPIs are chosen according to strategy and goals of the company. That is why HR measures picked to IT industry can be hardly helpful for agriculture or consumer electronics. For this reason use of universal HR measures is not recommended. Sure thing, it is quite possible to use a few HR KPIs, however one needs to take into account lots of factors, namely:

• Strategic goals, including goals in HR. For example, if in agriculture there are lots of part time and seasonal workers, IT industry is interested in retention of qualified personnel possessing experience and priceless knowledge. That is why approaches to HR evaluation will be fairly different. If in the first case the company may be interested in cutting expenses, the IT industry tolerates to savings on experienced programmers, team leaders etc.
• Role of employees initiatives and independence in the company. Some companies are not interested in analyzing initiatives from employees (monotonous works etc) while others can earn millions of dollars by implementing employees ideas. Thus, in the first case HR department should not put too much weight to such KPI as employees satisfaction (everything in moderation of course). Employees in financial and IT organizations should be able to express their own thoughts as to possible improvements in company procedures.
• Impact of internal discipline on company performance. If such companies as Google create the best working conditions for its employees, many companies especially Asian instill strict discipline. One should see how different approaches to personnel management change employees performance. For example, employee lateness may have no impact on efficiency of personnel in one company while in a different organization it will have dreadful consequences. That is why it is important to assign the right weights for chosen KPIs.
• Physical vs mental labor. Of course, people who work hard need to feel that their work is valued. That is why employees satisfaction is important for enterprises with hard working conditions.

HR KPIs to be used in scorecards

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Balanced Scorecard is perhaps one of the most popular strategic management tools these days. Its creators, Norton and Kaplan, were the first to include non financial indicators to evaluation system of company performance. This is not to say that financial indicators are not important. Just to the contrary, it is not a secret that every commercial organization pursues financial goals. Thus, financial indicators have an exceptional importance. However, their key drawback is that they do not tell anything about what might happen to company in future. Thus, all forecasts are based on past figures, and this is not very good.  Inclusion of non-financial indicators made it possible to make correct predictions, since leading indicators provide top management and business owners with valuable information on future trends and developments. This is how the other three BSC categories have appeared: customer, internal business processes, learning and growth.

BSC categories

It is remarkable that BSC can be implemented on a department level. HR departments are one of the most popular and favorable to become a testing ground for BSC. Besides, optimization of HR performance almost certainly results in cost savings and improvement of overall company performance.  Let’s analyze how the 4 BSC categories are used.

Financial. As already said above, financial indicators represent financial goals of a company. In terms of HR these indicators can be of the kind: cost per hire, advertising costs per one hire, average cost per training session, training cost per employee etc. In other words, this category includes all those KPIs that are related to financial issues. One needs to remember that HR department does not earn money, and thus all investments in HR should be efficiently used.

The way HR BSC is implemented

Customer. In terms of HR customers may be recruiters and recruiting agents, advertising companies etc. In other words, these are individuals and organizations that HR managers deal with in order to hire the best professionals. Here the following indicators can be used: number of partner recruiting agents/agencies, successful hires through recruiting agents etc. Such KPIs demonstrate and evaluate efficiency of partnership with recruiters.

Internal business processes. In order to cut recruitment costs and decrease employment time, HR managers have to improve business processes inside the department. Only through continuous improvement it is possible to actually optimize HR performance.

Learning and growth. HR managers have to participate in training and coaching sessions in order to improve own professional level, get new knowledge and acquire new skills.

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Very often the decision to implement Balanced Scorecard in an individual department/business unit of a company becomes the worst decision a top manager of a business owner can ever make. Indeed, BSC can be a magic tool that changes the company forever (of course if top management and ordinary personnel are ready to change). At the same time Balanced Scorecard can become a huge waste of time and money if a company is simply not ready or does not need BSC. Balanced Scorecard creators Norton and Kaplan keep claiming that if a company is not ready or reluctant to change, Balanced Scorecard will be of very little use. This also concerns case of BSC implementation on a business unit/department level. Here, top managers and business owner will face with even greater problems, since a department cannot function in isolation, and all measures and goals have to be agreed with company strategy, mission and values, if any.

Some stages of HR BSC implementation

HR department is one of the business unites that often become a testing ground for business owners and top managers who are thinking of implementing BSC on a company level. Advantages of developing an effective HR BSC are obvious. Firstly, this is an excellent opportunity to improve HR performance which is certainly part of company strategic plans. Secondly, it is a great chance to test BSC and actually see how amazingly this system can work. However, as already said above, the company may be simply not prepared to work with Balanced Scorecard. It especially concerns BSC implementation in HR department since HR managers need to:

• Participate in discussion and development of Balanced Scorecard. The point is that involvement of ordinary personnel only then makes sense when employees are well versed in BSC or at least have elementary knowledge/concept. Of course, it is very important to hire external advisors with practical BSC experience, but these people might lack vital knowledge that only company insiders possess.
• Discuss key performance indicators and the way they will be measured. For example, if the decision is made to measures such KPI as new hire retention rate, HR managers should know how they will measure it and how this indicator can be improved. Very often, HR managers may have valuable suggestions as to quality of KPIs and indicators details.
• Establish an effective feedback and reporting system that will transfer information from level company levels to the top and vice versa.

What does HR managers involvement in BSC mean?

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BSC implementation often fails due to most typical mistakes, especially if the system is implemented in individual departments. IT and HR departments are known as the most important auxiliary business units that do not produce anything but organize and facilitate work of main business units. HR management received a special attention from top managers in recent years. No wonder! The world financial crisis proved that money cannot guarantee survival. But a qualified personnel and initiative top managers can really save the company. Human resource capital is the most valuable capital any company has.

How HR evaluation works

But when a company starts implementation o Balanced Scorecard in a HR department with the aim of optimizing its performance, so many mistakes are made. The first and the most common mistake is excessive focus on secondary things and key performance indicators. For example, HR department may focus on employee lateness so much, while this indicator has a very little impact on employee productivity and company revenue growth. Of course, personnel discipline is very important but there are other more important things such as new hire retention rate or employee sickness rate.

The second mistakes in HR BSC implementation is the fact that BSC group get carried away with development of HR strategy forgetting about company strategy. There is nothing bad in setting ambitious plans in HR department. But if those goals and measures conflict with company strategy, why they should be created in the first place?

Let’s analyze the above example with employee lateness. If you give substantial weight to this indicator and make your employees come to work on time everyday, your BSC will show that HR performance get better. This will lead to wrong conclusions and decisions. Yes, all employees come to work on time, but HR department may have more serious problems. For example it may spend too much money to hire and educate personnel, or employee turnover rate is so high that HR department needs to hire new employees almost every day. This is waste of company money that could be spent for something else.

Effective HR department

BSC implementation in HR department is quite a complex process since all HR goals and measures should be aligned with company strategy. In other words, every goal in HR BSC should demonstrate how its achievement will benefit the company and help it reach strategic goals (mostly financial ones). BSC can become a tool that saves the company, but it can equally become a sad waste of money. Everything depends on how you use it.

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What is a universal success recipe for any business? Perhaps, it does not exist.  But at the same time there are things and factors that contribute to company business success.  Effective human resource management is one of such factors.  It is wrong to associate business with money, investments, real estate etc.  Any company is about all associated with people who work there.  Moreover even companies with the best professionals in a certain area may fail to achieve success because these people cannot work together in an efficient and productive way.  That’s why nowadays many companies invest huge money into human resource departments.  In the end these investments will turn into huge profits.

Some major HR tasks

When Balanced Scorecard was introduced in some companies just after its emergence, there are few people really thought about BSE use in human resource departments, although one of balanced scorecard perspectives directly concerns HR.  This is learning and growth perspective which deals with improvement of personnel professional skills, knowledge, organization climate, employee satisfaction etc.

It is really possible to implement balanced scorecard only on a human resource department level.  The most common mistake here is non-alignment of HR goals with the company strategy.  For example, something that is good for human resource department may not be good for the company in general.

Top HR performance leads to revenue growth

This is where strategic maps can help as they show cause and effect ties between indicators of different categories/perspectives.  So, for example if company decides to focus on employee lateness rate or of new hire turnover rate, strategy maps will connect these indicators with other measures and goals of balanced scorecard.  Why not control the above mentioned indicators if they influence personal productivity or increase company revenue?

When implementing balanced scorecard in human resource department it is really important to keep in mind that you are dealing with people.  Sometimes it is really difficult to measure certain human resource management things with figures.  One of such examples is employee satisfaction, as well as organization climate.  At a first glance, these things do not influence company financial goals.  But if you have a closer look at the strategy map you will see that satisfied employees usually have of the most satisfied customers of which means that by keeping your personnel satisfied you can increase revenue.  It is also not a secret that employees tend to work in a more productive way only in the positive organization climate.

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Very often business problems are caused by internal problems in companies, but not by external challenges. Top management may blame changing market conditions or rival companies of own failures. It is very difficult to look for problems inside the company and admit own mistakes. However, this can be very helpful, especially if top management of the company takes into account external factors.

What HR BSC can do?

This is to say that internal reorganization and coordination in the company may bring very good results. Balanced Scorecard system is very helpful in this sense. This is the most effective strategic management tool that links operational and strategic management. BSC initiates changes in the company and, as known, changes should occur in the sphere of human resource management. It is people who need to change first, otherwise any reforms and reorganizations will give no results.

Implementation of Balanced Scorecard in HR area is a very responsible and complex process. One needs to remember that company has general goals and strategy, while HR goals should comply with strategic goals. That is why, when developing company strategy, top management should also consider HR goals, and vice versa.

Some of the most common HR KPIs

One of the most important stages in BSC implementation is choice of key performance indicators. In case of HR BSC one should find out problematic areas, strengths and weaknesses. There are general KPIs that can be used in any company. At the same time, HR managers should express their own viewpoints on what should be improved in HR department in order to reach strategic goals.

For example, a company may have no problems with personnel turnover rate, but experience difficulties with new hire retention which means that newly hired employees are reluctant to stay with a company. It means that they are not satisfied with something. Thus, company top management can look for possible problems and correct mistakes in HR policy.

In such a way BSC can help optimize HR performance which will lead to growth of revenue in future. Investments in HR are long term investments, but they are extremely profitable at the same time.

HR BSC can include a set of KPIs that directly or indirectly characterize performance of HR department. It is also important to set weights for different indicators, as, for example, such an indicator as cost per hire may be more important than personnel sick leave rate. KPIs can be changes in case of internal or external changes.

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Very often top managers wonder why their company failed to achieve success while human resource department managed to hire the best professionals in a particular area.  Unfortunately, just having the right personnel never guarantees success.  One has to make sure that these people can actually work together, and each employee is satisfied with the job and he and his or her best efforts to benefit the company.

What HR department should do

This is to say that human resource department should do everything possible to motivate employees who should be interested in showing their top performance.  This is not an easy task, although many top managers and business owners do not understand why they have to pay for human resource department in the first place.

Human resource department is an auxiliary business unit.  It doesn’t earn money.  Just to the contrary, it spends money earned by other departments.  That’s why, it is imperative to make sure that this money is spent efficiently.  That’s why use of performance evaluation systems, like balanced scorecard, is highly recommended or any companies that claim to be successful in the market.

Major tasks of HR department

Implementation of balanced scorecard in human resource department starts with formation of a working group that will be in charge of strategy maps development and choice of key performance indicators which are used to demonstrate company progress or regress on the way to implementation of strategic goals.

Many managers make a common mistake by the inclusion of only finance specialists to such a working group.  Balanced scorecard can tell much about company future, while finance specialists talk about figures that represent past results.  That’s why make sure that the best HR specialists also participate in the work of BSC team.

The next problem is alignment of strategic goals of the company and HR strategy.  It often happens that seemingly positive results have nothing to do with the company strategy.  So, if balanced scorecard is implemented on the company level, HR goals should comply with the company mission, values and strategy.

Top managers should also set priorities in HR policy.  The choice of key performance indicators solely depends on position of the company, its current problems and future prospects.  For example, the company may lack professional personnel to pursue ambitious goals, or company personnel is not satisfied with working conditions and this results in high personnel turnover rate.  This should be taken into account when developing a set of key performance indicators and composition of strategy maps.

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Goal setting in implementation of balanced scorecard is one of the most important stages.  Indeed, how can one achieve goals if they are not developed at all?  In order to get to the right destination one should know that such destination really exists.

HR evaluation cycle

When implementing balanced scorecard it is vital to know that all goals and measures are interrelated.  This especially concerns huge companies consisting of various departments.  If one department pursues certain goals, such goals should be communicated with other tasks, goals and measures that are developed by the company top management.  There is no sense in moving forward in certain directions, if other departments have problems.

Major HR goals

This is also true with implementation of balanced scorecard in human resource department.  Having qualified personnel does not guarantee success.  Even the best professionals gathered in one company may be unable to show their top performance.  The task of human resource department is to organize their work, higher in educate personnel, as well as create favorable working conditions.

So, when making a decision to implement balanced scorecard in human resource department the company top management should pay attention to the following things:

• Who will be responsible for BSC implementation?  Most HR managers already have much work and tasks to complete.  Balanced scorecard requires much time and efforts.  So, before implementation of balanced scorecard it is important to find people who will have time and skills to work with this system.
• Coordinate HR goals and measures with the company strategic vision.  It is extremely important to develop clear and comprehensive strategy map that will show cause and effect ties between HR goals/measures and relevant indicators in the other categories.
• Motivate HR personnel to use BSC.  Balanced scorecard will only work only if it is used by most of the employees, and human resource department is not an exception here.  HR managers should be interested in improvements in own performance, and see how their work influences company success.
• Involve HR specialists in development of strategy maps. Most companies prefer to hire external consultants which is a common practice. But such consultants do not know peculiarities and common problems of the company. That is why it is important to use knowledge and skills of own HR professionals.

It should be noted that BSC is a strategic management tool that works in the long term, so do not expect immediate results.

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Many top managers and business owners often do not understand why they should spend money for HR. Moreover, when the company undergoes performance evaluation procedures HR department is often forgotten. Indeed, why evaluate performance of HR managers? These guys only hire people. They seem to have no effect on company performance. But this is a very common myth. HR performance directly Influences overall performance of the company, and Balanced Scorecard/strategy maps can demonstrate that.

How HR dept benefits the company?

There are two ways to implement balanced scorecard in human resource department.  The first one is to implement BSC on a department level.  But one should keep in mind the fact that human resource goals and measures should meet demands of company strategy.  In other words, something that is done on a department level should be well integrated into the system of company goals, mission and values.

The other way is to implement balanced scorecard on a company level, and develop human resource goals and measures.  In such a way, human resource goals will communicate with company strategy, and strategy maps will demonstrate cause and effect ties between key performance indicators in different categories: of financial, customer, internal business processes, learning and growth.

Evaluate HR performance and get better HR results

For example, successful implementation of balanced scorecard in human resource department and development of comprehensive strategy maps will make it possible to see how HR performance overall performance of the company.  Imagine that the company started to improve such key performance indicators as new hire retention or personnel turnover rate.  In course of time the company improves sales volumes and increases revenue.  It means that newly hired employees have assimilated in the company and use their knowledge and skills to benefit the company and get profits.  After all, sales and profits are generated by ordinary personnel who knows company customers well.

Or imagine such a situation.  Organization climate becomes worse and employees are unwilling to stay and the company.  Most professional employees leave the company and go to competitors, as a result the company loses competitive advantage.  This leads to loss of customers and drop of sales rates.  These are very serious consequences of a problem inside the organization.  Human resource department should solve such problems before they evolve.

That’s why, evaluation of HR performance plays an important role in implementation of balanced scorecard inside the company.  Human resource department should be ready for drastic changes, as this is the most important precondition of successful BSC implementation.

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Human resource performance greatly affects overall performance of the company, especially a big one.  If a corporation consists of various departments and business units it is very important how personnel is managed, and whether or not human resource goals comply with strategic goals of the company.

Implementation of balanced scorecard is possible on the level of a human resource department.  Moreover, some companies prefer starting work with balanced scorecard on a department level to see how things work out.  If such companies have a positive experience in implementation of balanced scorecard then the system is implemented on a larger scale.

Satisfied employees have satisfied customers

Anyway, goals and measures of balanced scorecard should be tied to a strategy.  In other words, when drawing a strategic map, it should be evident how improvements in human resource management result in implementation of different goals in the four perspectives of balanced scorecard: financial, customer, internal business processes, learning and growth.

In other words, company management must understand how reorganization and measurement of human resource department will affect performance of the company in general.  For example, in order to achieve positive financial results in the company needs to attract more customers and to retain existing ones.  To achieve that, new approaches in customer relations must be used and the company should offer new products and services at competitive prices.  In its turn, this is only possible if personnel can actually use these methods.  Obviously, the company needs the best professionals in a certain area to gain competitive advantage.  This set of cause and effect ties vividly demonstrates how improvement in human resource policy results in implementation of financial goals.

Major HR tasks

If balanced scorecard is isolated in a certain department, it may turn out that different business units are moving different directions.  A strategy map is a well balanced system containing measures and goals related by cause and effect ties throughout BSC categories.

For example, such an indicator as employee turnover rate may directly influence sales growth of the company.  If people do not want to work for a company for a long time they are probably not even their best efforts to benefit the company.  This explains low sales growth rate.  This is just one of the various examples of how balanced scorecard can visualize company strategy and make it understood at all company levels, from top management to ordinary personnel who directly contacts with customers.

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