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.

Implementation of balanced scorecard in HR department has a number of advantages.  The better HR Dept works them of benefits company top management and personnel will have.  In the recent decade it has been understood that nonmaterial assets of the company constitute about a half of company capital value.  Knowledge and skills are very valuable these days.  That’s why proper HR performance will increase capital valley of the company.  Such things as organization climate and employees satisfaction influence company performance and progress on the way to implementation of strategic goals.

But the problem is that it often happens HR goals have nothing to do with the company strategy.  This is the reason why BSC projects implemented at individual departments, such as HR will IT, fail.

Major BSC terms explained

On the one hand, human resource goals may be quite logical and reasonable for you HR managers but they will conflict with company strategy.  When implementing balanced scorecard in human resource department it is imperative that HR managers understand company strategy.  Some of them may have allowed into prediction of strategic goals and they will adjust human resource goals accordingly.  In such a way, human resource department will move in another direction, although formally their goals and tasks would seem quite reasonable.

This is where strategy maps can help.  As known, strategy maps show clear cause and effect ties between indicators, measures and goals.  So, if human resource department wants to improve such indicators as employee lateness, everyone must be able to see how this indicator contributes to implementation of goals in the other perspectives of balanced scorecard.  Is the most important indicator?  Are there any other indicators that directly influence sales growth rate for customer satisfaction?  If so then human resource department should look for other measures. It is impossible to implement balanced scorecard in an isolated environment inside the company.

Human resource management is on the rise.  Company top managers and business owners came to understand that human resource potential is the most valuable asset they have.  Investments in personnel are considered to be the most effective long-term investments.  That’s why, it is very important that human resource department makes an efficient use of money.

Discussion of BSC strategy is a must

When implementing balanced scorecard in human resource department it is first necessary to create a working group that will be in charge for preparation and a proper implementation of balanced scorecard in the company.  There is a very common mistake – working groups often consist of top managers only, while ordinary employees stay away from discussion process.  Under such circumstances ordinary human resource managers will simply ignore balanced scorecard, while some of them will consider it another management control tool.  Most employees do not like to be controlled, and often balanced scorecard causes resistance.

Create a well balanced BSC working group

It doesn’t matter what strategic goals human resource department sets, the working group should consist of both top managers, external advisors and ordinary human resource managers.  The point is that a typical human resource manager can tell much about company personnel, while in external advisor doesn’t know employees in person.  Human resource managers are aware of current problems inside the company and they know for sure how to improve organization climate.  Many top managers are so far away from ordinary employees that their ideas and suggestions may seem unreasonable to personnel.

Creation of a working group is a very important step in implementation of balanced scorecard.  The wrong choice of group members will lead discussion to the wrong direction.  As a result wrong key performance indicators and response actions will be chosen.  The strategy will not be understood for people who work for the company.  Successful implementation of balanced scorecard depends on acceptance of this system by ordinary employees.  Balanced scorecard should become part of the everyday routine in the company, and human resource department in particular, and personnel should learn how to live with balanced scorecard.

Motivation is one of preconditions for successful use of BSC

Implementation of balanced scorecard starts with development of company strategic goals.  Strategy maps will help visualize strategy which make it comprehensive and understood for ordinary personnel.  On the other hand, it is very important to get personnel involved in development of strategy maps.  Sometimes ordinary employees know much more about business than company owners and top managers.  That’s why they need to participate in discussion of company strategy and strategic goals.

But at the same time employees have their own duties, tasks and responsibilities, besides Balanced Scorecard.  How to get their attention?  How to keep them interested in use of balanced scorecard?  Of course, company top management needs to introduce a reliable and effective reward system that would seem fair to personnel at all levels.  In other words every employee in the company should beware of his benefits for contributing to company success.

Financial motivation really works

Experience shows that when balanced scorecard is imposed from the top to the bottom company employees are not very happy with this system.  Moreover, Balanced Scorecard sometimes causes serious opposition and resistance.  And in such a way BSC becomes useless.  Besides, balanced scorecard implementation is quite expensive.  So, of failure to successfully implement balanced scorecard automatically results in losses.

That’s why human resource department should think of an effective reward system.  But choosing several indicators from the dashboard to become the basis of reward system is not enough.  Employees should be rewarded for decisions and actions that directly influence company’s progress on the way to implementation of strategic goals.

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.

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.

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.

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.

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.