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We have prepared a free guide on how to do employees evaluation with Balanced Scorecard.

The guide includes a short article that explains basics and 2 forms that can be used by manager and by employee.

Each form is accompanied with a sample of how manager or employee should fill it.

The guide is totally free and is available for download here.

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.

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.

Implementation of Balanced Scorecard in various business units and departments of a company is rarely implemented without any mistakes, imperfections and problems. Of course, those business owners and managers who really want to achieve positive results either look for professional assistance or get at least elementary BSC education. Luckily, lots of companies offer online BSC courses and coaching opportunities. Mistakes in implementation of a HR BSC can be avoided, of course if those managers who are responsible for BSC implementation are aware of them. Let’s classify and summarize most common mistakes in creation of an effective and easy to understand Balanced Scorecard.

Firstly, some managers who do not work in HR department often forget that excellent performance of this business unit is the precondition for success. Thus, HR departments should be properly evaluated in order to locate weaknesses in personnel managements as well as find discrepancies with company strategy. After all, it is company employees who deliver results. Even the best and well thought strategy will fail unless it is understood and accepted by the majority of personnel. That is why a HR BSC should be accepted by both HR managers and employees who are being evaluated. Only in such a way Balanced Scorecard will demonstrate its true power.

Excessive focus on financial key performance indicators is actually another common mistake in HR BSC implementation. The zest of BSC is evaluation of non-financial indicators in combination with financial measures. For example, excessive focus on cost per hire may results in great cost savings and decrease of professional level of new hires. The same concerns such KPI as education cost per employee since it is sometimes better to pay more and get quality training than to spend less and such trainings will have absolutely no results.

The next mistake is use of HR BSC by one or two persons in the company. Even if these people are well versed in strategic management, Balanced Scorecard is useless since it becomes a favorite toy for several persons and never comes down to employees of mid and lower levels. All indicators and categories used in a HR BSC must be easy to understand for ordinary employees, or at least mid level management. Of course, it does not mean that the entire personnel should be proficient in strategic management and performance evaluation, however basic understanding of Balanced Scorecard and purposes of HR management evaluation is a must.

Perhaps one of the most important stages in implementation of any BSC in any industry is creation of an effective KPI set. There are lots of commercial and free libraries online that offer their hand picked collections of KPIs designed for various industries, including HR.  It should be noted that there are hardly any universal sets of HR KPIs since approaches to evaluation of personnel are different in various industries. In other words, one should not evaluate HR performance of a wholesale company in the same way as efficiency of HR department in manufacturer of consumer electronics. However, there are a few universal KPIs that will suit needs of any HR BSC, namely:

• Cost per hire. No matter in what industries and markets a company operates, its HR department requires a certain amount of money to hire one employee. Even if the person can to the company for employment without any advertising (for example one of the company employees recommended him/her a particular position) the HR department still spends money (salaries for HR managers who register the employees, educate him/her, clarify wages and compensations plans etc). Logically, the less a company spends, the better HR department performs. However, this rule does not always work. Cost savings should be reasonable. Sometimes, to be able to hire experienced stuff the HR department should spend money on recruiting and advertising, agents’ fees etc. Cost per hire depends on company goals and efficiency of HR personnel. Reasonable decreases are vivid signs of a good HR performance. This indicator is one of the most important on HR BSC and thus often given much weight.

• Average time a position is vacant. If a company lacks even one employee it cannot perform normally. Even if this position is covered by another employee it cannot last forever. Thus, HR managers should do everything possible to fill the vacant position as soon as possible. For example, if the department lacks an experienced sales manager for a month, this will inevitably lead to decrease of sales volumes. At the same time, if the HR department overpays when hiring such an employee it will lead to monetary losses. So, this KPI is related to the above mentioned measure.
• Employee satisfaction. Generally, employees should be satisfied with compensations plans, working conditions and managerial approaches. In other words, if they feel satisfied they will work better. It is not a secret that satisfied employees as a rule have satisfied clients.

Some business owners barely understand how HR department performance influences overall performance of a company. The point is that HR managers are not occupied with production or service rendering tasks. In other words they do not earn money. Just to the contrary, they spend company money to hire personnel. For this reason some business owners and managers do not understand why they need to spend money to improve performance of HR department and include it to the strategy roadmap. This is a common mistake among inexperienced managers. However, the recent decade vividly demonstrated importance of an effective HRM and proper evaluation of HR performance in the company. Like any other business unit, HR department should have goals and measures based on which implementation of these goals will be evaluated. Performance evaluation and strategic management are combined in a popular framework named Balanced Scorecard.

It should be said that implementation of BSC in HR departments is quite specific owing to the required set of key performance indicators. Of course, every industry has own requirements to KPI and various success factors. However, HR managers and those responsible for BSC implementation should always keep in mind one simple fact – management of personnel should always have goals correlated with company strategy. Luckily, Balanced Scorecard is such a system that makes goal alignment quite easy.

HR evaluation with BSC has got a number of positive aspects:

• Alignment of HR goals with mission, values and goals of a company. Often HR departments pursue own goals that are good in themselves however they contradict mission and values of a company. For instance, employment of experienced personnel may not match requirements of a budget plan. The same concerns employee coaching and training. Personnel management should depend on goals and measures of other departments.
• Cost savings in HR. Of course, this is not the key goals of HR BSC, however very often successful implementation of Balanced Scorecard results in optimization of HR budgets. With the help of BSC HR managers will easily locate problem points. For instance, if the company spends too much to educate personnel or hire new employees, there should be ways to decrease such costs.
• Ordinary employees and mid level management will clearly understand company strategy. Thus, these employees will perform better, of course if properly motivated. BSC is a great tool to motivate personnel who will be able to measure own performance.

HR department deals with lots of issues that need to be addressed in the company, from hiring and education of personnel, to organization of suitable working schedule, establishment of friendly working environment, measurement of employee satisfaction and development of fair and comprehensive compensation system. Effective HR management pretty much predetermines efficiency of employees, both group and individual. There is a rule in business – if you want to improve something, you first need to set goals and measure current performance, i.e. where you are at the moment. In case of HR department, the company should first set priorities based on strategic goals. HR policies differ depending on strategies. For example, it may be more suitable for a company to hire experienced employees for mid level managerial positions (and thus pay competitive salary) than to hire college graduates with no experience and invest money in their education and coaching. At the same time, some businesses possess excellent education tools and opportunities, so education becomes fast, cheap and effective.

HR BSC differs from other scorecards since it is all focused on employees. There are two parties in every company – personnel and company management, owners and shareholders. Each party pursues own interests. With BSC it is quite possible to agree these interests. Thus, if an employee wants to develop skills and acquire new knowledge he or she should be offered such an opportunity.

HR BSC will help find balance between interests of HR department, employees and company management. Of course, this strategic management and performance evaluation tool will not solve all problems overnight. However, a step by step implementation and maintenance of BSC in a HR department may certainly help optimize HR performance. Benefits of HR BSC use are obvious:

• Cost savings. As known, every company needs to spend money to hire personnel and educate them. HR optimization may lead to decrease of cost per hire which in its turn may improve a series of other indicators, related to financial category.
• Employee satisfaction. Satisfied employees will have satisfied customers. This is perhaps what every company is looking for. Besides, satisfied employees are eager to show top performance, especially if they are properly motivated. Introduction of HR BSC should be definitely accompanied by introduction of a comprehensive motivation system both for employees and HR managers.
• HR BSC will help align HR and company strategy since there should be no contradictions.

In most cases mistakes in BSC implementation are inevitable. The reason is that no one can foresee developments in the market and the world economy in general. That is why even the correctly developed scorecard may not fully work under certain circumstances. The same concerns scorecards that are introduced on a department level. It is not a secret that lots of companies prefer to test BSC on a department level before investing money into a full scale implementation. Perhaps, HR department is one of such business units.

Human resource management has become rather popular in all industries and the recent financial meltdown demonstrated a true power of HR departments. It would be fair to say that company personnel is the most valuable asset for any business. That is why it is important to efficiently manage employees and create mutually profitable working conditions. This is where BSC helps. At the same time, BSC mistakes are inevitable however in most cases avoidable. Let’s name a few of them:

• When developing HR strategy and measures, top managers totally forget about interests of personnel. If HR policy is one sided it is doomed to fail due to the fact that company employees will not accept it. Measurement of cost per training sessions or training cost per employee is OK. However, one needs to measure efficiency of training and employee satisfaction with training sessions as well.
• HR policy is well developed however it contradicts company strategy. For example, HR BSC may imply decrease of time per hire which is good for HR department in the short term. The sooner vacant positions are occupied by new employees the sooner the department can be fully functional. However, aiming to get excellent BSC results, HR managers hurry up with hiring employees some of whom may not possess necessary experience and skills. In the long run the company will never benefit from such employees as it needs to spend money for education of incompetent personnel.
• Strategy and indicators remain on paper. This is a very common mistake, not only in HR. Employees need to work with BSC, not just hold the first introduction seminar. Every HR manager needs to understand his/her role in the department. That is why strategic goals should be clear. Balanced Scorecard will visualize HR strategy with strategic maps, so that HR personnel gets involved in changing the department for the better.

Implementation of Balanced Scorecard in HR department is quite popular for a number of reasons. Firstly, this is an excellent opportunity to test BSC and see what it actually can do. The problem is that BSC has received a huge portion of criticism from top managers and business experts that failed to have a positive experience. This is mainly because lots of typical mistakes were made during BSC implementation and maintenance. That is why, company owners and top managers are reluctant to invest huge funds into BSC implementation of a company scale. Development of a HR BSC is a perfect example of how the power of Balanced Scorecard can be tested.

Without any doubts, development of a HR BSC should start with a goals setting. At that, HR managers should not forget that HR goals and measures should meet requirements of a company mission and values. In other words, every decision in HR should correspond to a relevant goal on a company level. Thus, for instance, if the company made a decision to decrease cost per hire, it should anticipate how this decision would affect implementation of a company strategy. Sometimes, HR goals are fine by themselves, however, they look absolutely unacceptable in terms of a company strategy.

With a set of defined strategic goals, the company should proceed to development of BSC which start with selection of KPIs (key performance indicators). These measures should be also related to relevant measures on a company level. Thus, measurement of employee lateness or sickness rate should be useful in terms of evaluating company profit, operational losses etc.

At that, it should be mentioned that key performance indicators should be easy to understand and actually measurable. There is no point to waste money for measuring KPI that in no way affect department performance (some really silly measures). It is very important that every indicator is related to goals and measures of a higher level.

HR department is responsible for employment, education and retention of personnel. Thus, KPIs related to every stage should really reflect company goals. If the company needs to spend money to retain certain category of employees it should be aware of how to effectively use their knowledge and skills to achieve goals. Sometimes, companies spend huge money to hire experience employees who simply do not use their full potential.

Implementation of HR scorecard is a perfect way to improve performance of this business unit and consider using BSC on a larger scale.

HR management is a subtle thing since employees need to work with the same employees, making sure they are productive, well educated and loyal to the company. Since a company spends money to hire employees it should make sure the employees generate profits. This is the way a modern business works. An efficient human resource department is more than just a bunch of employees who hire personnel and organize training sessions. No way! An effective HR department is a business unit that focuses on company goals and thinks how own performance can help achieve them. The goal of hiring personnel is not just to hire. Every employee should have a mission in the company and own personal goals. Moreover, these goals need to be aligned with company strategy. HR department is occupied with such tasks. Of course, it is necessary to measure business unit performance to make sure it is moving in the right direction. Balanced Scorecard is a widely recommended tool in this sense.

BSC will help align strategies and goals. For example, if it becomes profitable for a HR department to hire inexperienced employees because of money savings, such policy may be harmful for the company that expects the best performance from personnel all the time. The same concerns training. HR department may organize seemingly interesting and useful trainings while in fact, they will have no effect on company performance, growth of sales and revenues. Thus, BSC is mainly a tool that both measures HR performance and checks alignment of HR goals with those of the entire company.

Very often, companies conduct business trainings just because they have to. With BSC and namely it education and growth perspective, company top managements and HR managers will actually see how these trainings work in the short and long term. Simply by measuring employees satisfaction with trainings, it is possible to evaluate their efficiency (employees are unlikely to use knowledge and skills obtained at seminars and training sessions that they do not like).

Much depends on how employees themselves evaluate work of HR department. If they think that HR managers exercise the wrong policies and have the wrong attitude, even the brightest HR ideas will simply fail.

BSC evaluated KPIs in complex, and thus all indicators are interrelated. It is easy to see which indicator affect what goals. After all, BSC is implemented to benefit the entire company, including HR department.

We often get a question about how to get ideas for new KPIs?! Here is a nice article about this that actually linking readers to the kpilibrary.com

That’s a great start to start gathering ideas for KPIs that might help you to analyze and measure the performance of your company.