This article discusses the basic concepts behind the balanced scorecard approach, especially in relation to HR management, and how scorecard design and implementation should be based on a sound strategic map.
The balanced scorecard represents a concise distillation of a useful strategic management concept. It was introduced in the nineties by Kaplan and Norton in response to the previously existing management approaches that they felt leaned too heavily towards the financial aspects of the business. They termed their new approach â€˜balancedâ€™ to emphasize that there are other aspects of any organization that need to be considered as well, if management is going to get the whole picture.
This approach can be termed fact-based management, where the gathering of accurate and relevant information becomes crucial. It is on the basis of this information that management could then make better decisions, both for the short term and the long term.
The balanced scorecard approach espouses the consideration of four basic perspectives. Each of these perspectives have their corresponding metrics, which are the standards by which performance can be measured quantitatively. By analyzing these measurements, improvement goals can then be set and attained quantitatively.
One of these of course is the financial perspective. It is here where expenses and revenues are considered carefully, as well as the flow of money within the organization itself. In HR, in particular, this would include looking at the ratios of hiring costs versus productivity, and so on. Traditionally this is the aspect that has received the most attention, since most businesses have the primary goal of making profits while minimizing costs. However, this is just one of the four aspects which the balanced scorecard approach considers.
Another important aspect is the customer perspective. Here, customer satisfaction, among other things, is important to measure. The quality of the relationships between the organization and its clients is considered here using the appropriate metrics such as the percentage of return clients, etc.
The third aspect that the balanced scorecard approach considers is the internal business process perspective. What this encompasses are (of course) the internal processes that the organization needs to excel at. HR departments would do well to look at such things as new employee accommodation, the ease of communication between offices and staff, and so on.
The last aspect is the learning and growth perspective. Here, the organizationâ€™s capability to grow and adapt is measured. What is important here is then the quality of training that employees receive, as well as an efficient communications network that would allow fast and effective reaction to any contingency.
A strategic map is simply the process of drawing connections between the various processes and entities within the organization. This is in harmony with looking at the organization and its workings using these four perspectives as suggested by the balanced scorecard approach. Using a strategic map, the most important and relevant metrics may be identified. Once these are identified, creating the balanced scorecard itself becomes easy.
Implementing the balanced scorecard would then consist of just gathering the necessary data to evaluate performance using the selected metrics. These results are then put together in a weighted sum, balanced by the relative importance of each metric with respect to each other.
The balanced HR scorecard approach can help not only HR management, but any type of management to get a clearer picture of the organization. This then turns to the ability to translate this information into positive action, improving performance across the board.