Dissertation report-on-putting-hr-on-balanced-scorecard-a-case-study-of-verizon1

A

Dissertation Report

On

“Putting HR on Balanced Scorecard”

(A Case Study of Verizon)(SUBMITTED TOWARDS PARTIAL FULFILLMENT OF POST

GRADUATE DIPLOMA IN MANAGEMENT)

(Approved by AICTE, Govt. of India)

ACADEMIC SESSION

(2008-10)

Under the guidance of: Submitted by:

Supervisor Name Your Name Lecturer (college name) Roll: - PGDM-08/012

College Address

College Logo

PREFACE

There is a famous saying “The theory without practical is lame and

practical without theory is blind.”

Alignment of the Human Resource with the overall strategy of the

company is a very big and toughest challenge for the company.

Human resource is an important part of any business and managing them

is an important task.

Our institution has come forward with the opportunity to bridge the gap

by imparting modern scientific management principle underlying the

concept of the future prospective managers.

To the emphasis on practical aspect of management education the faculty

of College Name has with a modern system of practical training of repute

and following management technique to the student as integral part of

PGDM.

ACKNOWLEDGEMENT

“It is not possible to prepare a project report without the assistance &

encouragement of other people. This one is certainly no exception.”

On the very outset of this report, I would like to extend my sincere & heartfelt

obligation towards all the personages who have helped me in this endeavor.

Without their active guidance, help, cooperation & encouragement, I would not

have made headway in the project.

I am ineffably indebted to Supervisor Name for conscientious guidance and

encouragement to accomplish this assignment.

I am extremely thankful and pay my gratitude to my faculty guide

Guidance Name, College Name for her valuable guidance and support on

completion of this project in its presently.

I extend my gratitude to College Name for giving me this opportunity.

I also acknowledge with a deep sense of reverence, my gratitude towards

my parents and member of my family, who has always supported me

morally as well as economically.

At last but not least gratitude goes to all of my friends who directly or

indirectly helped me to complete this project report.

Any omission in this brief acknowledgement does not mean lack of gratitude.

Thanking You

Your Name

CERTIFICATE FROM THE FACULTY GUIDE

This is to certify that the project work entitled “Putting HR on Balanced

Scorecard: A Case Study of Verizon.” is a bonafide work carried out by Your

Name, a candidate of the PGDM (2008-2010) College Name under my

guidance and direction.

Signature of the Guide

Guidance Name

TABLE OF CONTENTS

TABLE OF CONTENTS.........................................................................................................4

1.LINK ITS SELECTION AND PROMOTION DECISIONS TO VALIDATED COMPETENCY MODELS..................................................................................................................................9

.................................................................................................................................................65

FINDINGS OF THE STUDY................................................................................................65

LIMITATIONS OF THE STUDY........................................................................................67

CONCLUSION.......................................................................................................................68

RECOMMENDATIONS.......................................................................................................69

REFERENCES.......................................................................................................................71

TABLE OF FIGURES

FIGURE 1: HR ARCHITECTURE STRATEGIC COMPONENTS.................................8

FIGURE 3:- THE MAIN FRAMEWORK OF BALANCED SCORECARD..................30

FIGURE 4:- MODEL FOR IMPLEMENTING HR’S STRATEGIC ROLE..................35

FIGURE 5: A HIGH PERFORMANCE WORK SYSTEM..............................................37

FIGURE 6: SIMPLE STRATEGY MAP.............................................................................39

FIGURE 7:- INITIAL MODEL USED TO ALIGN HR STRATEGY TO BUSINESS STRATEGY............................................................................................................................54

FIGURE 8:- THE PEOPLE REQUIREMENT AND BUSINESS DRIVER DETERMINATION PROCESS...........................................................................................56

FIGURE 9:- THE HR SCORECARD STRATEGY MAP.................................................58

FIGURE 10: HR SCORECARD IMPLEMENTATION ARCHITECTURE..................64

1. INTRODUCTION

The new economic paradigm is characterised by speed, innovation, quality and customer

satisfaction. The essence of the competitive advantage has shifted from tangible assets to

intangible ones. The focus is now on human capital and its effective alignment with the

overall strategy of organisations. This is a new age for Human Resources. The entire system

of measuring HR’s contribution to the organisation’s success as well as the architecture of the

HR system needs to change to reflect the demands of succeeding in the new economy. The

HR scorecard is a measurement as well as an evaluation system for redefining the role of HR

as a strategic partner. It is based on the Balanced Scorecard framework developed by Kaplan

and Norton and is set to revolutionise the way business perceives HR.

Based on various studies, it can be concluded that firms with more effective HR management

systems consistently outperform the competition. However, evidence that HR can contribute

to a firm’s success doesn’t mean it is now effectively contributing to success in business. It is

a challenge for managers to make HR a strategic asset. The HR scorecard is a lever that

enables them to do so. Implementing effective measurement systems for intangible assets is a

very difficult task and demands the existence of a unified framework to guide the HR

managers. It is this difficulty that has been the prime reason why managers tend to avoid

dealing with intangible assets as far as possible. In the process firms under-invest in their

people and at times invest in the wrong ways. Another difficulty is, managers cannot foresee

the consequences of their investments in intangible human assets in a well-defined

measurable manner and they are not willing to take the risk. Thus, the most effective way to

change this mindset is obvious – to build a framework just like the balanced scorecard, which

has sound measurement strategies and is able to link HR functions, activity and investment

with the overall business strategy. The HR scorecard framework was specifically designed for

these purposes.

AJAY KUMAR GARG INSTITUTE OF MANAGEMENT Page 1

2. RESEARCH METHODOLOGY

2.1.Research Objectives

1. To highlight the importance of Balanced Scorecard as a measurement tool.

2. To find out the need of Balanced Scorecard in today’s competitive environment.

3. To find out how Balanced Scorecard is useful for developing the Human Resource as

a strategic partner.

4. To find out how Balanced Scorecard can be implemented to Human Resource.

2.2.Type of Research - Exploratory Research

2.3.Data sources: The research is based on secondary data and the data is collected

from various websites, Journals, Magazines, Articles and Research Paper.

2.4.Data Analysis: The research is divided into the six sections. The First section

deals with the overall introduction of the research and the Second section highlights

the Human Resource as a strategic partner and the traditional human resource and the

human resource in present and the future of the human resource. Third section

explains in detail the HR Architecture as a strategic asset which contains the hr

function, hr system and the employee behavior. Fourth section explains the

background and the concept of balanced scorecard, need of the balanced scorecard in

today’s competitive environment, and defines the balanced scorecard as a

measurement tool. Fifth section explains how balanced scorecard can be

implemented into the human resource to develop the HR as a strategic partner. Sixth

section contains the case study of Verizon and explains how Verizon has

implemented the balanced scorecard to human resource to generate the value through

the intangible asset.


3. LITERATURE REVIEW

1. Is the balanced scorecard HR's ticket to the board? Nelson, Paul. Personnel Today, 3/5/2002.

Most thoughts comprised of some combination of “BC is a wonderful tool to allow HR to

show its value to a firm”, “BSCs will only work with senior management buy-in” and “BSCs

alone will not bring a firm closer to its goal, contributing to the overall business will”.

2. HR Performance Scoring Demonstrates Results. McKewen, Darren. 2004.

Career Journal.com Accessed from website.

The first part of this article gives numbers on the popularity of BCs throughout industry.

From the article: “According to a recent survey by the Balanced Scorecard Collaborative and

the Society for Human Resource Management, about one-fourth of HR organizations have

adopted the Balanced Scorecard approach. However, virtually all of the 1,300 respondents

have explored the possibility.” The rest of the article has no relation to balanced scorecards.

3. The Balanced Scorecard: Creating a Strategy-Focused Workforce. Frangos,

Cassandra.

A synopsis of three scholars’ (Jac Fitz-enz, David Norton, and Helen Drinanwork) in the field

of HR metrics and analysis, by way of selling the author’s upcoming Net Conference.

1. Fitz-enz evaluates a firm’s HR process by cost, duration, accomplishment, error rate,

employee satisfaction, matricing these five over three distinct tasks: acquiring talent,

developing talent, and retaining it.

2. Norton developed the "Human Capital Readiness Report," which provides a snapshot

of an organization's human capital relative to its strategic requirements. It documents

the strategic requirements, then shows, through its measures and programs, how

human capital is being developed.

3. Drinan had been working on a profile of HR leaders


“So what is the profile of outstanding HR leaders? Among other things, they derive their

agendas from enterprise business objectives; they stay in touch with the workforce; think

"customer focus," not "customer service"; and concentrate on a few strategic priorities.”

4. “A Balanced Scorecard Changes HR Mgmt From Art to Science”. Human

Resource Department Management Report. January, 2003. Issue 1-03, p. 1.

Objective:- Reasons for and application of using the BSC as a way to measure HR

productivity and effectiveness.

Biggest reason: a move to measuring tangible assets, and a need to turn the intangibility of

HR into something more measurable. Case: Alterra Health Care in Milwaukee, which used

HR as the centerpiece of a larger strategic transformation that targeted the firm’s 145%

turnover rate.

5. “Understanding the Balanced Scorecard: An HR Perspective”. ICG Research.

2003.

Objective:- How to implement the Balanced Scorecard to Human Resource.

1. “Building the Balanced Scorecard should be a team effort at the executive level and

functional heads must not create their bits of Scorecard in isolation. Therefore, HR

can be “custodians” but not owners of the learning and growth perspective.”

2. “Implementation is a bigger issue than scorecard design”. “The difficulty of cultural

change that accompanies Scorecard implementation is typically underestimated. One

of the biggest problems is the (legitimate) fear that the Scorecard will be used to “beat

up people.”

3. “The HR Scorecard must make visible the link from what staff does to strategic

outcomes. Cascading goals, which may be done through the ten-step process, is one

element of successfully creating the link.”


6. “Secrets to Success with Balanced Scorecards”. HR Focus. October, 2001 Vol. 78,

no. 10, p. S3.

Summarizes the “10 Commandments of Performance Management” from a book by William Abernathy: Managing Without Supervising: Creating an Organization- Wide Performance System. Some of these commandments:

1. “No one should design his or her own incentive plan”

2. “The frequency of measurement feedback is as important as the amount”

3. “Measure only controllable job outputs”

7. “Avoiding performance measurement traps: ensuring effective incentive design

and implementation”. McKenzie F.C. & Shilling M.D. July/August, 1998.

Compensation and Benefits Review. Vol. 30 (4), p. 57-65.

Details methods of performance measurement and the traps associated with each.

Measurements evaluated include: Traditional accounting methods (ROI, EPS, RONA),

Value-Based, such as Economic Value Added, and the Balanced Scorecard. Traps associated

with the BSC are as follows:

1. Assuming the Balanced Scorecard is a perfect tool for compensation.

2. Reduced focus on performance management

3. Using measures that are difficult to quantify

4. Contradicting goals or benchmarking

5. Getting tied-up in implementation

Nine guidelines for effective performance management are outlined:

1. Emphasize a few measures.

2. Focus on measures that participants can control.

3. Avoid “all-or-nothing” programs.

4. Balance accuracy and simplicity.

5. Include an appropriate subjective element.

6. Mind the corporate culture.

7. Communicate up-front, then keep communicating.

8. Revisit the program design often.

9. Integrate with long-term incentives.


4. HUMAN RESOURCES AS A STRATEGIC PARTNER– THE PRESENT AND THE FUTURE

The general scenario in most companies is as follows. HR management teams have well-

developed visions of their departments, their roles and responsibilities. But, the senior

management is generally skeptical of HR’s role in the firm’s success. They generally consider

HR to just be another necessary appendage but not something that can contribute to the

success of the company. Even if the senior management does believe that human capital is

their most prized possession and asset, they cannot understand how the HR team can make

this belief come alive.

There is one reason for all of this. Human capital is an intangible asset and HR’s influence on

firm performance is difficult to measure. The standard elements of a firm’s resource

architecture that are measured include total compensation, employee turnover, cost per hire,

percentage of employees that undergo performance appraisals and percentage employee

satisfaction. The question to be asked is: Are these the measures crucial to implementing the

firm’s strategy? This is clearly not the case. Interesting attributes would include a committed

workforce, competency development programs, etc. But, it is very difficult to imagine

measures for these quantities. Hence, in the current state of HR there is a clear rift between

what is measured and what needs to be measured.

As mentioned in the introduction, the role of HR is no more just administrative. It has a much

broader, connected and strategic role to play. But, these statements must be substantiated. The

reasons why HR must be considered as a strategic asset must be highlighted. A strategic asset

is something difficult to trade or imitate. They are normally a set of scarce, special or even

exotic resources and capabilities that bestow a firm its competitive advantage. An unlikely

paradox is that the very intangibility of human capital that makes it so difficult to measure

and evaluate, also proves to be the one quality that makes it a strategic asset. Consider the

difference between being able to align employee efforts with the company’s strategic goals

and instead having innovative policies of performance appraisals. The latter is a policy. It is

visible to competitors and can be easily copied. The former on the other hand is a strategic

move. It is not easy to imitate since it is a very circumstantial effort, which depends on the

specific firm, its goals and its people. This proves to be a strategic asset i.e. something that

competitors cannot see but that can be utilised to gain a competitive advantage. It is thus


important to align the HR strategy to the overall business strategy signifying a top-down

approach as opposed to a bottom-up approach where each division such as marketing, HR etc.

performs its standard individual roles without a clear outlook towards the firm’s strategy.

Many firms have realised this and have made efforts to measure HR’s influence on the firm’s

performance. However, most of these approaches seem to focus on the individual, as it is

believed that if one can achieve an improvement in individual employee performance, it

would automatically enhance the performance of the organisation. The point that is missed is

the fact that organizational units, be it individuals or teams, do not function in isolation. The

stress is on streamlining and cooperatively working towards a common goal.

5. THE HR ARCHITECTURE AS A STRATEGIC ASSET


The focus of corporate strategy is to create sustained competitive advantage whereas that of

HR strategy is to maximize the contribution of HR towards the same goal. Thinking about

HR’s influence on the overall strategy of the company requires one to look at all aspects of

the HR architecture. The HR architecture describes the relationship of the HR function, the

HR system and the employee behaviour.

Figure 1: HR Architecture Strategic components

5.1.The HR function

The foundation of a value-creating HR strategy is a management infrastructure that

understands and can implement the firm’s strategy. The professionals in the HR function

would be expected to lead this effort. This clearly implies that HR managers and

professionals need to get a deeper understanding of the HR function. There are two basic

functional categories in HR management. The first is technical. It includes delivery of HR

basics such as recruiting, compensation and benefits. The second is strategic. It involves

delivering the above mentioned services in a way that directly supports the implementation of

the firm’s strategy. Most HR managers are proficient enough in the technical aspect but rarely

do they even know about the strategic aspect. Thus, the competencies that the HR managers

need to develop and the ones that have the largest impact on organisational performance are

the business and strategic competencies.

5.2.The HR system


In an effective high performance HR system, each element is designed to maximise the

overall quality of human capital throughout the organisation. To build and maintain a set of

talented human capital, the HR system should:-

1. Link its selection and promotion decisions to validated competency models

2. Develop strategies that provide timely and effective support for the skills demanded

by the firm’s overall strategy implementation.

3. Enact compensation and performance management policies that attract, retain and

motivate high-performance employees.

Basically, the firm needs to structure all the elements of its HR system in a way that supports

a high-performance workforce. However, systemic thinking implies stress on the

interrelationships of the HR system components and the link between HR and the larger

strategy of the firm. The laws of system thinking imply the following:

1. Problems of today are most likely due to past decisions. It is thus important to look at

the causal nature of past solutions and current problems.

2. One should think twice before taking the easy way out or deciding to go with standard

solutions to any problem as this will most likely lead to a crop of new problems in the

future.

3. Cause and effect are not closely related in time. There is a lag between cause and

effect and HR’s influence on firm performance is normally much less direct than that

of other performance drivers. This can make it hard to measure as well as be

misleading. It is thus important to look at the leading indicators and not just the

lagging indicators. Typical financial performance measures are lagging indicators and

in an attempt to solve financial problems, the first step is normally to cut costs. It is

more important to actually pinpoint the cause of the problem and look to long-term

benefits than short term ones.


4. The best strategies are often unobvious. Small changes in how HR drivers are

managed can slowly gather momentum and work their way through the strategy

implementation process.

5. It is important never to dissect the system and view each of its parts independently.

One must look at the system as a whole and the connections between the individual

parts is normally the vital place to look at for a solution to any of the problems.

Firms with high performance work systems tend to devote considerably more resources to

recruiting and selection. There is a strong emphasis on training and performance management

and compensation is tied to performance. Teamwork is encouraged, there is generally less

unionization and they have a large and effective HR team. It is important to note, that all

these factors in tandem, not in isolation, lead to better performance, once again showing the

systemic nature of HR’s role in performance enhancement. The effects of these measures are

lower employee turnover, more retention, greater sales per employee and a greater market

value for the firm.

It is also important for the HR system to constantly check for alignment of all its parts i.e.

how much they reinforce or conflict with each other. An example of misalignment is a policy

that encourages teamwork but rewards individual contributions.

In the service sector, the employee-customer relationship is very obvious and visible and so

the impact of value creation is unmistakable. But, in many firms, the value is derived from

the operational processes and quality of work that the employees generate. This is less

obvious to competitors and it cannot be imitated. It is especially in these kinds of firms that

the alignment of HR strategy and policy with the overall strategy of the firm matters the most.

The alignment process begins with a clear understanding of what kind of value the

organisation is supposed to generate and how it should be generated. In the Balanced

Scorecard, this is referred to as the ‘strategy map’ that stresses the relationship between the

ultimate goals and the key success factors at the four important levels of customers, internal

operations, people and systems. Once the firm has a clear understanding of the value-creation

process, it can then design an implementation model that specifies needed skills and


competencies and employee behaviours throughout the firm. The HR management section

can then be directed towards generating these necessary competencies and behaviours. The

stress is not just on the creation of sound HR policies and strategies. How these are

implemented is also very important. There has to be a strong alignment with the firm’s

competitive strategy.

A high performance HR system will also tend be unique. This is because it depends on the

particular organisation, its goals, people and strategy. Hence, it proves to be a strategic asset.

5.3.Employee Behaviours

As mentioned above the final results of the strategies are mapped to required employee

behaviours. It is important that each employee be trained not just to do his or her job but also

to have a substantially clear understanding of where he or she stands in the big picture of the

overall strategy of the firm. Strategic behaviours are productive behaviours that directly serve

to implement the firm’s strategy. There are two basic categories. Core behaviours are

behaviours that are considered fundamental to the success of the firm, across all business

units and levels. Situation-specific behaviours on the other hand, are more circumstantial

behaviours. These are not required all the time but are absolutely necessary in certain

scenarios.


6. THEORY BEHIND THE BALANCED SCORECARD

6.1.Background of the Concept of Balanced Scorecard

Throughout the history of contemporary management theories starting from the ones that

were introduced by the intrusion of the mass production in the beginning of the 20th century

and until today, all the gurus of management have been trying to find uniform solutions on

more efficient allocation and use of very limited resources available to businesses. Those

paths in seeking the Holy Grail of operational efficiency have brought up several new

management theories.

In the dawn of the century, Frederick W. Taylor established the very concepts of resource

allocation in his Principles of ScientJlc Management. In 1920-ics it went around assembly

line and motion studies as the first experience from systematic mass production had given

theorists quite a lot of materials to be analysed from the point of view of using traditional

blue-collar employees more efficiently. In the I 930-ies, the main topic was motivation of

employees, as it turned out that human nature does not enable to work long hours on a

repetitive tasks without frustration level getting so high enough to diminish productivity. In

the l940-ics and 1950-ies, the first statistical and linear methods were introduced in trying to

measure logistics of the operations management and its implications to overall company

success in financial-analysis side. In the beginning of 1980-ics, partly because of introduction

of electronic data processing equipment and quick development of computers, the whole

array of management techniques were initiated. The particular reasons for the vast

development of the new theories were catalyzed mainly by ever growing competition

generated through more systematic use of computers, and of course also by rapid growth of

the importance of human capital.

Today’s companies are in the midst of a revolutionary transformation. Industrial age

competition is shifting to information age competition. During the industrial age, roughly

from 1850 to about 1975, companies succeeded by how well they could capture the benefits

from economies of scale and scope. Technology mattered, but, ultimately, success accrued to

companies that could embed the new technology into physical assets that offered efficient,

mass production of standard products. During the industrial age, the financial control systems

were developed in major companies to facilitate and monitor efficient allocations of financial

and physical capital. A summary financial measure such as return-on-capital-employed


(ROCE) could both direct a company’s internal capital to its most productive use and monitor

the efficiency by which operating divisions used financial and physical capital to create value

for shareholders.

The emergence of the information era, however, in the last decades of the 2O century, has

made obsolete many of the fundamental assumptions of industrial age competition. The

information age environment for both manufacturing and service organisations requires new

capabilities for competitive success. The ability of a company to mobilise and exploit its

intangible assets has become far more decisive than investing and managing tangible,

physical assets.

Industrial age companies created a sharp distinction between two groups of employees. The

intellectual elite — managers and engineers — used their analytical skills to design products

and processes, select and manage customers, and supervise day-to-day operations. The

second group was composed of the people who actually produced the products and delivered

the services. This direct labour work force was a principal factor of production, which

performed its tasks under supervision of the first group. Today automation and productivity

have increased the number of people performing analytic functions: engineering, marketing,

management and administration. Therefore, the people are more viewed as problem solvers,

not as variable costs. In other words, information age has brought about the concept of

knowledge management.

The shift to successful knowledge management has introduced a variety of improvement

initiatives:

1. Just-in-time

2. Total quality management,

3. Lean enterprise,

4. Business process re-engineering,

5. Time-based competition,

6. Customer-focused organization,


7. Activity-based cost management,

8. Employee empowerment,

9. Living company and many others.

Some of those programmes have meant in practice real breakthrough and improvement,

others have proven to be in the best case just a short-time disturbance, but in the worst cases

total failures resulting in disarray or even bankruptcy of a particular company. The main

reason for that lies in five main implementation problems:

1. current performance measurement systems are based on the traditional financial

accounting model, which does not enable to objectively analyse information-age

companies;

2. if some non-financial performance measurement even is made, it is solely based on

employees’ tactical performance, not on strategic performance;

3. majority of management and employee salary-based motivation schemes arc only

short-run profit oriented, that does not enable to align towards long-run goals;

4. overall company strategy is not closely linked to organisational and personal

improvement programmes; and

5. strategy is not generally linked to resource allocation, which results in under-

financing some of the crucial parts of organisation’s development.

As for today, superior financial performance and efficiency in production are just not enough

to gain sufficient competitive advantage, but more and more attention needs to be paid to

intangible sides of business.

For at least 15 years, the leading management journals have published articles about how to

build up a mechanism that would enable to control all the aspects of a company’s

performance. One of the most versatile tools for that purpose is Balanced Scorecard.

The long-term success of any organization is determined by the capabilities and the

competencies it has developed. Today’s businesses require a better understanding of their


customers (both existing and potential ) and their needs, better streamlined processes and

highly skilled people for ensuring future survival and sustainable growth.

This innovative tool “Balanced Scorecard” developed by Robert S Kaplan and David P

Norton in 1992 is unique in two ways compared to the traditional performance measurement

tools. They are:-

1. It considers the financial indices as well the non-financial ones in determining the

corporate performance level and

2. It is not just a performance measurement tool but is also a performance management

system

The aim of the Balanced Scorecard is to direct, help manage and change in support of the

longer-term strategy in order to manage performance. The scorecard reflects what the

company and the strategies are all about. It acts as a catalyst for bringing in the change’

element within the organization

Balanced Scorecard uses a balanced measurement system that comprises of “the old”

financial side and four “new” perspectives of:

1. Financial Perspective - How do we look at shareholders?

2. Customer Perspective - How should we appear to our customers?

3. Internal Business Processes Perspective - What must we excel at?

4. Learning and Growth Perspective - Can we continue to improve and create value?

Hence, from the above lines we can say that this tool has considered not only the financial

results to be important but also those factors which actually drive an organization towards

future successes as mentioned earlier. The tool has given stress on the other areas which are

required to “balance” the financial perspective in order to get a total view about the

organizational performance and improve the same.


The framework tries to bring a balance and linkage between the —

1. Financial and Non-Financial Measures,

2. Tangible and the Intangible measures,

3. Internal and the External aspects and

4. Leading and the Lagging indicators.

The Balanced Scorecard emphasises the importance of measuring business performance from

the perspective of strategic implementation, rather than relying solely on financial results.

Senior managers tend to pay far too much attention to the financial dimensions of

performance and not enough attention to the driving forces behind those results. Financial

measures are lagging indicators i.e. backward looking. They are designed to rectify or change

past results. Performance drivers on the other hand are within the control of the management

in the present and the Balanced Scorecard methodology encourages management to look at

these leading indicators as well. By specifying the important process measures, assessing

them, and communicating the firm’s performance based on these criteria to the employees,

the managers can ensure that the entire organisation participates actively in the strategy

implementation process. It is a unifying tool in strategy implementation.

To achieve strategy alignment, firms must engage in a two-step process. As mentioned

before, first the managers must understand the details of how value is created in their firm.

Once this is done, they can design a measurement system based on their understanding. The

first step focuses the organisation on two dimensions of the strategy implementation process

namely breadth and causal flow. Breadth refers to the fact that companies must study more

than just financial results as outcomes of strategy implementation. It must also focus on other

key performance drivers. Causal flow refers to the series of linkages between financial and

non-financial determinants of firm performance. This gives the managers a deeper

perspective of why certain financial results are the way they are. It allows them to link the

financial measures to the non-financial measures of success. The second point is the design of

a measurement system. This involves attaching metrics to the financial and non-financial

determinants. The Balanced Scorecard identifies four key perspectives that directly and

completely define strategy measurement and analysis. They include the financial perspective,


the customer perspective (e.g. customer loyalty and satisfaction), the internal processes

perspective (e.g. process quality and process cycle time) and finally learning and growth

perspective (e.g. employee skills) that is the leading indicator.

The next important step is communication. The top management that has done the above

analysis must communicate their findings and decisions to the middle and front-line

managers, who in turn must communicate it to the other employees. In this way, everyone in

the organisation is made aware and can participate in the strategy implementation process.

This also helps allocate resources intelligently and guides employees’ decisions. The

Balanced Scorecard model recognises the importance of both tangible and intangible assets

and of financial and non-financial measures. It focuses on the complex connections among

the firm’s customers, operations, employees and technology and places an important role for

HR. The BSC framework highlights the differences between leading and lagging indicators.

Lagging indicators include financial metrics, which typically reflect only what has happened

in the past. Such metrics accurately measure impacts of past decisions but don’t help in

making current decisions or guaranteeing future outcomes. The leading indicators are the

unique indicators for each firm. They include process cycle time, customer satisfaction or

employee strategic focus. These indicators assess the status of key success factors that drive

the implementation of the firm’s strategy and hence emphasise the future rather than the past.


6.2. Defining Critical Success Factors and Measures

Four Perspectives

1. Financial Perspective - How do we look at shareholders?

From all the measurement perspectives of a Balanced Scorecard, the financial perspective

needs to be introduced the least as the main financial measurement systems have been

analysed during the past years very thoroughly

The particular financial performance measures for any Balanced Scorecard should define

long-run financial objectives for the organisation. While most of the organisations would

emphasise profitability objectives, other possibilities may also be considered. Businesses with

many products in the early stage of their life cycle can stress rapid growth objectives, and

mature businesses may emphasise maximising cash flow.

Norton and Kaplan recommend to simplify the financial perspective measurement selection

pool to identify first the organisation’s stage, which would mainly be one of the three:

I. “rapid growth” organisations - are at the early stages of their life cycle. They may

have to make considerable investments to develop and enhance new products and

serviccs, to construct and expand production facilities, to build operating capabilities,

to invest in systems, infra-structure, and distribution networks that will support

relationships, and to nurture and develop customer relationships.

II. “sustain” organisations — organisations that still attract investment and

reinvestment, but are required to cam excellent returns on their invested capital. These

businesses are expected to maintain their existing market share and perhaps grow it

somewhat. Investment projects will be more directed to relieving bottlenecks,

expanding capacity, and enhancing continuous improvement.

III. “harvest” organisations - have reached a mature phase of their life cycle, where the

company wants to harvest the investments made in the earlier to stages. These

businesses no longer warrant significant investment — only enough to maintain

equipment and capabilities, not to expand or build new capabilities. Any investment


project will have to have very short and definite payback periods. The main goal is to

maximise cash flow back to the organisation.

The financial objectives for businesses in each of these three stages are quite different.

Financial objectives in the growth stage will emphasise sales growth; sales in new markets

and to new customers; sales from new products and services; maintaining adequate spending

levels for product and process development, systems, employee capabilities; and

establishment of new marketing, sales, and distribution channels. Financial objectives in the

sustain stage will emphasise traditional financial measurements, such as return on capital

employed, operating income, and gross margin.

Investment projects for businesses in the sustain category will be evaluated by

standard, discounted cash flow, capital budgeting analyses. Some companies will employ

newer financial metrics, such as economic value added and shareholder value. These metrics

all represent the classic financial objective---earn excellent returns on the capital provided to

the business.

The financial objectives for the harvest businesses will stress cash flow. Any investments

must have immediate and certain cash paybacks. The goal is not to maximise return on

investment, which may encourage managers to seek additional investment funds based on

future return projections. Virtually no spending will be done for research or development or

on expanding capabilities, because of the short time remaining in the economic life of

business units in their “harvest” phase.

Some of the objectives together with a measurement measures

Objectives Measures

Survive Cash Flow

Prosper Increase in Market Share

Profitability Return on Equity

Cost Leadership Unit Cost


2. Customer Perspective - How should we appear to our customers?

The customer perspective addresses the question of how the firm is viewed by its customers

and how well the firm is serving its targeted customers in order to meet the financial

objectives. Generally, customers view the firm in terms of time, quality, performance, and

cost. Most customer objectives fall into one of those four categories.

In the customer perspective of the Balanced Scorecard, managers identify the customer and

market segments in which the business unit will compete and the measures of the business

unit’s performance in these targeted segments.

The customer perspective typically includes several generic measures of the successful

outcomes from a well-formulated and implemented strategy. The genetic outcome measures

include customer satisfaction, customer retention, new customer acquisition, customer

profitability, and market and account share in targeted segments. While these measures may

appear to be generic across all types of organisations, they should be customised to the

targeted customer groups from whom the business unit expects its greatest growth and

profitability to be derived.

I. Market and Account Share

Market share, especially for targeted customer segments, reveals how well a company

is penetrating a desired market. For example, a company may temporarily be meeting

sales growth objectives by retaining customers in non-targeted segments, but not

increasing its share in targeted segments. The measure of market share with targeted

customers would balance a pure financial signal (sales) to indicate whether an

intended strategy is yielding expected results.

When companies have targeted particular customers or market segments, they can

also use a second market-share type measure: the account share of those customers’

business (some refer to this as the share of the “customers’ wallet”). The overall

market share measure based on business with these companies could be affected by

the total amount of business these companies are offering in a given period. That is,


the share of business with these targeted customers could be decreasing because these

customers are offering less business to all their suppliers. Companies can measure-

customer by customer or segment by segment-how much of the customers’ and

market segments’ business they are receiving. Such a measure provides a strong focus

to the company when trying to dominate its targeted customers’ purchases of products

or services in categories that it offers.

II. Customer Retention

Clearly, a desirable way for maintaining or increasing market share in targeted

customer segments is to retain existing customers in those segments. Research on the

service profit chain has demonstrated the importance of customer retention.

Companies that can readily identify all of their customers-for example, industrial

companies, distributors and wholesalers, newspaper and magazine publishers,

computer on-line service companies, banks, credit card companies, and long-distance

telephone suppliers- can readily measure customer retention from period to period.

Beyond just retaining customers, many companies will wish to measure customer

loyalty by the percentage growth of business with existing customers

III. Customer Acquisition

Companies seeking to grow their business will generally have an objective to increase

their customer base in targeted segments. The customer acquisition measure tracks, in

absolute or relative terms, the rate at which a business unit attracts or wins new

customers or business. Customer acquisition could be measured by either the number

of new customers or the total sales to new customers in these segments. Companies

such as those in the credit and charge card business, magazine subscriptions, cellular

telephone service, cable television, and banking and other financial services solicit

new customers through broad, often expensive, marketing efforts. These companies

could examine the number of customer responses to solicitations and the conversion

rate- number of actual new customers divided by number of prospective inquiries.

They could measure solicitation cost per new customer acquired, and the ratio of new

customer revenues per sales call or per dollar of solicitation expense.


IV. Customer Satisfaction

Both customer retention and customer acquisition are driven from meeting customers’

needs. Customer satisfaction measures provide feedback on how well the company is

doing. The importance of customer satisfaction probably cannot be over-emphasised.

Recent research has indicated that just scoring adequately on customer satisfaction is

not sufficient for achieving high degrees of loyalty, retention, and profitability. Only

when customers rate their buying experience as completely or extremely satisfying

can the company count on their repeat purchasing behaviour.

V. Customer Profitability

Succeeding in the core customer measures of share, retention, acquisition, and

satisfaction, however, does not guarantee that the company has profitable customers.

Obviously, one way to have extremely satisfied customers (and angry competitors) is

to sell products and services at very low prices. Since customer satisfaction and high

market share are themselves only a means to achieving higher financial returns,

companies will probably wish to measure not just the extent of business they do with

customers, but the profitability of this business, particularly in targeted customer

segments. Activity-based cost (ABC) systems permit companies to measure individual

and aggregate customer profitability. Companies should want more than satisfied and

happy customers; they should want profitable customers. A financial measure, such as

customer profitability, can help keep customer-focused organisations from becoming

customer-obsessed.

The customer profitability measure may reveal that certain targeted customers are

unprofitable. This is particularly likely to occur for newly acquired customers, where

the considerable sales effort to acquire a new customer has yet to be offset from the

margins earned by selling products and services to the customer. In these cases,

lifetime profitability becomes the basis for deciding whether to retain or discourage

currently unprofitable customers.

Newly acquired customers can still be valued, even if currently unprofitable, because

of their growth potential. But unprofitable customers who have been with the

company for many years will likely require explicit action to cope with their incurred

losses.


VI. Beyond the Core: Measuring Customer Value Propositions

Customers’ value propositions represent the attributes that supplying companies

provide, through their products and services, to create loyalty and satisfaction in

targeted customer segments. The value proposition is the key concept for

understanding the drivers of the core measurements of satisfaction, acquisition,

retention, and market and account share. For example, customers could value short

lead times and on-time delivery. They could value a constant stream of innovative

products and services. Or they could value a supplier able to anticipate their needs and

capable of developing new products and approaches to satisfy those emerging needs.

While value propositions vary across industries, and across different market segments

within industries, Kaplan and Norton have observed a common set of attributes that

organises the value propositions in all of the industries where we have constructed

scorecards. These attributes are organised into three categories.

Product/Service Attributes

Customer Relationship

Image and Reputation

Product and service attributes encompass the functionality of the product/service, its

price, and its quality. The image and reputation dimension enables a company to pro-

actively define itself for its customers. The customer relationship dimension includes

the delivery of the product/service to the customer, including the response and

delivery time dimension, and how the customer feels about the experience of

purchasing from the company.


In summary, the customer perspective enables business unit managers to articulate their

unique customer and market-based strategy that will deliver superior future financial returns.


Objectives Measures

New Product % of sales from new product

Customer Relationship % of retained customer

Responsive Supply On time Delivery

3. Internal Business Processes Perspective - What must we excel at?


Internal business process objectives address the question of which processes are most critical

for satisfying customers and shareholders. These are the processes in which the firm must

concentrate its efforts to excel.

In the internal business process perspective, executives identify the critical internal processes

in which the organisation must excel. The critical internal business processes enable the

business unit to deliver on the value propositions of customers in targeted market segments,

and satisfy shareholder expectations of excellent financial returns. The measures should be

focused on the internal processes that will have the greatest impact on customer satisfaction

and achieving the organisation’s financial objectives.

The internal business process perspective reveals two fundamental differences between

traditional and the Balanced Scorecard approaches to performance measurement. Traditional

approaches attempt to monitor and improve existing business processes.

They may go beyond just financial measures of performance by incorporating quality and

time-based metrics. But they still focus on improving existing processes. The Balanced

Scorecard approach, however, will usually identify entirely new processes at which the

organisation must excel to meet customer and financial objectives. The internal business

process objectives highlight the processes most critical for the organisation‘s strategy to

succeed.

The second departure of the Balanced Scorecard approach is to incorporate innovation

processes into the internal business process perspective. Traditional performance

measurement systems focus on the processes of delivering today’s products and services to

today’s customers. They attempt to control and improve existing operations - the short wave

of value creation. But the drivers of long-term financial success may require the organisation

to create entirely new products and services that will meet the emerging needs of current and

future customers. The innovation process-the long-wave of value creations, for many

companies, is a more powerful driver of future financial performance than the short-term

operating cycle. But managers do not have to choose between these two vital internal

processes. The internal business process perspective of the Balanced Scorecard incorporates

objectives and measures for both the long-wave innovation cycle as well as the short-wave

operations cycle.



Objectives Measures

Manufacturing Excellence Cycle Time per Unit

Safety incidence Index Number of Accidents

Increased design Productivity Engineering Efficiency

Increased Product Launch Days Actual Launch Days Vs Plan

4. Learning and Growth Perspective - Can we continue to improve and create

value?

Learning and growth metrics address the question of how the firm must learn, improve, and

innovate in order to meet its objectives. Much of this perspective is employee- centered.

The fourth Balanced Scorecard perspective, Learning and growth, identifies the infrastructure

that the organisation must build to create long-term growth and improvement. The customer

and internal business process perspectives identify the factors most critical for current and

future success. Businesses are unlikely to be able to meet their long-term targets for

customers and internal processes using today’s technologies and capabilities. Also, intense

global competition requires that companies continually improve their capabilities for

delivering value to customers and shareholders.

Organisational learning and growth come from three principal sources: people, systems, and

organisational procedures. The financial, customer, and internal business process objectives

on the Balanced Scorecard will typically reveal large gaps between existing capabilities of

people, systems, and procedures and what will be required to achieve targets for breakthrough

performance. To close these gaps, businesses will have to invest in re-skilling employees,

enhancing information technology and systems, and aligning organisational procedures and

routines. These objectives arc articulated in the learning and growth perspective of the

Balanced Scorecard. As in the customer perspective, employee-based measures include a


mixture of generic outcome measures- employee satisfaction, employee retention, employee

training, and employee skills- along with specific drivers of these generic measures, such as

detailed indexes of specific skills required for the new competitive environment. Information

systems capabilities can be measured by real-time availability of accurate customer and

internal process information to front-line employees. Organisational procedures can examine

alignment of employee incentives with overall organisational success factors, and measured

rates of improvement in critical customer-based and internal processes.


Objectives Measures

Technology Leadership Time to develop new product

Manufacturing Learning Time to new process maturity

Product Focus % of product representing 80% of sales

6.3.The Four Perspectives: Cause and Effect Relationship


The four perspectives as mentioned above are highly interlinked. There is a logical

connection between them. The explanation is as follows If an organization focuses on the

learning and the growth aspect, it is definitely going to lead to better business processes. This

in turn would be followed by increased customer value by producing better products which

ultimately gives rise to improved financial performance.

Figure 2: The Cause and Effect relationships among the four perspectives

6.4.The Balanced Scorecard Model


Explanation:

Following steps are to be taken so as to utilize the Balanced Scorecard as a strategic

management tool:

1. The major objectives are to be set for each of the perspectives.

2. Measures of performance arc required to be identified under each of the Objectives

which would help the organization to realize the goals set under each of the

perspectives. These would act as parameters to measure the progress towards the

objectives.

3. The next important step is the setting of specific targets around each of the identified

key areas which would act as a benchmark for performance appraisal. Hence, a

performance measurement system is build around these critical factors. Any deviation

in attaining the results should raise a red signal to the management which would

investigate the reasons for the deviation and rectify’ the same.

4. The appropriate strategies and the action plans that arc to be taken in the various

activities should be decided so that it is clear as to how the organization has decided to

pursue the pre-decided goals. Because of this reason, the Balanced Scorecard is often

referred to as a blueprint of the company strategies.


Figure 3:- The Main framework of Balanced Scorecard


To achieve our vision, how will we sustain our ability to change and improve?Learning and GrowthObjectives Measures Targets Initiatives

Vision and Strategy

To achieve our vision, how should we appear to our customers?Customer Objectives Measures Targets Initiatives

To Satisfy our shareholders and customers, processes must we excel at?Internal Process Objectives Measures Targets Initiatives

To succeed financially, how should we appear to our shareholders? Financial Objectives Measures Targets Initiatives

6.5.Balanced Scorecard as a Measurement Tool

To illustrate the use of today’s main measurement tools, Kaplan and Norton bring

the following example:

Imagine entering the cockpit of a modern jet airplane and seeing only a single

instrument there. How would you feel about boarding the plane after the

following conversation with the pilot?

Q: I am surprised to see you operating the plane with only a single instrument.

What does it measure?

A: Airspeed. I am really working on airspeed this flight.

Q: That’ good. Airspeed certainly seems important. But what about altitude?

Would an altimeter be helpful?

A: I worked on altitude for the last few flights and I’ve gotten pretty good on it.

Now I have to concentrate on proper airspeed.

Q: But I notice you do not even have a fuel gauge. Wouldn’t that be useful?

A: You are right; fuel is significant, but I cannot concentrate on doing too many

things well at the same time. So on this flight I’m focusing on airspeed. Once I

get to be excellent at airspeed, as well as altitude, I intend to concentrate on fuel

consumption in the next set of flights.

We suspect that you would not board the plane after this discussion. Even if the

pilot did an exceptional job on airspeed, you would be worried about colliding

with tall mountains or running low on fuel. Clearly, such a conversation is a

fantasy since no pilot would dream of guiding a complex vehicle like a jet

airplane through crowded air spaces with only a single instrument. Skilled pilots

are able to process information from a large number of indicators to navigate their

aircraft. Yet navigating today’s organisations through complex competitive

environments is at least as complicated as flying a jet. Why should we believe

that executives need anything less than a full battery of instrumentation for

guiding their companies? Managers, like pilots, need instrumentation about many

aspects of their environment and performance to monitor the journey toward


excellent future outcomes.

7. IMPLEMENTING BALANCED SCORECARD TO HUMAN RESOURCE

7.1.Integrating HR into the performance measurement system

To integrate HR into a business performance measurement system, managers

must identify the points of intersection between the HR and the organisation’s

strategy implementation plan. These points are commonly called the HR

deliverables. They are the outcomes of the HR architecture that serve to execute

the firm’s strategy. This is in contrast to the aspects of HR that focus on HR

efficiency and activity. The deliverables can be classified into two groups, namely

the performance drivers and the enablers. Performance drivers are core people-

related capabilities or assets such as employee productivity and satisfaction.

There is no single correct set of performance drivers. Each firm needs to identify

its own set based on its unique characteristics. Enablers reinforce performance

drivers. E.g. Preventive maintenance can be considered an enabler of on-time

delivery, which is a performance driver. A performance driver can have several

enablers. Most of the time, each enabler separately may seem rather mundane but

it’s the cumulative effect that has strategic importance.

Performance Drivers:

HR managers tend to focus on performance drivers in an attempt to demonstrate

their strategic impact. However, in most cases although they do stress on these

drivers they are unable to make a solid case for it since they do not have the right

measures. Without measures one cannot display HR’s actual contribution to the

overall mission. Most of the measures used are very simplistic and it undermines

HR’s credibility in the organisation. This credibility is very important since it is

what matters when a manager is faced with a conflict between financial and non-

financial reports. For example, if people measures are good but financial

measures are bad, the manager will go for the solution that supports the credibility


of finance or HR. In most cases it is finance and the immediate decision is

reducing bonuses etc. as the CFO might feel it is not warranted when there is no

proof of performance. The point that is being missed is that the CFO is looking at

the lagging indicators. Balanced performance needs one to look at the leading

indicators such as HR measures as well since these are the ones that create value

in the organisation. High HR scores in the face of low finances actually signal

improved finances in the future (provided other leading indicators are also on the

positive side). Similarly, strong financial measures and weak leading measures

such as HR measures are indicative of a financial problem in time to come. Thus,

managers must interpret these measures in a balanced manner looking at the past

and into the future. Identifying HR performance drivers can be very challenging

since it is unique to the firm. It is important to identify the performance drivers

and integrate them directly into performance criteria giving them equal weight

with the more traditional performance measures. For example, one half of the

bonus pays can be based on the financial results while the other half is based on

the employee’s adherence to the value behaviours.

HR enablers:

HR enablers reinforce the core performance drivers. If employee productivity is

identified as a performance driver, re-skilling and training can be considered an

enabler. Some enablers might be specifically HR focused i.e. they enhance the

effectiveness of HR performance drivers. There might also be some HR enablers

that do have profound positive effects with respect to the other perspectives as

well, such as customers, operations and the financial segment. It is important to

identify these and keep them up to date with the current goals of the organisation.

Without the properly aligned enablers, it is not possible to implement new

strategies. The systemic aspect of HR once again comes to the forefront, whereby

the entire HR system can influence employee behaviour from different points.

Thus, HR managers should evaluate the degree to which their firm’s system of

enablers support the HR as well as non-HR performance drivers as listed in their

Balanced Scorecards. By identifying the links between enablers and universal

performance drivers, the HR team can play a much larger role and suggest ideas

that can affect other sectors in the firm as well.


7.2.The Seven-Step Model for Implementing HR’s Strategic

Role

Ulrich et al. discuss a seven step model for formalising the strategic role of HR.

They are summarised below:


Figure 4:- Model for implementing HR’s Strategic Role

1. Defining Business Strategy:

HR managers should focus on implementation of strategy. By doing so, they can

facilitate discussion about how to communicate the firm’s goals throughout the

organisation. When strategic goals are not developed with an eye towards the

implementation detail, they tend to be too generic and abstract. These vague goals

will tend to confuse employees and they would not know how exactly to

implement the strategies. The important thing for HR managers is to state the


Periodicallytest HR

measuresagainst the

firm’s strategymap andadjust asrequired

goals in such a way that the employees understand what exactly their role in the

organisation is and thus the organisation knows how to measure success in

achieving these goals.

2. Building a case for HR as a strategic asset:

Once a firm clarifies its strategy, HR professionals need to build a clear case for

the strategic role of HR. In concrete terms, they must be able to explain how and

why HR can support the strategy. It is important to look at as much of case

histories and internal as well as external research while going through this phase.

Although it is not wise to imitate others, one can learn a lot by looking through

past experiences of others. Basically, the direct impact on the HR systems’ high

performance characteristics is non-linearly related to the increase in market value.

This is because in the lower ranges of performance, increase in market value is

basically because HR stops making mistakes it used to make in the past. It is

almost like it is getting out of the way and avoids blunders and wrong practices

that worsen the situation. In the middle range of performance, HR starts

consolidating its efforts. It is learning from its mistakes and in the process does

not actually add much to the market value of the employees and the company, but

once a certain threshold is crossed indicating that the firm has adopted the

appropriate HR practices and implemented them effectively, the market value

soars exponentially. This is mainly because the HR system starts getting

integrated into the overall strategic system of the firm. Basically, the firms must

consolidate the appropriate HR policies and practices into an internally coherent

system that is directly aligned with business priorities and strategies that are most

likely to create economic value. This can lead to significant financial returns to

the company. It is this plan that must be made concrete and shown as a strong

case to make senior management believe in HR’s potential.

It is important to note however, that simple changes in an HR practice do not

make a difference. The HR measures describe the whole HR system and changing

the system to cross the threshold mentioned above needs time, effort, insight and

perseverance since results are not directly proportional. This clearly indicates the

requirement of an HR transformation rather than a change. It is this very character


of transformation, which is difficult and time-consuming to achieve, that makes

HR a strategic asset.

Figure 5: A High Performance Work System

Along with value creation, there must also be a strong case for HR’s role in

strategy implementation. Strategy implementation rather than strategy content

separates the successful from the unsuccessful firms. It is easier to choose an

appropriate strategy than to implement one. This once again shows the strategic

nature of HR’s role in performance improvements. Successful strategy

implementation is driven by employee strategic focus, HR’s strategic alignment

and a balanced performance measurement system. The most important HR

performance driver is a strategically focused workforce. Effective knowledge

management combined with the above-mentioned factors creates a strategically

focused organization.

3. Creating a Strategy Map:


Knowledge Management

System

Strategic Alignment System

Performance Measurement

System

Employees who are strategically focused

The Firm’s capacity to implement the Strategy

The Overall performance of the firm

A High Performance Work System

The first two steps clarify the firm’s strategy. This paves the way for the

implementation process. But, before this is done, the firm must get a clear

understanding of its value chain. The value chain is the complex cumulative set of

interactions and combinatorial effects that create the customer value in the

products and services of the firm. It is important that the firm’s performance

management system must account for each of the links and dependencies in the

value chain. The Balanced scorecard framework refers to this process and

creating a strategy map. These are basically diagrams that show the links in the

value chain. It shows how different components in different layers interact. It is

what provides managers and employees the big picture of how their tasks affect

the other elements in the firm and how it affects overall strategy. This process

should involve managers from all over the organisation, not just HR. The broad

participation is required to improve the quality of the strategy map. It also allows

each member of the team who is an expert in his or her domain to provide his or

her own insights into what is accomplishable.


Learning and Growth

Internal/Business

Processes

Customer

Financial

Figure 6: Simple Strategy Map

The following questions have been identified as the key ones to be asked during

the strategy map creation process:-

1. Identify the critical strategic goals from the generic ones.

2. Identify the performance drivers for each goal.

3. Think about how one can measure progress towards these goals.

4. Identify barriers to the achievement of each goal.


Customer Loyalty

On-time Delivery

Return on the capital employed in the business

Process Quality

Process cycle time

Employee skills

5. Recognise the employee behaviours needed to ensure that the

company achieves its goals.

6. Identify missing employee competencies and check if HR is

providing the necessary competencies.

7. Finally, decide what needs to change.

These basic questions generate a wealth of information about how well a firm’s

HR has been contributing to the success of the organisation. Along with these

discussions, it is useful for the company to conduct surveys within the

organisation to identify the extent to which each employee understands the

organisational goals. Once the whole picture of the firm’s value chain is

highlighted, the firm can then translate the information into a conceptual model

using language and graphics that make sense to the members of the organisation.

The model should then be tested for understanding and acceptance amongst the

leaders and the employees.

The strategy map essentially contains predictions about which organisational

processes drive firm performance. The company can validate these hypotheses

only after achieving the goals set for each of the performance drivers and then

measuring their impact on overall firm performance. The graphical nature of the

strategy map helps the senior management as well as the employees have more

confidence in the strategy implementation plan.

4. Identifying HR deliverables within the strategy map:

HR creates much of its value at the points of intersection between the HR system

and the overall strategy implementation system of the organisation. Thus, to

leverage this to the maximum possible extent it is important that there is a clear

understanding of both sides of this intersection.

In the past, HR managers lacked the required amounts of knowledge about the

business side and general managers did not fully understand the HR side. It is


HR’s responsibility to depict HR deliverables including performance drivers as

well as HR enablers in the strategy map of the firm. Performance drivers such as

employee competence, motivation and availability are very fundamental and so it

might be difficult to locate these precisely on the strategy map. It is important to

identify those HR deliverables that support the firm-level performance drivers on

the strategy map. The focus should be on the kind of strategic behaviours that

depend on competencies, rewards and work organisation. E.g. Employee stability

improves R&D cycle time, the latter being a firm-level performance driver. Thus,

employee stability becomes an important HR enabler. Once this enabler has been

identified, the firm can design policies such as bonus schemes etc. that would

encourage R&D staff to continue working for the firm.

5. Aligning the HR architecture with the HR deliverables:

The above-mentioned steps encourage the top-down thinking approach, whereby

strategy decides what HR deliverables the firm needs to focus on. It is also

important to consider how the HR system made up of the rewards, competencies;

work organisation etc. needs to be structured to provide the deliverables that are

identified in the strategy map. This step enhances the value creation aspect of the

firm by aligning the HR system with the firm’s larger strategy implementation

system. For this, internal alignment and external alignment are important. Internal

alignment refers to the aligning components within the HR system. External

alignment refers to the alignment of the HR system with the other elements in the

firm’s value creation process. These two are not isolated processes. They are

closely related. Internal alignment is necessary but not sufficient in itself for

external alignment to occur.

Basically, highly cohesive HR strategies will work as long as they are aligned

well with the overall strategy of the company. It will fail if it is not periodically

reshaped so as to align it with the overall strategy.

However, for a particular fixed overall strategy, all firms need an internally

aligned HR strategy in order to achieve the overall goals. Misalignment between


the HR system and the strategy implementation system can destroy value. In fact,

the wrong measurement system can have the exact opposite effect than intended.

6. Designing the Strategic HR measurement system:

The above steps guide the development of the HR architecture and lay the

groundwork necessary to measure the performance relationship between HR and

the firm’s strategy. The next step is to design the measurement system itself. This

requires a new, modern perspective on measuring HR performance. It also

requires HR to resolve several new technical issues that it might not be familiar

with. To accurately measure the HR-firm performance relationship, it is

imperative that the firm develops valid measures of HR deliverables.

This task has two dimensions.

Firstly, HR has to be confident that they have chosen the correct HR

deliverables. This requires that HR have a clear understanding of the

causality in the value chain for effective strategy implementation.

Secondly, HR must choose the correct measures for those deliverables.

During this process of developing the HR scorecard, the firm might go

through several stages of increasing sophistication.

The first stage is normally the traditional category of measures. These mainly

include operational measures such as cost per hire, activity counts etc. These are

not exactly strategic measures. In the second stage, HR measures have a strategic

importance but they don’t help much in making a case for HR as a strategic asset.

Firms may declare several people measures such as employee satisfaction as

strategic measures and these might be included directly into the reward systems.


In this stage, there tends to be a balance between financial and non-financial

measures but there is less of an agreement on how exactly they combine together

to implement the strategy. These are normally hasty decisions and the firms might

have not gone through all the previous steps mentioned above.

The next stage represents a transition point whereby the firm includes non-

financial measures such as HR measures into its strategic performance

measurement system. The links between the various measures are also identified

i.e. they are placed appropriately in the strategy map. The HR measures now

actually track HR’s contribution to strategy implementation.

In the final stages, the HR measurement system will enable the firm to estimate

impacts of HR policies on firm performance. If the value chain is short and the

strategy map is relatively simple, the complete impact of HR on the overall

performance can be measured. For more complex value chains, the impact can be

more accurately measured on local segments or sectors of the strategy map. These

local impacts can then be assimilated to give a good measure of the total impact

on the firm’s performance. Thus, each level of sophistication of the measurement

system adds value to the non-financial measures and forces in the firm and

enables a better performance appraisal.

7. Implementing the strategy by using the measures:

The previous step completes the HR scorecard development process. The next

step is to use this powerful new management tool in the right way. This tool not

only helps the firm measure HR’s impact on firm performance, but also helps HR

professionals have new insights into what steps must be taken to maintain HR as a

strategic asset. It helps the HR professionals dig deeper into the causes of success

and failure and helps them promote the former and avoid the latter. Implementing

the strategy using the HR scorecard requires change and flexibility as well as

constant monitoring and re-thinking. The process is not a one-time event. HR

professionals must regularly review the measures and their impacts. They must

review the HR deliverables identified as important and see to it that the drivers

and enablers and internally as well as externally aligned. Special reviews of the

HR enablers must be conducted as these have the maximum direct impact on


specific business objectives. Enablers that do not tend to play a positive role

should be replaced.

8. BENEFITS OF THE DEVELOPING HR SCORECARD

The HR Scorecard offers the following benefits:

1. It reinforces the distinction between HR do-ables and deliverables:

The HR measurement system must clearly distinguish between the

deliverables that influence strategy implementation and do-ables that do

not. Policy implementation is not a deliverable until it has a positive effect

on the HR architecture and creates the right employee behaviours that

drive strategy implementation. An appropriate HR measurement system

will encourage HR professionals to think both strategically as well as

operationally.

2. It enables cost control and value creation:

HR is always expected to control costs for the firm. At the same time, HR

has to fulfill its strategic goal, which is to create value. The HR scorecard

helps HR professionals balance the two and find the optimal solution. It

allows HR professionals to drive out costs where appropriate, but at the

same time defend investments in intangibles and HR by outlining the

benefits in concrete terms.


3. It measures leading indicators:

Just as there are leading and lagging indicators in the overall balanced

performance measurement system, there are drivers and outcomes in the

HR value chain as well. It is thus important to monitor the alignment of

the HR decisions and systems that drive the HR deliverables. Assessing

this alignment provides feedback on HR’s progress towards these

deliverables and lays the foundation for HR’s strategic influence.

4. It assesses HR’s contribution to strategy implementation:

The cumulative effect of the HR Scorecard’s deliverable measures

provides the answer to the question regarding .HR’s contribution to firm

performance. All measures have a credible and strategic rationale. Line

managers can use these measures as solutions to business problems.

5. It lets HR professionals effectively manage their strategic

responsibilities:

The scorecard encourages HR managers to focus on exactly how their

decisions affect the successful implementation of the firm’s strategy. This

is due to the systemic nature of the scorecard. It provides a clear

framework to think in a systemic manner.

6. It encourages flexibility and change:

The basic nature of the scorecard with its causal emphasis and feedback

loops helps fight against measurement systems getting too standardised.

Standardisation is good for things that don’t tend to have a dynamic nature

but firm performance is a dynamic phenomenon. Every decision needs to

be taken based on the past and future scenarios. One of the common

problems of measurement systems is that managers tend to get skilled to


obtain the right numbers once they get used to a particular measurement

system. The HR scorecard engenders flexibility and change because it

focuses on the firm’s strategy implementation, which constantly demands

change. With this framework, measures simply become indicators of the

underlying logic that managers accept as legitimate. It helps them look at

the bigger picture and since there are no perfect numbers it makes it easier

for managers to change direction when needed.

“We see talent as the emerging single sustainable competitive advantage in the

future. To capitalize on this opportunity, HR must evolve from a Business Partner

to a critical ‘asset manager’ for human capital within the business. The HR

scorecard is designed to translate business strategy directly to HR objectives and

actions. We communicate strategic intent while motivating and tracking

performance against HR and business goals. This allows each HR employee to be

aligned with business strategy and link everyday actions with business

outcomes.”

– Garrett Walker, Director HR Strategic

Performance Measurement, GTE

9. CASE STUDY: VERIZON

To clarify the HR Scorecard framework it is important to summarise a case study.

This section explains the details of the HR scorecard developed by Verizon, a

leading telecommunications provider in the United States.

9.1.Introduction: Verizon

Verizon HR has effectively designed and implemented a strategic management

system, which is based upon the balanced scorecard model of Dr. David Norton

and Dr. Robert Kaplan of Harvard Business School. The HR Balanced Scorecard

was conceived with new economy organisational dynamics in mind. The


scorecard uses a broad range of leading and lagging indicators which include

overall strategy, operational processes, customer perceptions, and financials to

evaluate the effectiveness of HR initiatives to the bottom line. The HR Balanced

Scorecard provides the means to monitor workforce indicators, analyse workforce

statistics, diagnose workforce issues, calculate the negative financial impact,

prescribe solutions, and track improvements. Verizon believed that in the coming

years the primary source of competitive advantage for their business would

continue to increasingly focus on the talent within the organisation, which meant

that the ability to effectively manage the employee talent within the organisation

was critical.

While management tends to make decisions about how to invest in human capital,

few companies have an effective process to measure the value created by this

most valuable asset. In Verizon, they believed that HR could effectively manage

the value created by thorough investments in employees. Managers knew was

how much was paid to reward, hire, train, develop, and provide benefits to

employees. What managers needed to know, however, was where the investments

were most effective and valuable. Some of the questions that did not have

answers at that time were:

1. Should the business expand the incentive pay program?

2. Should they outsource safety administration?

3. What is the most effective use of training dollars?

4. How much should be spent on recruitment?

5. Should employee services be in-sourced, out-sourced, or co-sourced?

6. Should executive bench strength be built or bought?

7. What is the cost in human capital terms to break into a new market?

8. Is the acquisition target a good fit and does it add or dilute the

competitive advantage in terms of talent?

9. Do the current investments in employees match the strategic

objectives of the business?

10. Is the HR organisation a partner with the business to manage our

employees as assets?


To answer these questions, management needed more information not just simple

cost figures. Management needed to track the financial results while monitoring

progress in developing human capital and acquiring the talent and capabilities

needed for business success. The Balanced Scorecard was developed by Kaplan

& Norton, 1996 and provided the ideal system that leverages the traditional

financial and efficiency measures that were available for Human Resources with

metrics of performance from three additional perspectives namely, customers,

internal business processes, and learning and growth.

In 1996, J. Randall MacDonald, Executive Vice President–Human Resources of

GTE Corporation (now known as Verizon), was facing the biggest challenge of

his career—to create the HR strategy and plans to support GTE’s workforce

through a major business transformation. The Telecommunications Act was

transforming the regulated world of protected markets and established profit

margins into a highly competitive business environment for the

telecommunications giant. Historically, GTE had emphasised a focus on

infrastructure quality and customer service. GTE’s senior business leaders were

preparing to transform the company into a market-focused organisation that

would be the communications provider of choice to targeted customer markets.

Significant emphasis on new markets and additional services was part of the

strategy. The telecommunications world following deregulation was turbulent.

Technology acceleration, emerging customer needs, and data and video

transmissions were changing how business operated. GTE’s customers were

becoming price sensitive and could now demand superior service and advanced

support. The competition was in price, products, and technology. New mergers

and partnerships were beginning to occur; brand preferences and aggressive

tactics from non-traditional competitors were all part of the mix. GTE Business

Strategies were global in scope and translated directly to clearly communicate

targeted business results. Additionally, the workforce environment was

dramatically different and highly competitive. GTE faced the lowest United

States’ unemployment in 24 years. The employer–employee relationship had

changed; employees were less likely to remain with a single employer;

specialised talent was hard to find; employees expected more work/life balance;

and the diverse talent pool most sought had differing interests and needs. Creating


the value proposition to acquire the talent to drive the business was more difficult

to define and changed rapidly.

9.2.HR Challenge & Strategy

The Human Resource Challenge was to translate the new business strategies and

targeted business results into human capital needs. Recognising that GTE’s

employees were a critical component in achieving the business goals, GTE HR

leaders inventoried the current skills and abilities that would provide value both in

the short-term and into the future. HR professionals then identified the critical

people imperatives necessary to grow that talent to increase the value delivered by

the workforce. GTE would need new behaviours, actions, and capabilities to drive

the business results. To focus the HR organisation on the achievement of these

people imperatives, GTE developed a new HR strategy to support the specific

people requirements of the business strategy.

This HR strategy was defined in five strategic thrusts:

1. Talent:

enlarge the talent pool

invest in employees’ development

ensure diversity

2. Leadership:

establish a system to assess high-potential employees

provide coaching and development

establish accountability and rewards for leadership behaviour

3. Customer Service & Support:

create an environment that fosters employee engagement

increase business intelligence within the workforce

provide solutions to retention issues

4. Organisational Integration:

create better systems for knowledge management

enhance union partnerships


5. HR Capability:

develop core HR competencies

identify key talent for growth and development

invest in technology

invest in employee self-service

better understand the relationship of HR actions to business

outcomes

The biggest problem was communicating and reinforcing the linkage between HR

actions and business results. The business had a clear strategy and targeted

business results. The HR Strategy was directly linked to the needs of the business

and expressed in terms of HR strategic thrusts. The prime objective was to

effectively communicate and execute on strategic intent, motivate and track

performance against organisation and business goals, and to align HR actions

with business results.

9.3.The Team

A newly formed HR Planning, Measurement, and Analysis team was created to

design and implement a tool that would quantify HR’s contribution to the

business. The Balanced Scorecard model, which was at the time a leading edge

corporate performance assessment tool, was selected as the framework to adapt

and build an HR Measurement model. J. Randall MacDonald served as the senior

executive for the HR measurement initiative. This role was critical to the success

of the project. Randy MacDonald actively influenced his senior leadership team

within HR to secure their buy-in and to hold them accountable for supporting the

project. The newly formed Planning, Measurement, and Analysis team included a

director and four employees solely dedicated to the design, development,

implementation, and operation of the HR Measurement System. An HR

Measurement core team included eight subject matter experts representing each of

the functions within HR and the business units. The core team members were

instrumental in assuring alignment of the measurement model and communicating

and training HR departments on the applications and uses of the HR Scorecard.

The Balanced scorecard model complements financial measures of past


performance with measures of drivers of future performance. Unlike other

accounting models, the Balanced Scorecard incorporates valuation of

organisations’ intangible and intellectual assets such as high-quality products and

services, motivated and skilled employees, responsive internal processes and

innovation and productivity. The HR Scorecard approach used slightly modified

the initial Balanced Scorecard model, which at the time was most commonly used

at the corporate level. The approach, however, remained focused on long-term

strategies and clear connections to business outcomes.

The core team members were selected on the following criteria:

Common link: Selected by functional VP

Knowledgeable on key processes within your HR functional area

Dedicated to building awareness and accountability toward achieving

better outcomes

Focused on measuring what matters to enable better decision making and

resource allocation

Their key responsibilities included

Attend Core Team meetings

Communicating to your function the message of why we are measuring

HR

Establish SMEs within your function

Identify key processes within your function

Establish key performance indicators/measures reflecting key processes

Submit data within designated timeframe

Responsible for overseeing target setting process for your functional area

The HR Balanced Scorecard includes four perspectives:

1. Strategic Perspective


Measures success in achieving the five strategic thrusts. Since the basis for

the HR Balanced Scorecard is achieving business goals, the aligned HR

Strategic objectives are the drivers for the entire model.

2. Operations Perspective

Measures HR’s success in operational excellence. The focus was primarily

in three areas: staffing, technology, and HR processes and transactions.

3. Customer Perspective

Includes measures of how HR is viewed by the key customer segments.

Survey results were used to track customer perceptions of service as well

as assess overall employee engagement, competitive capability, and links

to productivity.

4. Financial Perspective

Addresses how HR adds measurable financial value to the

organisation,including measures of ROI in training, technology, staffing,

risk management, and cost of service delivery.

9.4.The Process

A deliberate approach to the project was clearly defined and communicated to

each member of the team and to the HR organisation. The project was established

and organised into four major components: Planning and Alignment, Assessment,

Development, and Implementation.

1. Planning and Alignment set the foundation for the project. Project plan

objectives, and milestones were established. Team education and training

was imparted on business performance management, the balanced

scorecard methodology, and its application to HR measurement.

2. Assessment focused on understanding what was used at that time as

measure to evaluate HR performance and to assess the relative value to the

business.

3. Development began the actual process of designing the HR measurement

model. Defining the measurement criteria and scorecard measures,

establishing targets, defining the process for collecting and tracking


results, and creating the communications strategy were the key

deliverables in this phase.

4. Implementation operationalised the HR Scorecard from the drawing board

to a management tool for HR to assess performance and value added to

the business. Data collection, results reporting, evaluation, and analysis all

came together as the scorecard was implemented. Communications and

training were delivered to the HR organisation as the HR Scorecard rolls

out. Once the team was selected, and the mission and objectives were

established and communicated, the work to link Business Strategy to HR

Strategy began. Fig.7 illustrates the initial model used to align Business

Strategy to HR Strategy and Actions and lists the specific outputs within

each step.


Figure 7:- Initial model used to align HR strategy to business strategy

Beginning with a clear understanding of the business strategy and goals, the HR

team worked with the business leaders and HR leaders to determine the key

questions to be answered for the business and to determine what key drivers of

the business would translate into clear people requirements. The outcome was an


Undestanding the Business

OutputClearly defined business goals

Undestanding the Business


Identifying Detailed Metrics

Output

Metrics Model Metrics Map

Clearly defined business goals

Identifying Detailed Metrics

Output

Metrics Model Metrics Map

Clearly defined business goals

Determining HR Deliverables

OutputCompetitive Capability Requiremnents

Determining HR Deliverables

OutputCompetitive Capability Requiremnents

Translating HR Deliverables into HR Strategy


Translating HR Deliverables into HR Strategy


understanding of what questions need to be answered and of the competitive

capabilities required for current and future business success. This provided the

detail to build a strategy map, which would support the design and development

of the HR Balanced Scorecard.

The people requirements defined the HR Strategy that then translated into specific

HR initiatives that should directly support the attainment of HR Strategy. Having

this alignment allowed Verizon to develop a strategy map, which illustrated the

cause and effect linkage between HR Strategy and business objectives. Using the

strategy map as the guide, they were then able to evaluate the strategic objectives

in terms of measures and outcomes (Fig 9.). They could then further refine these

into lagging measures (which tell how well a company has already done) and

leading measures (which are indicators of future performance).


Understanding the Business

HR puts together a business strategy document capturing the major insights and points gathered during the acquisition of business intelligence

Figure 8:- The People Requirement and Business Driver Determination Process


Result: List of HR Deliverables

HR draws up list of total people and services requirement that provide the basis for the measurement model

Comparison and Consolidation of HR and Line Input

HR checks for overlaps and contradictions between its own and the line’s input

HR conducts “reality check”: do the required outcomes /deliverables map back to business strategy?

HR brainstorming Session

“What people outcomes must be produce to help the business deliver

against its strategy and goals?”

Line Survey

HR conducts a survey of line executives, asking “What kind of people, skills and services do you need from HR?”

List of HR Outcomes

HR draws up a list of the skills needed in the organization now and in future.

List of HR Performance Requirements

Line provides a series of questions that captures how the line will assess whether HR is delivering value

In addition to aligning the scorecard measures to the business objectives, they

developed causal links between the objectives and the measures. For example,

one of the financial objectives, Minimise HR Cost, was expected to be an

outcome of the HR Strategy. To create a clear line of sight across the

perspectives, they linked Minimise HR Cost back to objectives in the Customer,

Operations, and Strategic Perspectives that were performance drivers for these

outcomes. This cause and effect relationship described that if HR integrated the

organisation, implemented technology enablers and optimised service delivery

through streamlined processes the costs for service delivery would decrease and

reduce overall HR expense.

Financial


Contribute to Corporate Shareholder Value

Customers Corporate/Business Units

Employees

Operations

Strategic

Figure 9:- The HR Scorecard Strategy Map


Minimize HR Costs

Maximise Human Capital

Grow the Talent Pool Select, Assi-Mililate & Retain Key Talent

Organisational Renewal

Hi Potential Development

Reduce Turnover

Talent

Service Delivery Design

Organizational Change Skills -Staffing Expectations -Design Interventions -Provide

Reinforcement

Relationship Building

HR Planning

Performance Management

Capability (Build Strategic

Competencies)

Culture that Values -Results -Customer -Open Communication

Climate that exhibits: -Flexibility -Clarity -High Standard

Enable a performance Based

Culture /Climate

External trend data -HR Best Practices/ Breakthroughs

Internal Employee Data -Demographic

Organizational Strategy

Industry Trends

Integrated Technology Infrastructure (SAP)

Organizational integration

Invest in Leadership Growth

Leadership Competencies

Structure Reward to Foster Leadership Behavior

Leadership

Ensure a Strategy Focused

Workforce

Provide Proactive Workforce Solutions

Align HR Planning with Business

Strategy

Business Partner

(Strategic Support)

Organisational Health &

Competitive Capability

Skills, Competencies &

Leadereship

Develop & Enhance World Class Programs

Optimize Service Delivery through

Streamlined Processes

Low Cost Provider

Once they had defined the link from the financial objectives, HR focused on the

critical human capital requirements defined by the business. Previously, HR

Performance measurement at Verizon had focused solely on improvement of

administrative and transactional efficiency such as the error rate in employee

benefit processing and the number of training hours delivered per month. The

focus was expanding to include new processes for the HR organisation to develop

exceptional service delivery and increased employee value while ensuring a focus

on cost and value.

As the measurement model was being developed to support the business’s people

requirements, the objectives became clearer. HR recognised that the employees

would need to expand their skills and increase their productivity to provide the

new products and services that business would provide.

1. Sales representatives needed to be able to serve as the customers’

telecommunications solution provider.

2. The customer service representatives also would need ready access to

customer account information and be trained to quickly recognise possible

customer needs and to communicate optimal mixes of products, services,

and price plans to customers.

3. New incentive systems were needed to encourage the new behaviour and

skill acquisition as well as retention plans for critical skill employees.

Providing workforce solutions and ensuring alignment and a strategy-focused

workforce all contributed to a more capable and skilled employee population.

Historically, HR had a difficult time communicating to the business and

maintaining their focus on the investments and initiatives designed to build

employee capability. Strategic skill development, leadership development, and

employee development programs were all discussed with business leaders and

generally accepted as valuable. When financial pressure was applied, however,

these types of programs usually were the first to go. Now with measures, which


linked leadership development with competitive capability, people could see the

relationship between investing in these programs and achievement of long-term

business goals.

9.5.Early Results

An early benefit of the HR Scorecard work was that it provided a process for the

senior HR team to focus on a clear and common objective: to establish a common

strategy for HR in support of business objectives. The high level strategy was for

everyone to be a partner to the business. Rarely, however, did all of the HR

leadership agree on how to implement the strategy because each person had a

different opinion about what being business partner really meant and whom

exactly the customer was. Taking strategy and translating it into a measurement

and management model gave specific and operational definitions for being a

business partner and targeted business customers.

9.6.Communicating the HR Scorecard

Communicating the HR Scorecard across the HR organisation and the business is

a critical aspect of successful implementation. The development process increased

learning and understanding but was only visible to the top leaders within HR and

the business. To use the HR Scorecard to drive change throughout the

organisation, the Planning, Measurement, and Analysis team developed a phased

approach to communicate and train the managers and their departments on this

new management tool. The emphasis on the scorecard was on the value the tool

provided in communicating strategy and alignment to the business. It also served

as a tool that provided proactive solutions to employee issues or deterrents before

a negative impact could occur to the bottom line. Performance measurement was

also an essential component, and all in the HR organisation had their incentive

compensation tied to the results of the HR Scorecard.

Training and communication material was used extensively to reinforce

understanding of the new management tool. An interactive teaching tool was

developed to train HR professionals to use the HR Scorecard results in problem-

solving workforce issues. Verizon realised that measures do not manage, and

simply tracking results was not the only intended use of the HR Scorecard. The


value was to use the information provided in the scorecard and take action to

influence and improve business performance. For example, one of the most

important areas to manage in terms of cost was employee turnover. Turnover,

particularly within target front-line workforce centres, was critical to productivity

and expense control. High turnover results in lower productivity, higher training,

and staffing and occupational health costs. The impact is across the board and

affects business profitability.

Starting in 1998, with a new disciplined process using the HR Scorecard, HR

professionals tracked and analysed turnover statistics, determined reasons for

turnover, calculated the negative financial impact, prescribed solutions, tracked

improvement rends, and showed dramatic results. In partnership with the business

leadership in targeted call centres (where operators give minor technical

assistance and forward problems to specialists), significant costs were avoided by

reducing the regretted turnover.

Linkages between business processes and value chains to human resource actions

and services were clearly defined as the HR Scorecard became a business tool

understood and used across the HR organisation. Not only are human capital

initiatives needed to increase employee value delivered to the business, they are

vulnerable to business process changes and the measures taken in isolation can be

misleading. For example, in a regional call centre, the external business measures

of customer satisfaction were trending downward and accelerating. When HR

reviewed the call centre results from the HR Scorecard, there was no single

indicator that showed any direct relationship to the customer satisfaction issue;

however, the measures, together with input and analysis by HR professionals and

line management, pointed to both an issue and solution not readily apparent. The

HR metrics showed a very low cost per hire, a very quick cycle time to fill jobs,

and an average employee separation rate. On the surface nothing looked unusual.

Ironically, the staffing metrics showed a high efficiency and cost control. Drilling

deeper showed a high cost of training, a very high separation rate for short service

employees, and declining employee satisfaction for long service employees.

Further analysis revealed that six months prior a significant expense reduction

effort had been put in place for this call centre. HR responded to the required


reduced expense by changing talent pools and reducing the investments in

selection methods. This action kept costs low while bringing in applicants who

were ready to start quickly but were harder to train and keep. It was a bad trade-

off. It made sense to accept a longer cycle time and more cost to ensure the right

person was put in the right job.

9.7.Web-based Implementation and Graphics (Frontend and

Backend)

Drill down capability below the superficial level of results of the HR Scorecar

was enabled through a technology architecture, which at the top level used a

Web-based application to deploy and communicate to the desktop HR Scorecard

results in a virtual briefing book. Fig. 4 illustrates the HR Scorecard user interface

which is available on-line to all HR professionals. The virtual briefing book is

easy to use and uses colour (green, yellow, and red) to indicate whether a metric

has exceeded, met, or fallen below target.

The underlying technology supporting the virtual briefing book provides links to

Enterprise Resource Planning (ERP) systems (SAP and PeopleSoft) and a data-

warehouse using a data-mining tool to drill down below the HR Scorecard results

to analyse and model cause and effects. Predictive modelling to evaluate

workforce decision impacts (positive and negative) prior to execution is the

primary objective of this investment in technology. Fig. 5 illustrates the

technology architecture. The Employee Data Warehouse provides the intelligence

behind the measures tracked by the HR Scorecard.

The HR professionals have access to a rich base of employee data integrated from

16 different HR systems including 20 years of history. Users have a suite of

reporting tools that enable them to perform sophisticated multidimensional


workforce analysis and predictive modelling. Hidden correlation between

measures to prove or disprove what business managers previously knew only

through hunches could be determined.


Awareness and Communication

Recommend Action Understanding


Recommend Action Understanding

Modeling What-if analysis Segmentation

Goals/Measures/Targets


HR Balanced Scorecard

Goals/Measures/Targets


HR Balanced Scorecard

Multi Dimensional Drill Down Segmentation

Historical Perspective

Figure 10: HR Scorecard Implementation Architecture

The HR balanced scorecard served as a catalyst to pull together the two

leadership teams during the merger integration planning. The process of defining

the role and strategy of HR in the new company provided a common objective for

integrating the HR leadership team. Articulating a common strategy and business

alignment for HR services provided a positive perspective—a clear focus on the

customer and a shared sense of the enormous potential to deliver world-class

programs. The newly merged company faces a highly competitive environment

where a competitive cost structure, consistent revenue growth, controlled

expense, and excellent investment management are critical to win in the market

place. The Verizon HR Scorecard continues to provide the forum for HR leaders

to actively discuss performance and future targets. HR leaders now have a tool,

which supports a focus on tactical excellence while ensuring alignment with

business strategy.


FINDINGS OF THE STUDY1. Balanced Scorecard is very useful tool to measure the organizational

performance.

2. The focus of the organizations is now on human capital and its effective

alignment with the overall strategy of organisations

3. Companies are required to look at all aspects of Human Resource

architecture to find out the Human Resource’s influence on the overall

strategy of the company.

4. Companies face challenges in aligning the Human Resource with the

overall strategy of the company


5. To face these challenges, Balanced Scorecard is used to align Human

Resource functions, activity and investment with the overall business

strategy.

6. Balanced Scorecard not only focus on the financial measures and but also

on the non-financial measures to measure the organizational performance.

7. To align the Human Resource with the overall strategy of the company,

seven step model is used which is formulated on the basis of the Balanced

Scorecard.

8. To implement the Balanced Scorecard successfully to human resource:

The objectives that are to be achieved must be well defined and

communicated to all the parties involved in the attainment of the same.

The attainment of the strategy is possible by having a well drafted strategy

map which contains a set of objectives that must be arrived at to attain the

overall objectives of the company. A badly designed strategy map results

in a confusing scorecard.


LIMITATIONS OF THE STUDY

1. The primary source could not be used to collect the data because Balanced

Scorecard concept is not popular among Indian companies.

2. The data is collected through the secondary source so the reliability

depends only upon the data availability.

3. Lastly the duration of the study is only 3 months.


CONCLUSION

HR Balanced Scorecard has made it possible for HR managers to understand how

to align HR strategy with the overall business objectives. They are able to explain

not only what they are tracking but also how they are performing on essential

strategies for the business.

“We see talent as the emerging single sustainable competitive advantage in the

future. To capitalize on this opportunity, HR must evolve from a Business Partner

to a critical ‘asset manager’ for human capital within the business. The HR

scorecard is designed to translate business strategy directly to HR objectives and

actions. We communicate strategic intent while motivating and tracking

performance against HR and business goals. This allows each HR employee to be

aligned with business strategy and link everyday actions with business

outcomes.” – Garrett Walker, Director HR Strategic, Performance

Measurement, GTE

Business environment and the objectives and strategies will continue to evolve,

and HR managers will continue to be flexible and creative in supporting the

changes. The value of the HR Scorecard as a tool is that it can get HR to the new

goals and measures and through the process ensure continued learning and change

management.

“Building an HR scorecard should not be considered a one-time or even an

annual event. To manage by measurement, human resource leaders must stay

attuned to changes in the downstream performance drivers that HR is supporting.

If those drivers change, or if the key HR deliverables that support them change,

the scorecard must shift accordingly. In building an HR scorecard for your own

company, you may therefore want to include a component indicating how up to

date the HR deliverables are.”

– Brian Becker, Mark Huselid and Dave Ulrich

HR Scorecard is not a only solution to align the human resource with the overall

business strategy. It cannot solve all the problems of HR.

“HR scorecards are not panaceas. They will not cure a poorly run HR function.

However, they do provide a means by which you can collect rigorous, predictable


and regular data that will help direct your firm’s attention to the most important

elements of the HR architecture. Constructed thoughtfully, the HR scorecard will

help your organization deliver increased value to its employees, customers and

investors.”

– Brian Becker, Mark Huselid and Dave Ulrich

RECOMMENDATIONS

To implement the Balanced Scorecard successfully to Human Resource, the

following points should be kept in mind:

1. Find a champion or key executive sponsor: Enlist the aid of a key

executive, an influential line manager and the head of HR to champion the

implementation of the HR scorecard.

2. Create a need: Either build up the potential of a business threat or focus

on the great opportunity that can be exploited if the HR scorecard is put in

place and used well. The more compelling the opportunity or the greater

the threat, the more urgency the HR scorecard will have.

3. Shape a vision:. Show that with a well implemented HR scorecard, the

firm will have a strong and sustainable competitive advantage.

4. Encourage commitment and involvement: When the people most closely

involved have information about the HR scorecard, understand what it

will do and have participated in shaping it, they will become committed to

it. Make it possible for as many people as possible to generate that kind of

commitment.

5. Build the enabling systems: A good HR scorecard always requires

financial investment, management support and investment in technology.

Put those ancillary systems in place and the scorecard project will be able

to move forward rapidly.


6. Have early success and demonstrate progress:. If the HR scorecard can

solve a long standing problem or do something significant, people will

notice. That will create momentum, which can then be strengthened with

regular updates and validation programs.

7. Sustain the effort:. To keep the HR scorecard relevant, update it

frequently. Make an ongoing investment in the methodology. People will

gradually get onside with the scorecard as they see what it is achieving.

8. The major step to welcome the change must be taken by the top

management. The scorecard technique if is to be successful requires the

full support and the commitment of all levels of the management

hierarchy.

9. Many managers believe that they will reap the benefits of the Balanced

Scorecard by using a wide range of non-financial measures. However,

care should be taken to identify not only lagging measures that describe

past performance, but also leading measures that can be used to plan for

future performance.


REFERENCES

1. Research papers

Human Resource Department Management Report. January, 2003. “A Balanced Scorecard Changes HR Mgmt From Art to Science”.

Nelson, Paul. 3/5/2002. Is the balanced scorecard HR's ticket to the board? Personnel Today

Bain and Co. 9/1/2003. Bain Study Reveals How Firms Are Using Three Main Analytic Tools. Accessed from www.bain.com.

McKewen, Darren. 2004. HR Performance Scoring Demonstrates Results. Career Journal.com Accessed from website.

Frangos, Cassandra. The Balanced Scorecard: Creating a Strategy-Focused Workforce. Accessed from http://www.accountingnet.com/x40642.xml.

ICG Research. 2003. “Understanding the Balanced Scorecard: An HR Perspective” Executive Summary available for download on http://www.hr.com.

2. Websites

SHRM Metrics forum: http://www.shrm.org/metrics/

Balanced Scorecard Collaborative’s “Strategy-Focused Organization” series:https://www.bscol.com/bsc_online/learning/sfo/

www.HR.com (has upwards of sixty articles on BSC, including interviews withKaplan, Norton)

Balanced Scorecard Institute: http://www.balancedscorecard.org/

3. Book

“Achieving Functional Excellence through Balanced Scorecards” edited by Venkata Nimeesha Posa. Page no. 1 to 34.


https://www.bscol.com/bsc_online/learning/sfo/

http://www.shrm.org/metrics/

http://www.hr.com/

http://www.accountingnet.com/x40642.xml

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