HR Scorecard Approach Another approach often used by managers to assess the value of the typ fy tion is the HR Scorecard approach. The HR Scor ecard measures th il « tiveness and efficiency of the HR function in producing those en, Mag behaviours that are important for a firm to achieve its strategic goaly The Scorecard is a system of measurement. The Scorecard shows the ‘myit thatthe firm uses to measure HR activities as well as the employee beh resulting from these activities. The HR Scorecard manages HR as a saat asset and also measures the contribution of HR to the financial success Of the firm. Thus, the Scorecard highlights the causal link between HR Activity employee behaviours, and the resulting organizational outcomes and Perfor. mance. The Balanced Scorecard discussed earlier incorporates measures thy describe the actual value creation process rather than focussing on the finay cial results only. The HR Scorecard approach strengthens one aspect ofthe * Balanced Scorecard, that is, how best to integrate the role of HR into ay organization’s measurement of business performance. To create an HR Scorecard, the manager must 1. know the company strategy; 2. understand the causal links between HR activities, employee behaviours, organizational outcomes, and the organization's perfor: mance; and 3. have the metrics to measure HR activities, emergent employee behaviours, the strategically relevant organizational outcomes, and the performance of the organization. ‘Steps in Creating an HR Scorecard The HR Scorecard approach can be used to oriented HR system. There are seven ste (see a synopsis at Table 3.8). Defining the business strategy Building a results-oriented HR system st by defining the company’s strategic plans. For example, ‘to become a glo leader’ may be the strategic plan of a firm. Senior HR managers provi important planning input at this stage by way of their insights about the huma" resources in their own company and in those of the competition. Towards the end of this stage, broad strategic plans get translated into specific strategic goa! create a strategically result ‘PS towards creating such a system Outlining the company’s value chain A business needs to perform su" tegic activites to achieve its strategic goals. For example, to become a glob! leader, a firm in the FMCG sector must develop new and unique produc Each such activity requires certain employee behaviours. The FMCG fi™ requires employees who have the ©xpertise to develop new products. Scanned with CamScannerTable 3.8: HR Scorecard Approach—Creating a Strategically Result-oriented HR system Steps in Using the HR Scorecard Example of an FMCG firm 1 Define business strategy ‘To bea global leader 2. Online the value chain of the company Develop new and unique products, which requires certain employee behaviours and also requires employees who have the expertise to develop new products 3. Identify strategic organiz tional outcomes: Development of new products Identity required workforce competencies | # Creativity and proactivity, working to find and behaviour novel solutions 3. Identify’ relevant HR systems and practices | » Training to enhance workforce creativity and innovation & Design HR Scorecard measurement Has morale gone up or down asa result of HR practices? 7 Periodically evaluate the measurement Does the HR practice have desired impact on system, employee competencies? m: Dessler 2005 Identify the strategic organizational outcomes In order to achieve stra- tegic goals, every company must produce critical, strategically relevant outcomes. The development of new products is one such strategic outcome for the FMCG company mentioned above. Hence, an organization at this stage identifies and specifies the strategically relevant organizational outcomes. Identify the required workforce competencies and behaviours At this stage the managers should attempt to identify those employee competencies and behaviours that must be exhibited by the employees in order for the orga- nization to produce strategically relevant organizational outcomes and, hence achieve its strategic goals. The employees of the FMCG company must be willing to work proactively to find novel solutions. Identify relevant HR systems and policies Once the required employee competencies and behaviours have been identified, the manager can focus on identifying the HR activities that will help to produce these employee compe- tencies and behaviours. For example, the HR activities to develop these com- petencies may include special training programmes. However, the manager has to be specific about the kind of training programme required. Design the HR scorecard measurement This stage seeks to determine how to measure organizational outcomes, employee competencies, and specific Scanned with CamScannercific measures need ‘0 be oe This te i t. For example, how will morale be measureg; 18 Seba aweatly HR activities, employee behaviours, and orga’ tional outcomes, and thereby assess HR performance unambiguous} a quantitatively. For example, it can be shown ae noes Morale ha gone up or down and by how much. This also helps the HR Profession, demonstrate how the HR activities of the firm affect employee behavi customer satisfaction, and thus, the financial performance of the firm, The HR Scorecard is crucial to this measurement process. Periodically evaluate the measurement system The HR manager shoulg evaluate measures periodically to make sure they are still valid. There is ng certainty that the various measures in HR scorecard will always stay the same. tis also possible that a particular HR activity is not having the desired impa, on employee competencies and behaviours. HR activities. Thus, spe IR Scorecard—Rao, 1999 Another HR Scorecard to measure the maturity level of HR in an organization was developed in India by Rao (1999). The model is based on the following assumptions: ¢ Competent and motivated employees are needed to provide quality products and services to enhance customer satisfaction. © The commitment and competencies of employees can be developed through HR practices. An organization with high HRM maturity has well-developed HR practices. The maturity of HRM can be measured through an HRD audit. ¢ The human resource competencies of HR and line managers play at important role in the implementation of HR practices and systems to enhance the linkage between employee satisfaction, competency build- ing, and customer satisfaction. ¢ The HRD culture created through HR practices and systems and by HR professionals plays a crucial role in building sustainable compe tencies in the organization. « The HR practices, systems, competencies, and culture must be aligned with the business goals of the organization. This alignment is ensure through linkages with customer satisfaction and employee motivation AR Audit An HR audit is conducted to obtain a score on the HR scorecard. It involves assessing each of the above factors (HR systems maturity, HR competencies culture, and business linkage) and assigning a score is each factor (se Figure 3.8). Scanned with CamScannerName of the Organization HR HRD | HR Practices Competencies Culture Maturity of HR and Line managers Figure 3.8: Sample HR Scorecard Source: Rao 1999 An HR audit is concerned with the assessment of the HR function. It is 2 comprehensive evaluation of HR strategies, practices, skills, and systems the context of the business goals of the organization. The future needs firm are determined on the basis of an assessment of the present HR a and the competencies of HR personnel. There should be an alignm: between the HR function and the business goals of the firm to ensure that the HR function contributes to organizational goal achievement. Moreover, the skills of the HR personnel should be aligned with HR goals. An HR audi assesses and ensures these alignments. The HR audit process comp: steps. 1. Determine the scope of the audit. Will the audit focus on the entire HR function or on a specific HR practice? 2. How will the audit be conducted? Information on ratios and measures of turnover, absenteeism, etc. is important at this step. 3. Collect data using interviews, questionnaire survey, observations, etc. 4. Analyse the data, and take corrective action, if required. An HR audit yields a report that typically provides a summary of the strengths and weaknesses of the HRM function. It also describes the deficiencies of the function and provides suggestions for corrective action to address these deficiencies. An HR audit can help to improve the efficiency of the HR function. However, it is not counted as one of the most valid approaches to measuring the HRM contribution to the organization’s bottom-line performance. An overview of the questions that are asked as part of an HR audit is pre- sented in Exhibit 3.5. Several purposes are served when firms undertake an audit of HR function, practices, and professionals. The reasons firms under- take HR audits are highlighted in Exhibit 3.6. Three types of audits may be carried out on HR: the HR practices, HR Professional, and the HR department or function (see Figure 3.9). Scanned with CamScannerxi Questions Addressed in HR Audit Whatare the short-term and long-term business plans of the firm? Where does the company want to be ten years from now or one year from now? What types of core competencies will be re- quired by the firm to achieve its goals? What skills will be required by employees at different levels and in different functions to ensure organizational goal achievement? What is the current skill base or the available competencies of the employees in the com- pany? Adapted from: Rao 1999 What HR practices and systems are AV Ailable within the fir to help the organization yn its competency base for the immediate futuy, as well as in the long term? How effective are the current HR practices in developing people and competencies? How effective is the existing skill base of Hp professionals? Are the structure of the HR department, the number of HR personnel, and the HR budget appropriate? | ee _ Why do Firms Undertake HR Audits? Firms undertake HR audits to = ~make HR practices and activities relevant to the business goals of the firm. Changes in business environment, organizational restruc- turing, introduction of new technology should be accompanied by changes in HR function to ensure that the HR function is aligned with business goals and strategies; take stock of the present status and to use the HR audit information for moving in a new di- rection; = measure and understand dissatisfaction with Adapted from: Rao 1999 some current HR practices (for example, HR audit may be conducted to obtain feedback about the current performance appraisal sys- tem based on which the firm may identify what aspects of the system need to be changed or improved upon); track the performance of the HR function on a regular basis and align the audit score with the managers’ salary increases; and track the competencies of HR professionals with a view to identify gaps and bridge these gaps through training. aa aaNet HR practices An audit of HR services involves an assessment of the various Partment (see Figure 3.10). These services services offered by the HR de include, for example, staffing, training and development, appraisal, rews etc. Four types of assessment are made for each of these services: activity: customer value, cost/benefit, and research, Scanned with CamScannerHR Practices |} HR Professional HR DepartmentFunction Figure 3.9: Types of HR Audits The beginning of the audit on HR practices describes what services are offered. This is referred to as an activity audit. An activity audit answers questions such as: Do the HR practices focus on the more operational (day-to-day) issues or on strategic (long-term) issues? What are the responsibilities of the HR managers and the line managers for the different aspects of HR services? What resources are being used to accomplish HR work? Sometimes, activity assessment may point out that some work related to employees lies outside the HR department, though, in fact, it should have been within the HR depart- ment. For example, the communications department of a firm was part of the public relations department of the firm. An activity analysis found that effec- tive communication included activities such as sharing information with employees, building employee commitment, announcements of compensa- tion programmes, ete. that were intricately linked with HR processes. Hence, as a result of activity analysis, the communication department of this firm was merged into the HR department. Four types of assessments made for each HR practice/service offered by HR department (staffing, development, reward, and appraisal) petty Customer Value CosBenefit | [ Research a t services are offered + Perceived value of HR ‘# To monitor HR To show + Whether the focus is on for employees Services effectiveness of operational or strategic ‘+ Assess whether focus + Track HR services HR practices Rese nia was on important HR cover time Sponsibilities of HR. practices « Compare with similar and line managers HR services offered * Resources used to by other firms. @ccomplish HR work igure 3.10; Summary of Auditing Process of HR Practices ‘pled from: Ulrich 1997 Scanned with CamScannerServig, assess the quality of service provided. Customer valu waren to the Cte annens re ai activity for the users, or the employees, uman re oun eee ‘a A conducted, These surveys list all HR Practices ang 4% a syees (users) wo rate the importance and/or effectivenes, Of ¢ i HR practic te The basic premise of sores dene str T of services knows how well those services are delivered, Thi ment may help the HR department of a firm to determine whether ¢ Ors were ci Y 18 thay 8 asses, a OMpan directed towards HR activities that were im y portant, This information is then used by the firm to prioritise its efforts towards importany activities, However, well the se AR service ee a service provider and the userg Of the ¢ jon is seen as a service prov! ; The HR function is se | obtaining information from the users of HR servi are delivered poses its own challenges, may know what they want but the tant for the success of the firm. For benefit programmes, but the these benefit programmes, A cost benefit analysis of e formulae. Cost benefit anal track them over time, 4 by other firms, Th ‘utility’ analywes sinc poxtible through theye to translate H The # of HR practices can be demonstrated by conducting research experimenty within the firm, For example, the impact of training may be asseuued by comparing a group of employees who receive training with another group who do not receive training. If the results suggest that those employees who rece ‘ed training had More positive career outcomes in terms of Promotions and performance Ppraisals, thege differences may, in part, be altibuted to training, Such m autches help formulate various LR awit that will result in greater firm Performance, HR Professionals An ices about how For one, the Users of 'y may not know what is impor. r example, employees may want flexible Y may not understand the financial impact of ach HR service can be carried out using certain lysis of HR services h 8 2 3 z 5 = § 5 3 z ss 3 2° 2 s g = Zn I 3 tility or value of an HR practice. Itis concerned with deter 'sses HR compels enn: (1 sters of competencies (4) perms) knowledge of 1 RS (3) knowledge of change illy, pe iaedibility. The Competencies help identify the eter tt eAuited (6 hen Successful HR profession! nd abilities. Onee thy ° behaviour ®PPropriate to these knowleds | identified, data is collects abou atenciey ‘nd the required behaviour : 1» Gala Ee abou be . demonstrates the identifie ncgttent to which ‘an HR profession competenc Petencies, Data may be collected throu! Scanned with CamScanner four cluself-assessment where the HR professional rates himself/herself or by con- ducting a survey of the employees of the firm. The collected data must then be summarized to provide feedback to the HR professionals. The feedback is designed to help HR professionals improve their competencies. Data may be summarized for a single HR professional or they may be combined and summed into an HR competence audit of the overall HR function. An action plan can be created based on the data to improve the competencies of an HR professional or of the entire HR function. Auditing HR professionals should be an ongoing continuous activity rather than a single event. Human resource department or function As mentioned above, the com- petency of the HR function may be determined by summing the individual competencies of HR professionals. It is also possible to audit the HR depart- ment by obtaining ratios that indicate the HR function’s performance or effec- tiveness (for example, the ratio of HR professionals to total employees; the ratio of the HR budget to total sales; operating within HR budget). As is evident, HR audits provide important information about HR effectiveness and help determine the quality of HR within a firm. An HR audit helps in calculating the scores for the HR Scorecard. The Scorecard presents a numerical grading to reflect the level of maturity of HR practices, HR personnel, and the HR function in the firm. 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