HR Balanced Scorecard

How to Measure Results

“Adding HR Value through Strategic

Alignment”
Key Topics for Today

?
? ??
?
? ?
?
??
 What is a “Balanced Scorecard”?
 How to make the Balanced
Scorecard (BSC) a strategic tool?
 What are the HR measures for a
strategic Balanced Scorecard?

2
What is a “Balanced
Scorecard”?
 What is a BSC?

“When you can measure what you are speaking about, and
express it in numbers, you know something about it; but when
you cannot measure it, when you cannot express it in numbers,
your knowledge is of a meager and unsatisfactory kind”
Lord Kelvin,1824-1907

“Noteverything
“Not everythingthat
thatcan
canbe
becounted
countedcounts,
counts,
andnot
and noteverything
everythingthat
thatcounts
countscan
canbe
becounted”
counted”
AlbertEinstein
Albert Einstein

4
What is a BSC?

“What gets measured and rewarded

gets done.”
On the folly of rewarding A, while hoping for B, Academy of
Management Executive, 1996, Kerr, Steve
5
What is a BSC?

 Assists organizations with:

– effective organizational
performance measurement
– implementing strategy

6
What is a BSC?
Definition

i v e d from
r
s u res de
e t o f m e a
s s e l ected
l e cted s m e asure
r e f u lly s e
e g y . Th e
l e a d e rs to
“A c a stra t l fo r
o n ’ s t o o
r g a niza t i
r es e nt a
e x t e rnal
an o r d re p e s and
c or e c a p l o y e ri vers
e s o e m e d
for th n i ca ting t e r f o r m an c
c omm u and p ission
us e in o m e s i ts m
t h e outc l l a c hieve
older s ion w i
k e h i z a t
s ta
h e o r gan
j e c t iv es.”
ich t i c ob
by wh r a t e g
and st

2
N i ve n, 2 00
P aul

7
What is a BSC?

 The balanced scorecard consist of three things:

Strategic
Management System
Balanced Communication
Scorecard Tool

Measurement
System

8
What is a BSC?
The Four Quadrants

Customer Process
 What is the value  How do our
propositions for processes provide
serving them? or link to value for
 Operational our customers
excellence
 Product leadership

 Customer intimacy

 Process

perspective
 How do our
processes fulfill the
value of propositions
for our customers?
9
What is a BSC?
The Four Quadrants

Learning & Growth Financial

 Enabler of the other  Is the strategy

three perspectives execution, as
indicated by the other
 Need to fill the gaps
three perspectives
between desired state
producing the desired
and current state
financial outcomes?
 Includes
 employee skills

 employee

satisfaction
 availability of

information
 alignment

10
What is the BSC?
Measurement System

 Lagging indicators – Financial measurers are

lagging indicators because they report the outcomes
of actions taken in the previous year
 Leading indicators – Customer, process, and
innovation and growth measures are drivers of future
economic performance, which is why they are “lead
indicators”

11
What is a BSC
Public/Non Profit vs. Private Sector

 Public and/or non profit BSCs differ from for profit

BSCs because:
– Mission, not financial goes at the top of the framework
– The customer may be donors vary (ie., donors and
recipients)
– Caution about unintended linkages

12
What is the BSC?
Objectives of the BSC

 Objections
– What I do is not measurable! Outcomes vs
outputs
– Results will be used to punish (or reward?)
– What is our mission?
– The public won’t understand negative results
– This is a fad
– Is there a “burning platform” for change
(management commitment over time)?

13
 What is a BSC?
BSC Development Questions
Mission

Customer
Who do we define as our
customer? How do we
create value for our
customer?
Financial Internal Process

How do we add value To satisfy customers

for customers while while meeting budgetary
constraints, at what
controlling costs? Strategy business processes
must we excel?

How do we enable
ourselves to grow and
change, meeting ongoing
customer needs

Employee Learning
and Growth
14
Making the BSC a
Strategic Tool
Making the BSC a Strategic Tool

 The ability to execute strategy was more

important than the quality of the strategy
itself - 275 managers (E&Y research, 1998)
 In the 1980s Fewer than 10% of the strategies were
successfully implemented (Corporate Strategies under
Fire, Fortune)
 An estimated 70% of the cases the real problem isn’t bad
strategy, but bad execution (Why CEO’s Fail, Fortune
1999)

16
Making the BSC a Strategic Tool
Who Uses the BSC?

– AT&T Canada - Nova Scotia Power

– Chemical Bank
- Sears
– CIGNA
- Shell Oil
– City of Charlotte, NC
- State of Washington
– Duke Children’s Hospital
- United Parcel Service
– Fannie Mae
– FMC Corp.
- Univ. of Calif.

– GTE
- U.S. Dept. of Energy

– Halliburton
- U.S. Dept. of Transportation
– Mobil Oil - United Way of New England

17
Making the BSC a Strategic Tool
Why Financial Measures are not Enough?

 Why are financial measures not enough?

– Tangible book values represented 62% of
company market values in 1982
– Ten years later it had dropped to 38%
– By 2000 it is estimated to be 10%

The opportunities for creating value have shifted

from managing tangible assets (more readily
measured by traditional financial measures of
inventory & property) to managing
knowledge-based strategies
18
Making the BSC a Strategic Tool
Operating Strategy

 Organizations need a language for

communicating strategy as well as
processes and systems that help
them to implement strategy and
gain feedback about how well the
strategy is working. The BSC
process helps strategy to become
everyone’s everyday job.

19
Making the BSC a Strategic Tool
Four BSC Companies – Before and After

 Before Using BSC  After Using BSC

– Mobil: last among peers
in profits (13% below
average), $500M in
upgrades needed
– CIGNA: lost $275M,
worst performer in
industry
– Brown and Root: in the
red
– Chemical (Chase) Bank:
No profits
– Mobil: #1 in profits
(56% above industry
average)
– CIGNA: Top quartile
performer
– Brown and Root: 1st in
its niche in growth and
profitability
– Chemical (Chase)
Bank: 19x as
successful
20
Making the BSC a Strategic Tool
BSC Works

 BSC Works
The use of the
– Same resources BSC was the
– Same products and facilities difference to
which the CEO’s
– Same employees attributed
– Same customers success

21
 Making the BSC a Strategic Tool
Why Use the BSC Approach?


WHY? Two words

Focus

Alignment
22
Making the BSC a Strategic Tool
Why the BSC Works?

 Strategy becomes the central

organizational agenda
 Creates incredible focus
 Mobilizes employees to behave
in ways that create linkages
and common decision
templates

23
Making the BSC a Strategic Tool
How to Ensure the Alignment and Focus

 Create a strategy map - a generic architecture for

describing the strategy
 Strategy is a step in a continuum
 Choose to perform activities
differently from competitors
(competitive advantage) so as
to provide a unique value
proposition
 What is yours?

24
Making the BSC a Strategic Tool
Architecture of a Strategy Map

Financial

Increase Customer Value

Customer

Achieve Operational
Build the Franchise

Corporate Citizen
Internal
Processes

Excellence

Be a Good
Learning and
Growth

25
Making the BSC a Strategic Tool
Translating the Mission into Desired Outcomes

Mission
Why we exist
Core Values
What we believe in
Vision
What we want to be
Strategy
Our game plan
Balanced Scorecard
Implementation and focus
Strategic Initiatives
What we need to do
Personal Objectives
What I need to do

Strategic Outomes
Strategic Delighted Effective Motivated and
Shareholders Customers Processes Prepared Workfoce

26
 Making the BSC a Strategic Tool
Barriers to Implementing Strategy

Only 10% of
organizations
execute their
strategy

Barriers to Strategy Execution

Vision Barrier People Barrier Management Barriers Resource Barrier

Only 5% of the Only 25% of the 85% of executive 60% of
workforce managers have teams spend less than organizations don’t
understands the incentives linked to one hour per month link budgets
strategy strategy discussing strategy

27
HR Measures for a BSC
HR Measures for a BSC

 Successful BSCs typically have:

– Cascading goals and measures
– Top down driven measures – measures defined and set at the
top
– Bottom-up and reconciled targets
– 3-4 of scorecards proven manageable (e.g., corporate,
division, department)
– Effective as a basis for group or team incentives
– Linkage to individual performance is essential (must sort out
base pay from incentive pay and link individual performance to
BSC)

29
HR Measures for a BSC
Linkages to the HR Process

 Base pay market driven with internal equity calibrations

 Merit matrix probably needs to be even more limited
 Base pay positioning impacts leveraging and first dollar
design or threshold calibrations

30
HR Measures for a BSC
Theoretical Merit Matrix

Pay Range Penetration

1 2 3 4 5
Performance Rating

5 8% 7% 6% 5% 4%

4 7% 6% 5% 4% 3%

3 6% 5% 4% 3% 2%

2 5% 4% 3% 2% 1%

1 4% 3% 2% 1 0

31
HR Measures for a BSC
Actual Merit Matrix

Pay Range Penetration

1 2 3 4 5
Performance Rating

5 8% 7% 6% 5% 4%

4 7% 6% 5% 4% 3%

3 6% 5% 4% 3% 3%

2 4% 3% 3% 3% 3%

1 0% 0% 0% 0% 0%

32
HR Measures for a BSC

 Company/organization success impacts all scorecards

 Fail-safe measures usually wise
 Team-based rewards are where line-of-sight is assured
 Individual contribution impacts reward magnitude - but
may be a scorecard or use of extant performance system
with linked objectives and measures

33
HR Measures for a BSC

Constituents
Improve relationship with constituents
Goals Measures
 Time to fill
 Support Mgrs/Divisions
through effective sourcing,  Terminations within first 6
interviewing and hiring of months*
qualified staff  Vol./Invol.
 [Cost to fill*]

 Provide information to all  Orientation of New Employees

employees on HR programs
 Current employee and
supervisor handbooks
 Monthly communication on HR
programs
 Provide targeted training and
 Provide value-added training performance support tied to
and development resources to Corporate initiatives
increase employee
 [Training activities tied to
skills/productivity
development plans]
34
HR Measures for a BSC
Innovation
Find new and better ways to achieve our mission
Goals
 Utilize technologies to improve
employee communication and
service
 Improve quality of workforce,
work environment and foster an
inclusive organizational culture.
Measures
 Expand use of corporate intranet
 Maintain timely and accurate
employee information
 Explore, evaluate and propose
cost effective technologies for
employee communication and
services to support Corporate
initiatives.
 Increase retention average tenure
 Establish talent pipeline
 Implement a competency-based
hiring and selection process*.
 Employee commitment survey
35
HR Measures for a BSC

Process
Realize efficiencies in key areas
Goals Measures
 Improve HR processes and  Processes have been
automate where cost effective automated
 Decrease in processing time
 Increase in customer
satisfaction

36
HR Measures for a BSC

Financial
Meet overall financial targets
Goals Measures
 Manage ABC  Results of audit of pay
Compensation Budget structures and levels
to ensure alignment against philosophy
with defined market driven market
competitive/ philosophy  Control benefit costs
 Provide competitive per employee
benefit programs in a
cost efficient manner
 Manage HR  Budget variance
Department Budget (within +/- %)

37
References

 Chingos, Peter T., Paying for Performance, A guide to compensation

management; 2nd edition; John Wiley and Sons; 2002
 Kaplan, R.S. and Norton, D.P.; The Balanced Scorecard, Harvard
Press, 1996
 Kaplan, R.S. and Norton, D.P.; The Strategy Focused Organization,
Harvard Business School Press, 2001
 Niven, Paul R.; Balanced Scorecard, Step by Step; John Wiley and
Sons, 2002
 The Clients of Mercer Human Resource Consulting,

38