What gets measured gets done: Developing an HR scorecard*

1. Introduction

There is increasing interest in measuring HR and initial efforts have made use of a HR scorecard to provide a framework within which to measure. However, experience of HR scorecard implementation has been mixed. In this article we provide insights into the reasons why, and outline several key steps that must be undertaken for HR measurement to be effective.

Traditionally, HR functions have struggled with appropriate and meaningful measures to quantify their value, or that of the people engaged within the business. The emergence of the HR scorecard concept has tried to address this point, taking its core design from the established balanced scorecard measurement framework applied in businesses. In short, the balanced scorecard is essentially a framework that attempts to collate measures across four areas: financial, internal process, customer and (people) learning, and growth rather than just the traditional financial measures (hence the term ‘balanced’).

2. How to approach a HR scorecard

Rather than immediately compiling a list of HR measurables that are easy to quantify, it is worth taking a step back and thinking through a checklist of points to address.

A. UNDERSTANDING THE REASON FOR IMPLEMENTING THE HR SCORECARD

First of all, one needs to understand the reason for developing a scorecard. For example, does a wider corporate scorecard necessitate this implementation be spun-off? Or the requirement of operating metrics on a newly established HR shared service center? Is it a means of prioritizing and reporting an existing collection of HR metrics? Or, a result of the new ERP software providing a range of HR analytics?

Asking these questions focuses on the type of measures required, from basic data to operating efficiency measures through to corporate value-based metrics – each perspective having a different focus.

It is not unusual to find that there is potentially more than one layer of metrics. A common error is to try and package all relevant measures in one scorecard, rather than a pyramid-layered structure. The HR scorecard – metrics hierarchy consists of:

# Values based HR metrics linked to corporate based metrics that reflect value-based measures

# HR outcome measures that focus on business outcomes

# Operational HR metrics that focus on efficiencies

# HR analytics that focus on workforce data

B UNDERSTANDING THE BUSINESS CONTEXT OF HR

Having understood the context of the HR scorecard rationale it is important to recognize the business context within which HR operates by asking questions such as:

# What are the value drivers of the business (units)?

# What is HR’s value proposition to the business?

# Where are HR’s biggest value points?

# Where is HR’s contribution recognized – by senior management, the line, employees, HR itself and/or investors?

# What does the HR function currently measure?

# Are the metrics activity driven or value driven?

# What human capital metrics are included in the general business reporting?

These questions will define the relevance of certain measures in terms of impact before the next step of defining HR value.

C. DEFINING HR VALUE

Unfortunately most current HR metric examples are operational in nature (efficiency metrics) and are of limited or no value.

In contrast, deriving HR metrics that relate to outcomes or contribute to value creation are of much more significance. HR value (or contribution to) can be seen and ultimately measured from three different perspectives:

# The value of the HR function to the business as a whole

# The value of HR processes as practiced throughout the organization, for example, performance management, and its fit with core fundamentals, such as culture, structure, strategy and so on

# The quantification of people value to the organization, and their input to strategic decision-making.

However, jumping from efficiency metrics to value-based metrics in one leap can be too much and thus a progressive move over time may be the optimum solution.

D. DEVELOPING THE HR VALUE MAP AND CONSTRUCTING HR METRIC TREES

This is potentially the most difficult step in terms of mapping the touch points – those where HR involvement or intervention has impact on business performance. This map provides the base for constructing a hierarchical link of HR metrics with business metrics (financial/process/customer).

E. SELECTING THE RELEVANT MEASURES AND METRICS

This step is unfortunately the one in which most scorecard enthusiasts begin! The trick here is to construct a set of relevant metrics that meet with the initial rationale for the HR scorecard design. The outcome of this stage should result in some form of draft scorecard framework.

F. MAINTAINING AN HR SCORECARD FRAMEWORK

The scorecard is an organic design – one that changes with the business. Thus this step is most important in continually updating and reviewing the scorecard framework, ensuring that it continues to report relevant metrics and discontinuing those metrics that are no longer required. This is sometimes the hardest task.

Following the steps outlined above, whilst by no means definitive, will at least ensure a HR scorecard design that will be relevant to the business rather than reflective of a loose collection of HR metrics.