The Human Resources Scorecard: Linking People
Providing the tools and systems required for leading a measurement managed HR architecture, this important book heralds the emergence of human resources as a strategic powerhouse in todays organizations. Three experts in the field outline a powerful measurement system that highlights the indisputable role HR can play as both a prime source of sustainable competitive advantage and a key driver of value creation.
They draw from an ongoing study of nearly 3,000 firms to outline a seven-step process they call an HR Scorecard, specifically designed to embed human resources systems within a firms overall strategy and manage the HR architecture as a strategic asset. Building on the proven Balanced Scorecard model, they also show how to link HRs results to measuressuch as profitability and shareholder value-that line managers and senior executives will understand and respect.
The authors argue that human esourcess strategic role begins with designing an HR architecture-the HR function, the HR system, and strategic employee behaviors-that relentlessly emphasizes and reinforces the implementation of the firms strategy. Using compelling examples from a variety of leading companies, they explain how to develop and implement an HR Scorecard in order to both manage the HR architecture as a strategic asset, as well as measure the contribution of that asset to firm performance.
Personal Review: The HR Scorecard: Linking People, Strategy, and Performance by Dave Ulrich I recently re-read this book and have even higher regard for it now than I did I when I first read it soon after it was published in 2001. Becker and Huselid later co-authored The Workforce Scorecard with Richard W. Beatty. With rigor and eloquence, they examine three separate but related challenges: Perspective (with an emphasis on differentiation), Metrics (and their relationship to strategy execution), and Execution (which holds senior executives and line managers accountable for workforce success).
They suggest that all organizations which successfully meet these three challenges (i. e. those which “do it right”) have these six characteristics in common: 1. HR professionals spend less time on employee performance than they did five years ago 2. The relationship between workforce success and strategy implementation defines the ROI of new HR initiatives. 3. Creating a shared mind-set is not taken for granted. . The HR function has a staffing structure that effectively balances the tension between being a strategic partner and delivering efficient and effective HR services. 5. Strategic workforce measures are “owned” and coordinated by a single individual or task force. 6. Senior executives, line managers, and HR professionals consider the results of the measurement system worth the implementation effort.
Although it may seem to some who read this brief commentary that will be of substantial value only to large organizations, I hasten to reassure them that, after appropriate modifications, what Huselid, Becker, and Beatty recommend in The Workforce Scorecard can help any organization (regardless of size or nature) to improve the quality of their strategy execution by developing the right perspective on the contributions of its workforce to its success, and, by developing the right execution strategy to ensure that its managers are ready, willing, and able to use workforce metrics to drive business success.
It is important to keep these points in mind when reading The HR Scorecard and I strongly recommend that, if possible, The Workforce Scorecard be read in combination with it, preferably but not necessarily afterward. Robert Kaplan and David Norton wrote three articles for Harvard Business Review (“The Balanced Scorecard,” “Putting the Scorecard to Work,” and “Using the Balanced Scorecard as a Strategic Management System”) which led to a series of books in which their insights were developed in even greater depth.
According to Norton who wrote the introduction to The HR Scorecard, in the New Economy, human capital is the foundation of value creation and that up to 85% of an organization’s value is based on intangible assets. “This presents an interesting dilemma: The asset which is most important is the least understood, least prone to measurement, and, hence least susceptible to management. “
He goes on to commend the co-authors of The HR Scorecard for three specific contributions: their development of causal models which illustrate the relationship of HR value drivers with business outcomes and hereby take the Balanced Scorecard to the next level of sophistication; their research on the drivers of highperformance organizations to provide a framework to decision-makers with which to formulate and implement strategies for human capital growth; and finally, their insights into the competencies required by HR professionals, competencies which can enabler an organization to deliver on the promise of its measurement system. In essence, the co-authors of The HR Scorecard identify and explain linkages – indeed the interdependence — between and among people, strategy, and performance.
Only by understanding these linkages and their independence can decision-makers in any organization (regardless of size or nature) accurately measure the nature, value, and impact of human capital on the bottom line. Moreover, decision-makers can then make much more accurate measurement of each individual in terms of the value she or he adds to the organization and, more importantly, to those on whom that organization depends for revenue. Customers who purchase products, of course, and clients who purchase services but also members who purchase members and benefactors to contribute donations.
Here are two other substantial benefits of establishing and then maintaining a HR scorecard: 1. It can guide and inform hiring decisions which ensure that an organization increases its human capital with those to add new value 2. It can also guide and inform decisions concerning the allocation of tangible resources, especially when there are unexpected major developments (either threatening or promising) in the given organization’s competitive marketplace. When concluding their brilliant volume, the authors observe that while much of the work of an HR scorecard is technical, the delivery of the Scorecard is personal. It requires that HR professionals design to make a difference, align their work to business strategy, apply the science of research to the art of HR, and commit to learning from constant experimentation.
When you create the HR Scorecard, using the approach we describe, you are actually [begin italics] linking HR to firm performance [end italics]. But you will also develop a new perspective on your HR function, practices, and professional development. In measurement terms, the benefits will far outweigh the costs. I presume to add two concluding suggestions of my own. First, that HR professionals use the Scorecard initially to measure their own performance so they can determine how, as individual executives, they can add greater value to their organization. Next, that all others in senior management also read this book as well as The Workplace Scorecard to increase their own understanding of (a) how and why to link people, strategy, and performance enterprise-wide and (b) how to manage human capital much more effectively (also enterprise-wide) when executing strategy.
