Crafting a Human Resources Scorecard That Works
Recent interviews with senior executives uncovered that the most important issue to them was the need to measure the effectiveness and ROI of their human resources organizations. Human resources has struggled with this issue for years. The advent of Balanced Scorecards provided a structure for establishing a company-wide measurement system. Many organizations stopped there because they became frustrated with not having the methodology to provide direction on the measures themselves. The successful companies turned to their finance organizations for help.
Finance functions have been affectionately known as the "number crunchers." When in need of data, numbers, counts, metrics, we could always turn to finance for the answers. As human resources is being held accountable for measuring its contribution to organizational performance, we turn to our finance partners for help.
The 10 Dimensions of Successful Measurement
- Senior Management Champion. As is the case with any organization-wide initiative that is expected to have a lasting and material effect, there needs to be a champion from the ranks of senior management. The role of the champion is to ensure that the measurement process receives constant and regular visibility, credibility and priority. Through proactive communication, consequence management and recognition that lead by the champion, the measurement initiative provides a level of importance that all employees can acknowledge.
- Alignment. The foundation for a human resources Scorecard or Measurement System is its alignment with the company’s overall strategic plan. Each of the measures contained in the human resources Scorecard must align with at least one initiative from the strategic plan. This alignment will provide human resources with focus, prioritization and an ability to demonstrate that it is a Strategic Business Partner. At the point that human resources initiatives are seen as business initiatives, human resources can say that they have not only aligned with the business strategy, but they have achieved convergence within the company strategy. Convergence is like a completed jigsaw puzzle where every piece interlocks to form the picture. Each piece of the organizational measurement puzzle is essential to create the picture that each employee must see to ensure organizational success.
- Context. As alignment provides a clear and understandable relationship of the human resources Scorecard measures to organizational performance, context provides insights into the connection of the specific initiatives and activities to the culture of the company. For example, a company whose value discipline is Operational Excellence may design a compensation process that looks very similar to that of a company whose value discipline is Innovation. However, the measurements used to determine process effectiveness will be very different. Process effectiveness in the Operational Excellent company is cost as a percent of revenue, while process effectiveness in the Innovation company may be number of new products. Adapting your measurement system to the context of the organization is a critical component to ensuring measurement success and effectiveness.
- Accountability. Who is responsible for the result? There are two types of accountability embedded in an human resources Scorecard and Measurement System. The first and most important level of accountability revolves around the successful execution of the initiative. If retention of high potential employees is one of the measures, then who is in the best position to achieve this result? In this case, it is the line manager. Human resources has the accountability to implement a policy, practice or procedure that has the highest likelihood of retaining the high potential employee, as well as collecting the data to support the measure. The line manager has the accountability to execute the policy, practice or procedure to ensure retention. The line manager also has a responsibility to provide feedback to human resources on the policy, practice and procedure and its likelihood of producing the desired result. For the result to be achieved there must be accountability.
- Validity. Can the numbers be trusted? The human resources measurement system must contain measures and metrics that are clearly understood, meaningful to the initiative and have been rigorously examined. There is nothing that will inhibit the successful implementation of an human resources Scorecard or Measurement System more than numbers that cannot be verified. If the credibility of the measures becomes questionable, then the trust in the measurement system is broken. Broken trust results in failure.
- Measure Results. The human resources Scorecard and Measurement System must focus on results. Measuring the time to fill an open job simply tells us the length of time it took to complete a search. It is a process measure. The more important measure is the productivity of the individual who filled the position. This is a result measure. Result measures are the primary way you will be able to determine if the company’s Strategic Plan will be achieved. Result measures are what senior managers use to determine if human resources is contributing to organizational success. Result measures will be a determining factor in your ability to be seen as a Strategic Business Partner—they create the convergence of human resources to the organization.
- Lag and Lead Measures. Lag measures tell us what happened in the past. Year-end financial reports are lag measures. We learn the result of our efforts. Lead measures are an indicator of what the future result might be. Lead measures tell us either to continue what we’re doing or stop because the result is not what we want. It is very important that our human resources Measurement System contain a combination of lag and lead measures. For example, higher-than-expected turnover within a group of employees who have been targeted as High Potentials is a lag indictor that our retention efforts are not working. The results of an Employee Engagement Assessment may tell us that our employees feel that to meet their career goals, they have to work in another company. This is a lead indicator of turnover. It is very important that your human resources Measurement System contain a balance of lag and lead measures. It’s too late to lock the barn door after the horse has already gotten out.
- Actionable. To quote Albert Einstein, "Everything counts, but everything doesn’t need to be counted." For a human resources Measurement System to be meaningful, it must contain only those measures that are most important to the human resources Strategy and the Strategic Plan of the company. One of the failures of many human resources Scorecards and Measurement Systems is the belief that more is better. In reality, the vital few measures provide much greater insight and the ability to take action. We all know what happens when we try to address too many issues at one time: our efforts lack focus, are not of the highest quality and fall short of expectation.
- Dynamic. Things change. Forces outside our control require us to rethink our plans. The human resources Measurement System must contain the flexibility to be dynamic in an ever-changing world. The "bend but don’t break" defense is an excellent model to deploy to ensure the success of your human resources Measurement System.
- Distributed. The human resources Scorecard and Measurement System must be communicated throughout the organization. Many of the initiatives will be carried out and implemented by the line organization. They must know how these initiatives are going to be measured. Communication of the human resources Scorecard and Measurement System will also bring valuable visibility to the human resources function. Communicating human resources success, done in a positive way, will bring credibility, respect and trust to human resources. Communication will also go a long way in enabling human resources to be seen as a Strategic Business Partner, providing additional opportunities to bring convergence of human resources to the business.
These 10 Dimensions of Measurement Success are the keys to the successful implementation of a human resources Scorecard and Measurement System. Evaluating your current measurement system against the 10 Dimensions will enable you to diagnose the effectiveness of your current system. These dimensions should be used as the cornerstone to build a human resources Scorecard, which will provide a strong, lasting foundation. Whether you are just getting started, your human resources Scorecard is being used successfully or your results have been less than you excepted, assessing your efforts against these dimensions will enable you to strengthen your measurement initiative and exceed the expectation of senior management. An effective and efficient human resources Scorecard and Measurement System is the most accurate way to demonstrate human resources effectiveness and ROI.
One Final Note from The Benchmark Partners
In the work we’ve done with companies on their measurement systems, we’ve encountered some confusion in the difference between a human resources Scorecard and a human resources Measurement System. A human resources Scorecard should be considered a human resources Measurement System; however, a human resources Measurement System should not be considered an human resources Scorecard. The distinguishing characteristics are:
- A human resources Scorecard is aligned with the strategic plan of the company.
- A human resources Scorecard provides focus, accountability and prioritization to all human resources initiatives.
- A human resources Scorecard is used to determine the individual performance and expectations of human resources staff members and line management.
- A human resources Scorecard is used by the entire organization, not just human resources
- A human resources Scorecard identifies the role employees outside of human resources play to impact results.