How To Apply The Balanced Scorecard In HR

Balanced Scorecards for human resources (HR) have a lot in common with enterprise-level Balanced Scorecards, but they also have a lot of differences.

What do they have in common?

1. They both have objectives, measures, initiatives, and action items.
2. They both often use strategy maps.
3. They both have the four perspectives: financial, customer, internal, and learning & growth.
4. They are used to describe a specific strategy and execute it.

How are they different?

1. While for-profit, organization-wide scorecards traditionally place the financial perspective at the top of the strategy map, an HR scorecard usually does not. The HR department’s primary goal isn’t to make money; it’s to support its “customers” (more on those below). Many HR scorecards put their customer and financial perspectives side by side to indicate a balance between what they spend and how they help their customers, but place their mission or vision at the top.
2. HR “customers” are typically internal to the business. While a traditional scorecard uses the customer perspective to refer to people who purchase from the company, HR customers are both (A) business partners or business units within the organization and (B) employees of the organization. (Many HR departments will call out both sets of customers in their scorecard.)
3. The internal perspective themes in an HR scorecard are unique from traditional scorecards. Michael Treacy and Fred Wiersema, who have written extensively on the topic, explain that, in a traditional scorecard, business processes are often divided into three areas: innovation, customer intimacy, and operational excellence. But a Balanced Scorecard in HR is more likely to have an internal perspective that revolves around key strategic areas in which the department operates—like recruiting and retaining talent or building a high-performance culture.

Now that you know some of the basic differences, let’s dive into more detail on how to create your Balanced Scorecard for human resources, perspective by perspective.

How To Apply The Balanced Scorecard In HR

Mission/Vision

Your HR mission or vision is separate from that of the organization, and should be used to highlight the key focus of your department. For example:

“We want to provide the highest-skilled employees for all our business departments and support a culture of collaboration between each department and all employees.”

For HR, supporting this mission requires having the right compensation systems in place, creating the right culture maps, and determining the skills necessary for every role in each department. While departments typically do not have a formal mission or vision, having an informal mission or vision to guide the department is quite helpful—especially in a larger organization.

Customer Perspective

HR typically has two sets of customers that need to be represented in a scorecard:

• Business partners or business units. Leadership teams of operating departments expect the HR department to focus on finding the best talent, making timely hires, and acting as a trusted partner with regards to HR-related business issues.
• Employees of the company. Employees around the organization typically look to HR to support their company’s culture, prioritize employee satisfaction, offer employee training, ensure fairness in employee compensation, etc.

Knowing what is important to both groups of “customers” enables the HR department to better support wants and needs across the company. Traditional HR measures (like sick time and turnover rates) won’t cut it when thinking strategically. As an HR professional, it’s important to listen to the concerns and feedback from both groups; they may inform you that your department is too slow at a filling key jobs, or that you need to focus more on culture and training to better support the way your business units operate.

Financial Perspective

Your organization likely has a vested interest in reducing or managing HR costs, which means cost reduction or management needs to be part of your financial perspective. But there are also organization-wide benefits of investing in HR. This means you’ll need to balance both aspects by examining the ROI of investing in employees, lost time due to staff vacancies, ways to improve the skill sets of employees, etc.

As previously mentioned, your financial perspective might be side-by-side with your customer perspective, which can help demonstrate how your expenses link to meeting customer needs. For example, speedy hiring can increase productivity of a department, and managing labor costs and benefits could reduce turnover altogether. Therefore, it’s important to be able to explain the benefits of your activities, and how they directly relate to the financial contribution you (HR) make to the organization as a whole.

Internal Perspective

As we mentioned earlier, one of the major differences between a for-profit organization-wide scorecard and an HR scorecard is the difference in the internal perspective. In the former, you’ll likely see themes around innovation, customer management, and cost efficiency—whereas in an HR scorecard, you’ll likely see themes around some of the following:

• Hiring: Goals around recruiting talent, developing talent, and retaining talent are all important.
• Culture: Whether you emphasize a high-performance culture or a culture of community engagement, the HR department typically has processes that help shape it.
• Communications: HR often plays a key role in communicating information about strategy, compensation, and organizational performance to employees.
• Compliance: Similar to the regulatory theme in an organization-wide scorecard, HR has both governmental and intracompany policies that must be followed.
• Quality Service: Similar to customer management in an organization-wide scorecard, the HR department should help clarify the goals of all other operating departments and offer ways to help those departments achieve their goals.
• Training: HR often plays a critical role in determining the competency gaps in an organization and providing training opportunities to help ensure each department has the resources to execute on its priorities.

Not all of the above will apply to every HR department. You are creating a strategy scorecard, which means you’ll only emphasize key strategic areas. For example, if compliance is an organization-wide challenge, then it might be an internal process you want to emphasize in HR. But if your organization has compliance well under control, it might not show up in your scorecard at all.

Learning & Growth Perspective

HR departments often get tripped up on the learning and growth (L&G) perspective because, in theory, they foster learning and growth for the entire organization—so they think they should try to emphasize L&G for the whole company in their scorecard. But the L&G perspective in an HR department scorecard should only apply to how HR team members learn and grow, and the skill sets they require.

Keep these three tips & tricks in mind as you craft your HR Balanced Scorecard:

1. Test your HR scorecard strategy with the leadership team members in other business units to ensure you’re focusing on the right things. We recommend meeting individually with business units you support and sharing your strategy with them. Ask if they can point out anything that’s missing, or if they think your HR department strategy and scorecard will support their department. You may get some interesting feedback through this exercise. For example, perhaps your scorecard emphasizes meeting compliance targets, but some business leaders might feel you need to emphasize cultural change in light of the recent #MeToo movement. This information can help ensure you’ve selected the right areas to emphasize, and change any that don’t align.

2. Keep your scorecard simple. Remember, a scorecard should be strategic and list your top goals, not everything that you do. We recommend sticking with 10-15 objectives and only one or two measures per objective, to stay focused on what is most important.
3. Align the look, feel, and language of your HR scorecard to the organizational scorecard. Keeping your scorecard “on-brand” will ensure you stay closely connected with the strategy of the company as a whole.

FAQ:

How does the balanced scorecard improve performance?

The balanced scorecard improves performance by:

- Aligning Goals: It aligns the organization's strategic objectives with key performance indicators (KPIs), ensuring that every action contributes to overall goals.
- Enhancing Communication: It improves communication across departments by providing a clear framework for discussing performance and priorities.
- Focusing on Strategy: It keeps the organization focused on its strategic priorities and ensures that resources are allocated effectively.
- Measuring Success: It provides a comprehensive view of performance across various aspects of the organization, enabling informed decision-making.

What is the balanced scorecard in HR?

In HR, the balanced scorecard is a strategic tool used to measure and manage HR performance in alignment with organizational goals. It typically includes metrics related to employee satisfaction, retention, training effectiveness, and alignment with organizational culture.

How do you implement a balanced scorecard?

Implementing a balanced scorecard involves several key steps:

- Define Objectives: Clarify the organization's strategic objectives and identify key areas of focus.
- Identify Metrics: Select relevant metrics and key performance indicators (KPIs) that align with each strategic objective.
- Set Targets: Establish realistic targets for each metric to measure success.
- Implement Systems: Integrate the balanced scorecard into HR systems and processes to track and report on performance.
- Monitor and Adjust: Continuously monitor performance, collect data, and adjust strategies as needed to improve outcomes.

Why is the balanced scorecard important for an organization?

The balanced scorecard is important for an organization because:

- Strategic Alignment: It ensures that HR activities are aligned with overall business objectives.
- Performance Measurement: It provides a structured approach to measuring HR performance and effectiveness.
- Decision Making: It supports data-driven decision-making by offering insights into areas needing improvement or investment.
- Continuous Improvement: It promotes continuous improvement by identifying areas of strength and areas for development.

What does a good balanced scorecard require?

A good balanced scorecard requires:

- Clarity and Alignment: Clear alignment with organizational goals and objectives.
- Relevance: Metrics that are relevant to the organization's strategic priorities.
- Balance: A mix of financial and non-financial metrics to provide a comprehensive view.
- Measurement Capability: Ability to measure and track performance accurately over time.
- Adaptability: Flexibility to adjust metrics and targets in response to changing business needs.

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