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Balanced Scorecard Approach to HRM

By Garima Saxena, 3rd Eye Advisory Ltd
Balanced Scorecard Approach to HRM

"The Balanced Scorecard - Measures that Drive Performance" an article in Harvard Business Review by Robert Kaplan and David Norton states about a management system which enables organizations to explain their vision andtranslate them into action. The end goal is to tie business performance to business strategy by measuring results in four perspectives: financialperspective, customerperspective, internal business processesperspective, and learning and growthperspective. It is a strategic approach to performance management system to enable organization to implement a company's vision.

The balanced scorecard approach examines performance from four perspectives.

  1. Financial perspective, which includes measures such as operating income, sales growth and return on investment.
  2. Customer perspective, which looks at customer satisfaction and retention.
  3. Internal Business Processes perspective, which looks at how business processes are linked to strategic goals.
  4. Learning and growth perspective, which assesses employee satisfaction and retention, as well as information system performance.

When the organization wants to introduce the balanced scorecard to manage the balanced development of the organization, it has to start with formulating the business strategy. The same theory applies to Human Resources, when it wants to implement its own Human Resource Balanced Scorecard. It has to formulate the vision and on the HR Strategy and after the design and development of the HR Strategy, it can continue with the HR Balanced Scorecard.

Kaplan and Norton quoted two main advantages to these perspectives of balanced scorecard approach. First, the scorecard brings together different elements of a company's strategyon a single view. Second, by viewing all of the operational metrics together, organizations are forced to consider whether one improvement has been achieved at the expense of another.

Organizational results in each of these areas determine it the organization is progressing toward its strategic objectives or not. A decline in employee satisfaction for some organizations, several months later there is a decline in customer loyalty and repeat customer sales. Few organizations also link expenditures in employee leadership development training can be linked to lower employee turnover and reduced time to hire managers from outside the organization.

More than 60% of organizations claim to use a balanced scorecard approach for their human resource management. This requires spending considerable time and effort to identify the appropriate HR measures in each of the four areas and how they tie to strategic organizational success. For an effective HR scorecard, it should be able to address accountability, validity, and actionable results.

Apple (then known as Apple Computer) developed a balanced scorecard to expand the focus of senior management beyond metrics such as gross margin, return on equity and market share and versed in the strategic thinking of executive management, chose to include all four scorecard categories and to develop measurements within each category.

For the financial category, Apple emphasized shareholder value; for customer perspective, it emphasized market share and customer satisfaction; for internal processes, it emphasized core competencies; and for the innovation and improvement category, it stressed employee attitudes. Apple's balanced scorecard planning had the following dimensions:

Apple's main focus was to shift its classification from a technology-focused company to a customer-centric company. Apple had a diverse customer base and decided to go beyond the standard customer satisfaction metrics that were available at the time and develop its own independent surveys that tracked key market segments around the world.Apple wanted employees to focus deeply on a few key competencies, including user-friendly interfaces, powerful software architectures and effective distribution systems.

Apple also wanted to measure employee commitment and alignment with the strategic goals. The company deployed comprehensive employee surveys, as well as more frequent, small surveys of employees selected randomly, in order to measure how well employees understood the company's strategy and whether or not the results they were asked to deliver by managers were consistent with it. Market share was essential for top management, not only for sales growth, but also as a factor in attracting and retaining top software developers.

Apple also included shareholder value as a performance indicator, even though this measure is a result, not a driver of performance, Kaplan and Norton wrote. The prominence on shareholder value was intended to counterweightthe previous emphasis on such short-term metrics as gross margin and sales growth, with a focus on investments that could impact long-term performance.

In a nutshell, the balanced scorecard is a tool, which acts as a leading factor for setting the performance KPIs to managers and employees.The balanced scorecard is linked with the business strategy and it uses the main goals defined in the strategy. This has to be turned into the concrete actions in separate years and the balanced scorecard defines the target values for each year.

The development of the HR Balanced Scorecard without the business and HR Strategy leads to chaos as the employees and managers see the priorities differently and the balanced scorecard includes chaotic measures and chaotic goals. The implementation of a such balanced scorecard cannot be successful as the internal clients do not see a compact picture, but they see a mess in Human Resources.

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Article by: Garima Saxena, 3rd Eye Advisory Ltd