Applying the Balanced Scorecard Approach to Human Resources Functions

By Margaret Fiester, SPHR

Q. How can the balanced scorecard be applied to HR?

A. By linking clearly defined department objectives and performance to the company’s strategic business goals, the HR balanced scorecard can serve as a way of focusing human resources staff on activities that will support the company’s goals. It also demonstrates the strategic value of HR by defining and measuring HR’s contribution in concrete, clearly understood terms. The Balanced Scorecard (Kaplan & Norton, 1996) provides a system that leverages the traditional measures available currently for human resources with metrics of performance from four additional perspectives—financial, customers, internal business processes and learning and growth.

Using the area of recruiting as an example, a balanced scorecard would look something like this:

• Objective: Reduce turnover costs.
• Description: Develop effective recruiting methods and new-hire orientation methods to optimize the retention of new hires.
• Actions:
  • Identify key attributes of successful employees who stay at company for two or more years.
  • Utilize technology more effectively for recruiting and screening applications.
  • Identify selection methods that will contribute to successful hires.
  • Integrate branding efforts into recruiting.
  • Revise orientation program to ensure new-hire retention.
• Measures:
  • Cost-per-hire (financial).
  • Turnover rates and costs (financial).
  • Time-to-fill (business process).
  • Customer satisfaction with new-hire performance (customer).
  • New-hire satisfaction with orientation (learning and growth).
  • Supervisor satisfaction with orientation (learning and growth).

In addition to alignment with company goals, the HR scorecard must also contain the following elements in order to be truly effective: accountability, validity and actionable, measurable results.

In the above example, who is accountable for the retention of employees? It’s a joint role between HR and the line manager. HR is responsible for developing retention strategies, while the line manager is responsible for providing the feedback on whether the strategies are successful.

The HR scorecard must be valid. In other words, the measurement system must contain metrics that are understandable, aligned to the objective and can be backed up with solid data.

For the balanced scorecard to be meaningful, it must contain only those measures that are most important to the objective and the company’s strategic plan. In other words, can an action be taken as a result of those measures?

The balanced scorecard must focus on results. For example, simply measuring turnover or time-to-fill is ineffective if no action is taken as a result of those measures. More meaningful measures that are aligned clearly with the company’s strategic plan are productivity and retention.

When successfully executed, the HR scorecard can be an extremely useful method of aligning HR with the company’s strategic plan. The key to success is careful planning and execution.

Professional Pointer: The balanced scorecard can help determine which HR investments are the most valuable to the bottom line.

Margaret Fiester, SPHR, is an HR Knowledge Advisor in SHRM’s HR Knowledge Center