Human Resources or HR was viewed as a support function whose primary role was to take care of payroll, time tracking, and disputes between the unions and the organizations.
Indeed, in the manufacturing era, the term used for HR functions was personnel management and industrial relations wherein the job of the personnel manager was to ensure that salaries are paid on time, mediating between the unions and the organizations, and otherwise being peripheral to the other functions such as production, operations, sales and marketing, and strategy formulation.
It was only with the advent of the services sector that the role of the erstwhile personnel manager transformed into “human resources” management and later on, to people management and people enabling and people empowerment.
Note the emphasis on resources and people as the services sector relies on human capital as the key asset and hence, the HR managers were expected to contribute to strategic goals and objectives.
In other words, the HR function evolved and transformed into one where it was no longer peripheral or a support function, and instead of times when human resources are viewed as sources of sustainable strategic advantage, the role of the HR manager was to aid and enable such resources to contribute effectively and meaningfully to the organizational strategies.
Concomitant to these developments was the evolution of the initiatives such as HR Scorecard which are tools to measure how well the HR function is aligned to the overall strategic goals of the organization.
In other words, HR now was expected to align its recruitment, compensation, and employee retention strategies to the organizational strategies.
What this means is that in contemporary organizations, the HR managers have a “seat at the leadership table” or to put it simply, they have to be aligned with the larger organizational strategies.
Towards this end, the HR Scorecard works by providing decision-makers with data and inputs about how much the employee recruitment and retention processes cost and what are the benefits of the same.
For much of the 20th century, it was commonly understood that these costs are part of the overall organizational costs and there was no way to measure the benefits of such expenses in “tangible” ways.
In other words, what this means is that an HR Scorecard provides the organizational leaders with metrics and data in tangible terms about the payoffs and the benefits from HR processes and activities.
Benefits of HR Scorecards
The key benefit or the relevance of tools such as HR Scorecards is that it aligns the broader organizational strategies with the HR strategies and the convergence of organizational goals with the HR goals brings the HR function in line and tune with the overall organizational ecosystem.
For instance, how this works in the real world is that if an organization identifies superlative customer service as a strategic goal, the HR scorecard helps in measuring the benefits of initiatives such as training the customer service representatives and the associated staff costs involved in hiring and retaining such key personnel.
At the end of the year, the benefits of the initiatives as measured by customer feedback surveys are tallied to the costs of the initiatives so that organizational decision makers and more importantly, the HR Managers have an idea about the effectiveness and efficacy of their hiring and retention strategies and their usefulness and relevance to the broader organizational goals and objectives.
In other words, the HR function is no longer a “silo” that stands apart in “splendid isolation” and is instead, aligned with the overall organizational ecosystem of goals and objectives.
The premise for an HR scorecard is that HR can and should develop metrics to demonstrate how HR activities impact profitability:
- Identify the critical deliverables for Human Resources.
- Identify HR’s customers (for the deliverables).
- Define HR activities that provide the critical deliverables (such as high-talent staffing or a retention initiative).
- Conduct a cost-benefit analyses of activities that provide deliverables.
The HR Scorecard has five key elements:
- The first element is what we called Workforce Success. It asks: Has the workforce accomplished the key strategic objectives for the business?
- The second element is we called Right HR Costs. It asks: Is our total investment in the workforce (not just the HR function) appropriate (not just minimized)?
- The third element we describe as Right Types of HR Alignment. It asks: Are our HR practices aligned with the business strategy and differentiated across positions, where appropriate?
- The fourth element is Right HR Practices. It asks: Have we designed and implemented world class HR management policies and practices throughout the business?
- The fifth element is Right HR Professionals. It asks: Do our HR professionals have the skills they need to design and implement a world-class HR management system?
Scorecards include current data and comparisons to previous time periods, such as the previous quarter or year, and historical data to show improvements toward goals.
Human resources costs that are measured and reported on through scorecards include adherence to budgets, recruiting costs to attract and hire staff and costs of benefits such as group health insurance. Tracking costs through scorecards enables managers to plan human resources goals and expenditures and control costs in specific areas and set realistic budgets.
Hiring is tracked in human resources scorecards by numbers of employees hired by department, business unit or location. Hiring goals, position vacancies and time to fill positions are other hiring indicators tracked in scorecards. This information gives managers a way to see how well human resources fulfills the company’s need for new personnel, and where HR may benefit from extra resources to increase or improve hiring practices.
Turnover is the rate at which a company gains and loses employees and is commonly compared to the rate of industry turnover. Turnover costs companies money to recruit staff and in lost productivity and low morale amongst other employees. High employee turnover indicates employees are unhappy due to issues such as work environment, lack of opportunities, management conflict or compensation. Low employee turnover indicates employee satisfaction, making lowering turnover a significant goal.
Alignment with Corporate Goals
Businesses use human resources scorecards to measure human resources processes and effectiveness, and to align human resources with corporate goals and strategies. Human resources scorecard practices involve both financial and nonfinancial aspects, measuring actual costs as well as other areas of value such as turnover rate and what it means and performance management data. Scorecards must measure elements that are in corporate goals and strategy to be a tool for alignment. For example, if a key corporate goal is to improve customer service in the upcoming year, customer service training and customer service staffing should be part of the human resources