Balanced Scorecard is a strategic management tool that focuses on various perspectives that directly contributes in the enhancement of the overall Business Performance.
History of the Balanced Scorecard
The balanced scorecard method was first published by Dr. Robert Kaplan and David Norton.
In 1992, an article by Robert Kaplan and David Norton entitled "The Balanced Scorecard - Measures that Drive Performance" in the Harvard Business Review caused a lot of attention for their method, and led to their business bestseller, "The Balanced Scorecard: Translating Strategy into Action", published in 1996.
They introduced the balance scorecard framework as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more balanced view of organizational performance.
Besides, Hansen and Mowen had also referred to balanced scorecard as ‘strategic-based responsibility accounting system’ which translates the mission and strategy of an organisation into operational objectives and measures for four different perspectives: the financial perspective, the customer perspective, the process perspective and the infrastructure (learning and growth) perspective.
The first step in the balance scorecard framework is to analyze four perspectives, namely,
Perspective 1: Customer perspective wherein the focus is on:
- Are we able to meet Customer Needs?
- Are Customers Satisfied?
Balance Scorecard translates the above into targets, metrics and methods. For eg
Metrics: Percentage of Returning Customers
Tools: Customer Satisfaction Index
Perspective 2: Internal-business processes, the focus is primarily on:
- Are our Internal processes Efficient?
- Are we able to ensure quality delivery of our product and services on time?
Balance Scorecard translates the above into targets, metrics and methods. For example
Metrics: Number of Customer Complaints on Product or Services
Tools: Quality Standards Checklist
Perspective 3: Learning and growth, here we focus on:
- What skills need to be enhanced?
- Past Performance and Shortfalls
Again, Balance Scorecard translates the above into targets, metrics and methods. For example
Metrics: Employee Development
Tools: Skill Gap Analysis and Competency Matrix; Training and Development Program.
Perspective 4: Finance, the prime focus here is on Optimum Utilization of Finances
And this can be translated into detailed action steps, measures, and goals in the balanced scorecard framework as well. Here is an example:
Metric: Expense Vs Revenue
Tools: Cash Flow Management and Execution of Quarterly Sales Growth Plan.
However, balanced scorecard does not end here. Balanced scorecard develops metrics and measurement tools to quantify the Key result areas and analyze its relative impact on each other. It measures the organization’s internal performance, its overall external outcomes and identifies bottlenecks in order to continuously improve strategic performance and results.
The Balanced Scorecard: A Critical HR Function
The HR mission or vision is separate from that of the organization, and is more focused on the departmental goals. For example:
“To build a performance driven environment with immense learning opportunities and offer a platform of continuous growth resulting in employee satisfaction, retention and overall business growth”
For HR, supporting this mission requires having the right performance management systems, in place, creating an environment of learning and development and determining the skills necessary for every role in each department.
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.
- Identify key attributes of successful employees who stay at the 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 the orientation program to ensure new-hire retention.
- 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 to truly be effective: accountability, validity and actionable, measurable results.
Basis on the detailed understanding we can say that Balanced Scorecard in HR focuses on:
- HR-related business issues
- Employee Motivation, Satisfaction & Development.
- Reducing or Managing HR costs
- ROI from Employees
- Impact of Employee Turnover on Business
- Skill Development
- Talent Recruitment, Development and Retention
- High performance Culture Development
- Compliance Management
Learning & Growth Perspective
- HR Training and Development of HR professionals
- HR awareness on Business Goals and Operating Plan
Balanced Scorecard In HR vs Organizational Scorecard: How are they different?
Although there are many similarities in terms of the overall framework, both differ in certain aspects as listed below:
- Organization-wide scorecards place the financial perspective at the top of the strategy map, an HR scorecard usually does not.
- HR “customers” are typically internal to the business.
- The internal perspective in an HR scorecard revolves around key strategic areas in which the department operates—like recruiting and retaining talent or building a high-performance culture.
The balanced scorecard must focus on results, Better strategic planning, Better process alignment, Improved Performance Reporting, Better Information Management etc. When it is 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.
About the Author Neha Gupta Vishnoi
Ambitious and result-driven HR Professional with 12+ yrs of experience in various gamuts of HR : Strategic HR Business Partner, Talent Retention and Engagement, Talent Acquisition, C&B, Performance Management, Change Management