HR metrics & scorecard

HR priorities and task evolve over time, because they need to fit or make sense in terms of the company’s strategic direction., HR’s centre task is always to provide a set of services that make sense in terms of company strategy. A strategy is the company’s plan for how it will balance its internal strength and weakness with external opportunities and threats in order to maintain a competitive advantage. Ferrari therefore has a different HR policies and practices than does Ford and Wal-Mart has different HR policies and practices than does Neiman Marcus.

Trends like globalization and increased competition have placed HR front and centre in most firm’s strategic planning efforts. For example we will see that HR managers today are more involved in partnering with their top managers in both designing and implementing their companies strategies. Today’s emphasis on gaining competitive advantage through people makes input from the department that helps to screen, train, appraise, and reward employees too important to ignore when the company is reviewing its strategic options. Today’s focus on competitiveness and operational improvements also means that all managers including HR must be much more adept at expressing their departmental plans and accomplishments in measurable terms. Top management wants to see precisely, how the HR manager’s plans will make the company more valuable, for instance by boosting morale and, thereby improving performance.

An emphasis on performance:

A recent survey of HR professionals shows that the pressure for more performance hasn’t been lost on HR managers. When asked to rate the importance of various issues, their five top choices were competitions for market share, price competition/price control, governmental regulations, need for sales growth, and need to increase productivity. HR managers also know that establishing competitive, high-performance work systems under conditions of rapid change isn’t easy. This helps to explain why another survey of HR executives found that their main concern is “managing change”. So today’s successful HR manager must have the capacity to visualize how he or she can adapt HR systems to support the company’s strategic needs, and the ability to execute the required changes. These changes may range from new incentive plans that encourage employee innovation, to centralized HR call centers to boost the HR unit’s efficiency, to moving more HR activities onto the Web, and to organizing telecommuter programs.

For HR this focus on performance also requires more measurability. Management expects HR to provide measurable, benchmark based evidence for its current efficiency and effectiveness of new or proposed HR programs. In other words, management expects solid, quantified evidence that HR is contributing in a meaningful and positive way to achieving the firm’s strategic aims.


This requirement for measurability manifests itself in several ways. First, HR managers need a set of quantitative performance measures (metrics) they can use to asses their operations. For example, median HR expenses as proportion of companies total operating costs averaged 1 to 1.1% in the early 1990s, 0.8 to 0.9% in the late 1990s, and 0.8% in 2002. There tends to be between 0.9 and one HR staff person per 100 employees. Both manufacturing and non-manufacturing firms spend about $1000 per employee for HR. Figures like these provide benchmark metrics managers can use as overall measures of their HR units’ efficiency.

However, measuring HR performance requires more than current HR department performances metrics like these. Top management needs and expects more forward looking information. For example, the CEO may ask the HR manager to defend a proposed new HR program with numbers. She may ask for instance, “How will this new incentive compensation plan help us improve customer service, customer satisfaction, and the profitability of each of our sales?” The HR top manager must prepare a basis for working out such details so that he can convince the top management so that a new HR program can be implemented.

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