HR function’s effectiveness

What is a HR Scorecard?

Management ultimately judges the human resources function based on whether it creates value for the company, where value creation means contributing in a measurable way to achieving the company’s strategic goals. We’ve seen that human resource managers create value by engaging in activities that produce the employee behaviors the company needs to achieve these strategic goals. The question is, how does one formally outline these inter relationships and attach measurable performance standards to each? Managers often use an HR Scorecard process to do this.

HR Scorecard: Measures the HR function’s effectiveness and efficiency in producing employees behaviors needed to achieve the company’s strategic goals.

The HR Scorecard is a concise measurement system, often summarized on a computer screen in a digital dashboard. It shows the quantitative standards or metrics the firm uses to measure HR activities, and to measure the employee behaviors resulting from these activities, and to measure the strategically relevant organizational outcomes of those employee behaviors. In so doing, it highlights, in a concise but comprehensive way the causal link between the HR activities and the emergent employee behaviors and the resulting firm wide strategic outcomes and performance.

Three human resource experts, Becker, Huselid, and Ulrich explain the need for such a measurement system this way:

In our view, the most potent action HR managers can take to ensure their strategic contribution is to develop a measurement system that convincingly showcases HR’s impact on business performance. To design such a measurement system, HR managers must adopt a dramatically different perspective one that focuses on how human resources can play a central role in implementing the firm’s strategy.

Information for creating a HR Scorecard:

To create an HR Scorecard, the manager needs three types of information. First, he or she must know what the company’s strategy is because (at Einstein medical) the strategy will determine what the important employee behaviors and strategically important organizational outcomes are, and how the firm will measures organizational performance. Second, the manager must understand the causal links between the HR activities the employee behaviors, the organizational outcomes and the organization’s performance. Third, the manager needs metrics he or she can use to measure all the activities and results involved, specifically the HR activities , the emergent employee behaviors the strategically relevant organizational outcomes and the organizational performance.

Define the business strategy:

We saw that creating oriented human resource system starts by defining what the company’s strategic plans are. For Einstein Medical they included becoming a comprehensive health care network. Toward the end of this step, management translates its broad strategic plans into specific actionable strategic goals.

Outline the Company’s value chain:

To achieve its strategic goals, any business must engage in certain strategically required activities. For example, Einstein Medical must devise and introduce new medical services. Microsoft must write new computer programs. Each such activity requires certain employee behaviors: Einstein medical needs employees who have the expertise to help it devise new medical services, for instance. The point is this: any manager who wants to understand what employee behaviors are vital for his or her firm’s success must understand what the firm’s required activities are.

Value chain analysis: Identifying primary activities that cerate value for customers and the related support activities.

Value chain: A company’s value chain identifies the primary activities that create value for customers and the related support activities. For this value chain analysis can be useful. Value chain analysis means studying and analyzing the company’s value chain. The company’s value chain identifies the primary activities that create value for customers and the related support activities.

We can think of any business as consisting of chain of essential activities. Each activity is part of the process of designing producing marketing and delivering the company’s product or service. These activities might include bringing supplies and materials into the company’s warehouse; bringing these materials to the shop floor and designing the product to customers’ specifications and the various marketing, sales, and distribution activities that attract customers and get the company’s product to them.

Outlining the company’s value chain shows the chain of essential activities. This can help managers better understand the activities that drive performance in their company. In other words, it is a tool for identifying isolating visualizing and analyzing the form’s most important activities and strategic costs.