The HR Scorecard: A Comprehensive Guide

The HR function has evolved over the years, from a mere administrative function tasked with payroll and other similar work to becoming key in determining an organization’s approach and strategy. It is vital to understand how effective this function is in executing tasks, and the HR Scorecard gives management insights into the HR department’s success or failures.

What is the HR Scorecard?

The HR scorecard is a tool that helps measure, manage and improve the role of the HR function within an organization. HR metrics and KPIs or HR deliverables are measured using the HR scorecard. This data is also used to predict the potential growth of the organization.

While HR is becoming an integral function in the world of business today, in many organizations it does not receive the authority and recognition it requires and indeed deserves. Becker, Huselid and Ulrich published a book in 2001, titled, The HR Scorecard: Linking People, Strategy and Performance. The book intended to highlight the importance of the HR function and make it known that the HR function is an integral part of an organization’s overall strategy. 

How to Create an HR Scorecard

There are five steps taken to create an HR scorecard:

•         Outlining HR strategy
•         Pinpointing HR deliverables.
•         Creating HR processes, best practices and HR policies
•         Aligning HR systems to the strategy
•         Deciding optimum efficiency
  
  

Let’s look at an HR scorecard example using these five steps:

1. Outline HR Strategy

An automobile manufacturer is moving into electric vehicle manufacturing. The goal is to build the most cost-effective electric vehicles with a focus on safety technology. In terms of the market, the company is late to the game and competition is fierce. The company is located in India and there are already several electric automobile manufacturers.

Since the company’s goal is clear, the question becomes, what can HR do to align with the business goals? The first step is to outline an HR strategy.

The HR Strategy Outline begins with the company’s goal at the beginning. The second line is where HR comes in, the focus of the HR department is to find a small number of experienced professionals and use them to train fresh talent. This means offering competitive packages to senior engineers, however, it also means improving the company’s image in order to attract that talent.  

With the competition already being fierce in the market, the company has to hire the required personnel quickly and begin production. This means they have to attract and hire the required talent quickly.

2. Pinpoint HR Deliverables

To be able to measure the success of the strategy, HR deliverables have to be pinpointed. The HR scorecard example below depicts how these strategies can be measured.

To measure this, HR deliverables or KPIs are created. This HR scorecard example shows how these strategic goals can be measured. For example, the lead time is measured as the ‘time to hire in days’, which is currently 38, but has to be decreased to 25, a 34% improvement!

These KPIs show exactly where the company stands and what the desired goals are. HR can then take the measures required to ensure these targets are met.

HR has to improve their quality of hire, reduce the time to hire and improve company culture and employee packages to ensure that they become a top employer and thereby attract good talent.

3. Creating HR Processes, Best Practices and HR Policies

The next part of the HR scorecard has to do with creating the HR processes, best practices and HR policies that will determine how the strategy is achieved.

a. HR Processes:

In order to reduce time to hire, the HR team has to ensure they use the right sources and also have clear communication about the exact talent required, as well as keep communication clear with management to ensure that resumes are reviewed quickly and interviews are conducted without delay.

One process that could be implemented is to create workflows that have strict deadlines that are to be met. This information can be communicated to all relevant parties and the time to hire can be cut down.

b. HR Policies:

The company has to have better employer branding. This means that HR has to implement policies that ensure that the desired employer branding is built. This can be done by ensuring the work culture improves, by associating with recruiters that have similar branding goals and by offering competitive compensation packages and benefits.

c. Best Practices:

This part deals with the exact practices that will help the HR department reach their goals, or achieve their KPIs.

Policies, processes and practices that work together are called a practice ‘bundle.’ These practices work together to achieve the HR KPIs.

4. Aligning HR systems to the Strategy

This means that all the different HR practices, policies and processes have to come together to achieve the same objective. There cannot be conflicting interests here.

If the company is looking at improving employer branding, these efforts have to reach the type of talent that is required. Merely improving employer branding without having visibility to the right audience is not enough.

While the goal is to get the talent quickly so that production can be sped up, this shouldn’t come at the cost of quality of hire. HR has to ensure that both these KPIs are met. Meaning they have to have the processes in place to reduce the time to hire, but at the same time, ensure that they take the necessary steps to hire quality talent.

5. Deciding Optimum Efficiency

This part has to do with deciding how to balance the whole thing. While it is imperative to keep hiring costs low to ensure that production costs remain low, it is also vital that the quality of talent that is hired is good.

HR has to decide where the optimum balance between these two is.

The Advantage of the HR Scorecard

The single biggest advantage of the HR scorecard is that it becomes easier to align HR goals and strategies with the overall tactics or strategies of the whole organization. When HR goals and organizational goals align, the business function and HR function can work as one towards a common goal.

Limitations of the HR Scorecard

The scorecard, while treated as an HR tool, is not to be used merely to improve the HR function. For it to work well, it must be created in line with the overall goals of the business.

In other words, failure to clearly align business goals and HR goals will lead to the failure of the HR scorecard as a tool.

Another major issue that users of the HR scorecard have found is that it does not necessarily give users practical implementation guidance to execute.

The HR scorecard Vs. The Balanced Scorecard

The HR scorecard and balanced scorecard and two different documents, they are often confused.

The balanced scorecard is a tool to measure the performance of a strategy. The balanced scorecard was authored by Kaplan and Norton in the 90s. This document focuses on financials, business goals, and other goals related to strategy.

The HR scorecard, on the other hand, is focused on HR strategy by aligning its strategies with business goals.

Conclusion

The HR scorecard is a great tool when used right. To ensure that it is used right, HR teams have to ensure that the data they collect is accurate and that they are consistent in their measurement of the KPIs.

Keep in mind that the template above is meant as an easy-to-understand example. HR departments need to design suitable scorecards relevant to their organizations. Implemented correctly, the HR scorecard can be an invaluable tool.