Implementing HR Scorecard: Creation & Guidelines

What is an HR Scorecard?

An HR Scorecard is a tool that helps a company use its human resources strategically and prove how HR contributes to financial success. The scorecard measures HR deliverables, metrics, and KPIs that help companies assess and foresee organizational growth and development. 

The HR Scorecard aligns the company’s strategies with efficient goal achievement metrics. It guides a company in optimizing its people for overall success by demonstrating HR’s impact on the bottom line.

How does the HR Scorecard work?

An HR Scorecard operates as an HR measurement system that highlights both the value created by HR and its efficiency. Its main goal is to reinforce HR’s strategic impact within the entire organization. 

Here are 3 main ways how the HR scorecard works:

• It gauges HR’s role in creating value.
• It assesses key HR dimensions.
• It quantifies HR’s value and effectiveness.

‘Cutting out costs’ is one of the main objectives of HR. While at it, they need to ensure value is being added to the organization along with consistent cost savings. The HR scorecard serves as a method for HRs to balance these two main factors of a successful organizational strategy.

HR Scorecards help define and quantify the metrics that are used to set cost-cutting and value addition in an equilibrium. 

When do you use an HR Scorecard?

HR Scorecards are used when companies want to keep track of their people functions and how effectively they are contributing. It is typically used regularly to make sure HR is on the right track and making a positive impact on the company’s success.

Traditionally HR was only a ‘support’ function for organizations. However, as people functions have evolved and personnel management has transformed, HR has grown to be the backbone of companies. The human resources department ensures that all other departments in an organization are operating effectively.

It keeps a check on the overall functioning of an organization. In this scenario, there needs to be a tool that measures if the ‘backbone’ is working properly. On the same lines, the HR scorecard monitors the HR department and its functions. 

Real-life use-cases of an HR Scorecard:

• To find HR team members who need help and offer them feedback and training. 
• To decide which teams require HR’s support and plan resources better. 
• To see if HR is doing well and allocate the proper budget for HR plans. 
• To know which HR projects are important and set achievable goals, accordingly.

4 Steps to Create an HR Scorecard

Now that we know what is an HR Scorecard and why we need to use it, let’s discover how it is built. The following contains 4 key steps with detailed outlines of how to build an effective HR Scorecard for your company.

Step 1: Identify HR deliverables

HR deliverables are the key performance indicators or KPIs that create the linkage between the current status of the system and its expectations. This step includes setting goals and targets for improving the HR function.

Imagine a scenario where your HR department has 2 main deliverables to target for the current quarter. After identifying the deliberations, point out the KPIs that affect these deliverables. Find out the current status of these KPIs and accordingly set realistic targets as per the overall strategy.

Here is an example:

By setting these goals and tracking these KPIs, HR can better understand their impact on the company and work towards improving its performance in these areas.

Step 2: Create a high-performance HR work system

As an HR, to have a strong impact on the company’s strategy there needs to be a strict work system in place. Without it, targets cannot be met and as a result, deliverables won’t be achieved. This high-performance system sets guidelines and rules that need to be followed to achieve targets. 

However because HR managers have a lot of different things to handle, they need a way to focus on how well these HR activities are working. They need measures to remind them to keep an eye on how these activities are performing.

Imagine you’re an HR manager at a company, and one of your important tasks is to onboard new employees. Creating a high-performance work system for employee onboarding could look like this:

• Preparation: Collect all necessary paperwork and documents for the new employee’s first day.
• Welcome Day: Give a warm welcome to the new employee, introduce them to the team, and provide an overview of the company culture.
• Training and Orientation: Provide a clear schedule for training sessions and orientation to help the new employee understand their role and responsibilities.
• Assigning a Mentor: Pair the new employee with a mentor to guide them during the initial months.
• Regular Check-ins: Schedule regular meetings with the new employee to address any questions, concerns, or challenges.
• Evaluation: After a certain period, evaluate the employee’s progress and performance to ensure they are integrating well.

By having this high-performance HR work system, HR managers can focus on each step and use measures like 

• Tracking employee satisfaction
• Time taken for onboarding
• Mentor feedback

These KPIs would make sure the process is working well and making a positive impact on the company’s onboarding strategy.

Step 3: Pinpoint HR system dependencies

Every HR function is dependent on some other functions. The main meaning of identifying dependencies is to imply that various HR practices, policies, and processes must unite to accomplish a shared goal. Conflicting interests among them will prove to be a hindrance. 

For example, to improve the recruitment efficiency of a company, the dependencies include:

• The Talent Sourcing Specialist needs accurate information from the Hiring Manager.
• The Recruitment Coordinator relies on clear guidance from HR and the Hiring Manager.
• The Onboarding Specialist requires good communication from the Recruitment Coordinator.

If there’s confusion or conflicts, like changing requirements, it can slow down hiring.

Step 4: Determine HR efficiency metrics

HR efficiency metrics are like tools to check how well HR is doing its job. They help see if HR tasks and processes are being done in a smart and effective way. 

Here are the examples of HR Metrics:

• Employee Satisfaction
• Turnover Rate
• Headcount
• Demographics
• Time-to-hire
• Cost-per-hire
• Talent turnover rate
• Retention Rate
• Acceptance Rate
• Overtime Hours
• Revenue per employee
• Training expense per employee
• Training completion rate

Depending on your targets and deliverables, the HR metrics that matter more to you will be different. 

What does a balanced HR Scorecard look like?

A balanced HR Scorecard is like a helpful tool that displays HR goals and performance results. It’s designed to assist HR leaders in responding quickly to changes and making future plans. 

It serves as a teaching aid, enhancing the entire company’s performance while building credibility both within and outside the organization. 

On a similar note, Garrett Walker, director of HR Planning, at GTE says,  “The HR Balanced Scorecard helps our HR professionals react more quickly as a whole. Even more important in a business environment of rapidly changing markets and accelerating technology advances, it helps management teams anticipate workforce issues so they can plan rather than react.” 

HR Scorecard vs. Balanced Scorecard

What is a balanced scorecard?

The Balanced Scorecard is a management tool that shifts focus from only financial results to the factors driving those results. It emphasizes measuring and improving key processes, involving everyone in strategy implementation for better performance. It was first introduced by Robert Kaplan and David Norton.

The HR Scorecard specifically focuses on human resource management, measuring HR-related goals and outcomes. On the other hand, the Balanced Scorecard is a broader framework that looks at various aspects of the entire organization’s performance, including financial, customer, internal processes, and learning/growth perspectives.

Here’s a table demonstrating the differences between the HR scorecard and a balanced scorecard based on various aspects. 

Advantages and Disadvantages of HR Scorecard

HR Scorecards can be efficient tools for measuring business success for HR. However, this measurement tool too like any other, comes with its own set of pros and cons. Let’s look at both of them one by one. 

The advantages of the HR Scorecard include:

1. States Clear Distinctions: The HR Scorecard helps differentiate between HR deliverables, which influence strategy, and do-ables. This clarity guides HR professionals in focusing their efforts on activities that contribute directly to strategic implementation.
2. Balances Objectives: By effectively managing costs while creating value, the HR Scorecard aligns HR functions with both financial goals and strategic objectives. 
3. Monitors Leading Indicators: The HR Scorecard tracks leading indicators, ensuring alignment between HR decisions and the achievement of HR deliverables. This proactive monitoring enables early identification of potential issues and supports continuous improvement.
4. Validates HR’s contribution to the bottom line: HR managers need good reasons for using certain measures and metrics. The scorecard serves as such a reason. It acts as proof that shows how HR contributes to the company’s success.
5. Enhances Strategic Focus: The HR Scorecard encourages HR professionals to focus on the strategic implications of their decisions. This alignment ensures that HR efforts are directed toward the successful implementation of the organization’s overall strategy.
6. Fosters Flexibility and Change: Unlike rigid performance measurement systems, the HR Scorecard fosters flexibility and change. It promotes an adaptable approach to HR management.

The disadvantages of an HR Scorecard:

1. Does Not Measure Intangibles: HR Scorecards do not measure intangible aspects, like employee concerns. It is challenging and often subjective, weakening data validity and HR credibility.
2. Lacks 100% Accuracy: Inaccuracies can arise from employees providing distorted or false information. For example, in exit interviews and surveys, employees are not always honest, which makes HR scorecards less than 100 percent accurate.
3. Potential for Misinterpretation: Metrics interpreted by outside consultants may lead to complex or inaccurate conclusions. This highlights the need for in-house interpretation by knowledgeable HR staff.
4. Limited Action Focus: Viewing HR scorecards solely as measurement tools overlooks their potential to guide action. The focus should extend to developing actionable plans for both HR and company leadership based on scorecard findings.

HR Scorecard Hacks: Do’s and don’ts

HR Scorecards are used by lots of companies, but they don’t always work well. Sometimes, they fail because the management loses trust in the tool. This usually happens when there’s no automation or the data isn’t good. This section talks about what you should and shouldn’t do when setting up and using HR scorecards.

DO

• Base KPIs on strategy.
• Use SMART metrics.
• Review KPI definitions regularly.
• Establish a clear foundation.
• Analyze from multiple angles.
• Assign KPI ownership.
• Form a KPI team.

DON’T

• Use too many KPIs
• Use dashboard instead of scorecard
• Calculate KPIs manually
• Prioritize ‘look-and-feel’
• Fix targets at all times
• Protect the scorecard for management only

Guidelines for Implementing an HR Scorecard

The guidelines for implementing an HR Scorecard have been categorized in 7 main functions as follows.

1. Leading Change

• Select two leaders, for example, your line manager and HR head.
• Have a measurement champion who knows HR metrics.
• Form a scorecard team to oversee the work.

Creating a Shared Need

• Explain why HR and HR measurement matter.
• Share this with both line managers and HR.
• Set aside 3 to 5% of the HR budget for measurement.

Shaping a Vision and Choosing Measures

• Define what you want the HR Scorecard to achieve.
• Choose which important things to track and how.
• Decide what decisions these measures will help make.
• Set up a way to gather the data for these measures.

Mobilizing Commitment

• Identify key people who should support the project.
• Find ways to get these important people on board.

Building Enabling Systems

• Pick the right people for the project.
• Make sure there are good reasons for people to get involved.
• Make sure the HR measurement group reports to the right people.
• Plan how to communicate about HR measurement.
• Get the technology you need for the HR Scorecard.
• Put in the money needed.

Monitoring and Demonstrating Progress

• Create a plan for how you’ll do HR measurement.

Making It Last

• Start with simple measures.
• Make sure the measures are clear and useful.
• Display the measures where everyone can see.
• Change the measures if needed over time.

Bottom Line

The HR Scorecard behaves like a compass in In your journey to strategic HR excellence. It aligns HR with strategy while decoding complexities to navigate the dynamic landscape of people management. With smart metrics and focused action, you can harness HR’s untapped potential. 

HR Scorecards when coupled with Human Resources Management Systems (HRMS) can help your company reach new heights. The HRMS ensures seamless operations, while the HR Scorecard illuminates your HR team’s impact on company success. Together, they can create a dazzling performance that harmonizes both efficiency and strategy.

Frequently Asked Questions (FAQs)

1. What is an HR Score Card and why is it essential for businesses? 

An HR Scorecard is a tool that measures, manages, and enhances the HR function’s role in a company. It tracks HR metrics and KPIs, helping improve HR performance. This data also forecasts the organization’s potential growth, making the HR Scorecard vital for businesses.

2. How can an HR Score Card help businesses measure and improve their performance? 

An HR Scorecard assists businesses in measuring and enhancing their performance by tracking HR metrics and KPIs. It provides insights into how well HR functions are contributing to company goals. By analyzing this data, businesses can identify areas for improvement, make informed decisions, and optimize their HR strategies to drive overall organizational success.

3. What metrics and key performance indicators (KPIs) are commonly used in an HR Score Card? 

Here are some common KPI metrics used in an HR Scorecard:

• Employee turnover rate
• Time to hire
• Cost per hire
• Absenteeism rate
• Training and development metrics
• Employee engagement
• Time to productivity
• Diversity and inclusion metrics
• Employee satisfaction
• Employee retention

4. How can businesses effectively implement and utilize an HR Score Card to drive organizational success? 

Businesses can use an HR Scorecard to drive success by analyzing their competitive advantage, market competition, customer stats, and market trends. This data, along with SWOT analysis, helps them understand their economic position and make smart decisions for organizational growth.

5. How does an HR scorecard help measure the effectiveness of HR initiatives? 

An HR scorecard helps measure the effectiveness of HR initiatives by using leading indicators, which predict future business growth. These indicators, known as HR deliverables or metrics, are linked to the business strategy and show how well HR efforts contribute to the organization’s success.

6. What are the benefits of using an HR scorecard for strategic HR decision-making? 

Using an HR scorecard for strategic HR decision-making offers a significant benefit: aligning HR goals with the overall strategies of the organization. When HR and organizational goals match up, both functions can collaborate effectively toward shared objectives, uniting business efforts for greater success.

7. What are the key components included in the HR Score Card? 

According to Mark Huselid, HR Scorecard has 5 key components:

1. Workforce Success: defines the OKRs.
2. Right HR Costs: calculates total investment.
3. Correct HR Alignment: alignment with business strategy.
4. Right HR Practices: checks HR policies and practices. 
5. Appropriate HR Professionals: hiring the correct skills and talents. 

8. What are some best practices for using the HR Score Card to drive HR strategy and improve overall organizational performance? 

Some of the best practices while using the HR Scorecard to drive HR strategy and improve organizational performance are:

• Set clear and achievable goals.
• Choose the correct metrics.
• Keep the scorecard updated regularly.
• Align the scorecard to be flexible with business requirements.
• Involve all the stakeholders/employees while setting goals.
• Review the scorecard periodically.