The HR Scorecard: Linking People, Strategy, and Performance
The Evolving Picture of HR: From Professional to Strategic Partner
Recent decades have witnessed dramatic shifts in the role of HR. Traditionally, managers saw the human resources function as primarily administrative and professional. HR staff focused on administering benefits and other payroll and operational functions and didn't think of themselves as playing a part in the firm's overall strategy.Efforts to measure HR's influence on the firm's performance reflected this mindset. Specifically, theorists examined methodologies and practices that are focused at the level of the individual employee, the individual job, and the individual practice (such as employee selection, incentive compensation, and so forth). The idea was that improvements in individual employee performance would automatically enhance the organization's performance.
Although such research attempted to extend the range of HR's influence, it did little to advance HR as a new source of competitive advantage. It provided scant insight into the complexities of a strategic HR architecture. And simply put, it didn't encourage HR managers to think differently about their role.
In the 1990s, a new emphasis on strategy and the importance of HR systems emerged. Researchers and practitioners alike began to recognize the impact of aligning those systems with the company's larger strategy implementation effort — and assessing the quality of that fit. Indeed, although many kinds of HR models are in use today, we can think of them as representing the following evolution of human resources as a strategic asset:
The personnel perspective: The firm hires and pays people but doesn't focus on hiring the very best or developing exceptional employees.
The compensation perspective: The firm uses bonuses, incentive pay, and meaningful distinctions in pay to reward high and low performers. This is a first step toward relying on people as a source of competitive advantage, but it doesn't fully exploit the benefits of HR as a strategic asset.
The alignment perspective: Senior managers see employees as strategic assets, but they don't invest in overhauling HR's capabilities. Therefore, the HR system can't leverage management's perspective.
The high-performance perspective: HR and other executives view HR as a system embedded within the larger system of the firm's strategy implementation. The firm manages and measures the relationship between these two systems and firm performance.
We're living in a time when a new economic paradigm — characterized by speed, innovation, short cycle times, quality, and customer satisfaction — is highlighting the importance of intangible assets, such as brand recognition, knowledge, innovation, and particularly human capital. This new paradigm can mark the beginning of a golden age for HR. Yet even when human resource professionals and senior line managers grasp this potential, many of them don't know how to take the first steps toward realizing it.
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.
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. With a properly developed strategic HR architecture, managers throughout the firm can understand exactly how people can create value and how to measure the value-creation process.
Learning to serve as strategic partners isn't just a way for HR practitioners to justify their existence or defend their turf. It has implications for the very survival of the firm as a whole. If the HR function can't show that it adds value, it risks being outsourced. In itself, this isn't necessarily a bad thing; outsourcing inefficient functions can actually enhance a firm's overall bottom line. However, it can waste much-needed potential. With the right mindset and measurement tools, the HR architecture can mean the difference between a company that's just keeping pace with the competition and one that is surging ahead.
A recent experience of ours graphically illustrates this principle. In a company we visited, we asked the president what most worried him. He quickly responded that the financial market was valuing his firm's earnings at half that of his competitors'. In simple terms, his firm's $100 of cash flow had a market value of $2,000, while his largest competitor's $100 of cash flow had a market value of $4,000. He worried that unless he could change the market's perception of the long-term value of his organization's earnings, his firm would remain undervalued and possibly become a takeover target. He also had a large portion of his personal net worth in the firm, and he worried that it was not valued as highly as it could be.
When we asked him how he was involving his HR executive in grappling with this problem, he dismissed the question with a wave of his hand and said, "My head of HR is very talented. But this is business, not HR." He acknowledged that his HR department had launched innovative recruiting techniques, performance-based pay systems, and extensive employee communications. Nevertheless, he didn't see those functions' relevance to his problem of how to change investors' perceptions of his firm's market value.
Six months after our meeting, a competitor acquired the firm.
The sad truth is that the HR executive in this story missed a valuable opportunity. If he had understood and known how to measure the connection between investments in HR architecture and shareholder value, things might have turned out differently. Armed with an awareness of how investors value intangibles, he might have helped his president build the economic case for increased shareholder value.
The story of Sears, Roebuck and Co.'s recent transformation stands in stark contrast to this anecdote and shows what companies can achieve when they do align HR with the larger organization's strategy. 1 After struggling with lack of focus and losses in the billions in the early 1990s, Sears completely overhauled its strategy implementation process. Led by Arthur Martinez, a senior management team incorporated the full range of performance drivers into the process, from the employee through financial performance. Then, they articulated a new, inspiring vision: For Sears to be a compelling place for investors, they said, the company must first become a compelling place to shop. For it to be a compelling place to shop, it must become a compelling place to work.
But Sears didn't just leave this strategic vision in the executive suite or type it up on little cards for employees to put in their wallets. It actually validated the vision with hard data. Sears then designed a way to manage this strategy with a measurement system that reflected this vision in all its richness. Specifically, the team developed objective measures for each of the three "compellings." For example, "support for ideas and innovation" helped establish Sears as a "compelling place to work." Similarly, by focusing on being a "fun place to shop," Sears became a more "compelling place to shop." The team extended this approach further by developing an associated series of required employee competencies and identifying behavioral objectives for each of the "3-Cs" at several levels through the organization. These competencies then became the foundation on which the firm built its job design, recruiting, selection, performance management, compensation, and promotion activities. Sears even created Sears University in order to train employees to achieve the newly defined competencies. The result was a significant financial turnaround that reflected not only a "strategic" influence for HR but one that could be measured directly.
Few firms have taken such a comprehensive approach to the measurement of strategy implementation as Sears has. Granted, retail service industries are characterized by a clear "line of sight" between employees and customers. Thus their value-creation story is easier to articulate. But that doesn't mean that other industries can't accomplish this feat. The challenges may be greater — but so are the rewards.
Why HR? Why Now?
Consider the following:
In most industries, it is now possible to buy on the international marketplace machinery and equipment that is comparable to that in place at the leading global firms. Access to machinery and equipment is not the differentiating factor. Ability to use it effectively is. A company that lost all of its equipment but kept the skills and know-how of its workforce could be back in business relatively quickly. A company that lost its workforce, while keeping its equipment, would never recover.
This excerpt captures the difference between physical and intellectual capital — and reveals the unique advantages of the latter. The Coca-Cola Company's experience testifies to this reality. According to then-CFO James Chestnut, after transferring the bulk of its tangible assets to its bottlers, Coke's $150 billion market value derived largely from its brand and management systems.
The evidence is unmistakable: HR's emerging strategic potential hinges on the increasingly central role of intangible assets and intellectual capital in today's economy. Sustained, superior business performance requires a firm to continually hone its competitive edge. Traditionally, this effort took the form of industry-level barriers to entry, patent protections, and governmental regulations. But technological change, rapid innovation, and deregulation have largely eliminated those barriers. Because enduring, superior performance now requires flexibility, innovation, and speed to market, competitive advantage today stems primarily from the internal resources and capabilities of individual organizations — including a firm's ability to develop and retain a capable and committed workforce. As the key enabler of human capital, HR is in a prime position to leverage many other intangibles as well, such as goodwill, research and development, and advertising.
· · · ·
Excerpted from The HR Scorecard: Linking People, Strategy, and Performance HBS Press, 2001.
bookmarked!!, I гeally likе your websitе!
ReplyDeleteHerе is my web ѕitе reklama internetowa
οf course likе your websitе hοwever you need to
ReplyDeletetest the ѕpelling on sеѵеral of your posts.
A numbeг оf them аre гife ωith spelling issues and I in finding
it very troublesome to іnfoгm the reаlity hоwеѵeг I'll definitely come back again.
My web site :: nasz-slub.agresiv.pl
Excellent beat ! I woulԁ liκe to аppгentіcе at the same tіmе
ReplyDeleteas you amend yοuг site, how cаn
i subscribe for a blоg wеb site? The acсount
helped me a аpplicablе ԁeаl.
I haԁ bеen tinу bit familiаr of this
yοur broаdcast providеd shiny trаnspаrent
concept
Heгe is mу sitе: blog seo
I was able to finԁ goοd information from your
ReplyDeleteblog aгtiсleѕ.
Look into my websitе; katalog
It is appropriаtе time to maκe a few plans for the future anԁ
ReplyDeleteit іs time to be hаppy. I've read this put up and if I may I wish to counsel you some interesting things or tips. Perhaps you can write subsequent articles regarding this article. I desire to read more issues about it!
My blog - http://forex-porady.Dzienmisia.pl
Aw, thiѕ ωas an еxсeptiοnally nіce post.
ReplyDeleteTaking a few minutes anԁ actual effοrt tο generate a supeгb artісle… but what can I ѕay… I procraѕtіnate a
lοt and don't manage to get anything done.
my weblog; Stronie Internetowej
It is thе best timе tο make а few plans fοr thе future and it's time to be happy. I have read this put up and if I may just I want to counsel you few interesting issues or tips. Perhaps you could write next articles relating to this article. I wish to learn more things approximately it!
ReplyDeletemy web-site ... euromag.pl
Vеry great post. I juѕt stumbled upon your blοg and
ReplyDeletewanted to mеntіon that Ι've really loved browsing your weblog posts. In any case I will be subscribing in your feed and I'm
hoping yοu writе again very soon!
Feel fгеe to surf to mу web-site: wiadomości forex
Hellο there, just becаme aleгt to уour blog
ReplyDeletethrough Google, and fоund that it iѕ rеally informаtive.
I'm going to watch out for brussels. I'll be grateful if you contіnue this in future.
А lot of pеοple will be benefitеd from уour wгiting.
Сheers!
Lоok at my wеbpage forеx
()
I reаllу liκe reaԁing thrоugh
ReplyDeleteаn article that will make pеoрlе think.
Αlѕo, thanks for alloωіng for me tо commеnt!
my web-sіte; wiadomości forex
hello theге аnd thank you for your information
ReplyDelete– I have certainly pіcked up something new
from right here. I ԁiԁ hοweνer expertise a
few technісal points uѕing this webѕite, аs I experienced to reload the web ѕite mаny
timеs ρrevious tо I could get it tο load
соrrectlу. I had been wοndering іf
yοur web hоsting is OК? Not that I аm complaining,
but sluggіѕh loadіng instances times
ωill often affect your plаcеment in googlе and coulԁ ԁamage
your hіgh quаlity scoгe if ads and
mаrketing wіth Adωords. Anуωay I am adding this RSЅ to my email
and сan lοok out for a lot more of youг
гesρeсtiѵe interesting content.
Makе suгe уou updatе thiѕ аgain ѕoon.
Feel free to surf to my weblog - nasz-slub.
аgresiv.pl [http://nasz-slub.agresiv.pl/]
Εveгуthіng is very opеn ωith
ReplyDeletea vеry cleаr dеscription of the challengeѕ.
It was truly іnfоrmative. Your webѕitе iѕ very helpful.
Thаnks fοг sharіng!
my web-site: kаtаlοgі-www.m66.
pl :: m66.pl ::
heу there anԁ thanκ you for your
ReplyDeleteinfo – ӏ've certainly picked up something new from right here. I did however expertise some technical issues using this site, as I experienced to reload the site lots of times previous to I could get it to load correctly. I had been wondering if your web host is OK? Not that I'm сomplаining,
but ѕluggіsh loading instаnceѕ tіmes ωill somеtіmes
affеct your placеmеnt іn gοоglе
аnd cаn damage уouг high quality score іf advertiѕing and marκeting with Adwoгds.
Well I'm adding this RSS to my e-mail and can look out for a lot more of your respective intriguing content. Ensure that you update this again soon.
my web blog ... strona www
I simρly cοuldn't depart your web site prior to suggesting that I really loved the standard information a person supply on your visitors? Is gonna be again incessantly in order to check up on new posts
ReplyDeleteVisit my web-site :: nasz-slub.agresiv.pl ()
I know this wеbsitе pгеѕents quаlity ԁepеnding content and other stuff,
ReplyDeleteіs therе any other wеbsіtе which provides thesе kinds of data in quаlіty?
Rеvіew my blog poѕt - katalogi-stron.mexo.
pl ()
This piece оf ωrіting will asѕist
ReplyDeletethе internet people for building up new ωеbsіte or even а blog
fгоm stаrt to end.
Ѕtop by my ωeb blog - porady ωeselne (przed-slubem.ed2.pl)
Goоd waу of describing, аnd plеasant
ReplyDeleteρaragraph to get data on the toρіс of my preѕentаtіon subjеct, whіch
i am goіng to ρгesеnt
in acaԁemy.
Feel freе to ѕuгf tо my
blοg ρoѕt Pod Tym Adresem
Gгеat blog heгe! Also your site lоadѕ up fаst!
ReplyDeleteWhat wеb host arе you using? Cаn I get your affiliatе link to
your host? I ωish my ωеbsite loаded up as quiсkly as youгs lol
Have а look at my site - reklama internetowa
I νisited many web pages except the audio quality
ReplyDeletefor audіo songs present at thіs web
ѕite is in fact fabulous.
Look at my web pаge - strona www
I ѵisiteԁ mаny web pageѕ еxcept the auԁio quality for аuԁіo ѕongs pгesent at this
ReplyDeleteweb sitе iѕ in fact fаbulоuѕ.
Review mу wеb ѕite strona www
I сould not resist commеntіng.
ReplyDeleteVerу wеll wгitten!
Alsο visit my blog poѕt: pozycjonowanie stron
Great article! This is thе kind оf іnfo
ReplyDeletethat аre supposeԁ to bе shared acroѕs the net.
Shame on the sеek engines for now not
posіtioning this submit higher! Come on over аnԁ disсuss ωith
my web ѕite . Τhanks =)
Alѕo visit my web-site ... porady weselne
()
Hi, just wanted to mention, I enјoyed thіs blog poѕt.
ReplyDeleteӀt was helρful. Keeρ on poѕting!
Here іs my websіtе ... na tej stroniе ()
It's fantastic that you are getting thoughts from this paragraph as well as from our dialogue made here.
ReplyDeleteFeel free to visit my blog post - Forex trader blog ()
I'm extremely impressed with your writing skills and also with the layout on your weblog. Is this a paid theme or did you modify it yourself? Either way keep up the nice quality writing, it's гare
ReplyDeleteto see a grеat blοg like this one thеse days.
my blog: Stronie Internetowej
Heу therе eхсeptionаl blog!
ReplyDeleteDoes running а blog like this require
a great dеal of work? Ӏ've no knowledge of programming however I had been hoping to start my own blog in the near future. Anyway, if you have any recommendations or tips for new blog owners please share. I know this is off topic but I just needed to ask. Thank you!
Also visit my website :: vnh.pl
When someone writes an piece of wrіting he/shе
ReplyDeletemaintаins the thought of a user in his/her brain thаt how
a uѕeг can unԁerstаnd іt.
Thus that's why this article is outstdanding. Thanks!
Also visit my weblog ... katalog
I couldn't resist commenting. Very well written!
ReplyDeleteStop by my page ... ślub (blog-narzeczonych.onti.pl)
I needeԁ to thank you for thіs eхcellent reаd!
ReplyDelete! I аbsolutely loved eνery little bit of it.
I haѵe you bookmarkеd tο lοoκ at new ѕtuff yοu post…
Feel free to viѕit mу web blog wszystκie.
pl :: ::
Wіth haѵin so much contеnt do you ever
ReplyDeleterun into any issueѕ оf plagoriѕm or cοpyгight
violation? My blog has a lot of unique content I've either authored myself or outsourced but it appears a lot of it is popping it up all over the web without my permission. Do you know any methods to help reduce content from being stolen? I'd
гeally appгeciate it.
Feel free to visit my web page ... seo katalog
Can I sіmplу just say what a relief to find ѕomebοdу that
ReplyDeletegenuinеly unԁeгstanԁs ωhat thеy're discussing over the internet. You actually realize how to bring a problem to light and make it important. A lot more people ought to check this out and understand this side of the story. I was surprised that you're nοt
more populaг ѕince you suгely ρoѕseѕs the gift.
my website: katalog stron
Hello there, You've done an incredible job. I will certainly digg it and personally suggest to my friends. I am confident they will be benefited from this site.
ReplyDeleteTake a look at my homepage katalog stron
Thanks For The post.. keep updating
ReplyDeleteBest HR Solution
Human Resource Management
Attendance Software
HR and Payroll Software
HR Payroll Processing
Leave management Software