An ultra-competitive business environment means companies are seeking to drive high performance in any way possible. But you must maintain focus on driving performance in the areas that matter most – those that are strategic imperatives by linking HR practices to your bottom line. Using balanced scorecards can help to do this. That’s why the likes of Apple and Microsoft are among the companies already using them.
A recent study listed the balanced scorecard as the sixth most widely-used management tool around the world. To provide some context, engagement surveys were third in this list. The benefits that scorecards offer are considerable. So, if you aren’t already using them, maybe you should reconsider.
What is a balanced scorecard?
Balanced scorecards are used commonly to improve management practices. They do this by defining what ‘good performance’ looks like within a particular organisation, and then measuring whether management is achieving the desired results.
The ‘balanced’ part refers to the addition of strategic non-financial performance measures such as internal business processes, customer relations and satisfaction scores and employee learning and growth. These are shown alongside more traditional performance measures like profit and revenue.
By giving all of these things an equal weighting, this can enable the organisation to function at an optimum level of performance.
What are the benefits of using a scorecard?
- It’s an easy way to focus your entire organisation on a few key performance indicators
- It allows you to quickly and simply convey the complexity of an organisation as a key enabler to transform vision to strategy, and strategy into practices
- It enables you to align or integrate corporate programmes to ensure they all focus on long-term drivers of performance
- It can be used to break down strategic measures to all job levels, so that employees can see what is required at their level to achieve excellent overall performance
- It can be used to determine whether the organisation is progressing towards its strategic objectives.
Why are scorecards important to HR management?
- Its use naturally encourages managers to cooperate, communicate, and share best practice
- It offers an easy way for HR teams to measure the impact that their policies and initiatives have on the organisation’s financial performance.
Who else is using scorecards successfully?
Apple uses five performance indicators as part of a holistic approach to its long-term performance plan. This includes customer satisfaction, core competencies, employee commitment and alignment (through a comprehensive employee survey), market share and shareholder value.
Philips has created four critical success factors as part of its own balanced scorecard. These are competence (knowledge, technology, leadership and teamwork), processes, customers, and financial measures.
Microsoft is another large organisation that has implemented a balanced scorecard. They have six areas of focus within the scorecard covering best practices, strategy and metric management, business intelligence, actionable and operational tools and knowledge management.
How should you introduce scorecards?
A challenge that organisations often encounter with balanced scorecards, particularly from an HR perspective, is the considerable time and effort needed up front. This involves identifying the appropriate measures and how they tie-in to strategic organisational success.
Start by focusing on the key enablers in your organisation from an HR perspective. This will improve the validity of the scorecard from a human capital perspective. Also make sure that key enablers relate back to the company’s business strategy.
You’ll probably want to consider areas such as: competencies, leadership, cultural climate, strategic alignment, motivation, and team integration. However, the key components of the organisation’s performance metrics should ultimately be defined by its strategic objectives and long-term plans.
Follow the five step checklist outlined below to implement a balanced scorecard approach within your organisation:
1. List the key strategic objectives and long-term plans of the organisation
2. Define the key financial and non-financial drivers to achieve this plan
3. Decide on the best metrics used to evaluate these drivers
4. Evaluate initiatives in light of performance metrics (using internal and external benchmarks)
5. Seek further alignment between initiatives and key performance metrics.