The Balanced Scorecard is a business tool that was made famous by Kaplan and Norton in the 1990s when featured as research in the Harvard Business Review. Many businesses were (and still are) managed predominantly from the balance sheet. Kaplan and Norton argued that this was a problem because financial results are a lagging indicator. They are the results of last year’s work and are not necessarily an indicator of next year’s performance.
Financial results are just one aspect of what drives a successful business. Kaplan and Norton outlined other indicators as well as Finance, including Process Effectiveness, Customer Satisfaction & Loyalty, and the ability for the organisation to Learn and Grow. The key here is that these quadrants are leading indicators. In other words, they are indicative of next year’s financial results. Together, these concepts make up the four quadrants of the Balanced Scorecard which presents a more balanced picture of past and future performance.
Many businesses use a balanced scorecard for their overall business results and it can be a really effective approach. Typically, HR or L&D may contribute to the metrics in the Learning and Growth (sometimes even called People) quadrant. Examples would include attrition rates; recruitment spends or engagement scores. However, I believe we can take this one step further and build our own HR or L&D Scorecard that supports the business strategy.
I outlined a simple process for building an HR Business Strategy in 5 steps in a previous blog. Having developed a strategy we can select the key metrics that will measure success and use those within our HR Balanced Scorecard. To build our scorecard we need to think about the right metrics for our business – hence the importance of linking to the HR and Business Strategy. There is no point in measuring things that are not relevant to current needs.
These are the sort of questions we can ask:
How can we quantify the financial impact of HR/L&D over the next year? What do we do that directly impacts the bottom line? Think of things like recruitment spend; training budgets and reward management.
What can we do that directly and positively affects our internal customers (and will, in turn, affect the external customer) and how can we measure it? Employee engagement or satisfaction surveys are common here, as well as measuring the internal impact of HR supporting the business with recruitment or performance management.
Often the HR sweet spot, but how can we measure the effectiveness of these systems put in place to serve the business need? Consider the speed of hire; uptake of performance management software or absence management.
How are we supporting the future capability of the business? Viability of succession plans; take-up of suggestions schemes or leadership training would all fit in this category.
My suggestion would be to have 2-4 indicators in each quadrant and test them to ensure that they are being driven by your current strategies and are likely to support the overall business strategy. Report on these monthly or quarterly and review them annually in line with business goals. If you use performance management software or systems, then these metrics can provide the basis for HR performance objectives providing a clear line of sight between people and business activities.