An HR Scorecard for Performance

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Author(s): Tom Mc Kenna is president and managing partner of OI Partners-Mc Kenna & Associates (Albany, NY)

Is your human resources department considered an activity-based administrative overhead or a profitability and productivity contributor?

In today's brutally competitive marketplace, companies are forced to change and adapt their businesses so that they can sustain and grow their operations. Each major department within the organization must constantly re-evaluate its activities and contributions or risk being outsourced, downsized or possibly eliminated. Why is this and what can HR do about it?

We are in an information age economy, an economy where the application of knowledge that leads to marketable value creation is more important than the traditional activities that we formerly measured. As such, during organizational upheavals caused by globalism, technology and intense competition, employees in every discipline are recognizing that they must focus their efforts on profitability and productivity contributions rather than on behavioral activities. Human resources professionals, for example, have been making great strides in learning how to measure their activities so that there can be some meaningful statistical and comparative analysis of their efforts.

The problem then becomes: How do we relate our efforts to the corporate performance factors that drive executive leadership decisions and actions? Two parallel approaches attempt to answer this question:

The first is articulated in a series of articles and books titled: "The Balanced Scorecard" by Robert Kaplan and David Norton. In it, the authors argue persuasively that corporations can no longer measure their effectiveness by financial performance alone. They must also evaluate their performance from three additional perspectives:

1. The learning and growth perspective: Do we have the requisite skills necessary to satisfy tomorrow's needs of our customers?

2. The internal business process perspective: Are we efficient and effective at what we do, and do these processes create value for the organization and our customers?

3. The customer perspective: How are we satisfying our customers in meaningful ways? Do we correctly anticipate our customer's needs?

In order for these additional perspectives to be materially useful and meaningful to the company, one must establish relevant measurement standards or goals.

The Performance Scorecard responds to this challenge by providing reasonably simple mathematical models that indicate where the organization is at a given point in time. Created by Ray Van Ness, Ph.D. at the University at Albany and taught by Professor Kenneth Moore in the business school's Capstone Course, The Performance Scorecard describes how to measure three areas critical to the success of any organization in America:

1. Financial data analysis. The Performance Scorecard provides easy mathematical models to analyze and discuss the four basic financial areas of a corporation: a. Profit, Equity & Share Value Management; b. Debt Management; c. Cash Management, d. Asset Management; This scares off most non-financial professionals. But basic financial statements literacy is relatively easy to learn and apply to your own discipline. Why, for example, should an HR recruiter care that the accounts receivable rate has gone from 30 days to 45 days in the past three years? Because this rate is costing the company more money than is necessary! It may be an indicator that the accounts receivable leadership needs to be changed. With this knowledge, the HR recruiter should now be looking for someone with the necessary skills to reduce the rate down to 30 days or less.

2. Positioning. Positioning refers to what is the company doing to ensure that it stays in business and hopefully, will grow the business. How are the internal and external factors affecting the company being managed? Do we have the right mix of human capital, finances, knowledge, raw material sources, corporate structure and leadership in place to ensure success? Do we understand our competition and are we improving our competitive advantage?

3. Corporate Social Responsibility or Relationship Management. How responsible is the company to the various stakeholders who have an investment in the company? How are these relationships managed, i.e.: a. Employee/labor relations b. Shareholders c. The local community d. Vendors e. Competitors f. Regulatory agencies g. Board of directors h. Environment For each area, you can assign a number between one (poor) and five (excellent) and then debate and decide upon appropriate strategies to move from one number to a higher number.

These tools establish a relevant basis for acceptable and desired business conduct in our world. From this examination and analysis, you will be able to directly link your departmental strategies to the overall goals and objectives of the company and increase the effectiveness of your arguments.

Tom Mc Kenna is president and managing partner of OI Partners-Mc Kenna & Associates (Albany, NY). The firm just celebrated its 21st year in business.

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