1. Using Data Metrics to Demonstrate HR Strategic Value
Before Kaplan and Norton developed the balanced scorecards in the early 1990s, about 90% of companies could not execute their strategies (at lest they could not provide evidence).
Companies were unable to provide performance measures that drove success, especially for the new global, knowledge based economy.
Presented by: Dr. Douglas teDuits 
THEHRA Winter Conference
12:45 – 2:00 PM
January 30, 2017

2. Lord Kelvin To measure is to know.
If you can not measure it, you can not improve it.
When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind…
Over 150 years ago Lord Kelvin a Scottish Baron and mathematical physicist and engineer identified some mathematical ideas, that would later be used by business academics.

3. Strategy Implementation Barriers
Only 5% of the workforce understands the strategy
Only 25% of managers have their actions linked to organizational strategy
85% of executive teams spend less than an hour/month discussing strategy
60% of the organizations don’t link budgets to strategy
Only 10% of the organizations execute their strategy – why?

4. HR Strategy
HR Doables – HR efficiencies & activity counts (time to resolve complaints, cost per new hire, cost per trainee, benefits cost per employeee)
HR Deliverables – outcomes of HR that helps execute the organizational strategy (customer complaints, discrimination complaints)
HR Performance Drivers – core people related capabilities or assets (problem solving, creativity, high-level knowledge of HR laws)
HR Enablers – reinforce the performance drivers (discrimination training, risk-taking culture)

5. Elements of an HR Scorecard
HR Deliverables: Connected to the organization’s business strategy.
Focus on just a few key deliverables, linked to several performance drivers, that the business senior line managers understand their significances and are willing to pay for.
Consider HR deliverables as organization capabilities. Organization capabilities that offer a competitive advantage are tough for the business to ignore.
Focus on HR performance drivers and HR enablers.
HR Efficiencies “doables”: Select key efficiency metrics carefully.
Divide the metrics into CORE and STRATEGIC
Core metrics measure significant costs to the organization; however do not necessarily make a significant impact to the over-all strategy.
Strategic metrics measure the HR Deliverables tied to the Organization’s business strategy.
People can be the most important organizational asset if we make HR a strategic partner

6. High Performance Workplace Practices
The KSA’s of a company’s current and future employees are influenced by:
Comprehensive employee recruitment and selection systems
Extensive employee involvement and training programs
Incentive-based compensation and performance management systems
The results include:
Increased employee motivation
Reduced shirking of responsibilities
Enhanced retention of quality employees
Encouragement of low performers to leave the company
Gruber, D., Smerek, R., Thomas-Hunt, M., & James E. (2015)

7. Turnover Example
Predictive variables for employees who have the intention to leave
Perceptions of job insecurity
Manager/departmental turnover rates
Compensation
Job satisfaction
Tenure
Demographical variables (age, sex, education, etc.)
Organizational commitment
Job expectations met
Perceptions of organizational culture
Job enrichment interventions (reduced turnover)
Realistic job previews (reduced turnover)

8. Calculating Turnover
For the last 12-month period, add up the number of voluntary resignations.
Next divide by the total number of employees at the end of the same 12 month period.
Multiple by 100 to get %
Resignations = 555
Number of employees = 5000
555 ÷ 5000 = .11 x 100 = 11%

9. Cost of Employee Turnover
Turnover cost indicates how much turnover is costing and its impact on the operations of the agency. Number of employees = 5000 Annual turnover = 11% Number of employee turning over = 555 Average turnover cost per employee =$1,694 Total annual cost = $940,170 Savings from reducing turnover by 10% = $ 42,350 (555 x .05 = 56) 56 fewer employees turning over 56 x $1694 = $94,864) Turnover costs also take into account indirect costs. Research indicates that the indirect costs of turnover can be 2 to 5 times higher than direct costs. These costs are more difficult to quantify and assign a dollar figure to, but they are very real.
COST OF EMPLOYEE TURNOVER - Turnover cost indicates how much turnover is costing and its impact on the operations of the agency.
The cost of turnover includes the direct costs of recruiting new employees interviewing time, administrative work that is associated with hiring and processing, training, supervisory time, and overtime that is paid to employees who have to cover for employees who are no longer there.
For example: Number of employees………………………………………….500 Annual turnover…………………………………………………11% Number of employee turning over……………………………….55 Average turnover cost per employee………………………….$1,694 Total annual cost………………………………………………$93,170 Savings from reducing turnover by 5% $ 42,350 (Turnover reduced to 6%;
500 x .06 = = 25 fewer employees turning over 25 x $1694 = $42, 350) Turnover costs also take into account indirect costs.
Gruber, D., Smerek, R., Thomas-Hunt, M., & James E. (2015)

10. Direct Costs of Turnover
Recruiting Costs
Advertising costs
Interviewing Costs (time spent x wage of the interviewer(s)
Referencing Costs (time spent x wage of the interviewer(s)
Administrative Costs (time spent x wage of administrator(s)
Processing of paper work for newly hired employee
Processing of paper work for exiting employee
Supervision Costs (time spent x the wages of the supervisor/manager
Training Costs (Time spent training (xx hrs) x wage of employee); (Time spent training (xx hrs) x wage of trainer(s); (Materials, equipment, job aides)
Separation Costs (Average cost of unemployment, separations pay, etc. ); (Overtime costs to do work of exiting employee )
Gruber, D., Smerek, R. (2015)

11. HR Can Make a Difference
Provide direct and economically significant contributions to the company
But you must have effective HRM practices that are linked to the strategic mission
Basic Requirement include
Must add value to the firm’s production processes
Skills the firm seeks must be rare
Human capital investments are not easily replicated (imitated)
Gruber, D., Smerek, R., Thomas-Hunt, M., & James E. (2015)

12. Proactive HRM Practices
Influence employee skills through acquiring and developing human capital
Use solid recruiting techniques with reliable and valid selection procedures to assist with the identification and development of the right employee
Provide formal and informal training that can further influence employee development
Skill development
OJT
Coaching/mentoring/sponsering
Management development
Important to remember that even highly-skilled employees need to be motivated and encouraged to work harder and smarter
Highly structured jobs, micromanagement, and not allowing employees to use their highly-honed talents will disempower employee success

13. Organizational Financial Performance
Financial returns associated with people investments in progressive HRM systems are generally sustainable
HRM practices can produce considerable increases
Extensiveness of recruiting, selection validity, use of formal selection procedures directed and positively related to firm profits
Adoption of employee training programs and increased financial performance
Linking appraisals to compensation connected to firm profitability

14. The HR Scorecard Who are HR’s customers?
How do we measure our customer satisfaction?
What are HR financial measures?
Example
Objective: Improve Customer Satisfaction
Description: Meet and exceed customer expectations.
Actions:
Define services and validate our customer’s expectations (leading)
Compile & analyze the point of service survey results
Evaluate results from employee relation survey
Measures:
Completed actions (timely and satisfactory) (lagging)
Completed customer satisfaction scores (lagging)   
 HR Financial measures (cost per hire, turnover costs, absenteeism rates, revenue per employee) (lagging)
leading - employee satisfaction, rewards & recognition, employee commitment, hire right person at the right time, proper workforce and succession planning, diversity

15. Creating An HR Scorecard: Four Elements
The HR Scorecard should contain the following four elements:
High-Performance Work System- the elements specifically selected to assist HR to implement the strategy through the HR deliverables.
HR alignment with external systems- matching the HR system to the requirements of the organization’s business strategy.
Key HR deliverables- are key human capital contributors to implementing the organization’s business strategy.
HR efficiency- measurement of costs controls and productivity of HR performance.
Creating an HR Scorecard: The HR Scorecard: Linking People. Strategy, and Performance by Brian E Becker, Mark Huselid and David Ulrich. Harvard Business School Press.
Value Creation
Cost Control

16. Creating an HR Scorecard
The four elements balance Cost Control and Value Creation
Cost control comes from measuring HR efficiency.
Value Creation comes through measuring HR deliverables, external HR system alignment, and the High-Performance Work System.
A strategic HR measurement system is correctly balancing efficiency and value creation, while being guided by a broad strategy and not a narrow HR perspective.
Creating an HR Scorecard: The HR Scorecard: Linking People. Strategy, and Performance by Brian E Becker, Mark Huselid and David Ulrich. Harvard Business School Press.

17. Lagging Indicators
Performance measures that represent the consequences of actions already taken
Output measures, easy to measure but difficult to influence or change (already happened)
Financial Measures
Weight loss example – what is the lagging measure?
HR Examples?
Lagging indicators are typically “output” oriented, easy to measure but hard to improve or influence
Most financial indicators such as revenue, profit, costs are “lagging indicators”.
For many of us a personal goal is weight loss. A clear lagging indicator that is easy to measure. You step on a scale and you have your answer.

18. Leading Indicators
Input based, difficult to measure but easy to influence
Business drivers of lagging indicators
Relationship between leading and lagging (if/then)
If you improve the performance of a leading indicator, then you will improve/“drive” a better performance of the lagging indicator
HR examples – lowering employee absenteeism will improve employee satisfaction
Factors that measure progress toward HR goals and HR Strategy Map (business drivers)
Actions HR does for organizational success over time
Weight loss example – what are the leading indicators?
leading indicators are typically input oriented, hard to measure and easy to influence.
Absenteeism rates lead for employee engagement
Number of qualified applicants per ad (brand strength)
Back-up talent ratios per position - preparing organization to remain successful
For human resources departments, leading indicators are factors that measure progress toward the goals on the HR strategy map. Also referred to as “business drivers”
But how do you actually do this? For weight loss there are two “leading” indicators: 1. Calories taken in and 2. Calories burned. These 2 indicators are easy to influence but very hard to measure. When you order lunch in a restaurant the amount of calories is not listed on the menu. And if you are me, you have no clue how many calories you burn on a given day. (although mobile technologies are helping with this).
For human resources departments, leading indicators are factors that measure progress toward the goals on the HR strategy map. They may serve as early warning systems – like persistently high turnover rates can, for example, indicate a need to modify or increase employee engagement efforts while reaching goals in reducing customer service problems can tell HR it’s time to switch from active to occasional refresher training.

19. Creating An HR Scorecard: Leading & Lagging Indicators
The HR Scorecard should contain the following four elements:
Leading Indicators- Typically “input” oriented.
High-Performance Work System
HR alignment with external systems
Lagging Indicators- Typically “output” oriented.
Key HR deliverables
HR efficiencies
Lagging indicators are typically “output” oriented, easy to measure but hard to improve or influence while leading indicators are typically input oriented, hard to measure and easy to influence.
Example: For many of us a personal goal is weight loss. A clear lagging indicator that is easy to measure. You step on a scale and you have your answer. But how do you actually reach your goal? For weight loss there are 2 “leading” indicators: 1. Calories taken in and 2. Calories burned. These 2 indicators are easy to influence but very hard to measure. When you order lunch in a restaurant the amount of calories is not listed on the menu. And if you are me, you have no clue how many calories you burn on a given day. Most financial indicators such as revenue, profit, costs are “lagging indicators”. They are results of the activities of the company.  Now lets imagine you are managing an IT outsourcing company and your goal is to be compliant with the SLA’s (service level agreements) you agreed upon with your customers. For instance the maximum allowed time to resolve high priority incidents is 48 hours. The output is easy to measure: You either solve your incidents in 48 hours or not. But how do you influence the outcome? What are the activities you must undertake to achieve the desired outcome? For instance: Make sure staff start working on incidents immediately when they occur. Make sure that incidents are assigned to the right people with the right skillset and that this person isn’t already overloaded with other work. This could be translated into the following “leading” indicators - % of incidents not worked on for 2 hours. - % of open incidents older then 1 day. - % of incidents dispatched more then 3 times. - Average backlog of incidents per agent

20. Creating An HR Scorecard: STRATEGIC HR Metrics
Select the HR metric(s) that could be considered strategic based on the Organization’s Goal.
Company A has a business goal to have qualified successors ready for promotion within three years for each of the top positions in each division.
Talent Acquisition of managers - Time to fill.
Percentage of managers who have completed all e- training requirements in the Learning MGT system.
Numbers of managers per division rated ready now for promotion by their supervisors, who have also indicated a willingness to relocate and rated over 100 points on their leadership assessment score.
Average leadership assessment scores for managers in grades (director level and above)

21. Creating An HR Scorecard: The Bottom Line
Use it to reinforce the distinction between HR doables and HR deliverables.
Use it to control costs and create the HR value proposition
Use it to measure leading indicators - Key performance drivers aligned to the company’s business plan
Use it to assist HR professionals to focus on what’s important

22. Drs. Robert Kaplan & David Norton
"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."
Attempts to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement (see What is a KPI?) key performance indicator framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance.
While the phrase balanced scorecard was coined in the early 1990s, the roots of the this type of approach are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950’s and the work of French process engineers in the early part of the 20th century.
Balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective. The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise. Kaplan and Norton describe the innovation of the balanced scorecard as follows:

23. Drs. Robert Kaplan & David Norton
Benefits of Balanced Scorecards
Holistic – few key things
Integrates various corporate programs
Brings strategic measures to lower levels of the organization – role with overall organizational performance

24. Balanced Scorecard Model
Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996): 76.
A balanced scorecard is communication tool (strategy map), a measurement system (key metrics & dashboards) and a strategic management system
Financial – what do our financial stakeholders expect or demand?
Internal Processes – What business processes do we need to excel to drive value for our stakeholders?
Employee Learning and Growth – How doe we align our intangible assets to improve our ability to support the strategy?
Customer – who are our target customers, what are their expectations, and what is our value proposition in serving them?
Here is a more detailed Balanced Scorecard.
Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996): 76.

25. Financial Measures Revenues Costs Net Operating Income (NOI)
Return on Investments (ROI)
Earnings Before Interest, Taxes and Depreciation (EBITD) – Net Income
Risk Assessments
Cost-Benefits Analysis
Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it.
In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated.
But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives.
There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.

26. Internal Business Processes
Recruiting & Selection Process
Performance Management Recognition and Rewards
Workforce Planning
Succession Planning
Data Sharing & Integrity
HR Satisfaction Surveys
This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission).
These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants.
Streamline & automate where possible
Get rid of wasteful steps (process redesign & redevelopment)

27. Employees’ Learning and Growth
Increased Need for Knowledge Workers (people are the warehouse)
Leadership & Development
Skill Gaps & Improvements Employee Goals
Technology Skills
Learning is more than training
Mentoring & Sponsoring
Opinion surveys & Engagement surveys
This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode.
Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization.
Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed.
It also includes technological tools also called "high performance work systems."

28. Customer Perspectives
Who are they?
What are their expectations?
Communications Systems
Customers Satisfaction
Employee Relations Surveys
Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business.
These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs.
Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.
In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.

29. Strategy Mapping
Strategy maps are communication tools used to tell a story of how value is created for the organization. They show a logical, step-by-step connection between strategic objectives (shown as ovals on the map) in the form of a cause-and-effect chain.
Generally speaking,
improving performance in the objectives found in the Learning & Growth perspective (the bottom row)
enables the organization to improve its Internal Process perspective Objectives (the next row up) and
which in turn enables the organization to create desirable results in the Customer and
Ultimately the Financial perspectives
Here is an other more detailed examples.

30. Dashboards
Visual representations of the most important measures and targets identified that need to be achieved one or more of the the organizational/departmental strategy.
Typically one page or on one computer screen and can be monitored at a glance.

31. Excel Dashboards

32. More Creative Dashboards

33. Good Dashboard

34. Bad Dashboard

35. Annual Success Plan Regional Airlines
Safety Finance Reliability Service People