The HR Scorecard by Brian E. Becker David Ulrich Mark A. Huselid & Mark A. Huselid & Dave Ulrich

Author:Brian E. Becker, David Ulrich, Mark A. Huselid & Mark A. Huselid & Dave Ulrich [BECKER, E. BRIAN]
Language: eng
Format: epub
ISBN: 9781578511365
Publisher: Harvard Business School Publishing Corp (Perseus)
Published: 2001-02-27T16:00:00+00:00

WHY BETTER MEASUREMENT?

A sound performance-measurement system does two things. First, it improves HR decision-making by helping you focus on those aspects of the organization that create value. In the process, it provides you with feedback that you can then use to evaluate current HR strategy and predict the impact of future decisions. A well-thought-out measurement system thus acts as both a guide and a benchmark for evaluating HR’s contribution to strategy implementation.

Second, it provides a valid and systematic justification for resource-allocation decisions. HR can’t legitimately claim its share of the firm’s resources unless it can show how it contributes to the firm’s financial success. An appropriately designed performance-based measurement system lets you explicate those links and thus lay the groundwork for investment in HR as a strategic resource, rather than HR serving as a cost-center to be retrenched.

For example, suppose you measure your firm’s standing on the High-Performance Work System index (described in chapter 2). The HPWS index is a summary indicator of the “performance” orientation of key HR practices. You find that your firm’s HR system falls in the forty-fifth percentile among all firms and the fifty-sixth percentile in your industry group. A good measurement system will let you predict how much improvement in firm performance you can expect if you boost your HR system to a higher target-percentile level. Or, let’s say you find that your firm is already in the ninetieth percentile on the HPWS index. You can then calculate how much of the company’s shareholder value is attributable to your outstanding HR system, compared to the value created by a HR system at the fiftieth percentile.

This approach is a sophisticated form of benchmarking, because it goes beyond measuring just the “level” of the HR system. It lets you attach dollar values to the gap between your firm’s current HR system and some target level. Still, it suffers from the same weakness as any benchmarking approach for measuring HR’s strategic influence. It doesn’t tell you much about how narrowing that gap actually creates the predicted gains in shareholder value. In effect, there’s a “black box” between HR and firm performance—and preventing HR from gaining the credibility it needs to become a true strategic partner.

Ultimately, you must have a persuasive story about what’s in the black box. You must be able to throw back the cover of that box and reveal a plausible process of value creation from HR to firm performance. The strategic HR architecture we have described, aligned with the strategy implementation process, forms such a story. Telling this story—through the measurement system you design—will help you identify actionable goals and performance drivers.

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