CHAPTER 11

Performance Measurements
Through Balanced
and HR Scorecards

Learning Objectives
After reading this chapter, you will be able to understand:
 Definition and concepts of balanced scorecard  Approach to HR scorecard
 Different perspectives of the balanced score-  Process of developing HR scorecard
card  Benefits of HR scorecard
 Benefits of the balanced scorecard  Need for implementation of the balanced HR
 Concepts of HR scorecard scorecard

Managing Crisis with a Scorecard-based Performance Management System

Bank Universal was established in the year 1990, merging three small banks. Initially it focused on
corporate banking and later on expanded to retail banking, primarily in Jakarta and other major cities of
Indonesia. With 2200 employees and an asset size of $1.2 billion, the bank virtually collapsed during
the Asian currency crisis of 1997. With the scientific performance management systems (using balanced
scorecard) and sustained HR initiatives, the bank ultimately could survive the crisis and is at present
achieving double-digit returns on equity. From a business point of view, the bank strategically focuses
on sector-specific financing like the automotive sector (mainly refinancing the suppliers, dealers, and the
end users of product of the automobile industry), coal mining (supply chain side), traders, plywood sup-
ply chains, etc. Focusing on niche retail banking, the bank has achieved expertise. Another reason to be
sector specific is to avoid mistakes in financing the large companies, which became the major defaulters
and major contributors to high NPAs of the bank during the period of crisis. Introduction of balanced
scorecard helped the bank to balance their focus on its process, customer service, learning, and growth
and finance. Banks that do not have efficient processes and good quality service do not get good return
on investment. With initial implementation of the balanced scorecard at the corporate level, the bank took
this to the branch operation level and then cascaded it to the individual employee level. In four stages,
the bank could implement the balanced scorecard across the organization, with three strategic themes

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 Performance Measurements Through Balanced and HR Scorecards 227

like handling of past problems (related to loan portfolios), embracing a new business model (to enhance
profitability), and adopting a new market strategy to develop the good banking image.
After implementation of the balanced scorecard, the bank could observe that people can appreciate
each other. The marketing people can appreciate the service people and the service people can, in turn,
appreciate the operational and process people who, in turn, can appreciate the human resource people.
All could collectively contribute to the performance of Bank Universal. Effective coordination and com-
munication throughout the organization improved the performance and the bottom line.

INTRODUCTION
Conventional performance measurement cannot accurately provide a comprehensive view about an
organization. The balanced scorecard approaches, linking the core financial goals of the organizations
with the other drivers that are a determinant of overall success of the organization, ensure a better and
comprehensive view about the organization. The balanced scorecard translates the organization’s mis-
sion and strategy into some quantified key performance indicators (KPIs). Such KPIs provide the frame-
work for measuring the performance through a well-designed balanced scorecard. KPIs are the base
elements of work that correlate with the strategic goals of the organization, and obviously on achieving
the KPIs, organizations can achieve its performance goals.
The basic contention of the balanced scorecard is that financial measures as a stand-alone indica-
tor cannot provide the total performance information about the organization. Rather by integrating the
financial measures with other important perspectives, i.e., customer, internal business processes, and
learning and growth, through a better combination effect, organizations can drive more successfully the
performance, including the financial performance. How such perspectives relate to one another can be
understood through KPI metrics. For example, financial perspectives are strengthened by the customer
perspective, as customers buy the products and services of the organization, and customers’ buying
determine the financial success. Better internal process supports the customer perspective, as it rein-
forces customers’ satisfaction. Similarly, the learning perspective reinforces the internal process, which
cascades to better customer satisfaction. Therefore, all the four perspectives of the balanced scorecard
help the organization for a conceptual mapping of KPIs, which ultimately provide the balanced mea-
surements of the performance of the organization as a whole.
In line with Kaplan and Norton, therefore, we can argue that the balanced scorecard for performance
measurement is in reality a mixture of financial and non-financial measures that ultimately leads effec-
tive assessment of organizational performance. A combination of the balanced scorecard metrics also
provides the opportunity to the organization to compare and benchmark products and services against
the competitors.
In a competitive business environment, it is important for an organization to align its business activi-
ties to strategy, resource allocation budgeting, and reporting. More importantly, human resource (HR)
management functions need to be managed strategically. Managing performance of employees is one of
the most crucial HR functions. The balanced scorecard in its true sense facilitates the strategic alignment
of HR functions Today, the scope of the balanced scorecard has even been extended to balanced HR
scorecard. As among all performance measurement tools, the balanced scorecard and the balanced
HR scorecard are the most crucial ones. In this chapter, we have discussed these two aspects separately.
The other performance measurement tools, however, have been discussed in a separate chapter.

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 228 Performance Management Systems and Strategies

DEFINITION AND CONCEPTS

The balanced scorecard is a strategic management approach developed by Kaplan and Norton (1992).
The balanced scorecard clearly prescribes what an organization should measure to balance its finan-
cial perspectives. In its true sense, the balanced scorecard can be better referred to as a management
system rather than only a measurement tool to track the degree of balance in the financial results of
an organization.
Through balanced scorecards, organizations can realize their vision and strategies, translating those
into action plans. In the process of translating the activities into the balanced scorecard, organizations
can develop the strategic framework and achieve the performance goals. Also the scorecard can set the
direction to achieve the performance goals. Kaplan and Norton described that the balanced scorecard
while retaining the traditional financial measures, also helps the organization to measure the potential-
ity to create future value, accounting for the contributions in four perspectives, i.e., customers, finance,
internal business process, and learning and growth.

DIFFERENT PERSPECTIVES OF BALANCED

SCORECARD
After understanding the four perspectives, organizations need to develop metrics based on the analysis
and data collection.
 The learning and growth perspective.
 The business process perspective.
 The customer perspective.
 The financial perspective.

The Learning and Growth Perspective

This perspective requires organizations to emphasize on employee training and development for their
continuous development. Enhanced knowledge and skill of employees can bring positive change in
their performance, and so also benefit the organization to achieve competitive strength. In volatile mar-
ket conditions, and so also in the era of rapid technological change, systematic renewal of knowledge
and skill of employees through training and development is very important. For this reason, every
cross-section of employees of the organizations need to focus on self-development and also facilitate
the development of their peers and subordinates. This is why the development role of managers is now
recognized and given importance. Standard metrics are developed to measure employees’ performance.
Although for knowledge-intensive organizations this perspective is very important, Kaplan and Norton
emprise its need in every organization. They consider learning to be more important than training.
Learning requires in-house mentors and tutors, free flow of communication, and employees’ access to
their seniors when they face any problem in doing their jobs. Learning is also facilitated by the use of
technological tools, which Baldrige attributes to ‘high-performance work systems’. Through learning,
employees can grow and self-improve. Growth is a more holistic term than development. While devel-
opment is momentary, growth is permanent. With development, an employee can achieve one-time
performance results, while with learning reinforced growth employees can recurrently deliver better
performance results.

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 Performance Measurements Through Balanced and HR Scorecards 229

The Business Process Perspective

Kaplan and Norton, two proponents of the balanced scorecard, suggest employees’ performance focus
on internal business processes. Knowledge of internal business process perspective enables employees to
understand the way that the business is conducted in the organization, the extent of conformance of prod-
ucts and services to customers’ needs, the mission of the organization, the process of strategic manage-
ment, etc. Theoretically, in organizations we see two types of business processes: the mission centric and
the support oriented. Employees’ performance can be traced to the internal business processes through
developed metrics. An employee achieves performance excellence when he/she contributes to positive
changes in the internal business processes, which cascades to increased level of future performance.

The Customer Perspective

When organizations are customer centric and are able to satisfy the customers, success can be achieved
at much ease. No organization survives with dissatisfied customers. Inputs from all cross-sections of
employees add to customers’ satisfaction. In other words, every employee adds value to the customers,
irrespective of their nature of work. A dissatisfied customer shifts to other suppliers and their dissatis-
faction also influences the other prospective customers of the organization. This culminates in business
failure. For all these reasons, employees must perform to meet the customers’ demand and make the
customers satisfied. Thus, to measure employees’ performance from customers’ perspective, it is essen-
tial for the organization to develop various metrics analysing the customers’ data.

The Financial Perspective

As has already been stated, Kaplan and Norton did not make the need for financial results redundant.
Finance and so also the financial results should continue to receive organizational priority. In fact, with-
out discarding the need to focus on finance, they had also incorporated the need for future value addition
potentiality of the organizations. Some of the important financial metrics like employees’ capability to
assess the risk, capability to justify cost benefit, etc. are the most critical performance indicators for this
perspective. Again, like in other perspectives, every cross-section of employee must also perform to
meet the financial perspective.
Thus, balanced scorecard translates strategy into action. The concept takes the cues from the organiza-
tional vision and strategies and then develops key performance indicators in all the four perspectives. Each
performance indicator is measured in terms of certain well-designed metrics against which the performance
of an employee is compared. Operationally, balanced scorecard can be organization, jobs, and individual
employee specific. Most organizations, based on the identified critical success factors (CSF), prepare a
generic balanced scorecard, and then assign weights to each performance factor, depending on the nature
of the job and the level of the employees. With the support of information technology, however, balanced
scorecards can nowadays even be cascaded to individual level employees and can facilitate scientific per-
formance appraisal. It is now the most scientific and effective strategic planning and implementation tool.
To create a balanced scorecard, organizations at the outset identify the vision, aligning their values
and philosophies. Then, through mission, organizations concretize this vision. Mission clarifies the
purpose of the organization. Objectives are then set within the ambit of mission, which then cascade to
specific strategies and action plans. Such specific action plans become the key performance indicators
(KPI), which become the ultimate performance goals for the organization. KPIs are translated into
measurable performance scorecards encompassing all the perspectives.

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 230 Performance Management Systems and Strategies

BENEFITS OF THE BALANCED SCORECARD

Some of the benefits of the balanced scorecard can be listed as under:
 It aligns key performance indicators with the overall strategy of the organization, and in the
process facilitates effective measurement of realized strategy vis-à-vis the performance goals of
the organization.
 Balanced scorecard makes available the holistic picture of business results; therefore, it can also be
used as organizational health index.
 It enforces a positive work culture in the organization, as in the process of its development all cross-
sections of employees need to get involved, communicate with each other, understand the business
imperatives and the strategies of the organization, irrespective of the nature of their activities and
hierarchical levels.
 It makes available the strategic feedback and in the process provides the accurate and precision
level inputs for future decision-making.
 It reduces the time for information search, as befitting information can be made readily available.
 It makes the performance management process scientific.
 It makes the performance assessment process transparent.
 Employees can self-assess their performance and understand how their contributions fit with the
overall strategies of the organizations.
 Management can take the corrective actions on a real-time basis to make good the performance gaps.
All the above benefits, therefore, motivate an organization to introduce the balanced scorecard to realize
the strategic intents.

HR SCORECARD
HR scorecard helps in measuring the efficiency and productivity of the HR department. It considers all
the quantifiable areas of the HR department, and accordingly grades the HR department. Quantifiable
variables of the HR department that can measure its efficiency and effectiveness depend on the choice
and selection of the respective organizations. It is impractical to assume that a standard HR scorecard
could be a panacea for all. Obvious reasons for variation can be attributed to goals and purposes of the
organizations. Some of the commonalities in HR scorecard are:
 Scorecard that measures performance of employees to realize the goals of the organizations.
 Scorecard that optimizes HR costs and helps in tracking the return on investment on people.
 Scorecard that helps in aligning HR functions with the business of the organizations.
 Scorecard that helps in aligning HR functions with the strategies and policies of the organizations.
 Scorecard that helps in adopting appropriate HR practices, i.e., the quality HR practices.
 Scorecard that ensures attracting and retaining the right HR professionals.
All these elements present in the HR scorecard, and the possibility of its quantification, by and large
helps an organization to truly understand how the potentiality of human resources are harnessed for the
best and efficient results of the organizations.

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 Performance Measurements Through Balanced and HR Scorecards 231

Effective HR scorecard enhances the focus of the HR department to deliver quality, duly identifying
the weak areas and initiating the appropriate action. Also using the metrics, it is possible to appraise the
performance of individual employees and so also the performance of the organization. Because of its
transparency, people at all levels of the organizations can also track their contributions to the organiza-
tions and enforce self-control to improve and deliver the best. Hence from the employees’ point of view,
it is also motivating.
Some of the common areas where HR metrics can be developed using an effective HR Scorecard are:
 Employee recruitment.
 Training and development of employees.
 Workforce management.
 Evaluation of employee performance.
 Promotions and transfer of employees.
 Redundancy.
 Employee relations.
 Organization of data.
 Total rewards.
 Career development.
 Competency mapping.
 Time management.
 Performance appraisal.
With all these elements present in HR scorecard, and possibility of its quantification, by and large helps
an organization to truly understand how the potentiality of human resources are harnessed for the best
and efficient results of the organizations.

The HR Scorecard Approach

Once integrated, the HR scorecard aligns support functions with the business strategy illustrating:
 The strategic impact of HR services and projects and enabling HR to demonstrate its value through
more than short-term financial outcomes.
 Adopting the HR scorecard as a strategic management.
 System ensures that HR views all of its activities in terms of their contribution to the organization’s
goals.
 By developing a strategic programme for measuring and managing human capital, HR executives
have the opportunity to spearhead the development of better strategic management.

Process of Developing the HR Scorecard

If structured properly, adopting the HR scorecard would allow the HR organization to take the initia-
tive, instead of being reactive to the demands of the enterprise. A comprehensive approach that creates
strategic alignment between HR and the enterprise at all levels including strategy, resource allocation,
budgeting, and reporting is absolutely essential.

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 232 Performance Management Systems and Strategies

Developing the HR scorecard as a new management process provides the foundation to make HR
a true strategic partner and enable the enterprise to realize the full value of its human capital.
The first step in establishing HR as a strategy-focused organization requires the development of a
HR scorecard that can be linked to enterprise strategy and achieve perfect organizational alignment.
Successful project execution requires an HR scorecard, which is a management system project that
demonstrates a high level of user friendliness. All scorecard users should be able to manage scorecards
unaided by IT specialists or power users. Training must be straightforward to accelerate adoption, and
information must be accessible without a tedious navigation process.
The HR scorecard development process will entail the completion of several processes using the
following methodology:
Development of a Solid Strategy: Development of a solid strategy that is aligned with the enterprise
strategy is a keystone to success. Without a solid strategy, success is unobtainable. However, without
execution, a solid strategy is meaningless.
Strategy Mapping: Development of a strategy map, including selection of performance measures,
establishes targets and objectives, identifies initiatives and ownership to deliver the strategy.
Establish Measures for Each Objective: After translating strategy into objectives, managers and
employees must know if and when objectives are being achieved. Therefore, each objective is given at
least one measurement that is included in the key performance indicators.
Cascading of Scorecard: Keeping in mind operational, management and front line employees do the
actual work that makes strategies happen. Organizations must develop scorecards at every level so that
each person can see how his or her specific responsibilities align and contribute to the higher level goals.
Scorecard Implementation: Finalize scorecard designs and develop an implementation plan.
Post Implementation: After the scorecards are deployed, managers need to periodically re-examine
their existing core processes to ensure they are linked to the corporate strategy.

HR Scorecard at Tata Engineering

HR scorecard at Tata Engineering is used as a tool for simultaneously aligning all four perspectives to
achieve business objectives. It brings about a greater harmony of the business perspectives at functional
and divisional levels. Hence, each and every perspective should be evaluated on the returns generated.
It is integrated with the Tata Business Excellence Model (TBEM) to nurture the environment of high
performance and organization-wide learning and sharing. It serves as the guiding force for HR support
functions.
The company addresses HR’s role on four perspectives as under:
Financial: To improve the return on human capital.
Customer: To develop human resources to meet the expectations of internal and external customer.
Internal Processes: To align HR with the business goals meeting the stakeholders’ expectations.
Learning and Growth: To build HR capability to deliver results.
For all HR activities, quantifiable and objective measures are identified and, accordingly, performance
targets are assigned at the individual and team levels. Further, to facilitate the process, a strategic action
plan is drawn up to provide the sense of direction to the employees to achieve their performance goals.

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 Performance Measurements Through Balanced and HR Scorecards 233

Benefits of the HR Scorecard

Some of the benefits of the HR scorecard can be enumerated as under:
 Formulate HR strategy that is aligned with the overall corporate strategy.
 Clarify the vision/mission of the organization.
 Create a consensus and ownership of the strategy in the management team.
 Improve communication of the strategy across the enterprise.
 Prioritize HR initiatives by linking activities to business goals.
 Help support functions identify and communicate their unique strategies.
 Create a framework for initiative prioritization and budgeting.
 Align measurement with business goal achievement.
 Measure HR’s strategic contribution in concrete and clearly understood terms.
 Provide real-time graphical display of key performance indicators.

NEED FOR IMPLEMENTATION OF BALANCED

SCORECARD AND BALANCED HR SCORECARD
Research conducted by the Harvard Business School demonstrates that overall only 1 out of every
10 companies that formulate strategy can effectively implement it. Many factors make it difficult to imple-
ment strategy today. The pace of change continues to accelerate, technology changes frequently, and the
workforce is more diverse and mobile than ever before. While the business world continues to evolve,
management systems cannot keep the pace of change. The majority of measurement and management
systems are designed to meet the needs of a stable, incrementally changing world, which cannot meet the
needs and expectations of the dynamic economy. Various researches could confirm that a balanced score-
card approach has now emerged as the most effective way of managing and executing dynamic strategy
of the organization. Subsequent development of the balanced HR scorecard could further reinforce this.
Obviously for such reasons, it has now become imperative for organizations globally to implement these
scorecards with a holistic focus on financial perspectives, which necessitates integrating the other three
perspectives with finance, and then cascade all these to specific performance elements in terms of KPIs.
For doing these, organizations need to understand the specific performance elements that can be
delineated to the four perspectives. It requires thorough understanding of the process and individual
functional elements. For example, to successfully develop the balanced HR scorecard, organizations
need to understand the HR competencies. Here we have illustrated some of the core HR competencies
that can form the part of KPIs for the HR functions.

HR Competencies
1. Business Partner—Competencies Include:
Knows mission
Understands business process and how to change to improve efficiency and effectiveness

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 234 Performance Management Systems and Strategies

Understands clients and organizational culture

Understands work environment
Understands team behaviour
Communicates well
Can be innovative and create a risk-taking environment
Applies organizational development principles
Knows business system thinking
Possesses good analytical skills including the ability to think strategically and creatively
Possesses the ability to build trust relationships
Links HR to the organization’s mission and service outcome

2. Change Agent—Competencies Include:

Understands business process and how to change to improve efficiency and effectiveness
Understands clients and organizational culture
Understands work environment
Knowledge of team behaviour
Good communication power
Ability to balance the competing values
Knows business system thinking
Applies information technology to human resource management
Possesses good analytical skills including the ability to think strategically and creatively
Designs and implements change process
Uses consultation and negotiation skills including dispute resolution
Possesses the ability to build trust relationships
Possesses marketing and representational skills
Uses consensus and coalition-building skills
Demonstrates customer service orientation

3. Leadership—Competencies Include:
Knowledge of team behaviour
Good communication power
Ability to balance the competing values
Power of strong analytic, strategic, and creative thinking
Ability to influence people to reach to consensus
Value diversity
Promote and practice integrity and ethical behavour

Effective development of the balanced HR scorecard requires thorough understanding of the HR

deliverables in terms of performance drivers and performance enablers. Performance drivers are the
core HR KPIs, while the enablers reinforce the performance drivers. For example, training and develop-
ment is the good enabler that can drive the employees’ performance through competency development.
With a balanced HR scorecard, organizations can truly transform HR as a strategic partner, aligning HR
with all the levels of organizational activities. Subsequent measurement of HR’s performance, using the
scorecard, can also facilitate the organization to understand the degree of HR’s contribution in achieving
the performance goals of the organization as a whole.

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 Performance Measurements Through Balanced and HR Scorecards 235

SUMMARY
The balanced scorecard is a powerful tool for Also, the balanced scorecard can be integrated
measuring organizational performance from the with the overall organizational performance
strategic and holistic perspectives. A narrow goals. Like the balanced scorecard, the HR bal-
focus on relating organizational performance anced scorecard helps HR professionals manage
only on the financial outcomes today no lon- their strategic responsibilities more effectively.
ger holds good. With the balanced scorecard, it To integrate HR into a business performance
is possible for the organization to successfully measurement system, it is important to under-
assess the important processes and set the perfor- stand, at the outset, the important HR deliver-
mance criteria for the employees at the individual ables and how it relates to organizational strategy
and team level in specific and quantitative terms. implementation plans.

KEY WORDS
Strategy Mapping—Development of a strategy corporate cultural attitudes related to both individual
map, including selection of performance measures, and corporate self-improvement. In a knowledge-
establishes targets and objectives, and identifies worker organization, people—the only repository
initiatives and ownership to deliver the strategy. of knowledge—are the main resource. In the cur-
Cascading of Scorecard—Keeping in mind opera- rent climate of rapid technological change, it is
tional, management and front line employees do the becoming necessary for knowledge workers to be
actual work that makes strategies happen. Organiza- in a continuous learning mode.
tions must develop scorecards at every level so that HR Enablers—HR enablers strengthen the HR
each person can see how his or her specific responsi- drivers, so that HR drivers can achieve the perfor-
bilities align and contribute to the higher level goals. mance goals. For example, training and develop-
Learning and Growth Perspective—This ment function is an important HR enabler to drive
perspective includes employee training and the employees’ productivity.

GENERAL REVIEW QUESTIONS

1. What is a balanced scorecard (BSC)? What 5. Explain HR scorecard. How can this be
are its different perspectives? developed? What are the key benefits?
2. Explain how a BSC can be related to the 6. How can HR be a strategically important
vision and mission of an organization? function?
3. What are the various benefits of a BSC? 7. Short Notes
4. Explain the term ‘HR competencies’ and (a) KPIs
detail areas of such competencies, which (b) Learning perspectives
can subsequently be the basis of developing (c) Leadership competencies
HR KPIs. (d) HR deliverables

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