Column by Dr YRK Reddy - HRD Newsletter

DO SOCRECARDS FLY?

This appears to be a season of scorecards and cockpits. I was questioned at the recent Colombo Conference if the HR Scorecard will fly at all. The reference was to the HR Scorecard - by Brian Becker, Mark Huslid and Dave Ulrich (Harvard Business school Press, 2001). The person who asked me the question had already implemented the Balanced Scorecard (Robert Kaplan and David Norton - Harvard Press -1996) and it was strange that he should have doubts. I told him that the promise of HR Scorecard is great and is a step bridging an important gap in the BSC. But the question lingers in my mind - will HR Scorecard fly at all? For that matter what have been the critical experiences with BSC?

I must recall that it all started with Bob Kaplan and David Norton. They initiated us into looking at company performance from a wider perspective than merely the Return on Investment and other financial measures. Following this, we have been suddenly catapulted from the bicycle seat to an aero plane cock-pit. The bottom line has been a fixation for decades for all and now it looks like we had only been riding a bi-cycle along a narrow path. The Balanced scorecard gave us a powerful logic to develop four simultaneous perspectives:

a. Financial perspective;
b. Customer perspective;
c. Internal-Business-Process perspective; and
d. Learning and Growth perspective.

Each one of these perspectives had to be blown up into several parameters or measures and the result could be as large as a 20-metered dashboard. For instance, The Learning and Growth Perspective alone can have 5 measures such as: Employee Satisfaction; Revenue per Employee; Strategic Job Coverage Ratio; Strategic Information Availability Ratio; Personal Goal Alignment %.

The analogy is of the cockpit of a modern craft. Carrying this further some entrepreneurial consultants have also come up with designing brick and mortar simulators for top management with all the metrics which look like the simulators of the A-320. Fashionably, some have started calling this approach as "cock-pit management". If this does not sound too nice for any reason, one may call this as MBD (Management by Dashboard). Of course, Becker, Huslid and Ulrich have another term for this - Management by Measurement (MBM)! (If Henri Foyal were alive he would probably say Excuzes Moi - was this not what the now-out-of-fashion industrial engineers used to do with big mechanical watches, piles of log sheets, pencils and erasers! ).

Notwithstanding the unavoidable cynicism, hundreds of progressive companies throughout the world have found a great value in adopting the multi-focal perspective. This surely is a great shift to elevated thinking from "navel gazing". The need for the three additional perspectives was probably consequent to developments in the 80's and the early 90's. First, has been the Business Process Re-engineering movement to ensure that there are clear responsibilities, better quality, and reduced cost. BPR, which appeared initially as a one-time project, has proved to be an ongoing challenge for all companies. If the re-engineering were of the tangible assets, it surely would have seen a terminal point in the critical path. But BPR involved great amount of re-engineering the intangible. Thus, if quality is a "journey and not a destination", BPR has been a bumpy ride in this journey which is just as long. That is why the Internal Business Perspective became important and relevant.

Simultaneously, industry structures have proved that there is value migration. The total value generated in any industry/product line seems to be shifting from the primary stage to the secondary and the tertiary. This value migration has been increasing along the value chain with increasing intensity of customer involvement. The structural changes brought about by value migration and hyper competitiveness has indeed made the customer king. The extent of customer base, its retention and expansion have a major role in competitive advantage and survival of the company. Given this realization, the Customer meter has become important on the dashboard.

The role of knowledge and learning in creating and sustaining strategic advantage was realized probably with the seminal work of Peter Senge (Fifth Discipline) along with the growth of the Information Technology and techno-savvy service sectors. Consequent to this, human resource has suddenly come centre-stage and this is reflected in the fourth dimension in the BSC - Learning and Growth.

The BSC has held the promise of aligning the corporate strategy down the line. In fact, Management By Objective (which actually is still used by the majority of companies in US), an erstwhile rave, also aimed at such an alignment of corporate objectives with that of the Managers through the Key Result Area/ Key Performance Indicator system. The excitement with the four-dimensional perspective is the context, the more defined frame and the menu of measures all of which can be administered electronically. Several companies have reported good results of such alignment.

Admittedly, amidst this happiness, there are some tension areas with BSC. The greatest challenge in implementing BSC has been in relating the perspectives and measures to individual roles and performance. All roles are not amenable to assumptions along all these four dimensions. Obviously, while the pilot can have all the four perspectives, the catering man would not be bothered about how the fuel gauge looks like. Likewise, the maintenance guy probably has no clue of the in-flight catering or crew arrangements. Consequently, that each manager must have a complete picture of the strategic objectives is a sound idea. But force-fitting all four perspectives for all roles has created a tension area in their impact on job designs. How much of the role should be re-designed to match the four-perspective formula is the question.

The second area of tension I suspect is the issue of inter-se weightages among the perspectives and measures. Should the pilot give more weight to the fuel gauge than the temperature control? Should the airhostess give the same weights as the pilot to various measures - I hope not. After all, she cannot treat a passenger (customer) with the same importance as the maintenance man treats the ground staff (his customer). In the corporate world this issue becomes contentious as we traverse down the hierarchy to very focused jobs. If a single perspective receives, a large proportion of weightage for a particular job, the logic of multi-dimensionality suffers to an extent.

The third area of tension is the relationship with performance management system. Giving up the existing performance appraisal, which may be MBO centric or descriptive, is difficult for any company, as it may have been accepted over the years despite the occasional crib. Relating this system to the BSC is a tough challenge. If the company chooses not to relate the two, the benefits of BSC may not be as expected as there will be a perceived disconnect. The BSC reckons a reward system with weights but the change from the old one is tough unless one treats this as an add-on, which implies higher costs. "Buy-in" of new reward criteria in place of old ones has always been a struggle unless there is incentivisation. The question then is whether the cost of transition is worthwhile.

Apart from these tension areas, I hear murmurs of tremendous information - overload, computer space and time and a doubt whether all the information being generated is being used well at all. As the format takes over and is computer driven, generating loads of data, there is a lurking danger for the complacent. If the companies are not alert and thinking, such tools will bring in what exactly is the fight against - like a Trozan horse. A modern version of Taylorism and broader bureaucracy can set in.

Good that we are well set and trained to read the meters and be watchful of too glued. But who will start the engine and fly? All good measures, show the conditions or results of various activities which are interconnected but meters don't drive. The man behind will still have to make decisions - BSC will not give the decision criteria. Decisions happen when the individual is able to interrelate the measures and exercise trades-off. I repeat exercises trades-off. If he doesn't do that, he will be playing tennis - keeping his eyes on the scoreboard and hoping that the score moves.

Joining this new found enthusiasm for measurement and aligning is the HR Score Card. It tries to bridge what has been acknowledged as the weakest link in the BSC. The measurement of the Learning and Growth Perspective. The authors of the BSC note the limited progress that most organizations have made in linking employees and organizational alignment with their strategic objectives.

The HR scorecard promises to develop a HR measurement system by identifying the HR deliverables, measuring the high performance work system (HPWS); identifying HR system alignment and HR efficiency measures. The scorecard believes in managing the numerator as well as the denominator i.e. help control cost as well create value simultaneously,. The scorecard promises to reinforce the distinction between HR "doables" and HR deliverables. It measures not merely the lagging indicators (those constructed after the events) but also the leading measures. The effort of HR scorecard in sum is to develop a range of measures relating to HR which are quantifiable and also reinforce the multi dimensionality of sustainable performance. It is a powerful thought and a good supplement to the BSC. It will make some of the HR people who have been happy with the "touchie-feelie" stuff to start measuring, tracking and aligning. Or at least speak in these terms.

What would be the likely impact of these scorecards? For prognosis, we can draw from our experience with the longer standing HR Accounting. It has been powerful as a concept and was adopted by a few progressive firms at least for the Annual Report purposes. The impact on the practice of HRM or its connectivity to financial performance or shareholder value has been rather uncertain.

In the end why did we take so long to impress companies on the need to measure despite the cliché "you cannot manage what you can't measure"? And that performance is multi-dimensional and not just one number or output? The fact is that these have been part of management practice for decades but took a back seat especially during the last decade in our country. Remember the efforts of the industrial engineers who had made the very same efforts in the manufacturing and mining sectors? For instance, the philosophy behind the multi-factor incentive plans (incidentally, there is little reference to this in the BSC and the HRSC) is multi-dimensionality of outcome. They recognized the pitfalls in the vanilla type Scanlon, which create adverse effects in the pursuit of one type of performance. Thus, we needed to define performance so as to make it more comprehensive and valid for the company's long-term competitiveness. These dimensions needed to be aligned, standardized, measured, and most importantly, rewarded. But then, in the 60s and 70s, there were no software programs, there were strong unions which insisted on collective bargaining of everything, and little flexibility.

Hopefully, the scorecards will fly long if they have some mid-air fuel of learning from old crafts in their future versions. We don't want to see grounding of such powerful tools.

August, 2001 Issue

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