Using Balanced Scorecard in HR Management

Business Reactions from the Recession

Each time I read my morning paper or turn on the evening news, the headlines contain stories on how the economic pandemic has been wreaking financial havoc on the lives of businesses and employees alike. And lately, the popular phrases that I often hear from CEOs and business owners that I do business with are cost-cutting measures, retrenchment, downsizing or streamlining, imminent bankruptcy, deferment of suppliers’ payment, and avoid foreclosure. These are but natural reactions. A financial crisis with a magnitude like this, any business owner would worry. When a business is threatened by circumstances beyond its control, the most practical thing to do is preserve its viability or profitability at all costs.

However, if we take these knee-jerk reactions, are we not simply allowing this crisis to hasten the demise of our businesses, and let our employees take the brunt of it all? It is lamentable to think that each time the business suffer losses, employees find themselves jobless. This could be prevented.

Employees' compensation and benefits does not account for the majority of the operational expenses (as most finance managers would present in corporate meetings). Competent and loyal employees are assets that needed to be protected and nurtured because they help the bottom line.

Have you even considered looking at your recession scorecard? There is a better remedy to this crisis without necessarily laying-off employees. Use better and accurate performance management systems that will monitor and manage your business KPIs (Key Performance Indicators) by using Balanced Scorecard or BSC. This way, you can better formulate corporate strategies that will shelter you from the effects of the economic downturn.

Balanced Scorecard: A Performance Management Alternative

The Balanced Scorecard gives CEOs, business owners, and managers an indication of the performance of a business organization based on the degree to which various stakeholder needs are satisfied; it presents the organization from the perspective of internal and external customers, employees, and shareholders.

Robert S. Kaplan and David P. Norton, among the proponents of these strategic concepts, give a better definition:

"Balanced scorecard provides managers with the instrumentation they need to navigate to future competitive success. Today, organizations are competing in complex environments so that an accurate understanding of their goals and the methods for attaining those goals is vital. Balance scorecard translates an organization's mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system. It retains an emphasis on achieving financial objective but also includes the performance drivers of these financial objectives. The scorecard measures organizational performance across four balanced perspectives: financial, customers, internal business processes, and learning and growth. It enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they need for future growth." (The Balanced Score Card: Translating Strategy into Action, pp. 1-3)

Why is Balanced Scorecard Important for Businesses, especially during a financial crisis?

The Balanced Scorecard is important because it brings together most of the features that a company needs to focus on to be competitive. These include being customer-focused, improving quality, emphasizing teamwork, reducing new product and service development times, and managing for the long term.

The Balanced Scorecard differs from the traditional measures of company performance by emphasizing that the critical indicators chosen are based on the organization's business strategy and competitive demands. Organizations need to customize their balanced scorecards based on different market situations, products, competitive environments, including the current state of the global economy. In this respect, recession KPI should have been formulated and established with the aid of downturn metrics provided by AKS-Labs (Developer of Balanced Scorecard Designer).

Balanced Scorecard is also an excellent crisis management tool for organizations who have EMS (Environmental Management Systems) and OSHAS (Occupational Health and Safety Administration Standards) certifications. BSC is an excellent tool for monitoring and auditing compliance to those standards.

Balanced Scorecard in HR Management

Effective roll out and implementation of Balanced Scorecard can only be made if the organization is able to cascade its mechanics, importance, and objectives to the employees. Therefore, doing, this will give them a concrete framework that helps them see the goals and strategies of the organizations, how these goals and strategies are measured, and how they influenced the critical KPIs. The HRM department should be in the forefront in this respect, and in providing the necessary training or orientation.

Moreover, the Balanced Scorecard should be used to link HRM activities with the organization’s strategy and evaluate the extent to which its functions add value to business strategies and goals. Measure of HRM practices primarily relate to productivity, people, and process. Productivity measures involve determining output per employee (such as revenue per employee). Measuring people includes assessing employees' behavior, attitudes, skills, and/or knowledge. While process measures focus on assessing employees' satisfaction with how the organization compensate, reward, and develop them so that they continue to add value to organizational competitiveness as a whole.

Conclusion: Benefits of Balanced Scorecard in HRM

1. Using BSC or Balanced Scorecard in performance management is actually a holistic approach; because it does not leave any key functional area in the organization unturned. Also, because it focuses on the most essential things needed to produce the maximum results. It actually follows closely the Pareto Principle, where 80% of productive organizational performance comes from focusing on the 20% most important KPIs.


2. BSC links organizational units into a more cohesive entity towards a common goal while they continue to strive to meet their own personal and departmental goals. More so, with BSC, individual performance is tied-up with departmental performance. Each member’s goals and performance is integrated with that of the unit or department. This is where the principle of the sum of the parts is greater than the whole. In short, BSC impels employees to synergize.


3. Lastly, the best part of implementing BSC is you get the results of what you measure; because Balanced Scorecard enables the organization to link its performance measures with its business strategies and goals.