What Does a Balanced Scorecard Mean for HR?

If you could create a progress report or report card for your business, what areas or categories would be your focus? Revenue would likely be a major factor. How about customer growth and satisfaction? Employee engagement and retention? How would you measure innovation and learning?

The balanced scorecard is a performance metric for organizations created out of a similar line of thinking. It gives departments insight into how different areas of the company measure up and contribute to strategic business objectives beyond just financial reporting.

For HR leaders, a balanced scorecard is a natural way to look past payroll numbers, fiscal reports, and other administrative duties to actually understand and communicate HR’s strategic role in organizational growth. Here’s what you need to know about this important metric and how you can use it to your advantage.

What is a Balanced Scorecard?

The balanced scorecard (BSC) is a performance metric system that helps companies and organizations align on their strategic planning, communicate objectives, prioritize and track progress, and measure performance. It's broken down into four main categories:

1. Financial
2. Customer
3. Internal Operations
4. Learning & Growth

Organizations can track each area over time to gain insight into how different business units and initiatives are working together toward an organization’s overall strategic objectives.

This metric was developed in the 1990s by Robert Kaplan and David Norton to help institutions look beyond short-term financial metrics and measure how different areas of their business contribute to long-term success. Today, the balanced scorecard method is one of the five most widely used management tools globally and helps organizations connect their programs to the company's overall mission and set clear KPIs to achieve results.

How Can HR Leaders Use a Balanced Scorecard?

HR leaders play a crucial role in helping organizations reach their goals and obtain business results. They are increasingly responsible for completing more than the traditional HR functions like talent acquisition and onboarding, benefits management, and payroll coordination. More and more, they are being called upon as an HR business partner to provide strategic guidance to leadership given their understanding of how to support and maximize the company's human capital.

So where does a balanced scorecard fit in? Just like with any other area of the organization, HR leaders can use this management system to measure their team's progress and communicate the strategic value they bring to the company. They can also identify and track key performance indicators (KPIs) and create departmental goals that align with the company's overall strategy map.

To make use of an HR balanced scorecard, HR managers and teams need to connect their initiatives and demonstrate their progress in each of the four BSC categories. Here are the steps to do that in each area:

Financial

Here, you'll want to assess the cost of HR initiatives and the return on investment for each one. Most HR initiatives and programs will have to do with people (human is half of the department’s name, after all).  And often, organizations see their workforce as an expense. There are costs associated with hiring, training, and paying employees.

You can report those on your scorecard. But you can also demonstrate how HR programs help to lower and optimize costs and bring value to the organization. For example, you can set a goal to speed up your time to hire with an improved recruitment process, which will reduce hiring costs. Or your renewed focus on employee engagement and wellness might lead to lowered absenteeism rates, which also comes with cost savings.

Example metrics for financial performance

Some KPIs you could track in the financial area include:

• Average cost per hire: Track how much your organization spends, from start to finish, to fill open positions.
• Cost of training per employee: Track your monetary investment into professional development for your team members.
• Revenue per employee: Measure how much revenue your workforce generates, on average, thanks to investments from your HR team.

Customer

As an HR team, you don't have any direct contact with your organization's customers — but you will have plenty of influence over the employee experience, which can in turn shape customer interactions. You can track employee morale, engagement, and performance in order to identify areas of improvement and ensure that your customers are receiving the highest degree of quality and focus.

For example, if your organization has a high turnover rate, your customer experience might suffer as well. With employees constantly leaving, customers might receive inconsistent service and be left feeling unappreciated.

Example metrics for the customer perspective

Here are some KPIs to measure in the customer area:

• Employee satisfaction rate: Measure how satisfied your employees are with their positions, the company, and their overall work experience.
• Retention rate: Track how many of your employees stay with the organization over time.
• Employee engagement rate: Identify how engaged employees are in their roles, with their colleagues, or with HR-sponsored benefits and programs.

Internal Operations

This is where you'll set goals and measure the effectiveness of core HR functions and internal processes that contribute to overall business strategies and objectives. That could include anything from your hiring and onboarding processes to your benefits administration and company policy creation.

As an example, your company might set an overarching objective to improve their employer branding. To help meet that objective, your HR team will roll out a new Diversity, Equity, Inclusion, and Belonging policy to create a firm company culture of support and inclusivity. You can track its implementation with clear KPIs and then measure its effectiveness through surveys and engagement metrics.

Example metrics for internal operations

Here are some KPIs to track in the internal operations area:

• Time-to-hire: Measure how long it takes to fill a position, from start to finish.
• Onboarding completion rate: Track how many new hires complete their training during the onboarding period.
• Benefits enrollment: Measure how many employees are taking advantage of your workplace benefits.

Learning & Growth

This area focuses on how you're contributing to the overall growth of the team in order to support strategic goals. For an HR department, that usually means initiatives like learning and development (L&D), career growth, mentorship programs, and succession planning — anything that helps employees develop their skills and knowledge.

Your organization, for instance, might set a strategic goal to grow the business over the next six months or a year. That will almost certainly require a larger headcount and more leadership positions. Some of your existing staff might be great candidates for those future openings, but they'll need the skills and leadership training before they can step into those roles. Your HR team can help develop a succession management plan and work with individual employees so they're ready to move up when positions open.

Example metrics for learning & growth

Here are some KPIs to track in the learning & growth area:

• Training hours per month: Measure how much time is dedicated to employee development and training on average on a monthly basis.
• Mentorship program participation rate: As just one example, track how many employees are taking advantage of your mentorship program — or any other L&D initiative.
• Internal mobility rate: Measure the number of promotions within your organization.

Don't Leave Employee Wellness Off Your Scorecard

Employee wellness is one of the most important pieces of a successful HR strategy and a key focus for many companies today. Research shows that wellbeing initiatives can make a big difference in increasing employee satisfaction, reducing absenteeism, and even improving business outcomes. In other words, employee wellness is directly tied to nearly every area of the BSC.

Make sure that you're including the impacts of your wellness initiatives on your scorecard, and setting and tracking clear KPIs. For instance, if you have a corporate wellness program, you can track employee engagement and satisfaction with your wellness program perks.

And if you don't already offer a wellness program, or you're looking to boost employee participation, speak to one of our Wellbeing Specialists! We can offer some great guidance on how to add amazing perks that help any employee on their individual wellness journeys.

References

• Aflac Workforces Report. (2022.) Aflac. Retrieved May 1, 2023 from https://www.aflac.com/business/resources/aflac-workforces-report/default.aspx 
• Baicker K, Cutler D, Song Z. Workplace wellness programs can generate savings. Health Aff (Millwood). 2010 Feb;29(2):304-11. doi: 10.1377/hlthaff.2009.0626. Epub 2010 Jan 14. PMID: 20075081. Retrieved May 1, 2023 from https://pubmed.ncbi.nlm.nih.gov/20075081/ 
• Balanced Scorecard Basics. Balanced Scorecard Institute. Retrieved May 1, 2023 from https://balancedscorecard.org/bsc-basics-overview/ 
• Komm, Asmus, Pollner, Florian, Schaninger, Bill, and Sikka, Surbhi. (March 12, 2021.) The new possible: How HR can help build the organization of the future. McKinsey. Retrieved May 1, 2023 from https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/the-new-possible-how-hr-can-help-build-the-organization-of-the-future 
• The Healthy Organization: The Definitive Guide to Wellbeing. (2021.) The Josh Bersin Company. Retrieved May 1, 2023 from https://joshbersin.com/wp-content/uploads/2021/10/HW-21_10-DefGuide-The-Healthy-Organization-Defintive-Guide-.pdf 
• What is a Balanced Scorecard? American Society for Quality. Retrieved May 1, 2023 from https://asq.org/quality-resources/balanced-scorecard