Transcript HR AS A STRATEGIC PARTNER Becker, Huselid, & Ulrich The HR

MEASURING HR STRATEGIC ALIGNMENT
THROUGH THE HR SCORECARD
Juan I. Sanchez, Ph.D.
Florida International University
ORGANIZATIONS OFTEN CLAIM THAT:
“People are our most important asset”
But do people understand how the HR function influences
firm performance?
Do HR people feel like they play an important role in
implementing the organization’s strategy?
Does HR really matter?
What’s the perception of the HR function?
List the events that most often trigger the words
“let’s ask human resources”:
Event
Perceived HR Role
Discipline problems
“The police”
Personal problems
“The counselor”
Company’s party
“The entertainer”
Bureaucratic obstacles
“The aparatchik”
WHAT DOES HR STRATEGIC ALIGNMENT MEAN?
HR as an administrative function vs.
HR as a strategic partner capable of
enhancing the organization’s
performance
Measuring HR’s influence on the organization
Traditional HR Focus: the individual employee
•Select the best employee
•Find benefits that satisfy the employee
•Identify incentives that do motivate the employee
•Solve individual skill deficiencies through training
Improving individual employee performance
Does it automatically enhance organizational performance?
HR as a strategic asset
New HR Focus: multiple levels of analysis:
individual, team, organization…
•Alignment of HR systems with the company’s
strategy
•How can HR play a central role in implementing
the organization’s vision & strategy?
•How do people create value for the organization?
•Ho do we measure such value-creation process?
HR as an investment, not an expense
•Conventional accounting was created at a
time when tangible capital (financial &
physical) was the primary source of profits.
•Today: Intangibles such as human capital are
the primary source of profits.
HR as an investment, not an expense
•Conventional accounting generates short-term
thinking regarding intangibles, because intangiblerelated expenditures are treated as expenses vs.
tangible-related expenditures, which are treated as
asset investments (and therefore depreciated over
their useful lives).
•Managers whose salaries are tied to earnings
obviously prefer expenditures that can be
depreciated over time rather than people-related
expenditures than are expensed in their entirety
during the current year.
HR as a source of competitive advantage
•Widening in the ratio of market value to book value (based
on intangible assets)
•HR is key to flexibility, innovation, and speed to market
•HR as competitive advantage: barriers of entry, difficult to
imitate.
•HR managers can become NUMERATOR managers
(contributing to revenue & growth) rather than just
DENOMINATOR managers (cutting costs & reducing
overhead).
•Link performance measurement with strategy
implementation: facilitates communication with stakeholders.
HR architecture as a strategic asset
•Goal of corporate strategy: create sustained competitive
advantage.
•Goal of HR strategy: maximize the contribution of HR
towards that same goal.
HR ARCHITECTURE
HR FUNCTION
HR professionals with
strategic competencies
(delivery of HR
services in a way that
supports the
implementation of the
firm’s strategy
HR SYSTEM
EMPLOYEE BEHAVIORS
High-performance,
strategically aligned
HR policies &
practices
Strategically focused
competencies, motivations,
and associated behaviors
Strategic HRM requires systems thinking…
•Systems thinking emphasizes the interrelationships of the
HR system components AND the link between HR and the
larger strategy implementation system.
•Interactions among components make a system more than
just the sum of its parts.
The laws of systems thinking
•Today’s problems come from yesterday’s solutions (e.g., downsizing)
•The easy way out usually leads back in (example: _________)
•Cause and effect are not closely related in time & space (HR effects are
indirect) (example of indirect HR effect: __________)
•Cutting an elephant in half doesn’t get you two smaller elephants. (e.g.,
reorganizations due to mergers acquisitions).
Best HR Practices help almost every business…
Bottom
10%
Top 10%
No. of training hrs. for new
employees
35
117
Percentage of employees
receiving a performance
appraisal
41%
95%
No. of employees per HR
professional
254
140
Percentage hired based on a
validated selection test
4%
30%
HR Practice
From Huselid et al., 2000, AMJ
But strategic HR goes beyond “best practices”…
HR alignment
Results
+
_
_
Behaviors
+
What does HR alignment take?
•It requires a clear understanding of the value chain: What kind of
value the organization generates and exactly how that value is
created.
•Be able to describe how ultimate financial goals are linked to key
success factors at the levels of customers, operations, people, and
IT systems.
•With this shared understanding of the value-creation process, the
organization can design a strategy implementation model that
specifies needed competencies and employee behaviors.
•The HR system can be geared toward the generation of these
competencies and behaviors.
VALUE CREATION EXAMPLE
Nordstrom
Financial
ROI
CUSTOMER RETENTION
Customer
SUPERIOR CUSTOMER SERVICE
Internal/business process
Learning and growth
UNIQUE INVENTORY
KNOWLEDGEABLE AND
CUSTOMER-ORIENTED EMPLOYEES
VALUE CREATION EXAMPLE
Wal-Mart
Financial
ROI
Customer
CUSTOMER SATISFACTION
CONVENIENCE
Internal/business process
Learning and growth
SUPPLY-CHAIN MGMT.
PRICING
RELIABLE EMPLOYEES
TRUSTWORTHY SUPPLIERS
Inadequacy of Traditional Measurement Systems
1. Financial measures as lagging indicators, not leading
indicators of value creation (Kaplan & Norton’s Balanced
Scorecard).
2. Too much attention to financial dimensions of
performance, and not enough attention to the performance
drivers that determine those results.
3. Uncover the firm’s value-creation chain (story): “business
model.”
4. By specifying and assessing the vital process measures of
the value chain, and regularly communicating the firm’s
performance on these measures, the balanced scorecard
makes strategy everyone’s business.
BALANCING COST CONTROL AND VALUE CREATION:
THE HR SCORECARD
1. Do you want HR to be perceived as a “cost control” or as a
“value creation unit?
2. What gets measured gets managed.
3. If you measure only HR costs, your unit will be treated as a
commodity without strategic value.
4. HR must control costs, but also create value.
5. Examples of instances where value was lost due to costcontrol efforts? (“throw the baby with the bath water”)
INTEGRATING HR INTO THE VALUE CREATION STORY
Is the HR function providing the company with the
employee competencies and behaviors necessary to achieve
the organization’s strategic objectives?
1.HR deliverables: Outcomes of the HR architecture that serve to
execute the firm’s strategy.
2.HR doables: HR efficiency & activity counts.
3.HR performance drivers: core people-related capabilities or
assets.
4.HR enablers reinforce performance drivers (moderators whose
presence activates the HR performance drivers).
MAPPING THE HR VALUE CREATION STORY
HR enablers
HR performance drivers
HR Deliverables
HR Doables
Strategy
implementation
Impact
DISTINGUSHING AMONG HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), ENABLERS (EN)
SURVEY SAYS…
Measure
Average time for dispute resolution
Cost per trainee hour
Cost per hire
Time spent on new employee orientation
Troubleshooting skills
Ability to think out-of-the-box
Knowledge of sexual harassment legislation
Number of sexual harassment complaints
Sexual harassment awareness training
Risk-taking culture
Number of customer complaints
High evaluations on teamwork
PD DE DO EN
An example of HR Value Creation Story…
Honesty testing
Random drug testing
Honest workforce
Cost per quarter (efficiency)
Employee theft
Inventory
Pricing
shrinkage
What percent of your
coworkers are honest?
Cost per hire (efficiency)
Cost of missing items
What percent of the
items missing in the
inventory are stolen
by employees?
Competency Models by Strategy Exercise
Cost-driven organization
•Vigorous pursuit of
production/delivery efficiencies.
•Tight control over cost of
materials, resources, & overhead.
•Minimal expenditure in R&D,
marketing, sales, & service.
WRITE HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), AND
ENABLERS (EN) FOR THIS STRATEGY
Type No. Measure
PD
1
2
DE
4
5
DO
7
8
•Emphasis on large accounts &
economies of scale.
•Low-cost distribution system
EN
10
11
Competency Models by Strategy Exercise
Value-driven organization
•Focus on developing best-inclass capabilities in selected
activities.
•Promote reputation for
technological leadership & brand
image.
•Emphasize product engineering
or service integration.
WRITE HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), AND
ENABLERS (EN) FOR THIS STRATEGY
Type No. Measure
PD
2
DE
•Partner with industry, universities,
& research organizations for
mutual benefit.
4
5
DO
7
8
EN
•Maintain an active basic research
contingent.
1
10
11
Competency Models by Strategy Exercise
Quality-driven organization
•Aggressive pursuit of information
on customer careabouts, including
customer involvement in
product/service design.
•Efforts to instill a continuous
improvement orientation.
•Strict monitoring & screening of
subcontractors, franchises, and
suppliers.
•Some investment in R&D,
marketing, service, & training.
WRITE HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), AND
ENABLERS (EN) FOR THIS STRATEGY
Type No. Measure
PD
1
2
DE
4
5
DO
7
8
EN
10
11
Competency Models by Strategy Exercise
Service-driven organization
•Value investments in people.
•Close monitoring of metrics
tracking service responsiveness.
•Cultivate good working
relationships among associates,
subcontractors, and suppliers.
WRITE HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), AND
ENABLERS (EN) FOR THIS STRATEGY
Type No. Measure
PD
2
DE
•Emphasis on customer service
and sales ranks’ contact with
customers.
4
5
DO
•Creative involvement of R&D and
manufacturing groups in aftersales support.
1
7
8
EN
10
11
Competency Models by Strategy Exercise
Speed-driven organization
•Willingness to accept risks
associated with delivering
product/service to market ahead of
competitors.
•Analysis of market trends.
•Aggressive management of new
product development cycles.
WRITE HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), AND
ENABLERS (EN) FOR THIS STRATEGY
Type No. Measure
PD
1
2
DE
4
5
DO
7
8
•Engage in joint ventures to speed
entry in emerging markets.
•Create geographical &
technological partnerships to
augment organizational
capabilities.
EN
10
11
Competency Models by Strategy Exercise
Focus-driven organization
•Emphasis on market research &
micromarket proclivities.
•Risk averse & focus on customer
careabouts.
•Intense management of
product/service modifications to
match profiled customer needs.
WRITE HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), AND
ENABLERS (EN) FOR THIS STRATEGY
Type No. Measure
PD
1
2
DE
4
5
DO
7
8
•Active involvement of targeted
customers in product/service
development.
EN
10
11
IN CONCLUSION…
“People can be our most important asset if we
make the HR function our strategic partner”
To download a copy of this presentation, visit
http://cba.fiu.edu/mgmt/sanchezj
Click on “HR-ROI presentation, USF Embassy Suites, 1/17/03”