The HR scorecard and its four perspectives explained simply
The Human Resources Scorecard ( HR Scorecard for short) is an essential HR controlling tool for efficient personnel management within a company.
In recent years, the modernisation and digitalisation of HR practices have led to the use of new and increasingly powerful tools. As part of a human resources information system (PIS), the scorecard provides an answer to the current needs of HR managers and helps them to manage change in the organisation in an agile way.
Let's discover together what the HR scorecard is and what function it fulfils in the company!
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What is the HR scorecard?
The HR Scorecard is a strategic HR performance measurement system for measuring, managing and improving the strategic role of the HR department. The HR Scorecard has its roots in the controlling instrument "Balanced Scorecard" (BSC), which was developed by the economists Robert Kaplan and David Norton to harmonise strategy and its implementation.
The HR scorecard is used to measure HR indicators for corporate management. They are also referred to as HR KPIs, or more precisely as HR KPIs, as they are indicators that are linked to the corporate strategy.
What function does the Human Resources Scorecard have in the company?
Robert Kaplan and David Norton's Balanced Scorecard has a multidimensional function in the company and is used in HR with the HR Scorecard.
It provides a systematic platform for the implementation or operationalisation of corresponding HR goals and strategies in an organisation.
The HR scorecard provides the following benefits for HR managers:
- Successful implementation of an HR strategy,
- Better communication about the strategy,
- Increased understanding of the strategy,
- Improvement of "strategic learning",
- Linking of strategic goals,
- Cross-functional way of thinking.
With the Balanced Scorecard, Norton and Kaplan wanted to develop a key performance indicator system for (personnel) controlling that is not limited to past and financial perspectives as usual, but also to the following four perspectives: Financial Perspective, Customer Perspective, Process Perspective and Learning Perspective.
This controlling approach illuminates transparency at various levels and simplifies the management, planning and standardised alignment of corporate goals through its multi-perspective presentation.
Adapted to human resources management, the perspectives of the Balanced Scorecard become:
- Profitability perspective
- Employee perspective
- Quality perspective
- Learning perspective
The four perspectives of the balanced scorecard in corporate controlling
The BSC generally uses four perspectives, which should be presented in a "balanced" way:
Financial perspective
The financial perspective shows how the company should present itself in order to be financially successful. This perspective includes the performance indicators for achieving the financial targets: e.g. profit, sales growth, return on investment and liquidity.
Customer perspective
The customer perspective shows the company from the customer's point of view. It contains figures on the achievement of customer-related targets, e.g. customer satisfaction, market share, number of complaints or the time it takes to respond to customer enquiries.
The objectives of the customer perspective include increasing market share and improving the quality of products and services. It is therefore essential to distinguish between quantifiable and non-quantifiable objectives (e.g. the company's image).
Process perspective
The process perspective comprises figures relating to processes and production (e.g. processing times).
The aim is to increase added value (such as improving throughput times). This means analysing internal processes in order to meet the needs of customers (customer perspective) and investors (financial perspective).
Learning perspective
The learning perspective (or development/growth perspective) includes figures relating to targets associated with the long-term existence of the company, e.g. sales for new products or training costs.
These objectives relate to ensuring the competitiveness and continued existence of the organisation. They are achieved through appropriate training, research and development measures. The learning perspective emphasises rapid product development and supports the long-term employment of the best-performing employees.
The four perspectives of the HR scorecard in human resources management
As the HR Scorecard can be passed on to the HR department and used as a personnel planning tool, it can be developed as a stand-alone instrument or integrated into the balanced scoreboard of the entire organisation.
HR department employees can use it to evaluate the effectiveness of the HR department. The four perspectives of the BSC are used as a basis and modified slightly:
Economic perspective
The economic perspective is about measuring the contribution of the HR department to economic success. This contribution is determined by the relevance of the various HR development measures or by the added value of the HR department or each individual employee.
The KPIs used here are, for example, the total personnel costs or the costs per employee.
Employee perspective
This concerns the question of how the company should behave towards its employees in order to motivate them and achieve their goals. Decisive factors in the employee perspective include increasing employee satisfaction and strengthening the employer brand.
The most important factors in this context are the current satisfaction of employees and their identification with the company. Performance indicators that are used for evaluation here are, for example, the fluctuation rate, the sickness rate and the average length of service with the company.
Quality perspective
The quality perspective is used to measure the quality of the HR department and its contribution to the company's success.
It determines how certain processes need to be optimised in order to achieve the company's goals. The indicators used here include throughput times or the number of problems solved by the HR department.
Learning perspective
The development perspective focuses on the opportunities for personnel development. In this case, the aim is to calculate and secure the necessary resources to cover current and future requirements.
The KPIs used here are the number of employees eligible for career planning, the number of people with high potential and the extent of training efforts.
How do you create an HR Balanced Scorecard?
The creation of the HR Balanced Scorecard can be divided into four steps:
1. derive individual objectives from the corporate strategy and adapt them for each of the key areas mentioned, e.g. redefine the sales organisation and its personnel.
2. identify the interactions and links between the objectives.
3. derive suitable key figures and analyses from the objectives.
4. constantly revise and review the figures in order to remain relevant and successful. It is important to always consider the specific situation of the organisation.
The most important functions of the HR Balanced Scorecard are to manage the potential for success, promote communication, create external reports based on the BSC performance indicators, promote transparency and clarify processes.
The BSC improves both communication between the various hierarchical levels and employee motivation. However, there is a risk that incorrect or unrealistic targets will be pursued. In addition, deviations from the defined plan cannot always be explained with figures. Another disadvantage is that the balanced scorecard leaves little room for taking the risk factor into account.
Article translated from German