New HR Metrics:: Scoring on the Business Scorecard

Abstract

T he role of the Human Resource function in firms has changed in parallel with the economic shift from agrarian to manufacturing to services—and now to information. Early on, HR was considered a staff function, not integral to the firm. Its role was administrative or transactional, its work-product often regarded as a commodity. One factor in changing HR’s role is the increased reliance on knowledge workers. In our transitioning economy, observers, both inside and outside of organizations, have come to view a firm’s workforce as far more valuable. Thus, if one views HR’s primary role as influencing workforce mindset, competencies, and behavior, HR’s role becomes central to the firm, for it is people who carry out its strategy. HR professionals need to recognize this change and adapt to it. To enhance HR’s organizational contribution, HR professionals not only will need to transform what they do but also how they are perceived. Early in its history, the ‘‘personnel’’ function was a refuge for line managers who were polite but ineffectual— employees ‘‘too nice to terminate.’’ Three decades ago, empowered by federal and state legislation, HR became known as the ‘‘personnel police,’’ often to the frustration of line managers. In the ongoing transformation to a services and information economy, HR wanted to be seen as a strategic partner, hopefully invited to the strategic planning party. But significant challenges await HR once invited to the party. It must have something to bring to the table. We wish to address what and how HR can contribute to the strategic success of firms by transforming itself from a partner (that can be removed or outsourced) to a player—on the field, in the game, with the ability to score. The ability to score necessitates a new understanding of the rules of the game—a new perspective on what HR is to contribute, how its systems enable it to contribute, and how its ultimate deliverables can be measured. The rules of the game mean that HR should only attempt to score on an HR Scorecard integrated with the firm’s Business Scorecard. The shift to a services and knowledge economy has accelerated interest in the ‘‘intangibles’’ that have fueled market capitalization growth in the equity markets. Baruch Lev and others at New York University offer annual seminars on intangibles. CFO magazine has reported on how the value of knowledge workers in various industries can be captured in financial terms. Several studies have found that 30 to 40 percent of market appreciation is due to non-tangible factors. An Ernst & Young study has shown that intangible factors (e.g., strategy execution, managerial credibility, strategy quality, attracting and retaining talent, management experience, and compensation strategy) Organizational Dynamics, Vol. 32, No. 2, pp. 107–121, 2003 ISSN 0090-2616/03/$ – see frontmatter 2003 Elsevier Science Inc. All rights reserved. doi:10.1016/S0090-2616(03)00013-5 www.organizational-dynamics.com