A

Dissertation Report

On

“Putting HR on Balanced Scorecard”

(A Case Study of Verizon)

(SUBMITTED TOWARDS PARTIAL FULFILLMENT OF POST GRADUATE DIPLOMA IN MANAGEMENT)

(Approved by AICTE, Govt. of India)

ACADEMIC SESSION

(2008-10)

Under the guidance of: Submitted by:

Supervisor NameYour Name

Lecturer (college name)Roll: - PGDM-08/012

College Address

Page 1

PREFACE

There is a famous saying “The theory without practical is lame and practical without theory is blind.”

Alignment of the Human Resource with the overall strategy of the company is a very big and toughest challenge for the company.

Human resource is an important part of any business and managing them is an important task.

Our institution has come forward with the opportunity to bridge the gap by imparting modern scientific management principle underlying the concept of the future prospective managers.

To the emphasis on practical aspect of management education the faculty of College Name has with a modern system of practical training of repute and following management technique to the student as integral part of PGDM.

ACKNOWLEDGEMENT

“It is not possible to prepare a project report without the assistance & encouragement of otherpeople. This one is certainly no exception.”

On the very outset of this report, I would like to extend my sincere & heartfelt obligation towards all the personageswho have helped me in this endeavor. Without their active guidance, help, cooperation & encouragement, I would nothave made headway in the project.

I am ineffably indebted to Supervisor Namefor conscientious guidance and encouragement to accomplish this assignment.

I am extremely thankful and pay my gratitude to my faculty guide Guidance Name, College Name for her valuable guidance and support on completion of this project in its presently.

I extend my gratitude to College Name for giving me this opportunity.

I also acknowledge with a deep sense of reverence, my gratitude towards my parents and member of my family, who has always supported me morally as well as economically.

At last but not least gratitude goes to all of my friends who directly or indirectly helped me to complete this project report.

Any omission in this brief acknowledgement does not mean lack of gratitude.

Thanking You

Your Name

CERTIFICATE FROM THE FACULTY GUIDE

This is to certify that the project work entitled “Putting HR on Balanced Scorecard: A Case Study of Verizon.”is abonafide work carried out by Your Name, a candidate of the PGDM (2008-2010)College Name under my guidance and direction.

Signature of the Guide

Guidance Name

TABLE OF CONTENTS

1.INTRODUCTION

2.RESEARCH METHODOLOGY

3.LITERATURE REVIEW

4.HUMAN RESOURCES AS A STRATEGIC PARTNER– THE PRESENT AND THE FUTURE

5.THE HR ARCHITECTURE AS A STRATEGIC ASSET

5.1.The HR function

5.2.The HR system

5.3.Employee Behaviours

6.THEORY BEHIND THE BALANCED SCORECARD

6.1.Background of the Concept of Balanced Scorecard

6.2.Defining Critical Success Factors and Measures

6.3.The Four Perspectives: Cause and Effect Relationship

6.4.The Balanced Scorecard Model

6.5.Balanced Scorecard as a Measurement Tool

7.IMPLEMENTING BALANCED SCORECARD TO HUMAN RESOURCE

7.1.Integrating HR into the performance measurement system

7.2.The Seven-Step Model for Implementing HR’s Strategic Role

8.BENEFITS OF THE DEVELOPING HR SCORECARD

9.CASE STUDY: VERIZON

9.1.Introduction: Verizon

9.2.HR Challenge & Strategy

9.3.The Team

9.4.The Process

9.5.Early Results

9.6.Communicating the HR Scorecard

9.7.Web-based Implementation and Graphics (Frontend and Backend)

FINDINGS OF THE STUDY

LIMITATIONS OF THE STUDY

CONCLUSION

RECOMMENDATIONS

REFERENCES

TABLE OF FIGURES

Figure 1: HR Architecture Strategic components

Figure 3:- The Main framework of Balanced Scorecard

Figure 4:- Model for implementing HR’s Strategic Role

Figure 5: A High Performance Work System

Figure 6: Simple Strategy Map

Figure 7:- Initial model used to align HR strategy to business strategy

Figure 8:- The People Requirement and Business Driver Determination Process

Figure 9:- The HR Scorecard Strategy Map

Figure 10: HR Scorecard Implementation Architecture

  1. INTRODUCTION

The new economic paradigm is characterised by speed, innovation, quality and customer satisfaction. The essence of the competitive advantage has shifted from tangible assets to intangible ones. The focus is now on human capital and its effective alignment with the overall strategy of organisations. This is a new age for Human Resources. The entire system of measuring HR’s contribution to the organisation’s success as well as the architecture of the HR system needs to change to reflect the demands of succeeding in the new economy. The HR scorecard is a measurement as well as an evaluation system for redefining the role of HR as a strategic partner. It is based on the Balanced Scorecard framework developed by Kaplan and Norton and is set to revolutionise the way business perceives HR.

Based on various studies, it can be concluded that firms with more effective HR management systems consistently outperform the competition. However, evidence that HR can contribute to a firm’s success doesn’t mean it is now effectively contributing to success in business. It is a challenge for managers to make HR a strategic asset. The HR scorecard is a lever that enables them to do so. Implementing effective measurement systems for intangible assets is a very difficult task and demands the existence of a unified framework to guide the HR managers. It is this difficulty that has been the prime reason why managers tend to avoid dealing with intangible assets as far as possible. In the process firms under-invest in their people and at times invest in the wrong ways. Another difficulty is, managers cannot foresee the consequences of their investments in intangible human assets in a well-defined measurable manner and they are not willing to take the risk. Thus, the most effective way to change this mindset is obvious – to build a framework just like the balanced scorecard, which has sound measurement strategies and is able to link HR functions, activity and investment with the overall business strategy. The HR scorecard framework was specifically designed for these purposes.

  1. RESEARCH METHODOLOGY
  2. Research Objectives
  1. To highlight the importance of Balanced Scorecard as a measurement tool.
  1. To find out the need of Balanced Scorecard in today’s competitive environment.
  1. To find out how Balanced Scorecard is useful for developing the Human Resource as a strategic partner.
  1. To find out how Balanced Scorecard can be implemented to Human Resource.

2.2.Type of Research-Exploratory Research

2.3.Data sources:The research is based on secondary data and the data is collected from various websites, Journals, Magazines, Articles and Research Paper.

2.4.Data Analysis:The research is divided into the six sections. The First sectiondeals with the overall introduction of the research and the Second section highlights the Human Resource as a strategic partner and the traditional human resource and the human resource in present and the future of the human resource.Third section explains in detail the HR Architecture as a strategic asset which contains the hr function, hr system and the employee behavior.Fourth section explains the background and the concept of balanced scorecard, need of the balanced scorecard in today’s competitive environment, and defines the balanced scorecard as a measurement tool.Fifth section explains how balanced scorecard can be implemented into the human resource to develop the HR as a strategic partner.Sixth section contains the case study of Verizon and explains how Verizon has implemented the balanced scorecard to human resource to generate the value through the intangible asset.

  1. LITERATURE REVIEW
  1. Is the balanced scorecard HR's ticket to the board? Nelson, Paul.Personnel Today, 3/5/2002.

Most thoughts comprised of some combination of“BC is a wonderful tool to allow HR to show its value to a firm”, “BSCs will only work withsenior management buy-in” and “BSCs alone will not bring a firm closer to its goal, contributingto the overall business will”.

  1. HR Performance Scoring Demonstrates Results. McKewen, Darren. 2004.Career Journal.com Accessed from website.

The first part of this article gives numbers on the popularity of BCs throughout industry. From the article: “According to a recent survey by the Balanced Scorecard Collaborative and the Society for Human Resource Management, about one-fourth of HR organizations have adopted the Balanced Scorecard approach. However, virtually all of the 1,300 respondents have explored the possibility.” The rest of the article has no relation to balanced scorecards.

  1. The Balanced Scorecard: Creating a Strategy-Focused Workforce. Frangos, Cassandra.

A synopsis of three scholars’ (Jac Fitz-enz, David Norton, and Helen Drinanwork) in thefield of HR metrics and analysis, by way of selling the author’s upcoming NetConference.

  1. Fitz-enz evaluates a firm’s HR process by cost, duration, accomplishment, errorrate, employee satisfaction, matricing these five over three distinct tasks:acquiring talent, developing talent, and retaining it.
  1. Nortondeveloped the "Human Capital Readiness Report," which provides asnapshot of an organization's human capital relative to its strategic requirements.It documents the strategic requirements, then shows, through its measures andprograms, how human capital is being developed.
  1. Drinan had been working on a profile of HR leaders

“So what is the profile of outstanding HR leaders? Among other things, they derive their agendas from enterprise business objectives; they stay in touch with the workforce; think "customer focus," not "customer service";and concentrate on a few strategic priorities.”

  1. “A BalancedScorecard Changes HR Mgmt From Art to Science”. Human Resource Department Management Report. January, 2003.Issue 1-03, p. 1.

Objective:-Reasons for and application of using the BSC as a way to measure HR productivity andeffectiveness.

Biggest reason: a move to measuring tangible assets, and a need to turn theintangibility of HR into something more measurable. Case: Alterra Health Care inMilwaukee, which used HR as the centerpiece of a larger strategic transformation thattargeted the firm’s 145% turnover rate.

  1. “Understanding the Balanced Scorecard: An HR Perspective”. ICG Research. 2003.

Objective:- How to implement the Balanced Scorecard to Human Resource.

  1. “Building the Balanced Scorecard should be a team effort at the executive leveland functional heads must not create their bits of Scorecard in isolation.Therefore, HR can be “custodians” but not owners of the learning and growthperspective.”
  1. “Implementation is a bigger issue than scorecard design”. “The difficulty of culturalchange that accompanies Scorecard implementation is typically underestimated. One ofthe biggest problems is the (legitimate) fear that the Scorecard will be used to “beat uppeople.”
  1. “The HR Scorecard must make visible the link from what staff does to strategic outcomes. Cascading goals, which may be done through the ten-step process, is one element of successfully creating the link.”
  1. “Secrets to Success with Balanced Scorecards”. HR Focus. October, 2001 Vol. 78,no. 10, p. S3.

Summarizes the “10 Commandments of Performance Management” from a book byWilliam Abernathy: Managing Without Supervising: Creating an Organization- WidePerformance System. Some of these commandments:

  1. “No one should design his or her own incentive plan”
  1. “The frequency of measurement feedback is as important as the amount”
  1. “Measure only controllable job outputs”
  1. “Avoiding performancemeasurement traps: ensuring effective incentive design and implementation”. McKenzie F.C. & Shilling M.D. July/August, 1998. Compensation and Benefits Review. Vol. 30 (4), p. 57-65.

Details methods of performance measurement and the traps associated with each.Measurements evaluated include: Traditional accounting methods (ROI, EPS, RONA),Value-Based, such as Economic Value Added, and the Balanced Scorecard. Trapsassociated with the BSC are as follows:

  1. Assuming the Balanced Scorecard is a perfect tool for compensation.
  2. Reduced focus on performance management
  3. Using measures that are difficult to quantify
  4. Contradicting goals or benchmarking
  5. Getting tied-up in implementation

Nine guidelines for effective performance management are outlined:

1. Emphasize a few measures.

2. Focus on measures that participants can control.

3. Avoid “all-or-nothing” programs.

4. Balance accuracy and simplicity.

5. Include an appropriate subjective element.

6. Mind the corporate culture.

7. Communicate up-front, then keep communicating.

8. Revisit the program design often.

9. Integrate with long-term incentives.

  1. HUMAN RESOURCES AS A STRATEGIC PARTNER– THE PRESENT ANDTHEFUTURE

The general scenario in most companies is as follows. HR management teams have well-developed visions of their departments, their roles and responsibilities. But, the senior management is generally skeptical of HR’s role in the firm’s success. They generally consider HR to just be another necessary appendage but not something that can contribute to the success of the company. Even if the senior management does believe that human capital is their most prized possession and asset, they cannot understand how the HR team can make this belief come alive.

There is one reason for all of this. Human capital is an intangible asset and HR’s influence on firm performance is difficult to measure. The standard elements of a firm’s resource architecture that are measured include total compensation, employee turnover, cost per hire, percentage of employees that undergo performance appraisals and percentage employee satisfaction. The question to be asked is: Are these the measures crucial to implementing the firm’s strategy? This is clearly not the case. Interesting attributes would include a committed workforce, competency development programs, etc. But, it is very difficult to imagine measures for these quantities. Hence, in the current state of HR there is a clear rift between what is measured and what needs to be measured.

As mentioned in the introduction, the role of HR is no more just administrative. It has a much broader, connected and strategic role to play. But, these statements must be substantiated. The reasons why HR must be considered as a strategic asset must be highlighted. A strategic asset is something difficult to trade or imitate. They are normally a set of scarce, special or even exotic resources and capabilities that bestow a firm its competitive advantage. An unlikely paradox is that the very intangibility of human capital that makes it so difficult to measure and evaluate, also proves to be the one quality that makes it a strategic asset. Consider the difference between being able to align employee efforts with the company’s strategic goals and instead having innovative policies of performance appraisals. The latter is a policy. It is visible to competitors and can be easily copied. The former on the other hand is a strategic move. It is not easy to imitate since it is a very circumstantial effort, which depends on the specific firm, its goals and its people. This proves to be a strategic asset i.e. something that competitors cannot see but that can be utilised to gain a competitive advantage. It is thus important to align the HR strategy to the overall business strategy signifying a top-down approach as opposed to a bottom-up approach where each division such as marketing, HR etc. performs its standard individual roles without a clear outlook towards the firm’s strategy.

Many firms have realised this and have made efforts to measure HR’s influence on the firm’s performance. However, most of these approaches seem to focus on the individual, as it is believed that if one can achieve an improvement in individual employee performance, it would automatically enhance the performance of the organisation. The point that is missed is the fact that organizational units, be it individuals or teams, do not function in isolation. The stress is on streamlining and cooperatively working towards a common goal.

  1. THE HR ARCHITECTUREASASTRATEGICASSET

The focus of corporate strategy is to create sustained competitive advantage whereas that of HR strategy is to maximize the contribution of HR towards the same goal. Thinking about HR’s influence on the overall strategy of the company requires one to look at all aspects of the HR architecture. The HR architecture describes the relationship of the HR function, the HR system and the employee behaviour.

Figure 1: HR Architecture Strategic components

5.1.The HR function

The foundation of a value-creating HR strategy is a management infrastructure that understands and can implement the firm’s strategy. The professionals in the HR function would be expected to lead this effort. This clearly implies that HR managers and professionals need to get a deeper understanding of the HR function. There are two basic functional categories in HR management. The first is technical. It includes delivery of HR basics such as recruiting, compensation and benefits. The second is strategic. It involves delivering the above mentioned services in a way that directly supports the implementation of the firm’s strategy. Most HR managers are proficient enough in the technical aspect but rarely do they even know about the strategic aspect. Thus, the competencies that the HR managers need to develop and the ones that have the largest impact on organisational performance are the business and strategic competencies.

5.2.The HR system

In an effective high performance HR system, each element is designed to maximise the overall quality of human capital throughout the organisation. To build and maintain a set of talented human capital, the HR system should:-

  1. Link its selection and promotion decisions to validated competency models
  2. Develop strategies that provide timely and effective support for the skills demanded by the firm’s overall strategy implementation.
  3. Enact compensation and performance management policies that attract, retain and motivate high-performance employees.

Basically, the firm needs to structure all the elements of its HR system in a way that supports a high-performance workforce. However, systemic thinking implies stress on the interrelationships of the HR system components and the link between HR and the larger strategy of the firm. The laws of system thinking imply the following:

  1. Problems of today are most likely due to past decisions. It is thus important to look at the causal nature of past solutions and current problems.
  1. One should think twice before taking the easy way out or deciding to go with standard solutions to any problem as this will most likely lead to a crop of new problems in the future.
  1. Cause and effect are not closely related in time. There is a lag between cause and effect and HR’s influence on firm performance is normally much less direct than that of other performance drivers. This can make it hard to measure as well as be misleading. It is thus important to look at the leading indicators and not just the lagging indicators. Typical financial performance measures are lagging indicators and in an attempt to solve financial problems, the first step is normally to cut costs. It is more important to actually pinpoint the cause of the problem and look to long-term benefits than short term ones.
  1. The best strategies are often unobvious. Small changes in how HR drivers are managed can slowly gather momentum and work their way through the strategy implementation process.
  1. It is important never to dissect the system and view each of its parts independently. One must look at the system as a whole and the connections between the individual parts is normally the vital place to look at for a solution to any of the problems.

Firms with high performance work systems tend to devote considerably more resources to recruiting and selection. There is a strong emphasis on training and performance management and compensation is tied to performance. Teamwork is encouraged, there is generally less unionization and they have a large and effective HR team. It is important to note, that all these factors in tandem, not in isolation, lead to better performance, once again showing the systemic nature of HR’s role in performance enhancement. The effects of these measures are lower employee turnover, more retention, greater sales per employee and a greater market value for the firm.