Article: HR approaches from balanced to integrated scorecards

#BuildingHRCapability

HR approaches from balanced to integrated scorecards

Do HR business partners need to have enhanced competencies for collaboration to reconcile the dilemmas that are created between the competing demands of the four perspectives of the balanced scorecards?
HR approaches from balanced to integrated scorecards

The role of HR managers has fundamentally changed over time, and so has the nature of dilemmas they are facing. Can you imagine an HR manager advising her hunting-gathering ancestors in Tanzania how to capture more animals by motivating people more effectively? 

Bouchikhi and Kimberly1  have noted that in 19th-century thinking, a person was seen as either muscle or energy and the management decided what their re-active employees would do. The 20th century changed the definition of an employee into a subordinate with a hierarchy of needs (and, we would add, a need for hierarchy). However, in the present century, we consider an employee as an autonomous and reflective individual who has a full set of needs — internal and external to the organization; the management co-creates a customized workplace and power is diffused and shared. “In contrast with traditional management, where structures and systems are derived from a pre-defined strategy, the design of the customized workplace seeks to balance what matters for the company (its strategy) and what matters for the individuals (their life strategies).”3 In fact, management and employees inter-actively decide and execute. In this world, conflict is a normal part of life and reconciling dilemmas is the source of most authority. This is even more amplified by the continuous process of globalization. But what has been the response of HR professionals to this?

In the 19th century, HR practices were unknown but in the early 20th century, there was an active Human Resources profession. Dave Ulrich4 argues that the concepts behind HR have evolved over the millennia but became more structured during the 1930s when companies set-up their industrial relations departments. In the 1940s, selection tools began to be aggressively developed as well as a system for evaluating jobs, and many had their stimuli from the needs of the American army (HAY etc.) The 1950s and 1970s shifted the focus to the legal issues. In addition, compensation systems began to emerge with pay-for-performance and the likes. The 1980s moved the agenda further towards systems, whereby the HR systems became integrated and aligned with the strategy. However, even with the arrival of the well-known and one of the most over-esteemed concepts “shareholder value” (the value created for people who never share) people were still seen as replaceable resources. Gradually, this changed to the emerging need of the resourceful human at the end of the last century. And to add continued value, HR has been forced to become more than a partner; it has become a player that contributes to the creation of the customized workplace.

The systems and processes of HR are changing gradually but surely to the world of dilemmas created by the customized workplace and globalization. Values have to be integrated into this new paradigm along with digitalization and artificial intelligence.

But what does it mean for HR? According to Meister, “Using artificial intelligence in HR will create a more seamless employee experience, one that is nimbler and more user-driven…HR leaders are beginning to pilot AI to deliver greater value to the organization by using chatbots for recruiting, employee service, employee development, and coaching."5

One of the most striking of all new approaches enabling HR professionals and management to integrate value, rather than to add it, is the Balanced Scorecard developed by Robert Kaplan and David Norton. Recognizing some of the weaknesses and vagueness of previous measurement approaches, their scorecard provides a clear prescription to what the management should measure to ‘balance’ the dominant financial perspective. Kaplan and Norton summarize the rationale for the Balanced Scorecard as follows:

The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.6

Balanced_scorecard_model

The balanced scorecard suggests that we view the organization from four perspectives and that we develop metrics, collect data, and analyze it relative to each of these perspectives:

  • The Learning and Growth Perspective 

  • The Business Process Perspective 

  • The Customer Perspective 

  • The Financial Perspective

The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy, and translate them into action

The Learning and Growth Perspective

This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge organization, people, the foremost repository of knowledge, is the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Measurements can be put into place to guide managers in focusing on training approaches where they can help the most. In any case, learning and growth constitute the essential foundation for the success of any knowledge-worker organization. Kaplan and Norton emphasize that ‘learning’ is more than ‘training’ and includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily obtain help with a problem when it is needed. 

The Business Process Perspective

This perspective refers to internal business processes. Measurements based on this perspective allow managers to know how well their business is doing, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately within the organization.

The Customer Perspective 

Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in business. These are the leading indicators — if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good. 

The Financial Perspective

Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding of data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financial perspective leads to the unbalanced situation with regard to other perspectives. 

The best support for the vision and strategy of an organization is found not in how past financial performance could be balanced with future growth but how it could be reconciled with it

The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback on both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise. In fact, the way this system is often used clearly shows that it is a transitional process between paradigms. The word “balance” often symbolizes this because when one perspective goes up, the other must go down. That is often necessary when the purely short-term financial perspective, well covered by the shareholder philosophy, is done at the cost of longer-term future perspectives. 

Integrated_scorecard
Integrated_scorecard

With unprecedented disruption in all spheres of life, businesses need to continually refocus, realign, and respond to cope with the diverse demands. The need for greater capacity and strategic focus in the delivery of Human Resource strategies and processes is all the more crucial. This in turn creates the need for HR business partners to have enhanced competencies for collaboration with other functional heads and managers, to comprehend business challenges and opportunities, to design and plan systems, processes, and interventions, and most importantly, to deliver on the promises — in short, to reconcile the dilemmas that are created between the competing demands of the four perspectives. 

In order to make the management system more effective in the new paradigm of the customized workplace, we would also like to see the Integrated Scorecard that reconciles the two major cultural dilemmas that underlie the original scorecard i.e. the Past (Financial) and the Future Perspective (Learning and Growth) dilemma, and the Internal (Business Process) and the External Perspective (Customer) dilemma. The best support for the vision and strategy of the organization is found not in how past financial performance could be balanced with future growth but how it could be reconciled with it; an example being financial surpluses that are reserved for next year’s learning budgets, like in case of a French organization, Axa Insurance, doing this in a consistent way. 

During some consulting with AXA Insurance, coinciding with the first major recession of this century, the leadership of AXA was worried by the extensive cost-reduction programs they executed for many years. The cracks had begun to show as evidenced by a lot of talent leaving the company ‘because there was no investment in its top-people’. The balance was lop-sided. After we presented a dilemma-reconciliation workshop that offered a methodology to elicit and deal with such dilemmas, the CEO of Axa, Henri de Castries, introduced an increase of 30 percent in all development programs, under one condition ~ all suppliers (including us!) had to demonstrate how their interventions would lead to cost efficiency.

The reconciliation that was created was as powerful as it was simple. By developing people while reducing costs, it married the best of both worlds. The balanced scorecard became an integrated scorecard; and while it motivated and rewarded people, it also satisfied the shareholders. But this also required improving the internal processes through the involvement of (external) customers. Co-development programs, where suppliers align strategically with their clients are a great example wherein the survival is completely dependent on co-developing systems with external parties.

Another appropriate case is of the Dutch electronics giant, Philips. The company faced the dilemma of the obvious tension between pushing technology and attracting the market. The dilemma was classic: Do we make something that we want and can make, and then seek a market; or do we link the questions and demands of the customers back to our R&D and then do the product planning? Philips was able to produce the maximum number of patents in the consumer electronics but Sony was the one that sold their great inventions, for example, the superior video 2000 system that was beaten by the inferior Sony VHS system because Philips was not willing to produce porn videos to make their product attractive to the markets. 

Both extreme approaches do not in themselves provide any integrity when you strive for sustainable innovation. For years, a pure push of technology worked well in internally controlled companies in the Great Britain, Netherlands and the US. Conversely, an exclusively customer-oriented focus worked well in externally-oriented cultures such as Japan and other Asian countries. But the technology push was doomed to fail with accelerated internationalization in the 1960s. Consumer electronics designed and produced in America were eliminated by foreign competition and substituted by Japanese products. A push strategy can work, especially in situations with little competition. If there is a lot of competition, this push approach results in products ending up in the ultimate niche market of early adopters with high disposable incomes. 

Philips is a fantastic example of an organization that still struggles with the marketing of its products. But an extreme 'market pull' approach also has its limitations, because the customer often has no idea what he or she wants. But after the period of the full internal-oriented leader Jan Timmer came Boonstra, an outward-looking marketing man. And suddenly at Philips, technology, and marketing came into the house. But the last problem was how to connect those two. It is under the serving leadership of Gerard Kleisterlee that both were tried to be connected. And Philips was not able to do it properly. It sold most of its businesses and now focuses on the health industry. They found a balance but not integration. 

Integration is quite different from balance. It supposes that having high scores in each of the four perspectives and adding them up does not add value. No, it needs integration of past and future, internal, and external values. 

In this new world with competing values, the role of HR is to equip future leaders to deal more effectively with dilemmas, move from Balanced to Integrated Scorecards, and use the tools that support this. The competency models should complement courage with caution, and vision with execution. MBTI addicts need to start understanding that it is only through connecting our feelings to our thoughts that we get intelligence. Our KPI’s (Key Performance Indicators) need to become KRI’s (Key Reconciling Indicators).

HR business partners need to have enhanced competencies for collaboration with other functional heads to comprehend business challenges and opportunities, to design and plan systems, and most importantly, to deliver on promises

 

Notes:

  1. Hamid Bouchiki and John Kimberly, Management 21c: new version for the new millennium, in: Chowdhury S. (ed), Financial Times Management 2000
  2. R. Ackoff: The Art of Problem solving, Wiley, 1980. Russ Ackoff distinguishes inactive, re-active, pro-active and inter-active as the main distinguishable approaches
  3. Hamid Bouchiki and John Kimberly,"All change in the customized Workplace," in: Mastering People Management, Financial Times, 2001, Oct. 22 pp 4-5.
  4. Dave Ulrich and D.Lake, Organizational Capability, Wiley, New York, 1990
  5. Jeanne Meister; The Future of Work: How Artificial Intelligence Will Transform The Employee Experience, Forbes Magazine, Nov. 2017
  6. Robert S. Kalpan, David P. Norton, (1996) " Strategic learning & the balanced scorecard", Strategy & Leadership, Vol. 24 Issue: 5, pp. 18-24

Topics: #BuildingHRCapability, #TalentAssessment, Employee Relations, Learning & Development

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