Designing and Implementing an HR Scorecard • 365

DESIGNING AND IMPLEMENTINGAN HR SCORECARD

Human Resource Management, Winter 2001, Vol. 40, No. 4, Pp. 365–377© 2001 John Wiley & Sons, Inc.

Garrett Walker and J. Randall MacDonald

Verizon HR has effectively designed and implemented a strategic management system, which isbased upon the balanced scorecard model of Dr. David Norton and Dr. Robert Kaplan ofHarvard Business School. The HR Balanced Scorecard was conceived with New Economyorganizational dynamics in mind. The scorecard uses a broad range of “leading and lagging”indicators—overall strategy, operational processes, customer perceptions, and financials to evalu-ate the effectiveness of HR initiatives to the bottom line. The HR Balanced Scorecard providesthe means to monitor workforce indicators, analyze workforce statistics, diagnose workforceissues, calculate the negative financial impact, prescribe solutions, and track improvements.© 2001 John Wiley & Sons, Inc.

Introduction

Most business leaders will agree that the em-ployees in their companies—their “humancapital”—are one of the key drivers of theircompetitive advantage. Some leaders even goso far as to state this publicly in their annualreports. It is widely believed that in the nextten years the primary source of competitiveadvantage for most businesses will continueto increasingly focus on the talent within theorganization, which means that the ability toeffectively manage the employee talent withinthe organization is becoming more criticalevery day. While management makes decisionscontinuously about how to invest in humancapital, few companies have an effective pro-cess to measure the value created by this “mostvaluable” asset.

What if HR could effectively manage thevalue created by thorough investments inemployees? Managers know now how much

is paid to reward, hire, train, develop, andprovide benefits to employees. What manag-ers need to know, however, is where the in-vestments are most effective and valuable.Should the business expand the incentive payprogram? Should they outsource safety ad-ministration? What is the most effective useof training dollars? How much should bespent on recruitment? Should employee ser-vices be in-sourced, out-sourced, or co-sourced? Should executive bench strength bebuilt or bought? What is the cost in humancapital terms to break into a new market? Isthe acquisition target a good fit and does itadd or dilute our competitive advantage interms of talent? Do the current investmentsin employees match the strategic objectivesof the business? Is the HR organization apartner with the business to manage our em-ployees as assets?

To answer these questions, managementneeds more information not just simple cost

366 • HUMAN RESOURCE MANAGEMENT, Winter 2001

figures. We in management need to track ourfinancial results while monitoring progress indeveloping our human capital and acquiringthe talent and capabilities we will need forbusiness success. The Balanced Scorecard(Kaplan & Norton, 1996) provides a systemthat leverages the traditional financial andefficiency measures we have available cur-rently for Human Resources with metrics ofperformance from three additional perspec-tives—customers, internal business processes,and learning and growth.

Background

In 1996, J. Randall MacDonald, ExecutiveVice President–Human Resources of GTECorporation, was facing the biggest challengeof his career—to create the HR strategy andplans to support GTE’s workforce through amajor business transformation. The Telecom-munications Act was transforming the regu-lated world of protected markets and estab-lished profit margins into a turbulent, highlycompetitive business environment for the tele-communications giant.

Historically, GTE had emphasized a focuson infrastructure quality and customer service.Now GTE’s senior business leaders were pre-

paring to transform the company into a mar-ket-focused organization that would be thecommunications provider of choice to targetedcustomer markets. Significant emphasis onnew markets and additional services was partof the strategy. The telecommunications worldfollowing deregulation was turbulent. Tech-nology acceleration, emerging customer needs,and data and video transmissions were chang-ing how business operated. GTE’s customerswere becoming price sensitive and could nowdemand superior service and advanced sup-port. The competition was in price, products,and technology. New mergers and partnershipswere beginning to occur; brand preferencesand aggressive tactics from nontraditionalcompetitors were all part of the mix. GTEBusiness Strategies were global in scope andtranslated directly to clearly communicatedtargeted business results (see Figure 1).

Workforce Environment

Additionally, the workforce environment wasdramatically different and highly competitive.GTE faced the lowest United States’ unem-ployment in 24 years. The employer–em-ployee relationship had changed; employeeswere less likely to remain with a single em-

Figure 1. Targeted business results.

Designing and Implementing an HR Scorecard • 367

ployer; specialized talent was hard to find;employees expected more work/life balance;and the diverse talent pool most sought haddiffering interests and needs. Creating thevalue proposition to acquire the talent to drivethe business was more difficult to define andchanged rapidly.

HR Challenge & Strategy

The Human Resource Challenge was to trans-late the new business strategies and targetedbusiness results into human capital needs.Recognizing that GTE’s employees were a criti-cal component in achieving the business goals,GTE HR leaders inventoried the current skillsand abilities that would provide value both inthe short-term and into the future. HR pro-fessionals then identified the critical peopleimperatives necessary to grow that talent toincrease the value delivered by the workforce.GTE would need new behaviors, actions, andcapabilities to drive the business results.

To focus the HR organization on the achieve-ment of these people imperatives, GTE developeda new HR strategy to support the specific peoplerequirements of the business strategy. This HRstrategy was defined in five strategic thrusts:

1. Talent:enlarge the talent poolinvest in employees’ developmentensure diversity

2. Leadership:establish a system to assess high-po-tential employeesprovide coaching and developmentestablish accountability and rewardsfor leadership behavior

3. Customer Service & Support:create an environment that fostersemployee engagement increase business intelligence withinthe workforce provide solutions to retention issues

4. Organizational Integration: create better systems for knowledgemanagementenhance union partnerships

5. HR Capability:develop core HR competenciesidentify key talent for growth and de-velopment

invest in technologyinvest in employee self-servicebetter understand the relationship ofHR actions to business outcomes

These elements and their interrelation-ships can be seen graphically in Figure 2.When asked how he expected to implementsuch a comprehensive transformation for thebusiness from a people perspective,MacDonald said:

My biggest problem is communicating andreinforcing the linkage between HR actionsand business results. The business has aclear strategy and targeted business results.The HR Strategy is directly linked to theneeds of the business and expressed in termsof HR strategic thrusts. What I need now isto effectively communicate and execute onstrategic intent, motivate and track perfor-mance against organization and businessgoals, and to align HR actions with busi-ness results.

The Team

A newly formed HR Planning, Measure-ment, and Analysis team was created to de-sign and implement a tool that would quan-tify HR’s contribution to the business. TheBalanced Scorecard model, which was atthe time a leading edge corporate perfor-mance assessment tool, was selected as theframework to adapt and build an HR Mea-surement model.

J. Randall MacDonald served as the se-nior executive champion for the HR mea-surement initiative. This role was critical tothe success of the project. RandyMacDonald actively influenced his seniorleadership team within HR to secure theirbuy-in and to hold them accountable forsupporting the project.

The newly formed Planning, Measure-ment, and Analysis team included a directorand four employees solely dedicated to thedesign, development, implementation, andoperation of the HR Measurement System. An“HR Measurement core team” included eightsubject matter experts representing each of thefunctions within HR and the business units.The core team members were instrumental in

368 • HUMAN RESOURCE MANAGEMENT, Winter 2001

assuring alignment of the measurement modeland communicating and training HR depart-ments on the applications and uses of the HRScorecard (see Table I).

The HR Balanced Scorecard

The Balanced Scorecard, as articulated byKaplan and Norton (1996), is a conceptualmeasurement model for assessing anorganization’s performance. This modelcomplements financial measures of past per-formance with measures of drivers of futureperformance. Unlike other accounting mod-els, the Balanced Scorecard incorporates valu-ation of organizations’ intangible and intellec-tual assets such as:

—High-quality products and services—Motivated and skilled employees—Responsive internal processes—Innovation & productivity

The HR Scorecard approach used slightlymodifies the initial Balanced Scorecard model,which at the time was most commonly usedat the corporate level. The approach, however,remains focused on long-term strategies and

clear connections to business outcomes.The HR Balanced Scorecard includes four

perspectives:

— Strategic Perspective• Measures our success in achieving the

five strategic thrusts. Since the basisfor the HR Balanced Scorecard isachieving business goals, the alignedHR Strategic objectives are the driv-ers for the entire model.

— Operations Perspective• Measures HR’s success in operational

excellence. The focus here is prima-rily in three areas: staffing, technol-ogy, and HR processes andtransactions.

— Customer Perspective• Includes measures of how HR is

viewed by our key customer segments.Survey results are used to track cus-tomer perceptions of service as wellas assessing overall employee engage-ment, competitive capability, and linksto productivity.

— Financial Perspective• Addresses how HR adds measurable

financial value to the organization,

Figure 2. Delivering to the business.

Designing and Implementing an HR Scorecard • 369

including measures of ROI in train-ing, technology, staffing, risk manage-ment, and cost of service delivery.

The Process

A deliberate approach to the project wasclearly defined and communicated to eachmember of the team and to the HR organiza-tion. The project was established and orga-nized into four major components. Planningand Alignment, Assessment, Development, andImplementation.

• Planning and Alignment set the foun-dation for the project. Project plan,objectives, and milestones estab-lished. Team education and trainingon business performance manage-ment, the balanced scorecard meth-odology, and its application to HRmeasurement.

• Assessment focused on understandingwhat we currently measure to evalu-ate HR performance and to assess therelative value to the business.

• Development begins the actual pro-cess of designing the HR measure-

ment model. Defining the measure-ment criteria and scorecard measures,establishing targets, defining the pro-cess for collecting and tracking results,and creating the communicationsstrategy are the key deliverables in thisphase.

• Implementation operationalizes theHR Scorecard from the drawing boardto a management tool for HR to as-sess performance and value added tothe business. Data collection, resultsreporting, evaluation, and analysis allcome together as the scorecard isimplemented. Communications andtraining are delivered to the HR orga-nization as the HR Scorecard rolls out.

Once the team was selected, and the mis-sion and objectives were established and com-municated, the work to link Business Strategyto HR Strategy began. Figure 3 illustrates theinitial model used to align Business Strategyto HR Strategy and Actions and lists the spe-cific outputs within each step.

Beginning with a clear understanding ofthe business strategy and goals, the HR teamworked with the business leaders and HR lead-

What Is a Core Team Member?• Common link: Selected by functional VP

• Knowledgeable on key processes within your HR functional area

• Dedicated to building awareness and accountability toward achieving better outcomes

• Focused on measuring what matters to enable better decision making and resource allocation

Key Responsibilities• Attend Core Team meetings

• Communicating to your function the message of why we are measuring HR

• Establish SMEs within your function

• Identify key processes within your function

• Establish key performance indicators/measures reflecting key processes

• Submit data within designated timeframe

• Responsible for overseeing target setting process for your functional area

TABLE I

Source: Stephanie Field, Verizon Communications

370 • HUMAN RESOURCE MANAGEMENT, Winter 2001

ers to determine the key questions to be an-swered for the business and to determine whatkey drivers of the business would translate intoclear people requirements. The outcome wasan understanding of what questions need tobe answered and of the competitive capabili-ties required for current and future businesssuccess. This provided the detail to build astrategy map which would support the designand development of the HR BalancedScorecard. Figure 4 describes the process fol-lowed to determine people requirements andbusiness drivers.

The people requirements defined the HRStrategy that then translated into specific HRinitiatives that should directly support the at-tainment of HR Strategy. Having this alignmentallowed us to develop a strategy map which il-lustrated the cause and effect linkage betweenHR Strategy and business objectives. Using thestrategy map as the guide, we were then ableto evaluate the strategic objectives in terms ofmeasures and outcomes (see Figure 5 on page372). We could then further refine these intolagging measures (which tell how well a com-pany has already done) and leading measures(which are indicators of future performance).

In addition to aligning the scorecard mea-sures to the business objectives, we developedcausal links between the objectives and the

measures. For example, one of the financialobjectives, Minimize HR Cost, was expectedto be an outcome of the HR Strategy. To cre-ate a clear line of sight across the perspec-tives, we linked Minimize HR Cost back toobjectives in the Customer, Operations, andStrategic Perspectives that were performancedrivers for these outcomes. This cause andeffect relationship described that if HR inte-grated the organization, implemented technol-ogy enablers and optimized service deliverythrough streamlined processes the costs forservice delivery would decrease and reduceoverall HR expense.

Once we had defined the link from ourfinancial objectives, we now focused on thecritical human capital requirements definedby the business. Previously our HR Perfor-mance measurement had focused solely onimprovement of administrative and transac-tional efficiency such as the error rate in em-ployee benefit processing and the number oftraining hours delivered per month. Now thefocus was expanding to include new processesfor the HR organization to develop best in classservice delivery and increased employee valuewhile ensuring a focus on cost and value.

As we developed the measurement modelto support the business’s people requirements,the process naturally led to objectives and

Figure 3. Initial model used to align HR Strategy and Actions to Business Strategy.

Designing and Implementing an HR Scorecard • 371

measures for Talent, Leadership, and Organi-zational Capability (see Table II). We recog-nized our employees would need to expandtheir skills and increase their productivity toprovide the new products and services that ourbusiness would provide. Our sales represen-tatives needed to be able to serve as our cus-tomers’ telecommunications solution provider.Our customer service representatives alsowould need ready access to customer accountinformation and be trained to quickly recog-nize possible customer needs and to commu-nicate optimal mixes of products, services, andprice plans to customers. We needed new in-centive systems to encourage the new behav-ior and skill acquisition as well as retentionplans for critical skill employees. Providingworkforce solutions and ensuring alignmentand a strategy-focused workforce all contrib-ute to a more capable and skilled employeepopulation, who will then drive profitability.

Historically, HR had a difficult time com-municating to the business and maintainingtheir focus on the investments and initiativesdesigned to build employee capability. Strate-gic skill development, leadership development,and employee development programs were alldiscussed with business leaders and generallyaccepted as valuable. When financial pressurewas applied, however, these types of programswere the first to go. Now with measures, whichlink leadership development with competitivecapability, people can see the relationship be-tween investing in these programs andachievement of long-term business goals.

Early Results

An early benefit of the HR Scorecard workwas that it provided a process for the seniorHR team to focus on a clear and commonobjective: to establish a common strategy for

Figure 4. The people requirement and business driver determination process.

372 • HUMAN RESOURCE MANAGEMENT, Winter 2001

Figure 5. GTE linkage model.

TABLE II GTE linkage model

Designing and Implementing an HR Scorecard • 373

HR in support of business objectives. Every-one generally agreed on a high level strategy:“Be a partner to the business”. Rarely, how-ever, did all of the HR leadership agree on howto implement the strategy because each per-son had a different opinion about what beingbusiness partner really meant and whom ex-actly the customer was. Taking strategy andtranslating it into a measurement and man-agement model gave specific and operationaldefinitions for being a business partner andtargeted business customers.

Communicating the HR Scorecard

Communicating the HR Scorecard across theHR organization and the business was criticalaspect of successful implementation (see Fig-ure 6). The development process increasedlearning and understanding but was only vis-ible to the top leaders within HR and the busi-ness. To use the HR Scorecard to drive changethroughout the organization, the Planning,Measurement, and Analysis team developed aphased approach to communicate and train

Figures 6a and 6b. Understanding the balanced scorecard.

6a)

6b)

Source: Garrett Walker Verizon Communications

374 • HUMAN RESOURCE MANAGEMENT, Winter 2001

the managers and their departments on thisnew management tool. The emphasis on thescorecard was on the value the tool providedin communicating strategy and alignment tothe business. It also served as a tool that pro-vided proactive solutions to employee issuesbefore a negative impact could occur to thebottom line. Performance measurement wasalso an essential component, and all in theHR organization had their incentive compen-sation tied to the results of the HR Scorecard.Training and communication material wasused extensively to reinforce understanding ofthe new management tool. An interactiveteaching tool was developed to train HR pro-fessionals to use the HR Scorecard results inproblem-solving workforce issues.

Measures do not manage, and simplytracking results was not the only intended useof the HR Scorecard. The value was to usethe information provided in the scorecard andtake action to influence and improve businessperformance; this was the real value added for

this tool. For example, one of the most impor-tant areas to manage in terms of cost is em-ployee turnover or “churn”. Turnover,particularly within target front-line workforcecenters, is critical to productivity and expensecontrol. High turnover results in lower pro-ductivity, higher training, and staffing and oc-cupational health costs. The impact is acrossthe board and affects business profitability.

Starting in 1998, with a new disciplinedprocess using the HR Scorecard, HR profes-sionals tracked and analyzed turnover statis-tics, determined reasons for turnover,calculated the negative financial impact, pre-scribed solutions, tracked improvementtrends, and showed dramatic results. In part-nership with the business leadership in tar-geted call centers, significant costs wereavoided by reducing the regretted turnover (seeFigure 7).

Linkages between business processes andvalue chains to human resource actions andservices were clearly defined as the HR

Figure 7. GTE HR Balanced Scorecard—“HR that works”.

Designing and Implementing an HR Scorecard • 375

Scorecard became a business tool understoodand used across the HR organization. Not onlyare human capital initiatives needed to in-crease employee value delivered to the busi-ness, they are vulnerable to business processchanges and the measures taken in isolationcan be misleading. For example, in a regionalcall center, our external business measures ofcustomer satisfaction were trending downwardand accelerating. When HR reviewed the callcenter results from the HR Scorecard, therewas no single indicator that showed any di-rect relationship to the customer satisfactionissue; however, the measures, together withinput and analysis by HR professionals andline management, pointed to both an issue andsolution not readily apparent. The HR metricsshowed a very low cost per hire, a very quickcycle time to fill jobs, and an average employeeseparation rate. On the surface nothing un-usual—in fact the staffing metrics showed ahigh efficiency and cost control. Drillingdeeper showed a high cost of training, a veryhigh separation rate for short service employ-ees, and declining employee satisfaction forlong service employees. Further analysis re-

vealed that six months prior a significant ex-pense reduction effort had been put in placefor this call center. HR responded to the re-quired reduced expense by changing talentpools and reducing the investments in selec-tion methods. This action kept costs low whilebringing in applicants who were ready to startquickly but were harder to train and keep. Itwas a bad trade-off. It made sense to accept alonger cycle time and more cost to ensure theright person was put in the right job.

Drill down capability below the summarylevel results of the HR Scorecard is enabledthrough a technology architecture, which atthe top level uses a Web-based application todeploy and communicate to the desktop HRScorecard results in a “virtual briefing book”.Figure 8 illustrates the HR Scorecard userinterface which is available on-line to all HRprofessionals. The “virtual briefing book” iseasy to use and uses color (green, yellow, andred) to indicate whether a metric has exceeded,met, or fallen below target.

The underlying technology supporting the“virtual briefing book” provides links to ERPsystems (SAP and PeopleSoft) and a data ware-

Figure 8. HR Balanced Scorecard desktop software

376 • HUMAN RESOURCE MANAGEMENT, Winter 2001

house using a data-mining tool to drill downbelow the HR Scorecard results to analyze andmodel cause and effects. Predictive modelingto evaluate workforce decision impacts (posi-tive and negative) prior to execution is theprimary objective of this investment in tech-nology. Figure 9 illustrates the technology ar-chitecture. Shehan Xavier, the key architectfor the technology platform, describes thevalue to the business.

The Employee Data Warehouse providesthe intelligence behind the measurestracked by the HR Scorecard. Our HR pro-fessionals have access to a rich base of em-ployee data integrated from 16 different HRsystems including 20 years of history. Us-ers have a suite of reporting tools that en-able them to perform sophisticated multi-dimensional workforce analysis and predic-tive modeling. Hidden correlation betweenmeasures to prove or disprove what busi-ness managers previously knew onlythrough hypotheses or hunches can nowbe determined.

To fully appreciate the value of the HRScorecard within Verizon, it is important tounderstand how it served as a catalyst to pulltogether the two HR leadership teams duringthe merger integration planning. The processof defining the role and strategy of HR in thenew company provided a common objectivefor integrating the HR leadership team. Ar-ticulating a common strategy and businessalignment for HR services provided a positiveperspective—a clear focus on the customerand a shared sense of the enormous potentialto deliver world class programs.

The newly merged company faces ahighly competitive environment where a com-petitive cost structure, consistent revenuegrowth, controlled expense, and excellentinvestment management are critical to winin the market place. The Verizon HRScorecard continues to provide the forum forHR leaders to actively discuss performanceand future targets. HR leaders now have atool which supports a focus on tactical ex-cellence while ensuring alignment with busi-ness strategy.

Figure 9. HR Balanced Scorecard technology architecture.

Designing and Implementing an HR Scorecard • 377

The HR Balanced Scorecard has made itpossible for HR managers to understand howthey align to business objectives. They areable to explain not only what they are track-ing but also how they are performing on es-sential strategies for the business. Businessenvironment and the objectives and strate-

REFERENCE

Kaplan, R.S., & Norton, D.P. (1996). The Balanced Scorecard: Translating strategy into action. Boston: HarvardBusiness School Press.

GARRETT F. WALKER is the Director of Corporate Learning at IBM. Previously, hewas the project leader for Verizon’s HR Balanced Scorecard and responsible for thedesign, development, and operation of the enterprise HR strategic managementsystem. In addition to strategic performance management, he develops and employsadvanced techniques to evaluate the return on investment provided by human capi-tal. He is also responsible for the management control system for the Human Re-sources organization.

J. RANDALL MACDONALD joined IBM in August 2000 as senior vice president, humanresources. In this position he is responsible for the human resources practices andpolicies of the organization and reports to the Chairman and CEO, Louis V. Gerstner,Jr. Prior to joining IBM, Mr. MacDonald was the executive vice president of humanresources and administration for GTE (now Verizon Communications). He serveson the Board of Directors of Covance, formerly known as Corning PharmaceuticalServices. He is a member of Cornell University's Center for Advanced Human Re-sources Study and is Chair of its Executive Board; the Cowdrick group; the Person-able Roundtable; the Labor Policy Association and serves on its Board of Directorsas Vice Chairman.

gies will continue to evolve, and HR manag-ers will continue to be flexible and creativein supporting the changes. The value of theHR Scorecard as a tool is that it can get us tothe new goals and measures and through theprocess ensure continued learning andchange management.