HR ROI Presentation
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Transcript of HR ROI Presentation
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8/6/2019 HR ROI Presentation
1/28
MEASURING HR STRATEGIC ALIGNMENT
THROUGH THE HR SCORECARDJuan I. Sanchez, Ph.D.
Florida International University
ORGANIZATIONS OFTEN CLAIM THAT:
People are our most important asset
But do people understand how the HR function influences
firm performance?
Do HR people feel like they play an important role inimplementing the organizations strategy?
Does HR really matter?
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Whats the perception of the HR function?
List the events that most often trigger the words
lets ask human resources:
Event Perceived HR Role
Discipline problems The police
Personal problems The counselor
Companys party The entertainer
Bureaucratic obstacles The aparatchik
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HR as an administrative function vs.
HR as a strategic partner capable ofenhancing the organizations
performance
WHAT DOES HR STRATEGIC ALIGNMENT MEAN?
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Measuring HRs influence on the organization
Traditional HR Focus: the individual employee
Select the best employee
Find benefits that satisfy the employee
Identify incentives that do motivate the employee
Solve individual skill deficiencies through training
Improving individual employee performance
Does it automatically enhance organizational performance?
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HR as a strategic asset
New HR Focus: multiple levels of analysis:
individual, team, organization
Alignment of HR systems with the companysstrategy
How can HR play a central role in implementing
the organizations vision & strategy?
How do people create value for the organization?
Ho do we measure such value-creation process?
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HR as an investment, not an expense
Conventional accounting was created at a
time when tangible capital (financial &
physical) was the primary source of profits.
Today: Intangibles such as human capital are
the primary source of profits.
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HR as an investment, not an expense
Conventional accounting generates short-term
thinking regarding intangibles, because intangible-
related expenditures are treated as expenses vs.
tangible-related expenditures, which are treated asasset investments (and therefore depreciated over
their useful lives).
Managers whose salaries are tied to earnings
obviously prefer expenditures that can be
depreciated over time rather than people-related
expenditures than are expensed in their entirety
during the current year.
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HR as a source of competitive advantage
Widening in the ratio of market value to book value (based
on intangible assets)
HR is key to flexibility, innovation, and speed to market
HR as competitive advantage: barriers of entry, difficult toimitate.
HR managers can become NUMERATOR managers
(contributing to revenue & growth) rather than just
DENOMINATOR managers (cutting costs & reducingoverhead).
Link performance measurement with strategy
implementation: facilitates communication with
stakeholders.
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HR architecture as a strategic asset
Goal of corporate strategy: create sustained competitiveadvantage.
Goal of HR strategy: maximize the contribution of HR
towards that same goal.
HR FUNCTION
HR professionals with
strategic competencies
(delivery of HR
services in a way that
supports the
implementation of the
firms strategy
HR SYSTEM
High-performance,
strategically aligned
HR policies &
practices
EMPLOYEE
BEHAVIORS
Strategically focused
competencies, motivations,
and associated behaviors
HR ARCHITECTURE
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Strategic HRM requires systems thinking
Systems thinking emphasizes the interrelationships of theHR system components AND the link between HR and the
larger strategy implementation system.
Interactions among components make a system more than
just the sum of its parts.
The laws of systems thinking
Todays problems come from yesterdays solutions (e.g., downsizing)
The easy way out usually leads back in (example: _________)
Cause and effect are not closely related in time & space (HR effects areindirect) (example of indirect HR effect: __________)
Cutting an elephant in half doesnt get you two smaller elephants. (e.g.,
reorganizations due to mergers acquisitions).
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Best HR Practices help almost every business
HR Practice Bottom10%
Top 10%
No. of training hrs. for newemployees
35 117
Percentage of employeesreceiving a performanceappraisal
41% 95%
No. of employees per HRprofessional
254 140
Percentage hired based on avalidated selection test
4% 30%
From Huselid et al., 2000, AMJ
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But strategic HR goes beyond best practices
Behaviors
Result
s
_
+
+_
HR alignment
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What does HR alignment take?
It requires a clear understanding of the value chain: What kind ofvalue the organization generates and exactly how that value is
created.
Be able to describe how ultimate financial goals are linked to key
success factors at the levels of customers, operations, people, andIT systems.
With this shared understanding of the value-creation process, the
organization can design a strategy implementation model that
specifies needed competencies and employee behaviors.The HR system can be geared toward the generation of these
competencies and behaviors.
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VALUE CREATION EXAMPLE
Nordstrom
CUSTOMER RETENTION
ROI
SUPERIOR CUSTOMER SERVICE
UNIQUE INVENTORY
KNOWLEDGEABLE AND
CUSTOMER-ORIENTED EMPLOYEES
Financial
Customer
Internal/business process
Learning and growth
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VALUE CREATION EXAMPLE
Wal-Mart
CUSTOMER SATISFACTION
ROI
SUPPLY-CHAIN MGMT.
RELIABLE EMPLOYEES
Financial
Customer
Internal/business process
Learning and growth
PRICING
TRUSTWORTHY SUPPLIERS
CONVENIENCE
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Inadequacy of Traditional Measurement Systems
1. Financial measures as lagging indicators, not leading
indicators of value creation (Kaplan & Nortons Balanced
Scorecard).
2. Too much attention to financial dimensions ofperformance, and not enough attention to the performance
drivers that determine those results.
3. Uncover the firms value-creation chain (story): business
model.
4. By specifying and assessing the vital process measures of
the value chain, and regularly communicating the firms
performance on these measures, the balanced scorecard
makes strategy everyones business.
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BALANCING COST CONTROL AND VALUE CREATION:
THE HR SCORECARD
1. Do you want HR to be perceived as a cost control or as a
value creation unit?
2. What gets measured gets managed.
3. If you measure only HR costs, your unit will be treated as a
commodity without strategic value.
4. HR must control costs, but also create value.
5. Examples of instances where value was lost due to cost-
control efforts? (throw the baby with the bath water)
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INTEGRATING HR INTO THE VALUE CREATION STORY
Is the HR function providing the company with theemployee competencies and behaviors necessary to
achieve the organizations strategic objectives?
1.HRdeliverables: Outcomes of the HR architecture that serve toexecute the firms strategy.
2.HRdoables: HR efficiency & activity counts.
3.HRperformance drivers: core people-related capabilities or
assets.4.HRenablers reinforce performance drivers (moderators whose
presence activates the HR performance drivers).
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MAPPING THE HR VALUE CREATION STORY
Strategy
implementation
HR Deliverables
HR enablers
HR performance drivers
HR Doables Impact
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Competency Models by Strategy Exercise
Cost-driven organization
Vigorous pursuit of
production/delivery efficiencies.
Tight control over cost of
materials, resources, & overhead.
Minimal expenditure in R&D,
marketing, sales, & service.
Emphasis on large accounts &economies of scale.
Low-cost distribution system
WRITE HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), AND
ENABLERS (EN) FOR THIS STRATEGY
EN
DO
DE
PDType
11
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7
5
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2
1No. Measure
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Competency Models by Strategy Exercise
Value-driven organizationFocus on developing best-in-
class capabilities in selected
activities.
Promote reputation fortechnological leadership & brand
image.
Emphasize product engineering
or service integration.
Maintain an active basic research
contingent.
Partner with industry, universities,
& research organizations for
mutual benefit.
WRITE HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), AND
ENABLERS (EN) FOR THIS STRATEGY
EN
DO
DE
PD
Type
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Competency Models by Strategy Exercise
Quality-driven organizationAggressive pursuit of information
on customer careabouts, including
customer involvement in
product/service design.
Efforts to instill a continuous
improvement orientation.
Strict monitoring & screening of
subcontractors, franchises, and
suppliers.
Some investment in R&D,
marketing, service, & training.
WRITE HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), AND
ENABLERS (EN) FOR THIS STRATEGY
EN
DO
DE
PD
Type
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No. Measure
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Competency Models by Strategy Exercise
Service-driven organizationValue investments in people.
Close monitoring of metrics
tracking service responsiveness.
Cultivate good workingrelationships among associates,
subcontractors, and suppliers.
Creative involvement of R&D and
manufacturing groups in after-
sales support.
Emphasis on customer service
and sales ranks contact with
customers.
WRITE HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), AND
ENABLERS (EN) FOR THIS STRATEGY
EN
DO
DE
PD
Type
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Competency Models by Strategy Exercise
Speed-driven organizationWillingness to accept risks
associated with delivering
product/service to market ahead
of competitors.
Analysis of market trends.
Aggressive management of new
product development cycles.
Engage in joint ventures to speed
entry in emerging markets.
Create geographical &
technological partnerships to
augment organizational
capabilities.
WRITE HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), AND
ENABLERS (EN) FOR THIS STRATEGY
EN
DO
DE
PD
Type
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No. Measure
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Competency Models by Strategy Exercise
Focus-driven organizationEmphasis on market research &
micromarket proclivities.
Risk averse & focus on customer
careabouts.Intense management of
product/service modifications to
match profiled customer needs.
Active involvement of targeted
customers in product/service
development.
WRITE HR PERFORMANCE DRIVERS (PD),
DELIVERABLES (DE), DOABLES (DO), AND
ENABLERS (EN) FOR THIS STRATEGY
EN
DO
DE
PD
Type
11
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No. Measure
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IN CONCLUSION
People can be our most important asset if we make the HR
function our strategic partner
To download a copy of this presentation, visit
http://cba.fiu.edu/mgmt/sanchezj
Click on HR-ROI presentation, USF Embassy Suites, 1/17/03
http://cba.fiu.edu/mgmt/sanchezjhttp://cba.fiu.edu/mgmt/sanchezj