Strategic Measurement Tools
In order for an organization to run smoothly and be successful, there are many strategies and guidelines that can or should be followed and implemented. There are many tools out there that can help businesses measure growth and productivity, but the non-financial side of companies have to be measured as well. In this paper some of the strategic measurement tools will be reviewed.
The Balanced Scorecard
The Balanced Scorecard or BSC was recently developed by Robert Kaplan and David Norton in order to provide organizations with a tool to measure not only the financial aspects of the company, but the non-financial ones as well (Hendricks, Menor, and Wiedman 2004). The Balanced Scorecard needs to be constructed of four performance perspectives, namely the financial – related to the company’s financial performance and use of resources (such as the return on investment, profit, fixed costs, etc); the customer or stakeholder the company serves (positive or negative feedback can affect sales); the internal process – this is related to the performance of the quality of the products or services offered (improving some areas to be more efficient, faster, or cheaper) (SmartDraw.com 2019); and learning and growth (or sustainability) – here they mean the learning and growth rate of the human resource of the organization, the culture, infrastructure, and other key factors that helps boost performance (BalancedScorecard.org 2019).
BSC supporters claim that with successful implementation of the Balanced Scorecard, organizations can achieve some of the following benefits: better understanding of the connections between company decisions, actions, and goals; enhanced relationships with customers; redefinition of business processes; the appearance of a new organizational culture based on team effort in achieving company goals and objectives; and so on (Hendricks, Menor, and Wiedman 2004).
In my former workplace, which was a small Search Engine Optimization company, the BSC could have been used by drawing up a strategic plan (including the vision and mission statement clearly stated to all employees) on how to sell at least 20 new SEO packages a month, what should each type of package contain and how much should it go for per month in order to be profitable for us but still a good price for the customer. It should include plans of training for the sales personnel, for the account managers, for the Google Analytics Specialists and the Google 360 photographer, as well as investments on all the necessary high end gear we need.
The Human Resource Scorecard
The Human Resource or HR Scorecard is another tool used by businesses nowadays and has for dimensions. First, identifying HR deliverables, which means the functions HR delivers that are of value to the organization (including recruiting, training, compensation, and so on). Second, identifying system alignment through the use of high-performance work system (HPWS). The HPWS are practices that may improve the procurement and retention of highly skilled workforce (recruitment and selection, training, compensation management, and so on). Next is aligning the system with the business strategy, which consists of aligning the HPWS with the strategic plan of the company, making sure the HR practices match the direction of the organization. The last dimension is identifying HR efficiency measures. Some of these measures are the economic value added (EVA) and the Return on Investment (ROI) (Lussier, Hendon 2019).
According to a statistic, 89% of all American businesses have less than 10 employees. This means most businesses do not have an HR personnel, let alone an HR department. This puts the owner or the manager in charge of HR practices and they will probably not spend time with an HR scorecard. But they should. McKnight and Zakland (2001) agree that Human Resources “should strive to be valuable and should measure its efforts”. My former workplace did not use an HR scorecard, because turnover was so little and the jobs we did didn’t require extensive training. Would our manager draw an HR scorecard, he would have seen a better picture of what his employees achieve for his company, and what else needed to be done in order to be even more successful. Although, on second thought, he might have done the fourth dimension, calculating EVA and ROI.
Economic Value Added
The Economic Value Added, or EVA, shows the overall performance of the company. It is the value that remains if we subtract the cost of capital from operating profits. In order for a company to make profit and be able to progress, the operating profits after taxes need to be higher than the amount of money spent earning that profit (Lussier, Hendon 2019). The equation is as follows:
EVA = Net operating profit after tax – (Capital used x Cost of Capital)
EVA is one of the most used strategic measurement tools. Every company uses it, including my former SEO organization. It simply shows how much profit we’re left with, how much money the company is making. It is a simple yet effective accounting tool that people can even use in their personal life to keep up with their spending.
Return on Investment
Return on Investment or ROI is the return we receive after we invested in the company or the employees. If an organization sends off its employees for training for example, HR personnel can calculate the cost of the process, and then compare it to the revenue they generate afterwards. So first they need to calculate the Gain of investment, which is the revenue after the training minus the revenue before the training, and from that, subtract the cost of the training, and divide that amount by the cost of the training, then they got the Return on Investment (Lussier, Hendon 2019). It is a really simple way of finding out whether an investment was successful or not, and every business should conduct such calculations.
My former manager at the SEO Company always did that after buying new gear, or new training sessions for us, or after changing our tiny office to a large one, and he realised that every investment was worth it, revenues were flying every month and we were very successful. He learned that it is worth investing much in his company and compensating his employees because that is the only way for continuous progress and low turnover.
Hendricks, Kevin, et al. "The balanced scorecard: to adopt or not to adopt?" Ivey Business Journal Reprints, Nov.-Dec. 2004, p. 1+. Gale OneFile: Business, https://link-gale-com.libraryresources.columbiasouthern.edu/apps/doc/A244026908/ITBC?u=oran95108&sid=ITBC&xid=42762247
What is the Balanced Scorecard? (n.d.). Retrieved from https://www.balancedscorecard.org/BSC-Basics/About-the-Balanced-Scorecard
Balanced Scorecard. (n.d.). Retrieved from https://www.smartdraw.com/balanced-scorecard/
Lussier, R. N., & Hendon, J. R. (2019). Human resource management functions, applications, and skill development. Chapter 2. Los Angeles: SAGE
McKnight, Richard, and Allen Zaklad. "The HR Scorecard: Linking people, strategy, and performance. (Book Reviews)." Human Resource Planning, Dec. 2001, p. 50+. Gale OneFile: Business, https://link-gale-com.libraryresources.columbiasouthern.edu/apps/doc/A84345755/ITBC?u=oran95108&sid=ITBC&xid=92715875