Strategic Workforce Planning --- A Crucial Role for Human Resources
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Strategic Workforce Planning
A Crucial Role for Human Resources
“If you don’t know where you are going, any road might get you there”
------ Lewis Carroll
Strategic workforce planning is a relatively new management process that analyzes and forecasts the talent companies need to execute their business strategies. This process can help companies assess talent needs, control labor cost and make better strategic business decisions.
As all Human Resources executives know, strategic workforce planning is a “hot” topic today for the following reasons:*Aging workforce --- shortage of new skills and the tide of “boomers” nearing retirement age• Globalization --- companies now have multiple overseas locations to plan for and are struggling with how to incorporate them in the strategic process
• Use of contractors and outsourcing has increased ---- need to know where and when they should be included in workforce planning
• Mergers and acquisitions --- this may increase the number of employees with needed skill sets but the company could lose them in the transition
• Enhanced technology replacing employees ---- newer skills required
Example: Current available labor pool does not match to skilled needs going forward
• Critical industry needs ---- healthcare, energy and technology
This article will focus on the definition of what strategic workforce planning looks like now and what it will look like in the future. It will track the progression of strategic workforce planning over time and show how it is becoming a more sophisticated and demanding process. Finally, it will explain how Human Resources will need to react to these future demands if it wants to add true value by assisting top management achieve its business strategy and financial goals.
Evolution of Strategic Workforce Planning:
Let’s go back in time for a moment and trace the evolution of strategic workforce planning ---tracking its progression. Keep in mind that some companies are already further along in this process than others. There are always exceptions.
The motto was: “Hire the right people at the right time.”
Human Resources had little to no say in what was then called workforce planning. They were handed job requisitions throughout the year and told what jobs to hire for and when they needed to be filled. Their goal was to hire people quickly. Planning for future headcount meant that the CFO looked at the current headcount at budget time and estimated what it should be for the next fiscal year. Headcount projection is not strategic workforce planning.
The motto was: “Hire the right people, at the right time, at the right place.”
With the rapid growth of globalization and companies now having multiple countries to consider, Human Resources had an additional task of hiring in multiple locations. More likely it was Human Resources in each country or each region that had this responsibility. Even so, the same method as above was followed. With the exception of very few companies, Human Resources was told what jobs to fill and when they needed to be filled. There was little coordination among Human Resources worldwide in looking at the number of people, the right skills and the right location for people to be hired for a business unit, division or function worldwide. This was the responsibility of line or top management. Again, this is not strategic workforce planning.
The motto has stayed the same: “Hire the right people, at the right time, at the right place.”
Currently, strategic workforce planning involves Human Resources taking information from either top management or division/business unit heads after the business strategy has already been developed. Human Resources is not “at the table” during the strategic planning phase.
In the planning phase, top management decides what critical skills will be needed for the forecasted period. They may or may not make an estimated guess of the number of people that will need to be hired. The problem is that, regardless, the decision is made without the “people” analysis that management needs during the strategy planning phase to make sound “people” decisions. The analysis ends up being done after the fact ---- after the business strategy has already been created.
After learning what critical talent is needed, either one of two things happen:
1) If an estimated number of people is provided, Human Resources gathers data as part of a “gap” analysis. This analysis tells Human Resources what talent is/will be available in-house and what talent will have to be hired in the external labor market. After the “gap” analysis has been completed, Human Resources begins its “talent management” or “talent acquisition” phase to fill the pipeline with talent.
2) If no estimate of numbers is provided, Human Resources starts sourcing for talent as an open-ended process
Human Resources works with its counterparts in other regions/countries of the company and shares data on turnover rates of internal employees and external availability of people with the needed skills. There may be some coordination with management within business units and divisions regarding the best location to place this talent.
Once again, this process is operational, not strategic.
The motto will be: “Hire the right people, at the right time, at the right place at the right cost”.
“Right cost” will be the new requirement brought into the equation. Given the need for certain critical skills to help the company in meeting its strategy, it will be important to get the best “people value” for a given cost. It is not a projection of headcount. It is labor cost for needed talent that sets the ultimate limit. It is this cost that can be measured and linked to financial impact. This, combined, with creating various scenarios for achieving this target is strategic. Hiring the right people, at the right time, at the right place, at the right cost is true strategic workforce planning.
The Importance of “Right Cost”:
For most companies, labor cost is one of the most significant costs of doing business. There are few other areas of a company’s business that can yield better return from better decisions made. Therefore, companies need to ensure that the money spent on critical talent will yield true value and the required return on their workforce investment. The metrics used to track and evaluate labor cost performance vary by industry and by company, and include revenue per labor dollar, labor expense as a percentage of revenues, ratio of labor cost to product cost, and others.
Human Resources needs to use whatever metric the CFO uses for determining total acceptable labor cost as it will be this metric that top management expects to see. If this labor cost metric is unknown to Human Resources at the talent management/talent acquisition phase, and the demand for additional talent by line management begins to exceed the “estimated guess” (or no guess) top management made during their strategy planning process, Human Resources won’t know whether hiring 200 or 2,000 people is acceptable until it’s too late. A lot of time and effort will have been expended unnecessarily. I am exaggerating to make a point. The point is wouldn’t it be better to know exactly what labor cost is acceptable for this added talent beforehand? If so, Human Resources can work less operationally and more strategically.
The Strategic Planning Phase:
The key difference in the future will be that all data for adding new talent will be provided to top management by Human Resources during the strategy planning stage. Top management will project growth in revenues as part of their strategic planning process. If the company uses the metric of labor cost as a percentage of revenue, then labor cost may grow with revenues but it must not exceed the percentage limit.
By being included in the strategic planning process, Human Resources can now develop different scenarios for hiring, timing and placement of additional talent --- all within budget. This will give management the information they need to make more informed and precise “people” decisions. In addition, presenting various possible scenarios for adding and placing additional talent will lead to more in-depth discussions involving “people” issues. Top management will begin to place more importance on focused “people” analysis in the future.
Human Resources has to predict the number of existing critical talent that will need to be replaced during the forecasted period of time included in the business strategy. It will do this by looking at such data as turnover rates and possible retirements. Terminations will be replaced and not considered part of the additional cost of hiring critical talent.
• Current talent to be replaced = part of existing labor cost
• Additional talent to be hired = part of the new budget that tracks to additional revenue over the forecasted period of time as defined in the business strategy planning phase
Human has to look at sources for adding new talent by analyzing such things as: local labor market availability, possible employee referrals, competitor sources, outsourcing, acquisitions, and location(s), where the company is growing. The amount and cost of talent available in the company’s other countries will be a critical part of the analysis. Adding critical talent in low cost countries may allow for more headcount, but other issues need to be weighed before determining if this is a viable option.
A couple of the scenarios that are developed may actually exceed the budget limit. But top management will make the decision whether exceeding labor cost limits for this needed talent is acceptable if it helps them to achieve or exceed company goals.
Strategic workforce planning becomes much more complicated when multinational companies try to determine how to deploy it globally. This is more important for companies that have, for example, the majority of their sales coming from outside the U.S. or are placing emphasis on growing their business outside the U.S. At that point companies need to be as concerned about strategic workforce planning in other countries as they are in the U.S. But it is often a struggle to know just where the necessary talent should be located.
Not only must companies address different business and workforce challenges from one country to the next, but it often takes a few years to determine which aspects of strategic workforce planning should be conducted at the country, business unit, division and corporate level. The answer may not be the same for every company.
Companies just beginning their strategic workforce planning should start slowly with a couple of critical areas, build the process and then take it further into the company. Start where the company has need of the most critical jobs --- the ones that will drive the business strategy --- then expand from there.
The Future State:
As Human Resources analytics grow in importance there is likely to be an organizational impact within Human Resources. Those who have worked in the area of Human Resources technology (HRIS) recognize that there is more data now about the workforce than at any time before. The problem is that Human Resources has not been good at turning the data into information that makes a meaningful financial impact. Is it a lack of analytic skills? An inability to see the links between “people” data and business objectives? Or is it a lack of business acumen?
There is growing concern that Human Resources may never completely understand the power that exists in the data it has traditionally “owned”. But like it or not, analytics for building future workforce scenarios will become the means by which Human Resources will have to make this transition. Just as automation turned inventory and procurement into supply chain management and “just-in-time” transformed manufacturing, analytic tools are going to fundamentally change Human Resources. These analytics will become a new form of “business intelligence”.
A new generation of Human Resources practitioners is already emerging who have a mastery of information systems and an analytic frame of reference that allows them to create scenarios based on cause-and-effect arguments and evidence of financial impact. The ability to translate business strategy into “people” implications enables top management to weigh a variety of options based on reliable forecasts. It produces a new kind of business intelligence that has not been available to them before. Acquisition of critical talent “at the right time, at the right place and at the right cost” will become Human Resources’ mantra.
For those in HR who may find this future “cold” and removed from the soft skills they are accustomed to using in their jobs need to consider this: When Human Resources can speak with authority, then arguments for doing the right things for employees will never fall on deaf ears again. Why? Human Resources will have won credibility and respect as business people because it can speak the language of business. Top management will now listen.
Strategic workforce planning will not be done once and then put on a shelf to be reviewed and changed for the next year. It will be a process that is constantly unfolding and changing. Businesses will have to adapt to more frequent changes in strategy due to continued globalization, less predictability and turbulence in the world economy, reaction to competitor threats and other changes in the external market. Business in general will move at a faster pace.
Human Resources will need to be involved in the planning process at the beginning with the rest of top management. New data and information will unexpectedly emerge, and planning will need to be revised on an ongoing basis. Human Resources will need to be prepared along with the rest of top management to update the targeted future state and actions plans as the pace of business accelerates around the world.
In conclusion, in the future Strategic Workforce Planning will become the most strategic work that Human Resources can do.