An aging workforce and an emerging “baby boom” retirement wave are driving more companies toward “strategic workforce planning,” according to a new study from the Conference Board. Strategic workforce planning is a relatively new management process that involves analyzing and forecasting the talent that companies need to execute their business strategy. This process is being used increasingly to help control labor costs, assess talent needs, and make informed business decisions such as where to open new facilities or whether it’s more cost-effective to add full-time employees or contractors. Additionally, it is being used to assess human-capital needs and risks as part of overall enterprise risk management, which may involve implementing training programs to develop necessary skills in-house. Basically, strategic workforce planning is aimed at helping companies make sure they have the right people in the right place at the right time and at the right price.
The new study, Strategic Workforce Planning: Forecasting Human Capital Needs to Execute Business Strategy, included senior executives in 23 companies, along with detailed case studies of nine organizations. The Conference Board found that that these other forces are driving strategic workforce planning: current movement and projected labor shortages; globalization; the growing use of contingent, flexible workers; the need to leverage human capital to enhance return; mergers and acquisitions; and the evolution of workplace technology and tools.
Why Companies Are Changing
“In many companies, traditional workforce planning was an onerous process that HR imposed on management,” says Mary B. Young, Senior Research Associate, The Conference Board and author of the report. “Too often, the net result was a humongous report, blinding spreadsheets, and a dizzying amount of data that provided very little value to the business.”
Methodology is rapidly advancing in response to changing business needs and new tools and technology. The Conference Board study finds that some organizations have enhanced the simple gap analysis (workforce demand vs. supply) that constitutes traditional workforce planning by adopting the logic and analytical tools of other corporate functions, such as finance, strategic planning, risk management, and marketing.
Stressing Interaction over Numbers
But the crux of strategic workforce planning is conversation and an inquiry process, rather than relying on spreadsheets crammed with tiny numbers. To engage senior executives in workforce planning, the process must focus on understanding the strategic business plan and its broad implications for the company’s workforce. Establishing consistent, organization-wide data is a prerequisite to winning executives’ confidence in strategic workforce planning’s results. Companies interviewed for the study cite other challenges as well: making the process and tools simple and efficient; developing HR’s capabilities and comfort level; establishing a common language to describe jobs and required competencies; integrating workforce planning with business and budget planning; and driving the plan deeply into the organization.
Most companies are still in the process of fully implementing strategic workforce planning or realizing its ultimate potential. Yet even organizations that say they’re “not there yet,” report that strategic workforce planning is already delivering value by:
- Generating insights and knowledge executives can use to make business decisions
- Providing a deeper and more nuanced understanding of workforce dynamics than was previously available
- Enabling organizations to manage human capital more efficiently—for example, by evaluating the long-term impacts of various staffing options and creating a stronger internal job market
- Enabling HR to realize its long-held desire to become a player and a valued contributor to high-level business strategy decisions.
“Strategic workforce planning enables the organization to slice-and-dice its workforce data to discover critical issues, compare different groups, understand patterns and trends, hone in on critical segments of the workforce such as mature workers and top performers, and customize its approach to managing different segments of its workforce,” says Young. “By enabling leaders to see across lines of business, workforce planning can leverage talent within a company. Ultimately, the same workforce planning database tools will enable employees to shop for new jobs, assess their own developmental needs, and prepare for career moves inside the organization.”
The Conference Board report recommends that organizations build on previous successes, such as succession planning or embryonic workforce planning efforts, as a first step in company-wide implementation. It also stresses that HR look for partners in departments such as finance and IT to move the process forward.
How Five Major Firms Do It
Hewlett-Packard and IBM are two of the companies described in the Conference Board report as committed to relying on strategic workforce planning, which must be customized to the specific conditions and needs of each company. In IBM’s case, HR and finance departments help senior business leaders plan realistically to execute their business strategy and manage drivers of labor costs. For HP, high-level discussions and a two-way educational process between business leaders and HR emphasizes the qualitative over the quantitative.
- The traditional approach to workforce planning analyzes supply/demand gap and creates a plan to address future staffing needs. This method is used by Providence Health System.
- The workforce analytics approach mines current and historical employee data to identify key relationships among variables and between workforce and business data. Dow Chemical has favored this approach throughout the 10-year evolution of its workforce planning process.
- The forecasting and scenario modeling approach uses data to create forecasts incorporating multiple what-if scenarios, which enable executives to evaluate strategic options. A “major bank” described in the study can decide where to locate a new call center based, in part, on this kind of analysis and forecasting.
- Human capital planning, as used by Corning and others, segments jobs based on their “mission-criticality” and makes different levels of workforce investment in each segment. It focuses on broad trends over a three to four year period, rather than a precise headcount and near-term plans.
“While no organization claims to have achieved it yet, many believe that the ultimate payoff from strategic workforce planning will be a vibrant, internal job market that transcends the boundaries between business units and geographies,” concludes Young. “The company will be able to mine employee data to locate talent anywhere in the organization, woo passive job candidates, and find the best use for each employee.”
For more information about the study Strategic Workforce Planning: Forecasting Human Capital Need to Execute Business Strategy visit www.conference-board.org