· 8 min read · Features

Stategic workforce planning: The appliance of science

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Workforce planning has been around for years, but is making a comeback as a scientific discipline.

But could interest be growing just when businesses are at their least predictable?

Human resources is arguably unique as a profession where not a year goes by, it seems, without at least one major new catchphrase or buzz-word being found or re-christened and saluted as the practitioners' saviour. Be it 'knowledge management', 'competencies', 'authentic leadership' or 'engagement' (the last of these David Guest, professor of organisation psychology and human resource management at King's College London, says is still so ill-defined it might as well be scrapped altogether), they all purport to be the top concern HRDs should be devoting their time to.

But one buzz-phrase, beginning to be heard more and more in HR conversations and likely to be 2010's HR concept of the year, is seeking to supersede all others. It is not because it is flasher or sexier-sounding than any of the others, but because it is one of the few HR ideas that actually seeks to be more than just a concept. Rather grandly, it endeavours to become a proper 'science'. The phrase in question is 'strategic workforce planning'.

Science? In HR? The two might seem to be poles apart, but protagonists of strategic workforce planning are now beginning to beat the drum about what it can do - particularly as post-recession businesses are looking to build more long-term, sustainable businesses - summed up by that other buzz-phrase, 'capability'.

"The point that needs to be made," says Mary Young, senior HR researcher at global business research company The Conference Board, "is that while traditional workforce planning - such as resourcing against retirement considerations or predicting basic attrition - has always been around, strategic workforce planning is about starting to mine data that lets HR spot relationships that have never been seen before."

Young says she and her peers (who have worked with companies including Starbucks and IBM) are among the first to be devising formulas such as 'retirement density factors', borrowing accountancy tools to predict the impact of different scenarios. "Retirement density factors take retirement planning up a notch," she says. "We have statistically proved there is a causal relationship that affects the actions of other staff when a person retires. For example, as soon as one person retires, it becomes far more likely that others, who wouldn't have otherwise dreamed of retiring, will suddenly follow suit. In essence, if no one had retired, everyone would have stayed on, but as soon as one person goes, it triggers a ripple effect. So the sudden surge of extra people retiring can be predicted."

If this seems like clever games with numbers, the scope of such research is huge. Young suggests it includes everything from measuring the best mixes of fixed and variable costs to scenario planning or the long-term labour implications of locating a call centre at a particular geographical area and responding if the market grows. It can also work out which jobs in an organisation have the most strategic impact.

"Most companies are only just starting to think about these sorts of factors," Young adds, "but for companies that, for example, cut their graduate recruitment because of the recession, strategic workforce planning will tell them the 10-year impact this will have on the business."

While this kind of workforce planning might be in its infancy, the positive news is that increased investment in this area is predicted for 2010. According to research by consultancy Infohrm HR in November 2009, more than 50% of the 780 respondents said they would be increasing their investment in workforce planning this year, while 47% could see a positive impact of it on the performance of the business. Leading organisations, it noted, were those that measured the ROI of workforce planning and used it as a strategy for competitive advantage.

These findings are supported by research by the Institute for Corporate Productivity which finds 70% of companies said they would be doing some form of workforce planning this year, while 43% of those who are not doing it plan to implement it in the future.

When it comes to examples of people retiring, and causing a flood of others to do the same, the statistics may support what HR practitioners already half knew. But, according to Peter Howes, CEO of Infohrm HR, it is the ability to throw up new relationships that are not expected that makes this kind of workforce planning so useful.

"Nokia wanted to examine if there was anything significant about those people who quit, who were also high performers," he says. "We found two groups: one with high emotional engagement, the other with low emotional engagement. The interesting fact was that those with higher than normal emotional engagement were more - not less - likely to quit than those with lower than average emotional engagement. Once Nokia knew this, it needed to try to find other reasons that were significant."

According to Howes, the aim of strategic workforce planning is not to get precise answers but rather to come up with a "plausible range" of answers. At Starbucks, for example, he was able to discount age, experience, pay and a whole host of other factors that determined store profitability. What Howes found - to a statistically high causal probability - was that in stores that were most profitable, there was a link with the tenure of managers, rather than any other attributes of staff: "It was significant when these managers had two years' service," he says. "Once HR has this data, it then has a plan of action and a business case about where to devote its resources," he says.

By monitoring workforce metrics such as voluntary termination rates, analysis by US Healthcare provider WellPoint found its voluntary turnover rate for its first-year tenure group was more than 33%. Factoring in recruitment, on-boarding and training costs, WellPoint found that reducing this metric by only 13.5% resulted in a conservative direct cost saving of almost US $6 million.

While more HR professionals are claiming to be doing some form of strategic workforce planning, it is the US that is still taking the lead, and Young and Howes believe it does not always follow that UK HRDs do it well, or that they even know how to do it properly.

"There are three types of workforce planning: operational, tactical and strategic," says Howes. "While most organisations doing it are highly engaged in short-term operational workforce planning - headcount forecasting and staffing requisitions - relatively few are highly engaged in long-term strategic workforce planning, which includes actions such as business planning, needs assessments and scenario creation." He says only 50% of HR professionals he speaks to are able to "identify opportunities to use workforce analytics and most struggle to put them into action". He adds: "Even if they have good metrics, organisations do not necessarily know what to do with them." So will things improve? According to John Ingham, author of Strategic Human Capital Management, there is a real irony about the current economic situation. "Companies have been able to 'get away' with not doing strategic workforce planning because the economy was predictable and the workforce stable," he says. "But now, just as the need for doing it is more important than ever, the simplest things - such as knowing where the company needs to be in a year's time - are suddenly very difficult to predict. I'm a great fan of the maths and the analytics but right now there is a need to do the bit before that, of visualising where the business will be. Companies have lost their chance of analysing the micro-elements; I believe they have to first look at the macro changes."

But does this mean workforce planning could be stifled, just when it is needed the most? Howes and Young think not, and are keen for more HR professionals to start training in this area. As they both stress, the whole point is that workforce planning does not produce a one-size-fits-all answer; every organisation's results are unique.

It was David Fairhurst, senior VP/chief people officer, McDonald's Restaurants Northern Europe, who, in a recent HR magazine column, wrote how he and researchers from Manchester Metropolitan University found that stores with two or more members of staff over the age of 50 were 20% more profitable than others. Here it was specifically age that produced this casual effect. As Fairhurst said: "The problem for the HRD is what to do when you're armed with this information. Do I positively discriminate and only recruit people who are over the age of 50?"

Top tips for starting workforce planning

1. Forecast business/talent scenarios Look at external macro trends, review the business strategy and the consequences this may have for talent. This analysis should include a view to what business advantage can be provided by talent (creating value) as well as how talent can support more obvious business requirements (adding value). This analysis is best conducted by focusing on the future state rather than looking at incremental improvements from the current position.

2. Validate talent groups Check on what the previous analysis means for how talent and talent management should be defined.

3. Forecast talent changes Predict how the defined groups of talent are likely to be impacted by the different business/talent scenarios and more micro-level changes, for example, demographic changes in these groups, recruitment, retention and promotion rates and the way these are likely to be affected by changes in the business.

4. Identify the gap between supply and demand Look at where there are likely to be major challenges in providing talent.

5. Develop appropriate strategies and measures Identify and track activities to close the gap.

John Ingham is author of Strategic Human Capital Management

THE MYTHS WORKFORCE PLANNING EXPLODES

- Engaged employees more likely to stay at organisations

Peter Howes says: "Does investing in improving employee engagement work? At Crossroads Manufacturing the answer was yes and no. Improving rational commitment by 10% resulted in a drop of 3.2% in voluntary termination rates, but improving emotional commitment by 10% may result in a 3.6% rise in voluntary terminations."

- You can't measure the cost of someone leaving

Howes says: "Yes you can, and some job roles can be far more costly to replace than others. Analysis of a technical organisation revealed that to replace a front-line employee averaged 41% of their annual salary. This climbed to a massive 176% of annual salary costs for IT professionals and 241% for middle management."

- You can't say monitoring some things is better than others

Howes says: "Yes you can. It is known factors such as recognition, empowerment, co-workers and company reputation are of importance to employees, but underestimated factors include manager quality, hours, health benefits and location. Over-represented factors include bonuses, project responsibility and challenges."

DELOITTE: WORKFORCE PLANNING'S ROLE IN PREPARING FOR THE UPTURN

"Throughout 2009 Deloitte surveyed global executives across a range of industries, exploring their response to the economic downturn and their corresponding approach to workforce planning. In each of four quarterly surveys more than 300 business leaders were asked to comment on how they were planning and managing their workforces as a response to the recession. Based on the results - which show managing human capital was the main concern for only 30% of firms - we believe more robust workforce planning could have played a bigger role in influencing company strategies for surviving the economic downturn and emerging in a position of strength.

For despite stressing its importance, a surprisingly large percentage of companies still reported doing little to integrate workforce planning into their corporate planning processes. Many acknowledged they were making only limited use of analytic tools and modelling in their talent processes. When asked which strategic issues ranked highest on the agenda, executives who participated in the September survey ranked 'cutting and managing costs' first. However, despite a significant focus on cutting costs, many of these executives indicated their companies are gearing up to go on a 'talent offensive'.

At the beginning of 2009 companies were clearly seeking the right balance between reducing headcount and workforce costs and focusing on strategic talent issues. Executives planned to increase the redeployment of workers to divisions and jobs in higher demand (36%); redirect more outsourced work to in-house employees (29%); and increase the use of flexible work (25%).

By July 2009, concern was rising about the risk of losing critical workers and high-performing employees. We believe this was because there were signs of more staff movement in the marketplace, with the subtle change in focus from 'surviving the downturn' to 'emerging in the best possible position'. We asked what retention strategies were proving most successful. Top answers included four strategies that have some workforce planning at their core: refreshing job advancement expectations guidelines (28%); flexible work arrangements (22%); customised/individualised career planning (11%); and succession planning (11%).

But as 2009 progressed we began to see a split between talent 'leaders' and 'laggards' - differentiated by their approach to planning for, and adapting to, change. Well-led companies were those with a deep understanding of the link between talent and innovation. They were far more likely to have identified the critical employees who drive innovation in their companies, to have made the investments - both financial and non-financial - needed to retain and develop the employees who drive change.

It is easy to see why rigorous workforce planning is overlooked. Its components include workforce strategy, analytics and planning, organisation development and workforce management.

Each of these has to be assessed, planned and managed.

However, those organisations that began strategic workforce planning will have retained organisational knowledge, provided development opportunities and maintained better morale than those who cut heads and are now looking to re-hire. Those who nurtured their critical workers will be in a stronger position to cope with a 'CV tsunami' of workers looking to leave if it crashes in."

Howard McMinn is a partner in the human capital consulting practice at Deloitte