Every company needs to plan its workforce for two reasons: one is for its own growth, with a focus on the vision and strategic priorities for the business. The second reason is to be able to respond to market needs – whether that means addressing gaps in labor, dealing with a downturn in the economy or doubling operations when the right opportunity presents itself. All of which requires having the right mix of employees and having access to a talent pipeline that is in line with market forecasts. Organizations at the forefront of leading change engage in “strategic workforce planning” – an exercise that aligns talent to the vision and needs of a business. This article will outline six steps for effective strategic workforce planning based on the keynote by Ross Sparkman, Facebook’s Head of Workforce Strategy at the Workforce Analytics Conclave held in Mumbai on March 3, 2015. 

“There are two broad camps that many HR professionals fall into when we talk about ‘applying data to people related decisions’,” says Sparkman.  “On one hand, some argue that there are too many data points, variability and inconsistency for HR leaders to account for. On the other hand, there are those who argue that reducing the workforce to a series of numerical metrics is just unethical” he says. This reluctance to use data is the only hindrance to making HR business ready. Today, enterprise-wide strategic decision making needs to focus on creating value– whether these decisions are geared towards finance, operations, product or service, market, people or HR decisions. While most functions already generate some form of analytics that shape decision making, generating people analytics is taken the input for workforce planning. In other words, what one collects in the form of the data and analysis is called “people analytics” but how you use that intelligence forms a part of workforce planning. So, people analytics is the glue that holds strategic workforce planning.

What is workforce planning?

“When I think of workforce planning in a simplistic framework- I think of there being a ‘current state’ of where we are today and a ‘future state’ of where we want to or should be tomorrow based on business objectives and then there is a bridge that we need to cross to get there” says Sparkman. And that bridge is workforce planning and execution.

Workforce planning is the strategic process that drives effective business operations. An effective strategy has five parts: 1) Demand plan – including upcoming projects, percentage increase in workforce, skills required and understanding external drivers of demand 2) Supply plan – including skills available, distribution, competencies, categories of workforce, locations etc., 3) Workforce analysis 4) Workforce investment strategy – understanding budgetary allocations and 5) Operations planning – is there a need for internal or global mobility? or talent acquisition? or capacity building? Prioritizing where people can drive business value and support organizational goals forms the core of workforce planning. 

Further, workforce planning is a discipline that spans the length and breadth of human capital management, right from recruitment and sourcing to performance management, to career and succession planning and training and development. In short, workforce planning should identify issues and needs of the workplace by taking into account key strategic drivers like business requirements, budgets and other financial parameters, and strategic goals and objectives.  It should also account for prevailing workforce trends in order to drive effective organizational and operational execution. 

Why is it important?

Making informed decisions on the workforce has a direct business impact – especially on the company’s operating margin which includes both, direct and indirect costs. In the context of HR – direct costs include salary and benefits, costs incurred on recruitment, onboarding, global mobility, training and development, leadership development, retention and all related legal costs. The indirect costs include loss of staff and absenteeism, the absence of innovation, low productivity, and morale. All of which form a part of identifying and assessing key drivers for maximizing ROI on investments. “Unlike other assets, costs incurred on people don’t depreciate in value, they appreciate,” says Sparkman. So, it should be given the same amount rigor in analysis as with other departments in the organization.

Components of workforce planning

• Critical workforce segments: What are the roles without which there would be no business?
• Workforce Structure and composition: How do you need to identify the right mix and optimize for experience, productivity, regional matrix?
• Workforce skills and capabilities: What are our skills mix today viz a viz tomorrow?
• Workforce Performance: How do we make sure that our workforce is efficient and in line with the strategy? 
• Workforce management and deployment: is there a need for the contingent workforce?
• Capacity management: Understand supply and demand and identify the need gap
• Workforce plan: Understand the operational aspects of carrying out the strategy

Steps in workforce planning:

Step 1: Identify critical workforce segments and competencies: 

Key question: ‘Which roles are the most critical to business outcomes and what will be expected of these roles in the future?’ – In order to do this, one can run polls and interview business and HR leaders to understand workforce actions and corresponding roles that are most important to achieve business strategy. It is also important to identify the current and future competencies required of these roles. Investing in critical workforce segment maximizes the value of investments in the workforce and that ensures an organization has the resources it needs to achieve its business strategy. “Within the critical workforce segment, it is important to identify the individuals who drive value and one should not confuse both,” says Sparkman.

How to identify a critical workforce segment?

A critical workforce segment is a group within the organization that a) drive a disproportionate share of key business outcomes. For example: ‘If you have one unit of resource (or $1 to spend) where should you allocate it to obtain the highest return for your business?’  b) Influence an organization’s value chain significantly and c) are in short supply in the labor market. It also includes roles central to strategy execution – strategic roles and critical support roles.

Step 2: Determine data requirements, availability and quality

Key question: ‘What data is available and how accurate is it?’ – “One needs to have a strong understanding of the limitations of data,” says Sparkman. “One has to understand what unstructured and structured data are, and there needs to be data consistency across the organization” he adds. Organizations need to review the enterprise data architecture, document the data sources for each data element, cleanse data and determine how far back historical data can be captured.  It is also important to review variables and determine which are potentially useful for modeling. It is crucial for decision makers to make sure that they are not relying on historical information alone to make future decisions.

Step 3: Establish baseline and project future talent supply trends

Key question: ‘How should we expect the inflow/outflow of talent to change each year?’ – The third step involves establishing a baseline by setting up initial assumptions for how each talent supply channel will impact the talent pool. Establish baseline rates of attrition, internal talent development, and external hiring. Understand how historic rates compare to future business demands and identify areas of focus for further analysis. For example, take retirement as one area of focus: use current employee demographics to forecast future retirement rates. It is also important to focus on critical workforce segments instead of attempting to forecast for the entire organization.

Step 4: Establish and project incremental supply and demand

Key question: ‘How will external issues, such as the economy, impact my business viz a viz talent change per year?’- Organizations need to utilize operational measures and benchmarks to build demand models. They can utilize internal drivers such as supply chain, sales data to forecast the ‘long tail’ of demand. They can also leverage third-party data including labor statistics, employment rate, and industry metrics.

Workforce models are based on two fundamental concepts: supply- how many people do I have? and demand – how many people do I need? Once supply and demand are reviewed, resourcing gaps become clearer- managing this gap between supply and demand and associated gap is what is called as “capacity management”. Capacity management should not just account for gaps today but should also be able to forecast future demand based on strategic objectives. For example, a detailed study of talent present in different locations could identify new areas to look for engineering and science talent when traditional markets are saturated.

Step 5: Determine the optimal mix of changes based on gap analysis

Key question: ‘what is the most efficient and effective combination of action we can take to meet future needs?’

This step requires strategists to think about the various models that can be employed to bring about the right mix of employees. This could involve combining headcount requirements and attrition data to determine the number of positions that will need to be filled/reduced each year in the plan period. Evaluate the range of possible changes to the contribution of each talent supply channel. Develop a set of recommended changes to the mix of talent supply channels to meet incremental talent demand. For example: In case the company is seeing a high degree of voluntary attrition at a certain level– the sample recommendations could focus on a three-pronged strategy:  to retain or decrease exits by 20 percent, develop people internally through promotions or transfers to the tune of 15 percent and hire from external sources by 15 percent.

Step 6: Develop a workforce plan

Key question: “How and when will we modify our existing portfolio of HR programs to support and reinforce recommended changes”?

It is important to identify and segregate action items for both, short and long term to modify the identified HR programs in support of recommended changes. A comprehensive workforce plan should identify potential risk; provide clarity as to ‘how’ the strategic business objectives will be fulfilled through its workforce. The plan should clearly outline the various leavers and interventions required to close or minimize identified gaps as a result of the supply/demand analyzes. Where possible, the impact of not closing identified gaps should be defined to help organizations understand the residual effects of the wrong people at the wrong place and the wrong time. In addition to full-time equivalent requirements, the plan should highlight key capability areas or jobs that require specific focus. Finally, a workforce plan should include a roadmap – which charts the interventions that need to be executed in the order of priority. 

An ideal workforce plan prepares a company for a variety of scenarios, whether it is to do with increased competition from domestic and global players, heightened regulation from government, a recession in the economy, aging workforce, high turnover or even for taking the full advantage of an unseen business opportunity that the company now has a market share of. “Scenario planning is critical to creating a useful and accurate workforce plan,” says Sparkman. The best of workforce plans also need to be concise and easily understandable. In case, they are not, it would be difficult for various functions of the business to adopt the plan, check for accountability and track progress. “Don’t try to arrive at a ‘perfect forecast’ –instead, focus your energy on becoming smarter about responding to talent drivers and trends” says Sparkman. Investigating patterns and causal relationships is also being enabled by new data mining technologies and analysis tools enhancing the value proposition of strategic workforce planning. However, it is important to note that like other tools, strategic workforce planning is a tool that needs qualitative inputs. And that inputs will continue to be led by the respective line managers and smart HR personnel.