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As the worldwide economic recovery progresses, employers will shift their focus from cutting labor costs back to preserving talent and investing in key segments of their workforce, according to a new report about strategic workforce planning, released Feb. 12, 2010, by The Conference Board.
Since 2005, The Conference Board has conducted case study research on Strategic Workforce Planning (SWP) in more than 25 organizations; 60 companies also have participated in its SWP research working groups. Over that time, it has become clear that many organizations struggle with how to deploy SWP globally. Not only must SWP address different business and workforce challenges from one country to the next, it often takes a few years to determine which aspects of SWP should be conducted at the country or business-unit level and which should be led at the enterprise level, according to the new report Strategic Workforce Planning in Global Organizations.
The study findings describe how SWP adds value by helping global companies make better business decisions, and they detail what it takes for companies to advance from a fledgling effort to a more robust version of SWP, particularly as the global economic recovery takes hold.
“The economy’s impact on SWP is likely to be moderated by the level of credibility, acceptance and integration that SWP had attained before the economic crisis turned things upside down,” said Mary Young, principal researcher at The Conference Board and report author, in a statement released with the report. “In companies that were just getting their feet wet with SWP, the global economic downturn may have put a halt to these efforts, although only temporarily. The same is true in companies where immediate financial pressures required that SWP shift from long-term planning to short-term problem-solving.”
But in companies where SWP was well established, Young says, SWP served as a critical tool for managing through the economic crisis. But now, “Employers who’ve been forced to focus on reducing headcount will return to deciding whether to buy, build or rent the skills necessary to meet future business needs,” she says.
Importance of Strategic Workforce Planning
SWP is the formal process that connects business strategy to human resource strategy and practices—a linkage that is often missing—and ensures that a company has the right people in the right place, at the right time, and at the right cost. SWP and its attendant investment plans take into account such factors as which skills will be critical to business success and which roles will be hardest to fill, as well as regional variations in human capital quantity, quality and ROI.
But SWP reaches its full potential when business leaders grasp that it doesn’t produce “just” human resource data, it also delivers business intelligence.
“Strategic workforce planning enables companies to make these decisions based on sound data and analytics,” says Young. “Business leaders can use strategic workforce planning to evaluate a variety of options, such as the costs and feasibility of building a new plant in Russia, Brazil or India, based on the local skills supply, infrastructure and labor laws.”
The study found that while some SWP strategies work well on a global scale, others need regionalization to accommodate differences in demographics, skills levels and labor costs.
For example, in one of the report’s featured case studies, 3M moved in just four years from knowing very little about its workforce to understanding global characteristics and trends, and important regional differences clearly.
Too often business leaders are attracted to global locations because of their low labor costs, even though these can change very quickly, notes 3M’s Brian Ronningen, manager of human capital planning, in the report. Or they might consider new organizational structures, such as a shared services model or regional hub, without considering the workforce implications fully. By modeling long-term human capital considerations, SWP helps leaders make better business decisions.
Taking SWP to the Next Level
Two of the most common challenges companies face when initiating SWP are integrating workforce data from different locations and business units, especially because the quality and form of these data might vary widely, and persuading leaders that these workforce statistics are reliable. Once this is accomplished, however, SWP can produce high-value business insights by incorporating other kinds of data, including:
Business strategy and plans. It takes an in-depth conversation to understand not only where the business thinks it is headed over the next two to five years, but also what changes inside and outside the company might alter those plans. What are the workforce implications of the business strategy and potential changes?
Financial data. Integrating financial data into workforce models and working more closely with corporate strategy and planning, SWP helps business leaders make more realistic projections about their human capital needs.
External data. Once companies are satisfied that their internal workforce data are reasonably sound, they can add relevant external data—such as economic, demographic and labor trends—into their analytics, plans and modeling. At Sun Microsystems, for example, workforce planning conducts desktop and field research gleaned from such public sources as memberships, industry groups, economic development agencies and paid subscriptions to data sources to create exhaustive location scorecards that help business units decide whether to expand into a new geography or where to locate a new facility.
Total human capital costs. Companies can incorporate additional kinds of human resource data into their models. For example, at Saudi Aramco, workforce projections factor in the usual workforce costs and include the corporate resources required to recruit, hire and train new staff and to mentor employees during their careers.
Qualitative data. Quantitative and qualitative methods can be combined to project workforce demand, factoring in historical trends such as attrition, internal movement and how long it takes employees to advance to the next level. Scenario planning is another qualitative method that overcomes the limitations of historically based forecasts by engaging leaders in identifying potential workforce and environmental changes that could create the greatest impact.
Contractors and other contingent workers. Without good data about contractors, there’s no way to capture total workforce costs. And not having a good grasp of the company’s contingent workforce has many potential repercussions. For example, there’s no way to measure their productivity or compare it to employees in the same jobs. In addition, contractors might pose security or intellectual property risks.
Building Bank for SWP
When companies describe how they implemented SWP, their stories often include unexpected discoveries and, in some cases, painful lessons, the report concludes. Initially, SWP might not have enough credibility or clout to carve out an appropriate place in the enterprise planning process, so it might make sense to partner or collaborate with other functions to boost visibility and build support and resources for the function.
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