Businesses worldwide face significant new and complex challenges as they try to secure the workforce they need for the future. This is starkly documented in the World Economic Forum’s report Financing Demographic Shifts: The future of pensions and health care in a rapidly ageing world . The key to meeting these challenges will be how well companies prepare for them, including creating a workforce plan that will meet future needs and ensure competitiveness.

Workforce planning is no mystery. What is a mystery is why so few companies actually do it. Fewer still are addressing the issue of an ageing workforce.

Two key issues driving the need for workforce planning are impending retirements and health care, each having a direct impact on an employer’s financial health. Consider these sobering statistics:*

• The UN expects that by 2050, the old-age dependency ratio at a global level will have more than doubled; from 11 elderly persons per 100 working age persons in 2007 to 25 elderly persons per 100 working age persons in 2050.
• In some countries, the pressures of an ageing population will be even stronger. For example, in China the old-age dependency ratio is expected to rise from 11% to 39% in 2050, in Germany from 29% to 50%, and in Japan and Italy from about 30% to 70%.

*Source:  The World Economic Forum’s interim 2008 report, Financing Demographic Shifts: The Future of Pensions and Healthcare in a Rapidly Ageing World.

With a declining labor force, an ageing population and looming health care and pension burdens, what role will employers play in shaping public policy and addressing these concerns?  How will they attract the right talent to ensure sustainable productivity?  (See Exhibit 1.)

Exhibit 1: A changing world

The sources, causes and effects of workforse risks 

Loss of skilled workers either through retirements or to competitive employers, along with changing business needs, has become a major dilemma for companies that rely on experienced workers.  For these companies, workforce planning goes far beyond headcount controls and work scheduling. Rather, it is an integrated and continuous process that identifies and addresses the critical gaps between current workforce resources and future needs.

Mercer’s research and client experience suggest that there is no single solution to address the challenges of an ageing workforce. Instead, each organization will need to develop an approach that is tailored to its own business requirements and operating environment, including a unique mix of tactics addressing turnover, recruiting, training, career structure, rewards, knowledge transfer and other long-term measures to develop the future talent pipeline.
 
For companies to have an effective future workforce, managers must understand the drivers of attraction and retention, the skills that must be shared by older employees with successors so they are not lost when they leave, the dynamics of career development, and the best ways of tapping into the future pool of talent.

Organizations that have not planned ahead face very real business risks, especially given the global impact of an ageing workforce, as the World Economic Forum report so starkly outlines. If companies are not effective at meeting both current and future workforce needs, they could find themselves losing ground competitively and failing to meet business goals. At many firms, especially those in industries that rely on a tenured workforce, a large proportion of the workforce is approaching retirement or is already eligible to retire.

Workforce planning is a crucial part of an overall workforce strategy designed to drive business performance. Tools exist today that not only can identify future workforce gaps, but also can quantify and prioritize the best interventions to fill those gaps. These interventions are informed by the data gathered in Mercer’s analytics, allowing for an efficient spend of organizational resources on targeted, measurable and actionable programs.

Workforce planning answers three core questions regarding an organization’s workforce: Quantity - how many people are needed for an effective workforce; Quality – what skills and capabilities can sustain the company; Location – how geographic choices will affect product and service delivery, and where the best locations are for talent.  (See Exhibit 2.)

Exhibit 2

Answer three critical questions to mitigate business risks and deliver your needed workforce

	How many people are needed to operate - and grow - the business effectively? And, how do these people requirements break down by business line, function or level? To what extend does the current workforce profile meet these requirements? How will these profiles be affected by future hirling, promotions, transfers, turnover and retirement?
	What skills and capabilities are most at risk? Where are there critical gaps, and how deep are they? What new skills and capabilities are needed to support existing and new business products or services? What is the trajectory for internal candidates to fill these roles? How easily can external candidates be found? Are there alternative sources for in-demand, critical skills?
	In what geographies will these people be located? How do geographic choices affect product or service delivery and cost efficiency? What are the best future locations to find and locate talent?

In determining the answers to these questions, organizations can make better workforce decisions and investments. (See Exhibit 3.)

• Talent demand – articulates future workforce needs based on the business plan, including the capabilities and numbers of employees by location.
• Talent supply – examines the current and projected internal and external supplies of talent.

Exhibit 3

The solution involves quantifying the gap between talent supply and needs and delivering a realistic plan to balancing the quantiy, quality and location of critical talent

The outcome is a gap analysis that identifies and prioritizes workforce gaps – including when the organization will be short on the necessary talent and where it might be able to find such talent.  The next step is assessing which existing workforce policies and practices contribute most strongly to filling the gaps, and identifying potential new workforce policies and practices to close the gaps. Design and implementation of new workforce policies and practices then follow.

Examples of solutions that have been implemented through this process include:

• Identifying alternative recruiting sources using external labor market analysis
• Accelerating career development for key pipelines of talent
• Rehiring retirees for periods of peak activity
• Establishing wellness programs targeted at mature "at risk" employees – for example, those in physically demanding jobs
• Managing attrition and developing talent pools in feeder jobs to critical positions
• Implementing retention plans focused on identified at-risk group

Optimizing a global workforce is a delicate balancing act of keeping supply and demand for key positions in perfect equilibrium. Companies must have knowledge of the new labor landscape, possess a clear understanding of how global workforce deployment can best serve their business models, and take a pragmatic approach in deciding where to locate key processes and recruit talent. 

Each company needs to align its decisions tightly with its own unique sources of competitive differentiation and needs, as well as the shape of the overall workforce. What’s right for one company may be wrong for another, even in the same industry and in the same global locations.

As workforces become more and more global, labor markets grow ever more complex. So do labor markets at the organizational level.  The management of an organization’s specific internal labor market will be increasingly central to workforce sustainability.  This is accomplished by ensuring that the flow of talent through the organization matches the future requirements of the business.  The organization’s internal labor market reflects talent flows: new hires coming into the firm, people leaving or retiring, and career paths of current employees. (See Exhibit 4.)

Companies need to carefully map out their internal labor market by analyzing the current supply of employees by position and the estimated demand at various points in the future, and then evaluate the factors of demographics that may further affect supply in the future. As the World Economic Forum study indicates, it is more important than ever to undertake a comprehensive projection of how labor deployment decisions will affect the balance between supply and demand, including an assessment of demographics.  Particular attention needs to be paid to identifying and avoiding a potential workforce skills gap and bottlenecks in key career paths.

Exhibit 4

Understand your internal labor market even more than the external ones

What is a workforce plan?

Failure to distill the workforce planning process and analytics down to a brief plan will make it difficult for a business to adopt the plan, maintain accountability and track progress. In Mercer’s experience, the first workforce planning cycle is the most difficult, but when done right, it is more easily replicated in the next planning cycle. This systematic process delivers not only a clear actionable workforce plan, but a process easily followed going forward.

A well-crafted workforce plan identifies unique differences in both requirements and a company’s employment proposition so that the organization can more effectively attract and retain the right talent versus competing employers.  Many organizations take the extra step of incorporating their plan into a workforce dashboard for ongoing tracking.

Powerful analytics are needed to address key workforce risks. Historically, many companies have relied on high-level benchmarks, existing performance reports and anecdotes to identify and evaluate workforce planning issues. While these traditional approaches are helpful, they cannot provide sufficiently specific and far-sighted information to be useful in answering detailed questions such as:

• Which skills and capabilities are most at risk?
• In what functions, levels and geographies will these be located?
• What new skills and capabilities are required by existing and new business units?  Where will these be located?
• What is the trajectory – the promotion path, training needs and timing – for internal candidates to fill key roles?
• What labor markets must be tapped?  What is the outlook for candidates in these areas?  Are there alternative sources for critical skills?
• Which career paths and reward systems must be redesigned to respond to new or changing employee needs?

A more rigorous analytic approach will help managers define, prioritize and mitigate their ageing workforce risks. Anticipating these workforce challenges allows managers to proactively engage in solutions. 

Getting it right

Mercer’s work with leading organizations globally, recognizing the additional challenges of an ageing workforce, has yielded numerous insights into successful workforce planning.

• Focus on workforce planning to anticipate workforce gaps, especially as experienced talent. becomes increasingly scarce, and address them before they affect your business.
• Accelerate career development for key pipelines of talent.
• Consider phased retirement and retiree rehires for periods of peak activity.
• Manage attrition and develop talent pools in feeder jobs to critical positions.
• Develop retention plans focused on identified “at risk” groups.
• Remember three key principles:

• Go beyond what others are doing. Find the “best fit” for your organization based on your unique situation and what drives value for your organization versus relying on best practice or benchmarks alone to make key decisions. Understand how you can uniquely compete against other employers. For example, a company may establish wellness programs targeted at mature at-risk employees. Or an employer could make wider use of job sharing and job restructuring opportunities. Some will identify alternative recruiting sources using external labor market analysis.
• Prioritize and start somewhere. Organizations don’t need to make wholesale changes at once, but they need to keep the big picture in mind, especially in regard to a long-term plan that addresses the challenges of an ageing workforce.
• Keep plans concise and current, and monitor progress against workforce goals, even though the goal of meeting the challenge of an ageing workforce is considered a longer-term issue
• Set tangible measures of success and monitor them closely. Set workforce metrics that are meaningful rather than those that are simply easy to measure, and automate the tracking and reporting process so that it is easily maintained.  What gets measured, gets managed.

Since the demographic shifts are long term, it’s tempting to exclude this metric in favor of shorter-term goals, but as the World Economic Forum study indicates, successfully rising to the challenge of an ageing workforce is likely to differentiate the best companies from all the rest. Measurement of progress is key.