The right people, right place, right time, and the right cost: workforce planning has never been more important.  Business leaders regularly rank human capital risks as among the two or three most significant threats to their global operations.

Even at a time when the pace of economic growth in Asia and beyond has slowed, more than half of the CEOs in the region surveyed by The Conference Board report difficulties finding qualified workers. Such skill shortages and the war for talent do not appear likely to abate markedly in the near term; more than 85 percent of the CEOs say the education/skill levels of new workforce entrants is a critical issue.1 (1CEO Challenge 2008: Top 10 Challenges- Financial Crisis Edition, The Conference Board, Research Report 1440, 2008).

Increasingly, leading edge companies are turning to strategic workforce planning (SWP) to help manage such challenges and more effectively align human capital to corporate goals. Workforce risks are driven by gaps between the supply and demand for critical talent. These risks can be managed by effectively meeting both the current and future workforce needs through balancing the quantity, quality, and location of critical talent. Organizations in Asia are considered to have somehow lagged behind their peers elsewhere in delivering in this area, in spite of the high risk of business failure that can result due to the lack of workforce planning.

To this end, Mercer and The Conference Board, both leading proponents of SWP, recently hosted a series of roundtables. Participants at the roundtables - which were held in Hong Kong, Shanghai, Singapore, and Mumbai in the fall of 2008 - were presented with recent research, learned how some organizations are successfully addressing workforce planning, and took part in panel discussions on leading-edge approaches to SWP.

As participants heard, companies that anticipate workforce changes and quickly mobilize resources are able to mitigate business risk and gain a competitive edge; those that cannot face uncertain prospects.

We are pleased to share with you insights into SWP from Mercer and The Conference Board, as well as some of the findings and highlights of the roundtable series.

Why strategic workforce planning is a hot topic today

Strategic workforce planning has developed in response to the far-reaching changes in the workplace over the past two decades, which have greatly increased the complexity and risk involved in hiring, deploying, and retaining staff. To some extent, SWP is also emerging because new data-mining and analysis tools have enabled companies to investigate patterns, trends, and causal relationships they could not detect previously.

The workforce issues that companies are grappling with are both complex and wide-ranging. They include an aging population and accompanying loss of skills as the baby boomers begin to retire, as well as the challenges of managing a multi-generational workforce. Globalization, meanwhile, means that operations can now be based in far more locations while labor mobility has increased. Therefore, the war for talent has become a global one. At the same time, companies remain under great pressure to control human capital costs or at least predict them more accurately, as witnessed, for example, by unexpectedly rapid wage inflation in China. Equally, the upswing in mergers and acquisitions in recent years has brought additional risks and people issues at a time when there is increased emphasis on risk and reputational management.

These issues and their related challenges bring with them a need for new and innovative thinking. One roundtable participant pointed out, “In order to keep up with innovating and challenging times ahead we are, in addition to our well established talent identification process, reaching out to non-traditional talent pools to fill higher level positions. It’s surprising how well people from other segments perform and we anticipate the need to have more candidates like this to break silos, foster diversity and trigger innovative ideas.” (Katie Konrad, Senior Manager, Talent Management, Asia Pacific & Japan, Bayer HealthCare Limited.)

Specifically, in Asia, countries are at different stages in the transition from agrarian to manufacturing to service economies. As one roundtable participant in Mumbai noted, labor costs rise significantly as an economy matures, making sound workforce planning all the more critical. “In manufacturing, the people cost is much lower than in services. As the economy transitions from manufacturing to services, the workforce cost becomes more significant and the organization must pay more attention to the people supply chain.” (Bijay Sahoo, President, Corporate Human Resources, Reliance Retail Limited.)

Under any circumstance, it is counterproductive for an organization to use its resources inefficiently.  “Considering that workforce investments account for an average of about 40 percent of a company’s revenues, maximizing this investment is especially critical,” highlights Brenda Wilson, a Principal Consultant at Mercer who specializes in workforce strategies in Asia. Organizations typically make a concerted effort to identify and mitigate risks that could hinder business success, but one risk is often overlooked: having the right workforce in place to execute the business strategy. The most well-crafted business strategy has little value unless it can be implemented successfully by a qualified workforce.

What is strategic workforce planning?

Workforce planning is the analytic, forecasting, and planning process that connects and directs workforce activities to ensure the organization can execute its business strategy by having the right people in the right place, at the right time, and at the right cost.

Traditionally, the term “workforce planning” was used to describe operational tasks such as work scheduling, headcount, and staffing plans. While these tasks are important, they only represent part of the picture. From a strategic perspective, workforce planning involves analyzing workforce needs, alternatives, costs, and potential outcomes at an earlier point in overall budget and strategy setting. Modeling the different workforce outcomes and costs can help determine the feasibility of a strategy.
 
Critically, strategic workforce planning allows for a longer-term approach that can accommodate fluctuations in business conditions through cycles while still responding to more lasting trends. It functions over a planning period of two to five years, rather than the six months to two years typical of a shorter-term headcount approach.

What makes workforce planning strategic:

• Alignment with the organization’s strategic plan
• Targeted to those areas that have the greatest strategic impact - for example, mission-critical positions, pivotal roles, jobs that are hard to fill, skills that take a long time to develop
• Reliable tool for senior management to weigh alternatives, guide business decisions, and advance strategic planning

What’s the payoff?

As SWP evolves and matures within an organization, it is more often viewed as a business process as opposed to an HR-initiated exercise. “Business leaders come to see that, in fact, it provides extremely useful business intelligence and often want to own the process. Ownership and support broadens, and SWP sometimes becomes part of a centralized business intelligence center or corporate planning. It is certainly less than the exclusive province of HR,” says Dr. Young.

At the end of the day, SWP must provide results for the organization. One of the participants at Mercer - The Conference Board roundtables remarked, “When you have the organization engaged, SWP requires a lot of work and effort to implement, but what’s most important is that the end customer sees the results.” (Shannon G. DiPietro, Human Resources Director, GM China Group.)

Implementation: how SWP works in practice

An effective SWP approach should first forecast workforce risks and then find the right balance of quantity, quality, and location of critical talent - at the right cost - to drive business success over time, says Wilson.

Clearly, sound local knowledge is critical. While perhaps the predominant demographic shift within Asia, as elsewhere, is the aging workforce, there is considerable variation both within different countries in the region as well as different sectors. For example, according to Wilson, there is a significant aging workforce challenge in Hong Kong’s energy industry, while this is not a problem for the technology sector in Hong Kong. Similar variability is found in China, whereas Japan and South Korea have globally significant, broadly-based aging population issues.

Next, organizations should quantify the gap between talent supply and demand as they build their workforce strategy. Wilson explains it is key for the organization to examine the following: the feasibility of closing this gap; the value that can be generated from solving this problem partially or totally; the timing and whether the solution is short-term or a medium- and long-term strategic move; and what the costs are of both solving and not solving the issue.

While SWP relies on analytical and statistical tools, it also depends on judgment and strategy: a key input is top management’s view on likely future workforce requirements. Padmaja Alaganandan, India business leader with Mercer’s human capital business concurs. “Ultimately the best systems in HR, in management, combine process and judgment. It is never totally mechanistic. Strategic workforce planning is no different. The value of managerial judgment has to come in. When we have the two together we have the best results.” This management insight is critical, adds Wilson, given the fast pace of change and the greater uncertainties in the global business environment.

Once workforce gaps and priorities have been determined, companies need to focus on their human capital infrastructure. This is an area where Wilson says many companies in Asia appear to be lacking; they are suffering not from lack of interest but from insufficient infrastructure to be able to grow talent fast enough to meet the demands of headquarters and the market. This is where off shoring and near shoring may come into play. Infrastructure can be thought of in terms of existing workforce policies and practices that contribute most strongly to filling the gaps, as well as identifying potential new workforce policies and practices to close the gaps. Design and implementation of new workforce policies and practices then follows.

Finally, after developing the right type of plan that will deliver the right balance of resources, the next big step is to monitor and measure the results. As Wilson says – strategic workforce planning is an ongoing process, not a one-time event.

The workforce plan

The best plans should be concise and easily understood. Failure to distill the workforce planning process and analytics down to a brief executable plan will make it difficult for business units to adopt the plan, maintain accountability, and track progress. According to Mercer, typical workforce plans contain:

• Workforce planning goals
• Key challenges
• Current workforce and future outlook
• Gaps in critical and non-critical jobs
• Company or business unit level solutions
• Action items
• Accountability and timing
• Success measures of workforce interventions

A well-crafted workforce plan also identifies the unique differences in the organization’s requirements and in its employment proposition so that the company can more effectively attract and retain the right talent.

The present economic environment

Strategic workforce planning is also a powerful tool for helping companies navigate through tough times, notes Dr. Young. She explains, “What we know from prior downturns is that many employers will seek short-term solutions by cutting human capital costs – from reducing hiring and cutting training to using more contractors and offering early retirement. Yet a study of past slowdowns shows that such measures can lead to long-term talent supply problems: many businesses cut too many jobs in recessions. In the worst cases, they waste money on redundancy payments, weaken the business and then have to hire people back who were less good than the ones they expensively let go.”

Strategic workforce planning can help avoid this by enabling companies to model the consequences of the various workforce options and thus make better-informed decisions.

Sutcliffe added, “As SWP begins to work in your organization, it will become a more valuable asset, and this asset is needed just as much in a downturn as in a market that is thriving. If you have buy-in from senior management and the board, who appreciate and trust what you are doing from a strategic point of view, then they will allow you to manage the business under any economic circumstances.”

However, Dr. Young also warns against using SWP as a turnkey solution in a downturn if it is not already established. It usually takes at least two cycles to establish credibility and business value. Nor, she adds, should it be used as a euphemism for downsizing: this risks stigmatizing the process and weakening its future usefulness.

Conclusion

Strategic workforce planning is an emerging, cutting-edge business tool, part of the portfolio of human capital science, and one that can help the business leaders of today and tomorrow manage more effectively the complex workforce challenges. Nevertheless, for companies embarking on the SWP journey, Mercer’s Brenda Wilson recommends starting with a manageable, relatively simple - and above all realistic - plan, one that focuses on the critical core jobs that have the highest degree of risk. At the same time, companies can be encouraged that an organization’s use of SWP tends to mature quickly.

Particularly in Asia, however, Wilson cautions that what works for one organization is not going to work for another and it is important to think not about best practice but rather about best fit. In considering SWP, we need to remember four key principles:

• Bring together all of the initiatives and efforts in workforce planning, focusing on the critical jobs, long development lead-time and hard to fill positions to anticipate and address potential workforce gaps
• Segment the workforce to understand where the drivers of productivity are, where the enablers are, and then create a realistic plan that is feasible, affordable and sustainable
• Go beyond what others are doing by understanding one size does not fit all
• Set tangible measures of success, because what gets measured gets managed

Above all, there has to be buy-in and support for SWP from senior management. As one roundtable participant put it: “SWP has to be driven strategically within the organization. If you don’t have board level support, it won't work. It has to be driven down, as well as up.”