Over the past year, sweeping economic changes, combined with ongoing market, social and political shifts, have reshaped the business landscape. This has presented organizations worldwide with an unprecedented array of challenges and compelled them to make tough decisions about their businesses and their workforces.

The new business environment has given rise to a distinct set of human capital challenges, each one representing a significant departure from the status quo. In this dramatically – perhaps permanently – changed environment, the baseline must be reset as organizations think about the talent they have, the talent they need and how to engage and reward this talent in the pursuit of organizational goals.

For this reason, human capital planning needs to be front and center in business planning for 2010.

A convergence of forces

Over the last century, fundamental, disruptive changes have periodically redefined the business landscape, driven at different times by social, political and economic forces. What’s different today is the cumulative effect of multiple converging forces:

• The most dramatic economic downturn in nearly a century. It’s been a very difficult year globally, and the repercussions will be felt for some time. As signs of improvement emerge, demand will return, but not immediately, and growth will be tougher as organizations contend with shrinking markets and the cost and availability of capital and credit.
  
  
• Increased governmental involvement in and regulation of workforce matters. Recent years have seen action in areas such as pay equity, health care reform and executive remuneration, putting new demands on employers and changing how they manage their workforces.
  
  
• Shifting demographics – including aging populations in many countries. Until a year ago, demographic changes were creating talent shortages worldwide as talent pools shrank and some skills became scarce. These shortages have turned – at least temporarily – into talent surpluses as a result of recent workforce reductions. The challenge for employers now is balancing short-term talent needs with longerterm requirements.
  
  
• A significantly changed employment deal. It’s been a tough year for employees, too, who in many cases are being asked to do more with less and for less. Trust and connection to the organization have diminished. Attitudes toward success, rewards and work have shifted. Employers must find ways – in the current cost-constrained environment – to reconnect and re-engage their workforces for the challenges ahead.
  

Together, these changes have profound implications for human capital management. In this reshaped landscape, senior business leaders are finding that traditional solutions may no longer apply. They must look beyond what worked in the past, employing new rules and new approaches to inform their human capital decisions. These leaders also face added urgency to make timely and accurate decisions; in a volatile and uncertain market, with resources greatly limited, there is little margin for error.

Despite these challenges, there is a tremendous upside: Organizations that are successful in navigating around both known and unanticipated human capital risks will find themselves facing new opportunities in the coming years and will be well positioned to capitalize on them.

Guiding principles: A blueprint for success

A prerequisite for operating under these new conditions is a thorough understanding of the six key principles that will inform decision making from beginning to end. These fundamental “rules of the road” include both specific calls to action as well as the adoption of new perspectives and approaches to thinking about human capital issues.

• Principle #1: Use facts instead of perceptions – In this difficult environment, organizations won’t get second chances. Business and HR leaders must use facts and evidence to know exactly when and where to place their bets. Evidence-based management has become more prevalent in HR in recent years, but now, it is absolutely essential.
  
  
• Principle #2: Be ready to make real-time decisions and turn on a dime – Organizations need to be flexible and agile, especially when it comes to managing workforce costs and capabilities. They need to be prepared for multiple contingencies and be able to make fast decisions.
  
  
• Principle #3: Segment and focus on key talent – Know your key talent segments and find out what they value. Because resources are scarce, organizations need to identify and reward the talent segments that will drive future growth, or risk losing these employees when the economy improves.
  
  
• Principle #4: Strike a new deal that works for both – Financial rewards are less available today to generate employee engagement, so employers need to explore other engagement drivers to keep employees plugged in and productive.
  
  
• Principle #5: Be transparent and involve your employees – This will go a long way toward rebuilding trust. The organizations that come through a crisis most successfully are almost always those that commit to frequent, open and honest communications with employees, no matter how tough the messages are.
  
  
• Principle #6: Refresh leadership capabilities – With stakes this high, you need to make sure that your leaders at all levels are aligned and equipped to lead the organization forward.

This article is an excerpt from Mercer’s new point-of-view paper, Human capital planning 2010: Resetting the talent and rewards agenda.

The full point-of-view paper – which includes guidance on how organizations can approach the human capital planning process for 2010 – can be viewed or downloaded at our Human Capital Planning 2010 site. This website also contains an array of resources to help organizations address their human capital challenges.