Workforce capacity is not rocket science. At the end of the day, you need to know the answer to two basic questions:
- Do we have enough people to do what we need to do?
- Do the people we have know their job well enough to be fully productive?
But you will miss answering these questions if you only rely on what is one of the most requested measures in HR: headcount. The comfort in knowing headcount and the tally of your people costs can actually lead you into a kind of trap, and can create a false sense that you have the resources to get the job done, when in fact you do not.
Here are three steps you can take to ramp up the business value you get from headcount metrics:
Step #1: Replace “headcount net change” with measuring “internal and external movement” to better understand the business impact of employee movement
The traditional way:
It is very common to look at the net change in headcount for a given period of time, and then use this metric as the basis for decisions around movement (for example, to decide how many people the organization should hire, transfer, promote, or layoff). A slightly more sophisticated report may show the variance as a percentage or show the difference between current period and forecast headcount. But even this level of output only tells you how many people you currently have compared to how many people you should have.
HR can only make three possible decisions based on this type of report: hire more, stop hiring, or eliminate some positions. From our experience analyzing more than 2 million employee records, this type of report dramatically understates the range of activity that is going on with relation to headcount. This gives organizations little visibility into how many people are new to their roles and shortfalls in capacity due to ramp-up time.
Instead of looking solely at the overall net change, focus on the movement of people within — as well as in and out — of your organization.
This data visualization tells the story of what happens when there is a significant amount of movement within an organization’s sales department, for instance. As you can see in the image below, there is a lot going on at this company: 15 people have exited, while another 10 have been hired; and 20 people have moved within the organization to a different unit, while 15 people have moved from outside the sales group into the sales group. All of this in a 1 month period.
Based on this example, we have a net change of 10 people, but a total of 60 different events. This is significant because the sales organization has lost 35 people and gained 25 new people who are learning their roles. A full 35% of the organization is either missing or learning. This is quite a different story than simply being 10 people short of your expected headcount.
Having a number of new people learning their roles impacts productivity. Conversely, if you do not have the number of people that you expected to have then there is no one to do the work, so you either burn-out your staff with overtime or miss target due to lack of productive capacity. A further associated reason for looking at mobility is that change in roles leads to new challenges which is a key driver of retention: if the right people do not get to move fast enough they get bored and look elsewhere for challenge. The full summary of movement leads to a more complex and appropriate response, which is to either hire more people, focus on training and then review how movement gets approved to manage any overall negative impact on a critical part of the business.
Step #2: Look at “promotions actioned” instead of “promotion rate” to better gauge manager effectiveness
The traditional way:
Another common metric is promotion rate, which is the percentage of people who have been promoted. When looking at the high level picture within an organization this is fine, because the metric will capture all promotions and state them effectively against headcount. However, determining which groups within the organization produce the most promotions will provide a more valuable analysis.
Promotions happen in a number of ways and it is common for someone to be promoted into another part of the organization, rather than being promoted directly up within their own organization. This makes it easy to give a manager credit where none is due.
Let’s use an example to clarify: John has a group of 10 staff. In the first quarter, two of his staff-members get promoted based on their capabilities. One stays within John’s group and one moves to Claire’s team. A third leader, Mary, also has two people promoted from her 20-person group. One of the promotions stays with Mary and the other joins Claire’s team. At the end of the quarter, Claire has 8 staff. The other two have 10 and 20 as the promoted staff were replaced with new hires.
Calculating the promotion rate at the end of the quarter we get:
John = 1/10 = 10%
Mary = 1/20 = 5%
Claire = 2/8 = 25%
It does not take much knowledge of organizational politics to understand why John and Mary would feel their contribution has been completely understated and that Claire is not only the recipient of their talent, but the transferred glory of their hard work and good leadership to build capable people. The limitation of the promotion rate metric to measure what really counts is clear. However, trying to solve for the true picture with spreadsheets or by applying carefully crafted queries is time consuming and fraught with the potential for error.
If you are trying to answer the question of who develops the most promotable people and give credit where it is due, in order to encourage this work to continue and avoid the talent hoarding which damages organizational health over the long term, you need to use the right metrics and right solutions to solve this.
Focus on a promotion actioned rate, which calculates the percentage of people being promoted from the organization that they worked for at the start of the time period being reviewed.
This is where analytics come into play. Dr. Thomas Davenport – a leading authority on business intelligence – coined the term Analytics 3.0 for analytic solutions that embed specific business-oriented insights into their services. In this way, a different approach to promotion rate can be created and presented to users without the hard-work, complexity and the risk of hand-crafting detailed answers. It does not matter if these promotions are within the organization or to another part of the organization, as the system will properly account for the members of the population at the correct point in time.
Step #3: Look to “active positions” instead of “headcount” to better control workforce costs
The traditional way:
Often the headcount metric is calculated and reported to keep the organization on track with its budget for people and labor. However, this metric is not sufficient for the task of managing your planned headcount.
The headcount measure often lags the activity that the organization is putting into finding or losing staff, and is only one piece of the picture. The second piece is open requisitions (or a count of all the positions that are actively being hired).
Focus instead on the active positions metric, which combines headcount with all the open positions. In a single metric two different data sources are combined to deliver the right kind of insight to make the right decisions for your organization.
Let’s walk through an example to demonstrate the value of this approach:
A fast-growing but cost-conscious organization currently has a headcount of 10,000, and plans to increase this by 200 to 10,200 over the next year. When the headcount report is generated after the first month, it states that headcount has increased by only 10 people. The executives are concerned they are not hiring enough people to meet the business goals, and ask recruiting to ramp up their activities.
Instead, imagine the company looked at the active positions metric. This metric shows that the total number of active positions is 10,300. They are 100 over their planned number. The executives are now concerned they will overshoot their budget and quickly ask for a review and re-prioritization of all open positions to make sure it will align with their budgeted numbers.
In this example, nothing changed in relation to the headcount. However, the ability to present a full picture of the organization led to a very different and far more effective response from the leadership team in relation to managing their workforce costs and keeping the organization on track.
By changing your approach to these three topics, you can support better decision making and have a direct and powerful impact on the business.