Why HR Needs Data-Driven Workforce Planning to Avoid Talent Shortfalls
One fascinating source of information that the BLS publishes is known as JOLTS, or Job Openings and Labor Turnover Survey. There is a goldmine of information contained within that gives us insight ranging from the state of the economy to how hard it will likely be to make that next critical hire. And something exceedingly rare has just appeared.
In the following graph, we see how many hires are being made, by comparison to the number of job openings:
For nearly the entire history of the JOLTS data, more hires are tracked than job openings, but recently this relationship has switched. In fact, the BLS has never reported a higher number of job openings. So what is the conclusion? We are in an unprecedented war for talent: companies cannot hire fast enough to keep up with their workforce demands. HR must find a way to avoid talent shortfalls if business objectives are going to be met.
While talent shortages have obvious connections to the Talent Acquisition team, there are also broader impacts back to the HR department as a whole. As Peter Cappelli writes in this HBR piece, “when labor tightens up…HR practices become essential to companies’ immediate success.”
We have seen this swing in sentiment throughout recent history, and one particularly fascinating period was the post-war era where, Cappelli writes, “HR was a powerful function, voted the most glamorous area in business by executives.” It was during this time — because of rapid economic growth and a huge leadership void created by the war — HR ushered in new practices, such as coaching, job rotation, 360-degree feedback, high-potential tracks, and succession planning.
Companies recognized that without a plan for how to address their strategic workforce needs, they put their entire company at risk of going out of business or being sold off. As a result, almost all large companies dedicated an entire department to workforce planning, and HR was asked to perform a vital and powerful role.
How Do You Avoid Talent Shortfalls?
Today, HR has the opportunity to enter the spotlight again as a leader in data-driven strategic workforce planning. A recovering economy, combined with an aging workforce, are making talent shortages a top concern. In fact, PwC’s most recent Annual Global CEO Survey revealed that over 70 percent of CEOs identified the “availability of key skills” as one of the top three threats to their companies — an eight-year high for that question.
Business leaders are already turning their attention to HR, recognizing the essential need for help. Consider the following talent shortage data:
- The Bureau of Labor Statistics has projected the need for over 1 million nurses from replacement and growth in the workforce by 2022, with a shortage of registered nurses projected to spread across the country over the next 15 years.
- The American Transportation Research Institute estimates there are 30,000 – 35,000 trucker jobs that could be filled tomorrow if workers would take these jobs — a shortage that could rise to 240,000 by 2022.
- An estimated 50 percent of the oil and gas industry’s workforce is set to retire in the next five to seven years, a phenomenon known as the Great Crew Challenge.
Although the threat of talent shortages is looming large across many industries, a recent Harvard Business Review Analytic Services report found that almost half (44 percent) of executives consider their workforce plans to be driven by Finance and do not take talent dynamics into consideration. This is a key workforce planning issue.
[Recommended Read: Workforce Planning 101 Infographic]
For most organizations, workforce planning is a Finance-led process focused primarily on managing headcount to budget to ensure there are no cost overruns. Simple average cost-per-headcount allocations are made, and hiring is closely monitored. Yet, ironically, this sort of workforce management is not good for the bottom line: the majority of leaders (73 percent) have experienced talent shortfalls leading to missed business objectives as a result of poor workforce planning.
It’s Time for Better Workforce Planning
By effectively avoiding talent shortfalls through data-driven workforce planning (supported by workforce analytics), which takes both an organization’s internal workforce dynamics and business drivers into account, HR can proactively address talent issues that are on the horizon. Here’s how:
Step 1: Start with business goals in mind
What is workforce planning?
Ultimately, it’s about determining the right talent, at the right time and cost, and in the right quantity to deliver on your business goals.
So the first step to obtaining a successful workforce plan is to determine the business drivers. Your organization, however, does not exist alone and is subject to a changing business environment. Market forces will shape and change your business goals.
Start by asking yourself three critical questions:
- What are the overall corporate goals for the next 1-3 years?
- Who are your customers, and why do they select your product?
- Who is your competition, and why do you win or lose to them?
For example, does your healthcare organization plan to open more outpatient clinics? Is your customer the person who uses your technology, or the advertiser who pays to be a part of your solution? Do you beat the competition because you provide the broadest range of financial products, or the most innovative?
This will provide you with not only an understanding of the business goals, but why those objectives are important and what strategies are being deployed to meet business goals in a changing market.
Step 2: Understand how your workforce dynamics are changing
The workforce is always changing with people being promoted, transferred, reorganized, hired, retiring, leaving, going part-time, and taking leave. If we look at one aspect of this dynamic — employee turnover — most organizations focus their analysis on the “how many” question: turnover rate. To this they blend in questions like the rate of regrettable turnover, or other ways to understand “how many” more deeply. More leading edge organizations have turned their eyes to figuring out “who” is likely to leave. When we look at planning our workforce, there is one other critical question – “when” are people likely to leave?
The three primary questions of how many, who, and when provide a deep understanding of the dynamics of the workforce that allows organizations to be proactive, rather than reactive. Understanding how the workforce is changing allows us to find opportunities to take advantage of this change, or get ahead of a trend before it becomes a problem. This not only applies to employee turnover, but to the entire employee lifecycle and helps us to understand questions such as:
- When are the best times to hire? And how many can we hire?
- Who is likely to leave, and how long will it take to find a replacement?
- How many people do we promote a year, and what is the average time to promotion?
- When will a new hire become fully productive?
- What critical skills will we lose from retiring workers in the next 5 years?
Just as the business is subject to market forces, so too is the workforce. The labor market is constantly changing and has implications both locally and globally. For example, global competition has seen certain jobs largely filled overseas, while the availability of skills in a local market may mean opening a new facility in a neighboring city or state. Understanding what is driving these dynamics allows you to use them to your advantage in determining the right plan for your workforce.
Step 3: Collaborate with business leaders
Just as HR brings expertise on workforce drivers, business leaders bring expertise on business drivers, and it is when these two aspects are working in harmony that businesses excel.
HR plays a crucial role in aligning departmental objectives across corporate goals and the people strategy. Strategic workforce planning isn’t about you deciding the right actions to take, rather it is about facilitating the process across stakeholders to achieve alignment. When you arm business leaders with workforce data, they gain a rich understanding of their teams and goals, and the planning conversation is no longer just about what has happened, but also about what needs to change. One easy technique for assessing this involves asking just two questions of business leaders:
- What are your key business goals for the year?
- How do people impact the success of these goals?
The second question not only provides you with valuable insight, but can get business leaders to be more thoughtful on how their people contribute to the organization’s success.
[Recommended Read: Measure Quality of Hire With These Three Critical Factors]
As you meet with business leaders, come armed with data showing where the projected talent shortages will be and the impact to the organization and their departments — a.k.a the workforce dynamics. Work with them to identify the roles that are critical to the continuity of their specific area of the business, and how those roles will support the larger business priorities. Use your data and findings to discuss options for closing the talent gaps with business managers and leaders that take a changing business and workforce market into account.
Step 4: Turn alignment into action
There are always many options for how talent can support the business goals, and senior leadership will need to navigate these options by comparing and contrasting different scenarios. A scenario may change the business strategy, such as opening more stores in underserved markets or growing through acquisitions. Or it may change the assumptions around resourcing, such as hiring more junior employees with a focus on developing skills, or hiring less but paying for the best talent. Providing these scenarios allows the business to align on the plan to be implemented.
To turn workforce plans from academic exercises to operational plans, every stakeholder needs a clear understanding of their goals and success criteria. Just as we know the secret to great performance management for individuals is a result of goals being clear and defined, with progress being monitored and appraised, the workforce plan is hardly different.
Each leader needs to know their workforce goals – who, how many, when, and what they can spend for the talent they need to deliver on their business goals. For each of these, two core metrics provide important insight:
- Variance – what is the difference between the plan and my current actuals?
- Forecast – if I don’t make adjustments, where will I be at the end of the plan?
The former provides direct feedback on how a leader is progressing on their goals, while the second provides insight into how critical the shortfall is likely to be, and the scope of any course corrections required.
Regular (ideally monthly) review of the plan with senior leaders will ensure the organization is aligned on what needs to be accomplished, and what the progress is to goals.
Step 5: Analyze, revise and repeat
Like good writing, good plans need revisions and edits to make sure they stand the test of time. No business is static, and no plan can take all workforce risks and contingencies into account. Only by re-calibrating assumptions and revising estimates as the business changes can you be sure to keep your plan relevant and the business on track.
Remember, the goal with workforce planning is to determine the right talent, at the right time and cost, and in the right quantity to deliver on your business goals. Keep in mind that these goals may need to be adjusted based on market forces. For example, the availability or cost of talent may change as the labor market adjusts to economic changes. Likewise, your assumptions may have been too optimistic or pessimistic in hiring or attrition. Any number of scenarios may require you to modify your plans.
By constantly monitoring your plan and getting an early warning to any changes that are going to be necessary, you provide the best chance for the organization to take the necessary corrective action.
Often planning is seen as an annual exercise, but in reality it is a constant exercise where we are always adjusting to ensure we meet our goals.
Turning Talent Decisions Into Business Decisions
Informed business leaders know that talent has the upper hand in today’s market, and are looking for partners who can help them navigate new competitive threats. Data-driven workforce planning provides an approach to evaluate those threats and turn them to an advantage by bringing workforce data to evaluate scenarios you can map back to business outcomes.
By taking the steps above, you can turn today’s tight labor markets into an opportunity for your business. CEOs are making moves to get what they need: business-savvy HR leaders who can proactively address potential threats. In the era of brilliant HR, it’s survival of the fittest. And the fittest are driving change and alignment through more strategic workforce planning.