Insights into organization How do I translate our business strategy into the workforce and skills we need? Diana Circhetta de Marrón Asmus Komm Deborah Lacher Christian Winnewisser
How do I translate our business strategy into the workforce and skills we need? 1 Why is this important? Not many companies have a clear overview of their existing workforce. So is it realistic to want a reliable model for predicting future HR needs? Or a mechanism for rooting individual HR actions in overall corporate strategy? And are these things really necessary? Absolutely. Focusing on quarterly or annual report figures may be fine for managing financial performance, but it doesn t help you build the talent base you need to achieve your long-term strategic objectives. Whether you are grappling with a downturn, responding to a technological innovation, rethinking your business strategy, planning a restructuring, or investing in new businesses, there will inevitably be implications for human resources. You may have talent gaps to fill, or you may need to adjust staffing levels across multiple sites. But very few HR departments have the tools and approaches they need to help senior managers predict and plan for upcoming changes in workforce and skill requirements. Although functions such as procurement and supply-chain management have long been able to model future demand on the basis of current data, HR has yet to develop strong capabilities in this area. It s time it did. Being able to model and plan your personnel requirements for the next few years would be much more efficient and effective than reacting to needs as they emerge. Adopting a systematic data-driven HR planning process would give you a precise yet pragmatic understanding of where your people are now, where they should be to capture the most value, and where gaps might appear in future (whether in specific skills or in sheer availability). This new level of insight would give you a head start in shaping your workforce and HR initiatives to meet your medium- and longterm strategic imperatives and make a substantial impact on your bottom line.
2 What do I need to know? The traditional role of the human resources department has been to plan the supply of personnel to meet short-term business needs and strategic goals set by senior management. Given this largely reactive approach, it is hardly surprising that many companies find it difficult to anticipate changes in needs for skills or regional coverage. Caught unawares by newly emerging gaps in their workforce, they may have to resort to short-term external hires a costly, temporary, and often unsatisfactory solution. Conversely, an unforeseen skills surplus can present difficult choices about retraining, relocating, or downsizing staff. But HR need not be consigned to a reactive role in the organization. It could take a much more dynamic and strategic part in shaping broad corporate goals and planning initiatives to support them (Exhibit 1). By extending its scope, participating in joint planning with the business units, using current data to model multiple scenarios, and making detailed quantitative and qualitative assessments of proposed actions, it could make a dramatic leap forward in effectiveness, speed, and flexibility. Exhibit 1 A new strategic role for HR From traditional assessment of HR implications to strategic HR planning Scope Timing Modeling approach Level of quantification Focus on selected departments or business units Reactive planning after business targets have been decided Predictions based mainly on age pyramids and historical statistical analysis Non-quantitative assessment of HR options Comprehensive approach extending across entire employee body Proactive planning integrated into the definition of business targets in real time Modeling based on real and recent data, individual behaviors, business processes, and skill groups Detailed quantitative and qualitative assessment of HR options
How do I translate our business strategy into the workforce and skills we need? 3 Companies from a range of different industries have turned their HR function to strategic advantage by following a tried-and-tested five-phase approach: Model your existing personnel base. To gain a full picture of the structure of your workforce, you map all your employees on the basis of their location, age, hierarchical level, contractual status (full or part time, permanent or temporary), tenure, and skill group. 1 You may think you already have this task covered, but in fact most HR departments classify employees by their grade or status rather than by what they can actually do. Adding this dimension will create a new degree of transparency in your organization. By the end of this phase you should have a powerful database showing how your people are distributed across locations, skill groups, and so on. Model personnel evolution. In this phase you extrapolate from today s situation to understand how your workforce would evolve over the next two to three years if it continued on its present trajectory. The modeling needs to take into account natural evolution (the effects of aging, attrition rates, promotions, and recruitment) as well as behavioral factors affected by employees attitudes and preferences (such as mobility and requalification). The end result your evolved personnel structure is then built into the next phase. Assess strategic scenarios. Here, the aim is to model how changes in your business might affect your workforce. You sit down with each unit in your organization to establish what strategic options it is planning to pursue: developing a new market, say, or relocating a production facility. You then take each scenario and build a target footprint for it by asking what skills it requires in which business units and locations. By comparing this target footprint with your current personnel structure you gain deep insight into future demand and can pinpoint where labor gaps or surpluses are likely to arise. You then put the scenarios into provisional priority order to reflect the scale of any workforce gaps or excesses and the feasibility of remedying them by retraining existing employees, hiring new staff, and so on. Define your target personnel structure and identify gaps. Once you have selected your preferred strategic scenario, it is time to explore in greater depth what your target personnel structure should be. You need to model workforce gaps and surpluses across multiple criteria such as numbers, positions, locations, and timing, and go back to the business to get additional insights into assumptions and feasibility. If this deeper analysis reveals that the scenario is less attractive than it originally appeared, you may need to modify it or test an alternative. 1 A skill group is a group within which jobs are to some extent interchangeable, such that employees can take on new responsibilities without needing extensive retraining. Being able to identify individuals who can be quickly redeployed in new roles gives companies a powerful advantage in managing regional coverage and filling talent gaps.
4 Optimize measures to close gaps. The final phase is to develop a plan of HR actions to manage mobility and address any remaining mismatches in staffing. To deal with shortages, you can create programs to retrain staff, assess the scope for hiring, and develop a plan to attract the right talent. Conversely, if staff surpluses are likely you can assess options for rebalancing work between sites and progressively reducing your workforce, design outplacement programs, and plan how to manage union negotiations. Once you have arrived at a set of HR measures for closing gaps, you model their impact and select the best combination of options in terms of cost, feasibility, timing, and so on.
How do I translate our business strategy into the workforce and skills we need? 5 Contacts Americas John McPherson Director Dallas office +1 (214) 6651711 john_mcpherson@mckinsey.com Europe, Middle East, and Africa Asmus Komm Principal Hamburg office + 49 (40) 36121254 asmus_komm@mckinsey.com Asia Pacific Gautam Kumra Director Delhi office +91 (124) 6611025 gautam_kumra@mckinsey.com
Organization Practice January 2012 Copyright McKinsey & Company