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From manpower planning to capacity planning: why we need workforce planning

November 2010

Reflections on workforce planning

Published by the Chartered Institute of Personnel and Development

‘From manpower planning to capacity planning – why we need workforce planning’ Paul Turner

Introduction

Nassim Nicholas Taleb’s Black Swan hypothesis argued that ‘nobody knows what’s going on,’ and drew our attention to the danger in believing that ‘the world in which we live is more understandable, more explainable, and therefore more predictable than it actually is’ (Taleb 2007). We’d be hard pushed to disagree with these sentiments in the light of the 2008 global economic meltdown. However, they do not make the task of the business planner and hence the workforce planner any easier.

A business plan brings together a variety of key variables, including assumptions about the likely size of a market for products or services, the strategic choices that the organisation can make to compete or operate in this market and the resources needed to implement those choices. It may also include some form of prediction about the future, about the kind of products that will be in demand. For example, Siemens (UK) has identified wind power technology as an attractive area of opportunity; it has highlighted which of its business portfolio is best equipped to take advantage of the market, and is in the process of allocating resource to position the company strongly in this market (CIPD 2010). Because of the hazards of predicting the future, most plans include elements of risk management or list the assumptions on which the forecasts have been predicated. An economic rider can be added to the plan, sometimes stated as ceteris paribus – ‘all things being equal’, that is, the plan will work if all of the assumptions on which it was predicated turn out to be accurate.

But what if things turned out to be dramatically different? A key lesson from the economic upheaval of 2008 is that the organisation must be in good enough shape to respond to a dynamic and unpredictable set of circumstances. On that assumption, the question is raised as to what the contemporary business plan should look like to meet such stringent tests. And since the success of an organisation depends on its ability to get the right people in the right place at the right time, how should an organisation plan to achieve its people objectives?

Over the years, this aspect of an organisation’s function has been known as manpower planning, human resource planning and latterly workforce planning. Although the level of importance attached to the subject on the part of HR professionals has fluctuated, a recent convergence of powerful forces caused by the most unsettled economic environment for a generation has created a renewed focus on workforce planning. This essay will outline some of the reasons for this revival and the context of its overall evolution.

The rise and fall and rise again of workforce planning

The foundations for modern workforce planning in the UK were laid after the British Government drew up its first Manpower Budget in 1942 to ensure there was enough labour in those industries supplying the war effort. The exercise created a shock to the system when a shortfall of 1 million workers was identified because industrial demand far outstripped supply (Taylor 1965). As a result of this experience there was a change of thinking and a belief that, in future, the recruitment, retention and training of workers should not be left to chance. Instead it should be a systematic, deliberate process. The 1960s were the zenith of manpower planning.

Then doubts began to appear about the effectiveness of such processes. Flawed economic forecasts in the 1970s, which had predicted economic growth and low inflation when in fact there was little growth and high inflation (known as ‘stagflation’), brought the whole subject of planning and forecasting into question. Things were made worse by the torrid round of lay-offs because of industrial restructuring in the 1980s, where the need to plan was a lower priority than fixing the short-term imbalance in Britain’s commercial and manufacturing infrastructure. The failure to get economic forecasts right and the immediacy of restructuring led to a view that longer-term labour forecasting was a secondary issue. If skilled workers were needed, then there were plenty on the market, so why bother to invest in long-term planning. And anyway, the rigidity implied by the manpower planning approach of the 1960s and 1970s was not seen to be fit for purpose. As a result of this change in attitude, the effort put into manpower planning was reduced, exemplified by the number of employers using elaborate statistical regression models, which fell considerably to 30% in 1978 and to only 9% in 1984 (Capelli 2009). Although a 1988 survey of personnel professionals showed some remnants of the previous era of manpower plans (Hendry 1995), the ‘golden’ age of manpower planning had passed. In its place came a much more devolved or even fragmented approach. By 1993, ‘although in the private sector a number of major initiatives have been successfully launched in such areas as training and development and competitive restructuring, other areas of manpower planning find only limited support, and the public sector lags behind the rest of the field’ (Cowling and Walters 1993).

In 2003, only a minority of IPMA-HR members responding to an SHRM survey had a workforce planning process (CIPD 2010). While the tools and techniques for workforce planning have always been available – John Bramham’s 1975 Manpower Planning, and the CIPD’s later publication, HR Forecasting and Planning (Turner 2002), were core CIPD textbooks for many years – the application of complex macro-level workforce plans using scientific techniques based on operational research and statistics became the exception rather than the rule. The CIPD’s 2010 Resourcing and Talent Planning survey found that some, but not a majority, of organisations undertook demand supply forecasting or gap analysis (CIPD 2010), but this was not as much of a mainstream activity as it had been in earlier decades. There had been a change in emphasis from long-term strategic workforce planning to capacity planning with a shorter-term focus. However, the topic was clearly back on the agenda.

The worst economic crisis for a generation in 2008 forced organisations to rethink their demand for labour. For some, it was the end of the war for talent. Turnover was low as people stayed in their jobs rather than risk moving to another organisation (Robinson 2010) and a new set of challenges faced HR professionals – mainly concerning employee engagement and organisational restructuring. In spite of this downsizing, restructuring and crisis people management, there was an apparent increase in interest in workforce planning from a wide swathe of organisations. An INFOHRM survey in 2009 showed that many organisations were once again putting in place workforce plans (CIPD 2010). This begs the question of why planning should come back into vogue in such a period of economic uncertainty.

The revival of workforce planning a convergence of forces

As companies such as McGraw-Hill, National Grid and Starbucks emphasised the importance of workforce analytics and planning (PR Newswire 2010), and Hewlett Packard, IBM Global Business Services, Qantas and Boeing signed up to workforce planning as a ‘vital process of human capital management’, it was clear that something dynamic was afoot in 2010. This perception was not confined to the private sector, since the Royal Navy confirmed the benefits of using strategic workforce planning to satisfy the level of demand for personnel while ‘avoiding the over-supply of staff which government budgets would not pay for’ (Stevens 2010); and at the same time, workforce planning featured strongly in debates within the NHS (Dean 2010). By June 2010, workforce planning was being described as ‘a force for good’ (Syedain 2010), as the eyes of the HR profession turned towards it as an important process in dealing with the post-recession environment.

No single issue can account for the renewed interest in workforce planning. In fact the revival can be attributed to a convergence of forces which had created a new impetus for organisations to develop workforce plans. In response to these external forces, workforce planning is both strategic and operational and based on:

  • A compelling need to be able to shape the organisation to deal with both expected and unexpected events: The challenge of trying to get alignment of the business strategy, financial performance and people requirements, always an issue, has been accentuated by recession, where a forecast recovery in one month could be superceded by a recessionary double dip in the next. It should be no surprise to find that the first priority created by the dynamic environment was to build a responsiveness that would allow an organisation to deal with competitive conditions – whatever they were. Mercer’s Human Capital Planning 2010 survey showed that 69% of employers believed that the uncertain economic environment was a critical workforce planning concern (Hain- Cole 2009) and the need to have an organisation that could deal with a wide range of scenarios was a desirable objective. How to do this was, of course, the challenge. Organisations have gone back to basics and are trying to get better workforce information and analytics to identify what is the optimal ‘shape’ – which would include a capacity for change but is not cost-prohibitive and does not dilute core competence. Based on the experience after 2008, this ‘shape’ should allow for linear progression against business objectives based on relatively accurate forecasts of market conditions but, simultaneously, create an organisation that was flexible, agile and adaptable enough to cope with discontinuity, crisis or unexpected opportunity. The workforce plan can facilitate the development of this kind of thinking. Furthermore, the workforce plan addresses the issue of short-term resourcing as well as longer-term development. The new workforce plan has gone beyond the rigid complexity of the old and the key to its success was identified as accurate HR information (Leavitt et al 2010). Getting the right balance between the short-term ‘shape’ of the organisation and that of the long term will be dependent on this information. At a strategic level this means a workforce plan that addresses organisation design and development, talent management and a reward structure that is relevant and flexible. At an operational level, the workforce plan will form the basis of capacity-building for delivering short-term organisational objectives.
  • The need to control costs without damaging competitiveness: But the answer to the organisational shape is not a binary one. For many, the need to control costs goes hand in hand with the need to increase competitiveness, which can create strategic choices that are seemingly contradictory, for example redundancy and recruitment taking place simultaneously. It has become increasingly recognised that, by providing an overview of workforce patterns, trends and requirements, the workforce plan can inform the choices that the organisation needs to make. In this respect, the workforce plan is analogous to the functions of the balance sheet, profit and loss account and sales plan combined. On the one hand the workforce plan provides a snapshot of the organisation’s current position, its human assets and where they are deployed. On the other it shows the dynamics between labour costs and ‘income’, while it then plots these against the future performance requirements of the organisation. By using this information, workforce planning ‘allows companies to make selective, strategic decisions about where to invest and where to trim and whether to buy, rent, build or deploy talent to meet future needs’ (PR Newswire 2009).
  • The need to up-skill organisations: The third powerful force for change concerns the need to build capacity for the new environment created by economic uncertainty. This is as much a qualitative change as quantitative. Recognition of the need for corporate agility – as organisations ensure they are able to cope with unpredictable environmental conditions – brings with it a process of up-skilling. The preparation of the workforce plan will allow an organisation to identify its people strengths and areas where it may need to develop. The new workforce planning approach, though, treats this not as a static exercise in skills-building, but as a dynamic perspective on multi-skills building and organisational development incorporating contingencies for change. In essence, the workforce plan builds in corporate agility.
  • The growing influence of the HR function: Finally, as people issues are at last recognised as strategic issues, the importance of the workforce plan is accentuated. The CIPD’s Shaping the Future (2010) research has highlighted an HR profession that has both strategic and operational objectives with a view to building sustained competitive advantage and the workforce plan informs these critical roles. Strategic workforce planning provides ‘a vital link between business strategy and workforce strategy’ (PR Newswire 2009). But this has to go beyond fine words and good intentions and the workforce plan can be the platform for information-based decision-making about people. How could it be otherwise? In the absence of a workforce plan, how can an organisation make decisions about its people? And the workforce plan isn’t just about people data – headcount, labour turnover, and so on. It is about people information; what are the implications, derived from the analytics of the workforce plan, for business strategy in the short and long term? It is this dialogue that differentiates the new workforce planning approach from that of some of its predecessors. The workforce plan isn’t an interesting database. It’s a strategic tool that can be used to differentiate the organisation, lead to greater efficiency or utilisation of key resource, and ultimately provide the basis for competitive advantage.

The convergence of these forces has precipitated a recognition that workforce planning can be a critical factor in the success of an organisation in the post-recession environment. In particular there is the need to ensure that the organisation has built both the qualitative capacity and quantitative flexibility to cope with opportunities or threats that arise because of the vagaries of the uncertain environment. In simple terms the workforce plan can be the glue that joins business strategy with the objective of getting the right people in the right place at the right time. To do so, however, will require some modifications as to what has gone on before.

The new workforce plan

The new workforce planning approach will be different from its predecessors. It will not be a rigid snapshot, but a working human resource management tool with substance to allow information-based decision-making. The key to this will be to ensure that the workforce plan has the following characteristics:

  • It will be integrated with business strategy and planning: The first point is that the new workforce plan will not be an appendix attached to the overall business plan but something that is a critical part of the business strategy dialogue and process. Its key objective will be an alignment to the longer-term, sustainable aims of the organisation, but with a built-in flexibility to allow for change. The planning process will be owned by HR professionals, but the workforce plan itself will be a tool used by the organisation at all levels.
  • It will be used in short-term resourcing as well as longer-term planning: To achieve this, there will be a natural progression from the achievement of tactical objectives to strategic ones and therefore the workforce plan will be used as a resourcing tool over both the short and longer term. New workforce planning will facilitate successful management, by identifying the effects of policies and business plans on the workforce and the optimal paths to realise the plan leading to the reallocation of resources and the best human infrastructure (Mouza 2010). The joining up of short-term and longer-term elements will require a level of management that was not necessary when the plans were snapshots fixed in time. The dialogue between HR business partners and their management counterparts will be essential if this process is to work effectively.
  • It will incorporate flexibility: The third element – that of flexibility – is the hardest to achieve. On the one hand, the workforce plan has to have realistic longer-term targets, which will require decisions about infrastructure if it is to deliver. But on the other it has to have an in-built flexibility that will ‘enable the organisation to respond to fluctuations in demand’ (Hertz et al 2010). Flexibility will be as much about qualitative planning as quantitative.


Conclusion

After a period when it was considered to be an interesting optional contribution to an organisation’s strategic planning process, workforce planning is now increasingly recognised as essential to business success. The post-recessionary period has seen organisations deciding on the best ‘shape’ in which to compete in a period of unpredictability. Key to this is the development of a new approach to workforce planning that is dynamic, iterative and related to the achievement of shorter-term capacity planning as well as longer-term competitive advantage. The role of the HR professional as a strategic business partner as well as an operational deliverer of good people practice is critical to the success of this approach.

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Gary Watkins

Gary Watkins

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