How do I translate our business strategy into the workforce and skills we need? - Insights into organization

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 long-
term 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             • Focus on selected departments • Comprehensive approach
                            or business units                 extending across entire
                                                              employee body

        Timing            • Reactive planning after business • Proactive planning integrated
                            targets have been decided         into the definition of business
                                                              targets in real time

        Modeling          • Predictions based mainly on      • Modeling based on real and
        approach            age pyramids and historical       recent data, individual behaviors,
                            statistical analysis              business processes, and skill
                                                              groups

        Level of
                          • Non-quantitative assessment      • Detailed quantitative and
                            of HR options                     qualitative assessment of HR
        quantification
                                                              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
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