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Strategic Workforce Planning in an Uncertain World

The financial crisis has recast the goals for strategic workforce planning, pushing them well beyond forecasting and talent-gap analysis.

July 9, 2009
Related Topics: HR Services and Administration, Strategic Planning, Workforce Planning
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If anyone knows where the economy is headed, it’s likely to be Hugh Courtney. He holds a Ph.D. in economics from the Massachusetts Institute of Technology, was formerly global strategy practice leader at McKinsey & Co. and is one of the world’s leading business strategy experts. But here is his conclusion about the recession that struck worldwide in the final quarter of 2008: “The length and impact of the current economic downturn is absolutely uncertain,” he says.

That uncertainty poses a problem for the truism commonly used to define the goal of strategic workforce planning: the ability to put the right people in the right place at the right time. “People tend to be overconfident in their ability to predict those ‘rights,’ so they are systematically surprised,” says Courtney, who is now a professor of the practice of strategy and associate dean of executive programs at the University of Maryland’s Robert H. Smith School of Business. “The people who are making those ‘right’ decisions need to face and take seriously the uncertainties their organizations face.”

The financial crisis has undercut what Courtney describes as a common bias toward thinking that most business decisions occur at relatively low levels of uncertainty. At these low levels, there is a clear, single view of the future, or a limited set of possible future outcomes, one of which will occur. Under these conditions, forecasting data out along defined trajectories and conducting talent-gap analysis may provide adequate workforce planning.

But for the most important decisions, Courtney says, executives are actually working at much higher levels of uncertainty, with a range of possible future outcomes or unbounded possible outcomes. Effective workforce planning can occur at these higher levels of uncertainty, but when conditions are so in flux, forecasting and talent-gap analysis are useless.

Now that the financial crisis has brought greater clarity about the levels of uncertainty that surround most business decisions, the goals for strategic workforce planning have been recast to include the ability to think rigorously about the seemingly improbable and the unknown. Some companies are now developing the discipline for that thinking as the next step in strategic workforce planning.

Beyond gap analysis
At high levels of uncertainty, companies can use systematic scenario planning that looks at bounding the range of possible outcomes and the corresponding human capital needs of the organization. “This approach outlines the ‘no regrets’ actions and constructs a hiring plan that signals movement toward those scenarios,” Courtney notes.

Even at the highest levels of uncertainty, strategic workforce planning can frame discussions about past structural changes and the profound workforce shifts and new human capital challenges that flowed from them. “Previous financial meltdowns have had a discernible impact on human capital,” Courtney says. “Where did the people go and why? How were they retrained? There is usually some anchor you can hold on to.”

Aetna Inc. is looking for an anchor. Over the past year, strategic workforce planning at Aetna has focused on expanding the range of thinking about possible futures and their workforce implications. The company, based in Hartford, Connecticut, reported revenues of $31.6 billion in 2008 and employs 35,462 workers.

To launch its strategic workforce program, Aetna tapped Aruspex, the strategic workforce planning solutions provider, and in July 2007 hired away from a competitor company Melissa Cummings, an MBA with no prior human resources experience.

“It is hugely valuable to come into human resources from the outside because you can lead the conversation about how to get the business to play with workforce planning,” Cummings says. “A cross-functional business background really helps.”

From the outset, strategic workforce planning at Aetna moved beyond data gathering and gap analysis. “Analytics has thrown a veil over what passes for workforce planning,” Cummings says. “Data is about what happened in the past. Forecasting is a static vision of the future. We take data and forecasts and build on them with ‘what ifs’ to create a richer vision. That’s the qualitative piece that the enterprise needs.”

In February 2008, Aetna launched a series of daylong strategic workforce planning sessions, each attended by different groups of 15 to 20 business leaders. Seven sessions have been completed. Each session begins with an environmental scan that covers dozens of labor supply and demand factors, including global economic and political issues marked by very high levels of uncertainty.

“We filter our thinking through the environmental scan,” Cummings reports. “Which factors will have the greatest impact on the business and which carry the highest levels of uncertainty, and how high or low might they go?”

The business leaders prioritize the factors and outline the big themes. “The most compelling development at this point is that you see a couple of key buckets, and one is the economy, which shapes labor pools, the business model and, at the macro level, how much business might be gained or lost,” Cummings says.

The participants then construct a simple matrix, with one axis for factors that are out of the company’s control, such as the economy, and a second axis for factors within its control, such as how the company positions itself geographically. The participants look at alternative scenarios and outcomes for the four quadrants, and then break into four subgroups, with one group assigned to each quadrant.

“One quadrant will look like utopia and one will represent the worst gloom and doom,” Cummings says. “For the gloom-and-doom quadrant, we can then ask: Are we working toward prevention? Are we mitigating the risks that we see?”

The four quadrant groups generate reports. “We talk about the themes in each quadrant and that helps us look at possible future needs,” Cummings says. “Once you get there, it’s easier to see the goals and build an action plan.”

‘No regrets’ planning
Recent surveys confirm that companies are using the current crisis to upgrade their workforce. “We know from research on business cycle management that many firms use a downturn to be very aggressive in acquiring talent,” Courtney says.

Under current conditions, however, fairly high levels of uncertainty form the context for decisions about talent acquisition. “For workforce planning, companies are now facing multiple possible scenarios, any of which carries the need to develop bench strength,” Courtney says.

Given these conditions, Courtney advises companies to ask: What are the “no regrets” moves that we could take no matter what the range of outcomes? “This forces decisions about who to hire and when to make the hire, and what will happen if you don’t,” he notes.

Courtney will not speculate widely about the human capital changes that might arise from the current crisis. “Beyond the obvious near-term unemployment and retraining issues, too much depends on how long it lasts and whether it is a cyclical or a structural change,” he says.

He does see a long-term shift toward greater government regulation that will reach well beyond financial services. “This means that companies will need different skill sets in middle and upper management positions, with more employees skilled in managing regulations and standard-setting,” he says. “This is not just a cyclical issue to get us though the downturn, but more of a structural change.”

In many companies, strategic workforce planning executives are asked to outline the workforce implications for business scenarios already constructed by top leadership. “But some business scenarios are highly contingent on human resources issues,” Courtney notes.

“For example, McKinsey & Co. always starts with its ability to attract and train the best people, and its business scenarios flow from there,” Courtney reports. “That’s an extreme example. But in a variety of industries, we need to avoid spreadsheet answers and take a more strategic workforce planning approach that looks at competitive advantage. In the best of all worlds, human resources executives are members of the team that is creating the business scenarios.”

At Aetna, Cummings is still working to align the workforce planning process with enterprise planning. The company’s strategic plan reaches out three years and is largely set in June of each year. “The planning function has connected to the workforce planning session output,” she says. “The most important step is to hook into finance.”

When Aetna’s finance function issued numbers for 2009 headcount reductions at the end of 2008, Cummings reviewed the data. “We modeled out the numbers that finance gave us,” she says. “That was an insightful exercise that fostered partnering with finance and thinking about alternatives for how the reductions could occur.”

Still in its early stages of development and operating with a limited staff, the strategic workforce planning process at Aetna is nonetheless pushing past gap analysis to create a more comprehensive plan.

“We’ve laid the tracks for thinking about the challenges we face,” Cummings says. “The process is based on a methodology designed to create some clarity. In the end, it takes us to a further level of insight and builds connectedness and a common vision. It’s the story and the dialog that get you to the future.”

Recasting strategic workforce planning to accommodate higher levels of uncertainty is not a temporary response to unprecedented conditions, however. Courtney makes it clear that the only thing that has changed since the 2008 market crash is our perception of risks and uncertainties that were already there.

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