Putting Forecasting in Focus

When staffing and recruiting trailblazer Dan Hilbert came to Valero Energy Corp. four years ago, there was no workforce planning being done. No one knew what impact turnover and retirements would have on the workforce or the business.

Hilbert, global leader of talent acquisition for the 23,000-employee oil refiner and gas retailer, found out. After analyzing demographic data and five years of turnover rates for the San Antonio-based company’s core refinery operations, he projected turnover for the next five years. The picture was not pretty.

“We were projecting gaps of four to six times higher than any annual fill rate we had for multiple jobs in our refineries,” he says. “It brought home that the business was at risk. Workforce planning became a board-level concern.”

The situation pushed Hilbert to the cutting edge of strategic workforce planning, a practice that helps employers assess and predict gaps in employee head count and skills to determine what actions will support overall business goals.

Jamie Hale, workforce practice leader at Bethesda, Md.-based consulting firm Watson Wyatt Worldwide, describes workforce planning as “the most strategic work HR can do. It’s really the umbrella over all the services HR delivers.”

Done right, workforce planning gives HR that coveted role of strategic business partner. “That’s the seat at the table,” says Chris Hagler, global managing director of strategic services for Resources Global Professionals, a professional services firm based in Costa Mesa, Calif.

Employers of any size can benefit from stepping back from the daily pressures of staffing to look at the big picture of talent management and its alignment with business plans, consultants say. The planning process doesn’t have to be overly complicated or expensive, but it does require sustained focus and a systematic approach.

The Demand for Business Intelligence

Workforce planning is nothing new. For years, many employers have compiled labor supply vs. demand data to determine how many jobs and what types of skills would be needed down the road. Often the process culminated in a big report that gathered dust on a shelf.

But business today is far different, less predictable and buffeted by globalization, changing demographics, and other factors that make maintaining a competitive workforce more difficult. Having the right people with the right skills now—and in the future—is critical for business, especially in sectors with shortages of skilled workers such as health care, energy and technology.

An August 2006 report by The Conference Board, Strategic Workforce Planning: Forecasting Human Capital Needs to Execute Business Strategy, notes: “[The] ability to translate business strategy into human capital implications enables senior executives to weigh a variety of options based on reliable forecasts. At many organizations, it produces a new kind of business intelligence.”

The insights and knowledge gained from strategic workforce planning can help organizations decide, for example, where to locate new plants and offices, how to invest training resources, and whether to outsource certain work to meet business needs. They also give HR a deeper understanding of workforce dynamics so that talent can be managed proactively to ensure that future business goals are met.

Such planning can yield important results. Consider the impact on several companies that do workforce planning:

• Corning Inc., a New York-based technology company that employs 26,000 worldwide, hired engineers overseas to design and build nonproprietary portions of a multibillion-dollar plant in Taiwan instead of using its more expensive U.S. engineers, who had performed this kind of work stateside. An analysis led the company to conclude that offshoring would provide the greatest value for the project.
• CNA Financial Corp., a Chicago-based insurance company that employs nearly 10,000, discovered that it would run short of underwriters, a key position, in two years if the current turnover rate continued.
• After 18 months of workforce planning, HR at Valero got the resources to build its talent pool three years in advance.

 Gaining Acceptance

Despite its advantages, many HR pros have yet to broach strategic workforce planning. “It’s still in its very small stages. People aren’t doing it, even in big companies,” Hale says.

A recent study from the Society for Human Resource Management confirms Hale’s opinion: Although aging employees and shortages of skilled workers are major demographic concerns, only 33 percent of HR professionals have charted their organization’s demographic makeup, and only 31 percent have determined future retirement rates, according to Workplace Forecast, a 2006 survey of 1,232 HR professionals.

Reasons for the dearth of workplace planning vary. Some fear that such initiatives will be too time-consuming, too far outside their comfort zone, or too data-intensive, says Jeremy M. Eskenazi, SPHR, managing principal of Riviera Advisors Inc., a Long Beach, Calif., talent management consulting firm.

Certainly the challenge of collecting and analyzing key workforce data is substantial. And, in addition to internally generated numbers, HR professionals may need to gather external data, such as industry-specific federal and state labor statistics, immigration information, and reports from local economic development departments.

Tapping these numbers can help address such challenging questions as: Will there be enough college graduates to fill an employer’s entry-level positions? Are there enough skilled employees in a certain city to open a plant there?

Exacerbating this challenge is the fact that—because every employer has different needs—no off-the-shelf software for workforce planning exists. But experts say HR professionals can find solutions for generating internal data by using tools ranging from simple spreadsheets to customized systems, depending on the size and complexity of the project.

These tools don’t have to cost a mint, and, anyway, “it’s foolish and irresponsible not to spend the money if you’re in an industry being hit hard by talent shortages that put your business at risk,” Hilbert says.

Ultimately, numbers without context and analysis are not useful, experts say—and context can best be supplied by skilled HR professionals who understand the business and can analyze the data accordingly. Thus, “the most important software is the one running between your ears,” says Matthew C. Brush, director of human capital planning at Corning Inc.

Shaping Your Plan

There’s no need to bite off more than you can chew. It’s easier—and probably more successful—if workforce planning is done in “bite-sized chunks” rather than as a massive undertaking, says Mike Bokina of PricewaterhouseCoopers’ Saratoga Institute, an HR metrics and benchmarking consulting firm.

“Start with a few critical areas, build a process and then take it further in the organization,” Hale advises. “Start where you’ve got your most critical jobs … the ones that drive strategy, revenue and differentiate yourself in the market, or it could be areas where you’re having trouble recruiting.”

At Valero, Hilbert started by defining 300 to 500 “high-impact” positions and 3,000 to 4,000 “mission-critical” jobs, including engineers and welders employed at the company’s 18 oil refineries. “We’re linking those specific positions directly to quantifiable revenues, business objectives and business operations,” Hilbert says.

Hilbert has since expanded workforce planning to every business segment except retail. He also meets regularly with Valero’s CEO and other top executives to keep them apprised of the latest workforce numbers and what they portend for the company’s future staffing needs.

To guide human capital planning at Corning, jobs are segmented into four categories—strategic, core, requisite and non-core—Brush says. “Segmentation forces you to look at human capital as you would an inventory of physical assets or a [financial] portfolio,” as a starting point for a business strategy, he says.

“We don’t look at all roles,” Brush adds. “We look at the five to seven roles in each business that will most affect the execution of the strategy, and the five to seven roles that will be most affected by the execution of the strategy.” Engineers and plant managers, for instance, are considered critical to Corning’s long-term competitive advantage and revenues.

“You must deconstruct the business strategy to understand the talent implications,” Brush says. Since many HR professionals don’t know how to do that, some training may be necessary. Corning developed a series of questions that the HR lead in each business unit could ask of themselves and of their general manager to identify talent implications. Brush says he spends about one-third of his time training HR staff in the area of human capital planning. The training takes several forms, including group training on general concepts of human capital planning and division-specific training and counseling for business-unit HR leaders.

Corning spent about $150,000 developing its current human capital planning system, including consulting fees for Don Ruse of Sibson Consulting and IT support from a local web developer. The company built on prior work with John Boudreau, a well-known business professor at the University of Southern California. “We kept it very simple,” Brush says. “The analysis is not about precision. It’s about directional correctness.”

Making Predictions

HR technology and an organization’s employees generate the information used in strategic workforce planning. The best planners mix current and historical human resource information systems data—head count, turnover rates, retirement eligibility and so on—with performance management data on skills to produce predictive models that can pinpoint trends such as an expected shortage of certain kinds of skills in certain locations.

“It allows them to drill down deeper and discover relationships they didn’t know were there,” says Mary B. Young, a Conference Board senior research associate. This approach also integrates what otherwise looks like a lot of separate, unrelated numbers.

Experts say to make sure your data are accurate, then focus on finding trends; don’t get so caught up in generating exact numbers that you miss the big picture. Large companies look at “job families,” not every last job. “If you’re going to do predictive modeling, you need a sample set [of at least 30 but preferably 50 to 100] so that your data is statistically valid,” Hale notes.

Borrowed from the areas of finance and risk management, this wide-ranging data analysis allows HR professionals to build on their ability to design effective talent strategies, says Jacqueline Richardson, CNA Financial Corp.’s assistant vice president for central region HR. “The ability to combine the use of data and the core skills that HR people have as ‘people people’ … is really critical to the concepts of workforce planning,” she says.

Running the numbers at CNA showed that 85 percent of its risk-control safety engineers, who inspect boilers and other machinery in buildings, were eligible for retirement. Their specialized skills were something the company wanted to hold on to because “retaining these employees means retaining business,” Richardson explains.

Working with the engineers’ managers, she found that the engineers wanted to expand their knowledge and skills while retaining their specialty expertise, so CNA offered them training in other areas. Now 85 percent of the group is trained in four key risk-control disciplines, and turnover is less than 10 percent. “It’s become one of our competitive advantages,” Richardson says.

Meeting with Leaders

In-depth interviews conducted with business-unit leaders are just as important to the workforce planning process as computer-generated information. These meetings are where HR learns about business strategy and its talent implications from the managers who will ultimately benefit from the workforce plan.

These interviews are not only helpful for HR but also “help teach business leaders to think through the workforce implications of their business strategy,” the August 2006 Conference Board report says.

In preparation for these interviews, HR staff should develop a list of questions to ask business-unit leaders. The meetings should be conducted annually face to face and should cover such areas as operations, direction of the business unit and employee resources. These interactions should help HR professionals assess current and expected head count and skills and get a grip on how to align a unit’s strategy with its future workforce needs. (See “Questions To Ask Business Managers,” above right, for a list of sample questions.)

Still, no one can predict the future with absolute certainty. Hilbert says that his initial assumptions about turnover and voluntary retirements were wrong. As a result, actual skills gaps at Valero were larger than he expected.

What Next?

So, you’ve finally got a workforce plan. Now what? The plan is usually shared with senior leaders who will incorporate it into business decisions and planning, Bokina says. “The most effective process is to share it with the person who heads the business unit you did the planning for. They’re going to want to know, ‘Am I well-positioned to meet my strategic business goals?’ ”

The key is to present accurate numbers and to explain how the story those numbers tell could affect talent management. Focus on the workforce issues that can help the company or a unit meet its strategic goals.

For many companies, workforce planning is a work in progress. To be useful, a plan must be “a living, breathing document, not just filed away in the HR department,” Eskenazi says. Once started, a workforce plan can be updated every year or expanded to other areas of the business. As a business’s needs change, so does the plan.

Most important for HR, strategic workforce planning is a means to an end—talent management that could involve changes in recruiting, outsourcing, training and other areas. Done well, it also can give HR managers the skills and reputation they need to become key players with true influence on business planning and decision-making.

CNA’s Richardson says, “Being able to look at data, not just in terms of what happened in the past but as a prognosticator of what could happen in the future, becomes really important in HR circles and in business circles. It’s what our business strategists do all the time, so it’s a real natural for HR. It grabs our leaders’ attention and gives us more credibility.”

 Carolyn Hirschman is a freelance writer in Rockville, Md.

Web Extras

SHRM toolkit:

• Workforce Planning

SHRM white paper:

• Workforce Planning: The Key to True Staff Forecasting and Strategic Staffing

Research:

• Strategic Workforce Planning: Forecasting Human Capital Needs to Execute Business Strategy (The Conference Board)