Seven Ways Operational Workforce Planning Moves HR Up to the Level of Finance

[Former Member]

          Without question the HR officer is the equal to the CFO.

               -Jack Welch, former Chairman and CEO, General Electric

In our Workforce Solutions Review article (.pdf) published earlier this year, SAP Solution Owner frans.smolders and I demonstrated how operational workforce planning raises the standards of HR accountability to a higher level, treating human capital with the same degree of importance and value as the assets financial professionals manage. We covered methods to bring the rigor of financial management to the HR function, including analyzing headcount needs according to strategic objectives, and in the context of broader, enterprise-wide integrated planning

We have been pleased by the numerous positive responses we have received since the article was published. In particular we are delighted that, rather than having to defend our position cleverly, readers want to engage candidly about practical applications. What can operational workforce planning do for my organization? What processes can it improve specifically? And, what value will it produce?

The current article addresses these kinds of questions, where the HR officer truly is equal to the CFO. It will also offer practical takeaways about integrating workforce planning and analytics into overall corporate planning, including making HR operations more efficient, crafting strategy that captures the unique contributions of human capital to business value, executing plans where high human capital performance is crucial, increasing visibility of HR business functions so that all stakeholders participate in HR effectiveness, and promoting efficient acquisition and allocation of what companies continue to regard as their most valuable resource.

1. Operational workforce planning can increase organizational agility

The response of many organizations’ HR functions to the economic shocks of late 2007 and beyond provides a case study for one of the key outcomes of operational workforce planning: agility. As we discussed in our earlier article, the economic challenges of the last decade resulted in the HR function in many organizations becoming more nimble, owing to efficiency gains that proceeded from careful information technology deployment and judicious departmental headcount planning. Their lessons can be applied beyond the HR department to the larger organization.

An important enabler of organizational agility is the availability of resources to adapt to changes, rather than correct errors proceeding from inadequate workforce planning. Such agility doesn’t arrive simply out of high organizational capacity, but rather is a result of good data management in the early stages of workforce planning, which provides the insight necessary to promote agility.

In practice, however, companies often face a high likelihood that the workforce planning process will begin with untrustworthy data, which will deny the opportunity for further insight as erroneous paths are pursued. The more resources that are directed towards correcting early-stage errors and assumptions in the planning process (that is, resources spent on maintaining the planning process), the fewer that are available later for direction of performance objectives outside the process. For example, many organizations report that a lack of insight into their current workforces slows down rollout of new products.

A characteristic of agility is a capacity to react to both internal and external forces. When organizations are able to obtain timely insights, and can reserve the resources to follow up on them, they achieve a level of agility that supports rolling out large new initiatives, adapting to market changes or shocks, or pursuing innovation. For example, workforce plans constructed simultaneously from a cost and a role perspective collect input from the entire business, and can likewise provide insight across all functions. As new products are released to the market, the organization has the mechanisms in place to supply sufficient resources to support functions even as conditions change. As one SAP Consultant aptly summarized, “Understand yourself before you understand the rest of the world.”

2. Integrated business planning extends the value of headcount planning

Organizations have numerous tools to perform corporate planning, yet their tools often vary across business functions in terms of output and support for other planning systems. Additionally, greater complexity in organizations results in an increasing number of options for performing the necessary steps in corporate planning. While aimed at easing the user workload, a greater number of options for users frequently interferes with subsequent consolidation efforts.

Integrated business planning, of which operational workforce planning is a critical piece, represents a single platform that supports all corporate planning activities. An immediate benefit that organizations can achieve from such integration is lower total cost of ownership, due to elimination of redundant processes and forms. Yet a less tangible benefit is a common reckoning that is recognizable to all business users involved in planning. For example, an HR manager can communicate with a financial analyst about headcount costs within the same workflow environment, and in a common language. Since Finance is the center for all planning processes, planning documents must also be consumable in the language of the Finance function. An integrated platform addresses the same set of users, such that incorporating headcount planning into overall business planning facilitates cross-planning, and decisions can be made holistically.

3. Operational workforce planning promotes best practices and standards throughout the organization, and reduces the time to complete the planning process

Few small and medium enterprises, much less large organizations, have a single planning process. There are many reasons for the existence of multiple processes in even the best managed organizations. One of the most prominent relates to data sources and what corporate planners intend to do with the data. For example, if one of the conclusions of corporate strategy is increased sales revenue is necessary to remain competitive, it will require a commitment from senior management, a solid business case, and considerable subsequent monitoring, which furthermore may necessitate allocation of additional resources. Data that addresses each of these needs seldom exists in a single system, and monitoring across multiple functions will likely occur in yet another separate system. For most organizations, data is either missing or applied to different planning processes, and are likely to present impediments to gaining corporate insight, though their reasons for doing so can vary widely.

What is consistent for organizations across all industry sectors is that headcount needs to be managed, and skills updated and monitored. Yet for human capital to drive competitive advantage, it is critical that HR maintains data consistency and clarity regarding headcount, and creates a standard vocabulary for workforce visibility throughout the organization. Operational workforce planning provides the necessary discipline for the workforce planning process, such that data is reported in a standard system where standard metrics can be thus propagated through the planning process. The result is greater latitude for HR to direct allocation of headcount in a more targeted, flexible, and efficient manner than could be achieved by a traditional top-down planning process, where the Finance or Controlling departments have the last word on headcount totals and how they are allocated throughout the company. As one SAP customer described, “Finance still decides how much resources should be allocated, but now HR can decide how.”

4. Progress towards plans can be monitored more efficiently, and areas of concern brought to attention more rapidly

Corporate landscape planning aligned with corporate data provides a good perspective. But corporate planning aligned with data systems is a very powerful means to achieve a high performance workforce. The management tool that makes it powerful is actual versus planned, which affords constant insight to monitor execution of plans, and the ability to take corrective action when required. However, the main challenge is data quality, which is heavily influenced by data residing in different systems.

There is no argument that actuals must be accurate for accurate planning. Having all actuals available within the planning system increases quality, and easy access makes it feasible to report actuals throughout the year. By providing quick access to variances, planning can thus become a steering mechanism to drivedesired performance goals, and not just a forecasting tool describingdesired goals.

Regarding operational workforce planning specifically, there are three components:

1. Headcount actuals, that is, actual positions, along with their status of “vacant” or “occupied.”
2. Target headcount, wherein senior leadership decides how large the company and its organizational units should be, which is driven by assumptions of whether the organization must grow or shrink in order to fulfill strategy. Target headcount represents an operationalization of strategy.
3. Committed headcount, which addresses how much headcount line management believes is needed. Committed headcount is an example of where the top-down and bottom-up meet, in as much as it is critical that senior management understands line managers’ assumptions and characterizations of headcount needs. A common example is a line manager or department head exceeding budget. Senior managers need to understand the reason for the budget overrun before determining a new headcount figure, one which may further impact that manager’s unit performance. Effective use of actuals denotes an area where information handled in the planning process can achieve a gain effect: insight obtained from the manager exceeding budget corrects previous assumptions regarding expected performance, and the resources needed to achieve performance goals.

5. Big picture visibility is made available to multiple stakeholders, including executives, lines of business, and recruiters

Recruiting is an increasingly vital process in talent management, and talent visibility across the organization is becoming a key ingredient for all business functions to perform optimally. Within the HR function, it is becoming necessary to develop a recruiting plan in order to meet strategic objectives, and to coordinate staffing efforts across multiple departments and regions. Recruitment planning however is notoriously difficult to set up. Most recruiters typically do not operate according to a plan, but rather respond to staffing needs as they are identified. Such a practice occurs outside the discipline of corporate planning, and contains inefficiencies that result ultimately in longer time to fill, key roles left unfilled, inconsistent quality of hire, all of which contribute to higher labor costs.

Through an integrated business planning process, one in which HR plays a central role, managers can estimate next year’s headcount needs and hiring rate, giving this critical process visibility across the organization. The result is that operational workforce planning creates a report for recruitment that details what positions are needed, and in what scope of time, incorporating assumptions from across the enterprise and validated across functions. The resulting plan forms the foundation for the recruitment planning process.

Since executives need to approve the plan, it represents a meeting of top-down and bottom up processes, which carries many benefits. The figures contained in the plan are reliable and of assured quality, and therefore help execute strategy better. Company leadership becomes more accountable to the workforce planning processes to which they committed. Executive approval of plan figures increases trust throughout the organization and signals priorities, promoting greater buy-in by business owners and senior managers.

6. Operational workforce planning can drive organizational transformation

Corporate planning need not simply be a yearly process whose aims are apparent to only a select few, yet whose participation is required and dreaded by many. Corporate planning also provides both the structure and the mechanisms for organizational transformation, which in order to be effective needs to be implemented rapidly, usually within one business quarter’s time.

Operational workforce planning provides a blueprint for effective organizational transformation, and embeds transformation efforts directly into the quarterly activities of the business. Organizational transformation efforts that occur rapidly and according to the mechanisms and pre-established procedures such as those contained in workforce plans are more likely to realize a quicker time to value and lower cost of implementation, because they are based on trusted numbers. Additionally, operational workforce planning that occurs as part of an organizational transformation effort frees up implementation budgets to support revenue producing business.

7. Operational workforce planning can generate additional value from analytics and planning

When done properly, the corporate planning process should illuminate organizational assumptions, and provide insight into the stages of the organization’s value chain, particularly the human capital contributions. Analytics provides an additional dimension in describing the areas where human capital contributes value, something which corporate planning traditionally has not had great sensitivity in capturing.

Analytics and planning performed in a complementary manner helps uncover the unique capabilities of an organization, such as the means by which business units can better execute, and the unique performance processes that deserve managerial attention. Such knowledge can also render it easier for an organization to adapt and make changes according to external conditions.

Another area when analytics can add value to the planning process is by providing quick insight into current and past conditions. Insight into historical trends allows better assumptions about how plans will evolve, providing greater accuracy in the planning process by putting needed information in the hands of the right people. For example, if a company is currently experiencing a five percent attrition rate, the information is likely to have little meaning for an individual line manager, whose department may in fact be experiencing rapid growth. But at an aggregated level, such a figure is more useful, as those who manage strategic resources can determine whether the attrition rate is part of a trend, and develop a strategy where resources are directed towards addressing the attrition rate.

It's already part of what you do

While the benefits are substantial and of a wide scope, operational workforce planning stands apart from other business processes in that it does not require users to invest great time and effort into learning an entirely new competency, one that promises implausibly dramatic performance improvement, like many data intensive management fads of the past. There is no prerequisite of organizational restructuring in order for operational workforce planning to be effective, nor is there need to add more processes to the already burdensome workload of most managers and analysts. Nor is it necessary to persuade senior management of its merit, and obtain their sponsorship in order implement operational workforce planning, which consists simply of a retooling a fundamental business function, one which is already integrated into the management of companies, and whose techniques have been refined over several decades of practice.

The author would like to thank frans.smolders for significant contributions to the material covered in this article, especially in the enumeration of the seven ways, and an abundance of relevant practical applications by which to illustrate the seven ways.