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LEAN BUT AGILERethink Workforce Planning and Gain a True Competitive Edge
By William J. Rothwell James Graber Neil McCormick
AMACOMCopyright © 2012 William J. Rothwell, James Graber, and Neil McCormick
All right reserved.
Chapter OneAN INTRODUCTION TO LEAN BUT AGILE WORK AND WORKFORCE PLANNING
WHAT S YOUR ORGANIZATION DOING to hold down employment expenses while simultaneously ensuring that work results meet or exceed customer requirements? How is your organization experimenting with new ways of staffing the work to be done while also achieving the best results? How well is your organization planning systematically for the quantity and quality of people needed to achieve work results in line with customer needs? Read the following vignettes and describe how your organization would meet the challenges you find in each. If your organization has ways to solve all of these problems, then perhaps it already has a way to plan comprehensively and systematically for work results and ways for workers to achieve those results. But if your organization cannot solve most of the problems presented here, then your leaders may want to consider a Lean but Agile approach to planning for the work and workforce.
George Smithers is a top manager in the Acme Corporation. He has just learned that Harold Robbins, one of his most dedicated department managers, will announce his retirement. Smithers is very upset. The reason: He does not believe there is anyone in the company who is qualified to take Robbins's place. Nor does he believe that anyone with Robbins's unique qualifications can be recruited from outside without requiring years of grooming to understand the unique corporate culture of Acme or the special idiosyncrasies of Acme's customers. Smithers has decided to ask the HR department for a succession-planning program before the same problem recurs in other parts of Acme.
The sales forecast for the Venus Company indicates that sales for company products will drop 40 percent over the next year. At present, staffing expenses— including wages, salary, and benefits—account for 77 percent of company operating expenses. Top managers propose a wholesale, across-the-board 40 percent downsizing to be consistent with the disappointing sales projection. Although the organization is not unionized, top managers feel that the fairest method is to use seniority as the basis for deciding who will be given the axe. That means the last hired will be the first fired.
A graduate student from a large, well-known university calls the HR department of Vidtronics Corporation and asks to interview the vice president of HR about how the company conducts comprehensive workforce planning. The organization, however, does not conduct comprehensive workforce planning. Instead, decisions are made about whether to fill positions as job vacancies occur. Turnover in the organization has traditionally been quite low, averaging 4 percent or less per year. An analysis of the company's workforce demographics suggests that nearly 40 percent of the top managers and 30 percent of the middle managers will be eligible to retire within the next three years. No effort has thus far been made, however, to address this challenge. The company's executives are discussing whether to launch a succession-planning program.
The CEO of Electronix Corporation returns from a conference and announces to his senior executive team that a "process improvement effort" should be launched to streamline how the work is done. The CEO heard at the conference that such efforts have successfully reduced workflow problems. The company has one year of unfilled product back orders. The CEO is firmly convinced that a process improvement effort will reduce the back orders by streamlining the production process.
Top managers of the Vedex Company are worried about the future. They have resisted adding full-time workers to the payroll as sales have increased. The reason: They are uncertain if sales will continue to increase or will decrease, considering the vagaries of a dynamic global economic climate. They prefer to use overtime as a way to staff for meeting work requirements. The HR department reports that during the past year, an average hourly worker in the company clocked two thousand hours of overtime, which means essentially that each fulltime worker is putting in about two years of work time for each calendar year. Most are eligible for time-and-a-half overtime pay. The question is whether using overtime is the most cost-effective approach to address the staffing challenge.
Rhoda Smith is appointed the new vice president of HR in the Windowex Company. She has inherited an HR staff that numbers fifteen people in an organization of two thousand workers. She has been transferred to the job from an operating department in which she has made impressive productivity gains in a short time. The CEO tells her that "HR in this company is broken and needs to be fixed."
Rhoda starts her new job by examining the work records of all the people she has inherited. After doing that, she tells the CEO that her predecessor "must have been drinking when these people were chosen for their jobs, since not one of them has qualifications to match what they have been tasked to do." Most were recruited from within and have never even had one college course or one training program in HR. Rhoda considers how to replace her legacy staff with more qualified people. But she is worried about the need to go through progressive discipline to eliminate the poor performers, which she thinks include most of the staff members she has inherited. She wonders how best to deploy workers, matching individuals appropriately to the work to be done.
Traditional Views of Work Planning and Workforce Planning
As the preceding vignettes illustrate, employers globally are struggling with how to achieve the best work results. Driven by a need to lower costs while increasing productivity, they are not always following traditional ways of planning the work and the workforce. But what are these traditional approaches? What is traditional work planning? What is traditional workforce planning?
Traditional Work Planning
Traditional ways of thinking about planning for work have their roots in the industrial age. An organizational structure (organization chart) is established to allocate responsibilities for various work activities. These activities, in turn, are then broken down further into departments, work groups, jobs, and tasks.
Traditional thinking about work planning emphasizes the work process, that is, how the work is done. Little or no attention is devoted to clarifying in detail the measurable work outcomes desired by customers or other stakeholders who care about the work. In some circles, work planning is actually confused with project planning, which is just one way to organize the work to be accomplished. The important point to understand, however, is that the workforce needed to achieve desired work results depends on how the work is done and the desired outcomes. Employers are already experimenting with new ways to get work done. Those experiments affect the workforce needed to achieve work results.
Traditional Workforce Planning
Much has been written about workforce planning in recent years. Indeed, workforce planning has garnered far more attention than has work planning. One reason is that many employers are keenly aware that labor costs are a major expense in doing business. Modern accounting methods treat labor as a cost of doing business while ignoring the critical importance of human creative talent as the only active ingredient that can serve as a catalyst to add value to land, finances, technology, or other assets.
Traditional workforce planning follows the logic of economics. As demand for products or services increases, it creates a demand for labor to make the products or deliver the services. Labor demand refers to the quantity and quality of people needed to meet production or service delivery requirements. Labor supply refers to the quantity and quality of people currently employed by the organization. As labor demand increases as a function of production or service demand, more people are needed to meet the demand. In short, a larger supply of people is needed.
But this relationship is not precise. Sometimes the number of workers affects productivity directly. In other cases, such as managerial work, managers can oversee increasing employees until a tipping point is reached. To complicate matters, sometimes the quality of workers affects productivity. A few talented people may outperform an army.
The traditional approach to workforce planning, based in economics, has some distinct disadvantages. The first disadvantage is that future labor demand is forecasted based on past experience. In short, economists tend to assume that the same quantity and quality of people will be needed to achieve future results as were needed to achieve past results. Unfortunately, technology and other productivity breakthroughs can actually change the quantity and quality of people needed in the future. The second disadvantage is that economists struggle with the notion of differences in individual talent. Not all people are equally productive, or even equally productive in the same ways. Some people are simply more productive than others, and talents—understood to mean personal strengths in this context—differ on an individual basis. Some research suggests that the difference between the average and the most productive worker can be as high as eleven times.
Many methods are available to conduct workforce planning. They are drawn from quantitatively focused approaches from statistics, econometrics, or operations research and from qualitatively focused approaches to problem solving. Few organizations undertake any form of systematic, comprehensive workforce planning. In fact, one study found that as many as two-thirds of U.S. employers do no comprehensive workforce planning. Instead, jobs are typically approved in many organizations on a case-by-case basis as vacancies become available or as work demand increases. The result: The collective competencies and talents of the entire organization's workforce is never assessed against the requirements needed to achieve the organization's strategic goals. The result is that the labor force of many organizations can drift away over time from the best fit to achieve desired work results.
A New Approach to Workforce Planning
A review of changing conditions in business over the past sixty years provides an important backdrop for understanding the need for change in many business practices. The years from 1950 to 1970 were a golden age of business stability for industrialized nations. Human resources practices were designed to be responsive to those conditions. Building a stable work-force was the priority. As detailed by Peter Cappelli, the following conditions prevailed:
* Business demand and the talent needed to deliver it could be accurately predicted into the future.
* Government regulations restricted competition, which helped companies confidently make long-term investments. Foreign competition was often almost nonexistent or held very low market share.
* Competitors operated in unison. When GM announced its price increases, Chrysler and Ford were sure to follow.
* Union contracts across industries resulted in similar labor expenses and in large part removed the variable of price advantages.
* Talent was in short supply and could not be easily found or lured away from the competition.
* The economy grew steadily, at 5 to 6 percent per year.
During World War II in the United States the War Planning Commission required companies to report on their current and future staffing needs to minimize the chance that the war effort would be hampered by product shortages. This practice continued after the war. By the 1960s, 96 percent of organizations reported having a dedicated talent-management function. Workforce planning thrived. Companies could accurately project their business trajectory as well as their talent needs years in advance. Therefore, organizations could justify ambitious, ten-year-long management-development programs.
By the early 1970s, business conditions began to change. Deregulation, more rapid technology development, and greater foreign competition all reduced stability. More competition and improved technology led to faster product development cycles; five to ten years to bring out a new product line was no longer required. Increasingly, there was insufficient time to develop worker skills internally when changes in products and strategies were often faster than the time it would take for companies to retool current employees. Meanwhile, the talent shortages after World War II were remedied as external recruiting firms became prevalent, able to supply talent from outside the organization.
Mergers, acquisitions, and divesting of "non-core businesses" led to more turmoil in human resources and talent-management practices. Inevitably, mergers and acquisitions led to downsizing to gain efficiencies by reducing duplicative talent. During a merger or an acquisition, voluntary turnover often increases, which means that talent developed at great expense exits. Job ladders are broken, as are individual career paths, as business strategies change and firms are restructured. In an environment of frequent mergers and acquisitions, the mentality may be that it is not worth investing in human resources development when inherited talent is unknown and unproven. Divestiture of non-core businesses also leads to unpredictability, a bane of human resources planning.
In 1973 and 1974, the OPEC oil embargo delivered a blow to stability as it drove up commodity prices critical to the global economy. Inflation gathered steam. Then came the 1981 recession, the worst at the time since the Great Depression, and in the United States there was a 2 percent reduction in GDP. With the recession there was suddenly a glut of talent. Several years later, an improving economy did not mean a return to the old ways. Emphasis on cutting costs continued, and downsizing increased every year from 1990 to 1996 in the United States, even though the economy during this period was expanding. Job cuts were as great in 1993–1995, during a good period, as during the deep recession of 1981–1983. After the year 2000, there were periods of talent shortage as well as periods of very deep layoffs, as world economies experienced both great booms and an even greater recession than that of 1981–1983.
Work planning, like workforce planning, has also been negatively impacted by changes in the business climate after 1970. Management by Objectives (MBO) and similar work-planning programs were initiated beginning in the 1950s and remain prevalent today. Annually, organizations plan the objectives for the next year and then cascade them down through the hierarchy of the organization to focus the efforts of all employees on key performance indicators. The process can take several months in a larger organization. Clearly, planning of this type benefits from a stable environment where it is not necessary to change direction frequently. It is not designed to be flexible and responsive to environmental needs. There is little or no provision in traditional MBO or other performance-planning programs to initiate a new planning process midyear when conditions and priorities change. Instead, in light of the large scope of effort work planning requires as well as bonuses being linked to the annual objectives, companies typically feel committed to plow forward with the plan as is. Thus, the annual plan can result in a lack of responsiveness and lost time and can also undermine faith in leadership.
This review of the challenges to planning in an unstable environment is not meant to suggest that planning today is fruitless and impossible and should therefore be jettisoned along with any other waste of time and resources. In fact, in light of the heightened need to marshal resources wisely, it is more important than ever for organizations to clearly focus on what results they are trying to achieve and map out the work and workforces they need to get there. But today, organizations need to plan for instability, which requires that they not overcommit resources and that they develop mechanisms that allow them to move quickly in new directions. That is, organizations must strive to be Lean but Agile.
Today's Priority: Increasing Performance, Cutting Costs
The authors collectively work with clients on five continents. It is difficult to find an organization today where workers do not perceive their organizations as "lean" in their staffing, particularly the old-timers who recall how organizations were structured thirty or forty years ago. Similarly, budgets and other resources are constrained. "Doing more with less" is an all too familiar refrain. The organizational imperatives for survival today are:
* Organizations must prepare themselves to handle the "unpredictability" of the business environment. They must be able to change direction rapidly based on customer demands, competitor strategies, innovation, pricing, or regulatory changes. Companies may not be able to recover from an overcommitment to any single strategy.
* Companies must develop a good solution to manage the "unpredictability" of talent needs. Too much talent leads to costly and moraledamaging layoffs and restructuring. Too little talent leads to talent shortages. Now is the time to assume uncertainty of talent need and develop good ways to manage that uncertainty.
* Companies must have a nearly obsessive focus on controlling costs and leveraging resources wisely if they do not want to be surpassed by competitors. Customers have more choice of providers than ever before as well as improved means to easily find and compare the competition, and monopolies are on the wane.
Excerpted from LEAN BUT AGILE by William J. Rothwell James Graber Neil McCormick Copyright © 2012 by William J. Rothwell, James Graber, and Neil McCormick. Excerpted by permission of AMACOM. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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