Chapter 10 — Strategic Workforce Planning

Chapter 10 opens with eight learning goals, numbered 10.1 through 10.8. They are reproduced verbatim below because Cascio and Aguinis use this exact numbering scheme throughout the book, and instructors sometimes reference goal numbers directly in assignments and quizzes.

1. 10.1 Describe the four components of the strategic workforce planning process and explain how they work together.
2. 10.2 Explain the relationship between strategic business plans and strategic workforce plans.
3. 10.3 Compare and contrast traditional and values-based approaches to developing strategy.
4. 10.4 Identify key talent management issues that arise at various business-planning horizons.
5. 10.5 Describe the multiple uncertainties that characterize supply and demand forecasts.
6. 10.6 Know the steps to take to avoid a crisis in leadership succession.
7. 10.7 Identify when it makes more sense to “buy” rather than “make” talent.
8. 10.8 Explain the kinds of information to collect when evaluating newly established versus well-established strategic workforce planning systems.

The chapter opens by asserting that the judicious use of human resources is a perpetual problem in society, and lists concrete examples of talent management problems that are simultaneously top-management problems: finding specialized technical talent to staff planned business expansion; finding seasoned talent to manage new and expanding operations, including people capable of eventually assuming senior management positions; developing competent, equitable talent management practices that ensure EEO compliance and avoid costly discrimination settlements; devising alternatives to layoffs, or implementing fair and workable layoff policies when layoffs become necessary; improving productivity, especially among managerial and technical employees; and managing career development so that an effective pool of talented people can be attracted, motivated, and retained over long periods.

Interest in improved talent management practices has grown because senior leaders increasingly recognize that talent is the crucial source of competitive advantage, innovation, and renewal in a global marketplace. Yet despite this recognition, the chapter notes a gap: although most companies engage in some form of strategic business planning to periodically assess their basic missions and objectives, very few are practicing strategic HR management today.

The chapter frames full use of human resources around four unanswered organizational questions: What talents, abilities, and skills are available within the organization today? Is there a talent pool we can dependably draw from for tomorrow? What are the qualitative and quantitative talent demands of our growth plan? How can we embed the labor market context into every stage of the SWP process? Organizations will not have succeeded in fully using their human resources until they can answer all four.

The purpose of strategic workforce planning (SWP) is to anticipate and respond to needs emerging within and outside the organization, to determine priorities, and to allocate resources where they can do the most good. These “buy-build-borrow-or-rent” decisions have grown more important because of globalization, outsourcing, employee leasing, new technologies, organizational restructuring, and workforce diversity. These factors produce uncertainty, and because it is difficult to be efficient in an uncertain environment, firms develop strategic business and workforce plans to manage risk and reduce the impact of that uncertainty.

Although SWP means different things to different people, there is general agreement on its ultimate objective: the wisest, most effective use of scarce or abundant talent in the interest of both the individual and the organization. The chapter defines SWP broadly as an effort to anticipate future business and environmental demands on an organization and to meet the talent requirements dictated by those conditions.

The Four Components of an SWP System

This general view of SWP implies several specific, interrelated activities that together comprise an SWP system. Learning goal 10.1 asks you to describe these four components and how they work together — memorize this list precisely, since the rest of the chapter is organized around it.

1. Talent inventory — assesses current resources (skills, abilities, and potential) and analyzes current use of employees.
2. Workforce forecast — predicts future HR requirements (numbers, skills mix, internal versus external labor supply).
3. Action plans — enlarge the pool of qualified individuals through recruitment, selection, training, placement, transfer, promotion, development, and compensation.
4. Control and evaluation — provide closed-loop feedback to the rest of the system and monitor the degree of attainment of HR goals and objectives.

Figure 10.1 in the text illustrates an integrated SWP system: strategic and tactical business plans serve as the basis for HR objectives, and HR objectives interact with the talent inventory and forecasts of workforce supply and demand to produce net workforce requirements. Labor markets also affect the supply of and demand for labor. A labor market is defined as a geographic area within which the forces of supply (people looking for work) interact with the forces of demand (employers looking for people), thereby determining the price of labor.

Loose Versus Tight Labor Markets

When labor markets are “loose,” the supply of available workers exceeds demand, and unemployment is high; under these conditions turnover and employee mobility both tend to decrease. Conversely, when labor markets are “tight,” demand for workers exceeds supply, unemployment is low, jobs are plentiful, and employee mobility tends to increase.

With a clear understanding of the projected surpluses or deficits of employees — in terms of numbers, skills, and experience — at some future point (a statement of net workforce requirements), it becomes possible to initiate action plans to rectify projected problems. Control and evaluation procedures then provide feedback affecting every aspect of the SWP process.

Strategies are the means organizations use to compete — for example, through innovation, quality, speed, or cost leadership. How firms compete with each other, and how they attain and sustain competitive advantage, is the essence of strategic management. To develop strategies, organizations need to plan. Planning is the heart of management: it helps managers reduce the uncertainty of the future and cope with it more effectively.

The chapter gives four reasons planning matters, each worth being able to name individually:

1. Planning leads to success — not always, but studies consistently show planners outperform nonplanners.
2. Planning gives managers and organizations a sense of being in control of their fate rather than leaving it to chance, helping them cope better with technological, social, regulatory, and environmental change.
3. Planning requires managers to define an organization's objectives, providing context, meaning, and direction for employees' work; research shows that defining objectives leads to better employee performance and satisfaction.
4. Without objectives, effective control is impossible — as the chapter puts it, “If you don't know where you are going, any road will get you there.”

Levels of Planning

Planning occurs at strategic, operational, or tactical levels. The horizon for strategic planning is typically three to five years, distinguishing it from shorter-range operational or tactical planning. Strategic planning decisions involve substantial commitments of resources, resulting either in a fundamental change in the direction of a business or a change in the speed of its development along its current path. Each step may involve considerable data collection, analysis, and iterative management review. Strategic planning decisions may lead to new business acquisitions, new capital investments, or new management approaches.

The Strategic Planning Process

Strategic planning is the process of setting organizational objectives and deciding on comprehensive action plans to achieve them. The process begins with a thorough analysis of the multiple environments in which organizations operate — for example, SWOT (strengths, weaknesses, opportunities, and threats) analysis or PESTLE (political, economic, social, technological, legal, and environmental) analysis — with the objective of identifying opportunities to offer something different to potential customers.

Strategic planning typically includes the following processes, in order:

1. Defining company philosophy — why it exists, its unique contributions, and what business it should be in.
2. Formulating company and subunit statements of identity, purpose, and objectives.
3. Evaluating the company's strengths, weaknesses, opportunities, and threats, to identify factors that may enhance or limit future courses of action.
4. Determining the organization design — structure, processes, and interrelationships — appropriate for managing the company's chosen business.
5. Developing appropriate strategies for achieving objectives, including qualitative and quantitative subgoals and time-based points of measurement.
6. Devising programs to implement the strategies.

The six-step process just described is the conventional view of strategy development, and it answers two fundamental questions: What business are we in? and How shall we compete? Although this approach is intellectually exciting for those crafting the strategy, O'Reilly and Pfeffer (2000) observed that it is not particularly engaging to those charged with implementing it. It takes the competitive landscape as a given and devises maneuvers against a fixed set of competitors, presumed markets, customer tastes, and organizational capabilities.

Firms such as Southwest Airlines, Synovus Financial, and AES (an electrical-power generator) took a different tack, turning the strategy-development process on its head. In this values-based approach, organizations begin with a set of fundamental values that are energizing and capable of unlocking employees' human potential — values such as fun, fairness, challenge, trust, respect, community, and family. They then use these values to develop, or at least to evaluate, management policies and practices that express organizational values in pragmatic, day-to-day ways. For any management practice, from hiring to compensation, the key question becomes: “To what extent is this practice consistent with our core beliefs about people and organizations?”

From Values to Competitive Advantage

The management practices implemented under this approach affect people, and those effects in turn produce core competencies and capabilities specific to each company — teamwork, learning, and speed at AES; “People First” at FedEx Freight; productivity and quality at Southwest Airlines. These capabilities and competencies can then change the competitive dynamics of an entire industry: The Men's Wearhouse competes on service rather than price alone; Southwest's productive employees let it save on capital investment and labor costs while still delivering outstanding service; Cisco can change technology platforms and acquire and retain intellectual capital as its industry shifts around it.

What these companies do better than anyone else lets them develop innovative strategies that outflank the competition. Jim Collins (interviewed in Reingold, 2009) found that the most enduring and successful corporations distinguish their timeless core values and enduring core purpose — which should never change — from their operating practices and business strategies — which should change continually in response to a changing world. In this model of management, strategy comes last, after values and practices are aligned and the company has developed capabilities that set it apart. This does not mean strategy is unimportant: each firm described still has a well-developed competitive strategy, but that strategy is secondary to living a set of values and aligning values with people.

The biggest benefit of strategic planning is its emphasis on growth: it encourages managers to look for new opportunities rather than simply cutting workers to reduce expenses. But strategic planning — particularly the conventional approach — carries a danger: it may lock companies into a particular vision of the future that may not come to pass. This creates a dilemma: how to plan for the future when the future changes so quickly.

The chapter's answer is to make the planning process more democratic. Rather than relegating strategic planning to a separate staff function as in the past, organizations should include a wide range of people — line managers, customers, and suppliers. Top managers must listen and be prepared to shift plans in midstream if conditions demand it.

Cisco Systems is the chapter's worked example: it is not wedded to any particular technology, recognizing that customers are the arbiters of choice. It listens carefully to customers and then offers the solutions they want — sometimes by acquiring other companies to obtain needed technology. Cisco acquired 50 companies from 2012 through August 2017. This mindset lets Cisco move in whatever direction markets and customers dictate.

Human resource strategy parallels and facilitates implementation of the strategic business plan. HR strategy is defined as the processes, decisions, and choices an organization makes regarding its human resources. HR strategies are typically formulated to align with the organization's strategy by creating the workforce capacity and organizational shape needed to achieve strategic objectives. This requires focusing on planned major changes and critical issues such as: What are the HR implications of proposed organizational strategies? What are the possible external constraints and requirements? What are the implications for management practices, management development, and management succession? What can be done in the short term to prepare for longer-term needs?

In this approach, a firm's business strategy and its HR strategy are interdependent — neither is subordinate to the other.

The Four-Link Model: Planning Top-Down, Execution Bottom-Up

Figure 10.3 models the relationship between HR strategy and business strategy with four linked steps, beginning with the fundamental question “How do we compete?” Firms may compete on nonindependent dimensions such as innovation, quality, cost leadership, or speed. From that answer, it becomes possible to identify the business or organizational processes the firm must execute well to compete (for example, speedy order fulfillment). When processes are executed well, the organization delights its internal and external customers through high performance — for instance, an employee delivering a timely, cost-effective solution to a customer's problem.

To manage and motivate employees toward high performance, the right competencies, incentives, and work practices must be in place. Planning proceeds top-down (compete → processes → performance → competencies/incentives/practices), while execution proceeds bottom-up: appropriate competencies, challenging incentives, and work practices inspire high performance, which delights customers, which means business processes are executed efficiently, which lets the organization compete successfully in the marketplace.

High-Performance Work Practices

At a general level, high-performance work practices include the following workplace features:

• Worker empowerment, participation, and autonomy.
• The use of self-managed and cross-functional teams.
• Commitment to superior product and service quality.
• Flat organizational structures.
• The use of contingent workers.
• Flexible or enriched design of work defined by roles, processes, output requirements, and distal criteria (e.g., customer satisfaction), rather than (or in addition to) rigidly prescribed job-specific requirements.
• Rigorous staffing and performance management practices.
• Various worker- and family-friendly HR policies that reward employee development and continuous learning and support work–life fit.

HR metrics serve as an overlay to this model: they should reflect the key drivers of individual, team, and organizational performance. When they do, the organization is measuring what really matters.

Business-Planning Horizons and SWP

Strategic workforce plans must flow from, and be consistent with, overall business and HR strategies. Figure 10.4 shows the relationship between business planning — long range, middle range, and annual — and the parallel processes that occur in SWP. SWP focuses on firm-level responses to people-related business issues across these multiple time horizons. Learning goal 10.4 asks you to identify key talent management issues at each horizon; at every horizon, two key questions apply: Which factors are likely to have the greatest impact on our organization's ability to achieve its short- and long-range objectives? How might these effects change over the short, mid-range, and long terms? In this framework, changes in the business environment drive issues, issues drive actions, and actions include the programs and processes that address the identified business issues.

A talent inventory is a fundamental requirement of an effective SWP system. It is an organized database of the existing skills, abilities, career interests, and experience of the current workforce. Before collecting data, certain fundamental questions must be addressed:

• Who should be included in the inventory?
• What specific information must be included for each individual?
• How can this information best be obtained?
• What is the most effective way to record such information?
• How can inventory results be reported to top management?
• How often must this information be updated?
• How can the security of this information be protected?

Answers to these questions provide both direction and scope for subsequent efforts.

Worked Example: IBM's Workforce Management Initiative

IBM uses a technology-powered staff-deployment tool called the Workforce Management Initiative — essentially an in-house version of Monster.com. Built on a database of 400,000 résumés, it lets managers search for employees with the precise skills needed for particular projects. The initiative cost IBM $100 million to build over three years but has already saved more than $500 million while also improving productivity. Its greatest impact may be helping managers analyze what skills staffers possess and how those talents match the business outlook. It is part of a broader SWP effort helping managers decide whether to “buy,” “make,” or “rent” employees — for example, through an online talent platform matching buyers and sellers. When a talent inventory is linked to other databases (a relational database), the combined information can form a complete human resource information system (HRIS) useful in many situations.

Information Type

The specific information stored in a talent inventory varies across organizations, but at a general level, a profile developed for each individual typically includes:

• Current position information.
• Previous positions in the company.
• Other significant work experience (e.g., other companies, military).
• Education (including degrees, licenses, certifications).
• Language skills and relevant international experience.
• Training and development programs attended.
• Community or industry leadership responsibilities.
• Current and past performance appraisal data.
• Disciplinary actions.
• Awards received.

Information provided by individuals themselves may also be included. At Schlumberger (an oil field services company), employees add their career goals, family information, past assignments, professional affiliations, publications, patents granted, and hobbies. IBM includes an individual's expressed preference for future assignments and locations, including interest in staff or line positions in other IBM locations and divisions.

Uses of the Talent Inventory

Although secondary uses may emerge, it is important to specify the primary uses at the concept-development stage, since doing so provides direction and scope for what data should be included. Common uses of a talent inventory include identification of candidates for promotion, succession planning, assignment to special projects, transfer, training, workforce-diversity planning and reporting, compensation planning, career planning, and organizational analysis. The chapter stresses including a clear statement about employee privacy safeguards and the potential impact of any such in-house system on employee privacy.

Talent inventories and workforce forecasts must complement each other: an inventory of present talent is not particularly useful for planning unless it can be analyzed against future workforce requirements, and a forecast of workforce requirements is useless unless evaluated relative to the current and projected future internal supply of workers. Only with a clear understanding of projected surpluses or deficits — in numbers, skills, and experience — does it make sense to initiate action plans.

Workforce forecasts attempt to estimate future labor requirements, through two component processes: (1) anticipating the supply of human resources, both inside and outside the organization, at some future time period; and (2) anticipating organizational demand for various types of employees. Supply forecasts should be considered separately from demand forecasts because each depends on a different set of variables and assumptions. Internal supply forecasts relate closely to conditions inside the organization — the age distribution of the workforce, and average rates of turnover, retirement, transfer, and new hires within job classes. Demand forecasts depend primarily on the behavior of a business factor (e.g., projected number of retail outlets, sales, or product volume) to which workforce needs can be related, and are beset with multiple uncertainties in consumer behavior, technology, and the general economic environment.

Two Paradoxes of Workforce Forecasting

The chapter names two paradoxes worth quoting directly. First, forecasting techniques are basically simple and easy to describe, but applying them successfully may be enormously complex and difficult. Second, after a forecast is made, it may prove most useful when it proves least accurate as a vision of the future.

External Workforce Supply

When an organization plans to expand, recruitment and hiring of new employees may be anticipated. Even without growth, the aging of the present workforce combined with normal attrition makes some recruitment and selection a virtual certainty for most firms, making it wise to examine forecasts of the external labor market for the kinds of employees the organization will need.

Several agencies regularly project external labor-market conditions and future occupational supply, including the Bureau of Labor Statistics of the U.S. Department of Labor, the National Science Foundation, the Department of Education, and the Public Health Service of the Department of Health and Human Services. For new college and university graduates, the National Association of Colleges and Employers conducts a quarterly salary survey of starting salary offers at the bachelor's-degree level, and those salary offers reflect supply-and-demand conditions in the external labor market. Industries as varied as oil and gas, nuclear power, digital-media advertising, construction, and heavy-equipment service find such projections helpful in preventing surpluses or deficits of employees.

It is important to gauge both future supply and future demand for workers in a field — focusing only on supply could be seriously misleading. For example, the number of chemical engineering majors scheduled to graduate next year may look large and adequate for one company's hiring needs, until the aggregate demand of all companies for chemical engineering graduates is compared with the available supply. That comparison may reveal an impending shortage, signaling the need for more widespread and sophisticated recruiting.

Internal Workforce Supply

An organization's current workforce provides the base from which to project future supply — a form of risk management. When CNA Financial Corporation analyzed the demographics of incumbents in various mission-critical jobs, it learned that 85% of its risk-control safety engineers (who inspect boilers and other machinery in buildings) were eligible for retirement. Because the company wanted to hold on to their specialized skills, the forecast prompted action to ensure the projected deficit did not materialize.

The most common type of internal supply forecast is the leadership-succession plan, covered in the next section. But first, the chapter traces an important shift in how organizations think about labor supply.

From Predictable to Unpredictable Supplies of Labor

In the era of lifetime employment, popular until the mid-1980s, vacancies were easy to predict because employees rarely quit or were fired; vacancies tended to arrive with retirements at mandatory retirement ages. A key assumption was that the supply of talent was entirely within a company's control: candidates, treated as raw material, entered a limited number of entry-level jobs and were developed to fit the company's specialized needs. Adjustments to the supply pipeline — mainly the rate at which candidates progressed from one job to another — ensured the pipeline matched future demand.

This approach began to unravel after the recession of 1981–1982. Business and talent forecasts in the 1970s proved extremely inaccurate, as low economic growth combined with inflation to produce “stagflation.” Talent pipelines kept supplying managers based on those inaccurate forecasts, creating substantial talent surpluses — which then collided with the worst recession since the Great Depression, leading to a decade of layoffs. Uncertainty increased further with deregulation (airlines, trucking, telecommunications) and growing international competition. In short, uncertainty became the new normal.

A singular focus on one future scenario simply extrapolates today's workforce into the future using past patterns of movement and attrition. Talent management and succession planning no longer have the luxury of assuming that assumptions made years in advance will hold long enough to enact traditional multiyear plans. Instead, success depends on nurturing a sufficient variety of options aligned against multiple future scenarios. The key question in today's organizations becomes: “Are we optimizing all possible types and sources of talent, to be properly hedged against the multiple futures and risks that our talent (and business) will face?” This newer approach is called talent readiness, and its hallmark is developing a pool of high-potential, high-performing employees capable of assuming critical jobs or roles — those where a change in the quality or quantity of individuals will have the biggest impact on key business outcomes.

Succession planning is the one SWP activity that is pervasive, well accepted, and integrated with strategic business planning among firms that do SWP — in fact, many firms consider succession planning the sum and substance of SWP. The mechanics for developing a succession plan include: (a) setting a planning horizon, (b) assessing current performance and readiness for promotion, (c) identifying replacement candidates for each key position, (d) identifying career-development needs, and (e) integrating individuals' career goals with company goals. The overall objective is to ensure the availability of competent executive talent in the future, or in some cases immediately.

Worked Example: Leadership Succession at 3M

3M's leadership-succession processes are particularly well developed. With 2017 worldwide sales of $31.7 billion (60% from outside the United States), 3M sells more than 55,000 products in more than 200 countries and employs approximately 91,500 people worldwide. A common set of leadership behaviors links all of 3M's management practices around assessment, development, and succession: play to win; prioritize and execute; foster collaboration and teamwork; develop others and self; innovate; act with integrity and transparency. These behaviors describe what leaders need to know, what they need to do, and the personal qualities they need to display.

For assessment, managers assess potential as part of the performance-appraisal process; all managers also receive 360-degree feedback as part of leadership classes; executive hires at the leadership level go through an extensive psychometric assessment. For development, 3M's Global Academy of Innovative Development focuses on developing global leaders who add value to 3M, its customers, and the world. “Development Through Corporate Social Responsibility” is delivered as a key strategy in forming a global leadership pipeline, and 3M uses experiential, real-time projects focused on future-facing, business-critical problems and critical social challenges — learning by doing — alongside executive coaching and individual-development plans. Finally, leaders are assessed on the strategic impact of their growth on the organization.

Succession planning at 3M focuses on identifying top talent (high-potential individuals, within functions and corporatewide), developing pools of talent for critical positions, and identifying development plans for key leaders. 3M's Executive Resources Committee assures consistency in both policy and practice across global succession planning for key management and executive positions, including the process for identifying, developing, and tracking high-potential individuals.

CEO Succession

There are five primary causes of CEO succession: poor performance; scapegoating; strategic shift; planned succession (e.g., retirement); and unexpected succession (e.g., death). Unfortunately, fewer than half of public and private corporate boards have CEO-succession plans in place, even though global CEO turnover was almost 15% in 2016. Depending on the circumstances, that can be a costly mistake: an analysis of 4,498 CEO successions from 2000 to 2014 found that companies forced to fire their leader lost an average of $1.8 billion in shareholder value compared with companies that orchestrated a planned replacement.

Botched CEO successions are not unusual — even high-profile firms like Disney, Viacom, Morgan Stanley, Coca-Cola, Home Depot, AIG, and Hewlett-Packard have experienced them. These companies stand in stark contrast to firms such as General Electric, ExxonMobil, Cisco Systems, Johnson & Johnson, Kellogg, United Parcel Service, and PepsiCo, which benefited enormously from building strong internal-leader teams and achieved seamless executive transitions as a result. People development is increasingly part of executive-performance assessment: PepsiCo historically allocated one-third of incentive compensation to people development, with the remainder tied to results; it now uses an equal allocation for people development and results, measuring the people-results component with an upward-feedback instrument called the Manager Quality Performance Index.

Ideally, careful succession planning grooms people internally, which maintains an organization's intellectual capital and motivates senior-level executives to stay and excel because they might lead the company someday. Yet many boards fail to groom internal candidates — at the heart of the problem lie personality, ego, power, and, most important, mortality. At the same time, there are sound reasons a company might look outside: boards hiring outside CEOs feel change is more important than continuity, particularly after poor performance or scandal, and expect the outsider to change the organization along several dimensions. Founders in particular often cannot bring themselves to name a successor during their lifetime, which can cause profound disruption after the founder dies.

Steps to Avoid a Succession Crisis

To avoid a future crisis in leadership succession, the chapter recommends these key steps — directly answering learning goal 10.6:

1. Don't wait for a vacancy to start looking.
2. Ensure the sitting CEO understands the importance of this task and makes it a priority.
3. Focus on an organization's future needs, not past accomplishments.
4. Look for candidates with mental agility, empathy, and the ability to work with a variety of people.
5. Provide broad exposure to a variety of jobs, changing responsibilities every three to five years.
6. Provide access to the board, so managers get a sense of what matters to directors and directors get to see the talent in the pipeline.

Succession in Small and Family-Owned Firms

Succession is especially hard for small firms: only about 30% of small family businesses survive into the second generation, only 12% into the third generation, and only 3% into the fourth. Strategies families use to address this include devoting as much thought to getting the former boss to move on as to training the successor (for example, giving the retiring boss something to fill their days, such as running a family charity); requiring heirs to prove themselves outside the family firm before inheriting; and requiring both family and nonfamily executives to go through a “future leaders program” that uses tests, inventories, and assessment exercises to evaluate their abilities.

Family-owned firms sometimes look to outsiders, especially for new ideas and technology. Experts advise starting early in that case, since it may take three to five years for a successor to become fully capable of assuming leadership. Finally, the best successions end with a clean and certain break: once a new leader is in the driver's seat, the old leader should get off the bus.

Demand forecasts are largely subjective, principally because of multiple uncertainties in trends such as changes in technology; consumer attitudes and buying behavior; local, national, and international economies; the number, size, and type of contracts won or lost; and government regulations that might open new markets or close off old ones. As a result, workforce demand forecasts are often more subjective than quantitative, although practice usually combines the two. The chapter recommends beginning by identifying pivotal jobs.

Pivotal Jobs

Pivotal jobs are defined in two ways: (1) by their centrality to an organization's strategy and the potential for significant variation in performance between an average and a top performer in those roles (quality pivotal); or (2) by their potentially significant impact on strategic objectives when the quantity of people occupying those roles increases (quantity pivotal).

Valero Energy, a 23,000-employee oil refiner and gas retailer, identified 300 to 500 high-impact positions and 3,000 to 4,000 mission-critical ones, including engineers and welders employed at its 18 oil refineries, and linked those specific positions directly to quantifiable revenues, business objectives, and business operations. Corning, Inc., a New York–based technology company employing 26,000 people worldwide, segmented jobs into four categories — strategic, core, requisite, and noncore — with the objective of deconstructing the business strategy to understand its implications for talent.

Assessing Future Workforce Demand

To develop a reasonable estimate of the numbers and skills mix of people needed over a future period (e.g., two to three years), it is important to tap the collective wisdom of managers close to operations. The chapter suggests asking questions such as:

• What are our key business goals and objectives for the next two years?
• What are the top three priorities we must execute well in order to reach our goals over that time period?
• What are the most critical workforce issues we currently face?
• What are the three to five core capabilities we need to win in our markets?
• What are the required knowledge, skills, and abilities needed to execute the strategy?
• What types of positions will be required? What types will no longer be needed?
• Which types of skills should we have internally versus buy versus rent?
• What actions are necessary to align our resources with priorities?
• How will we know if we are effectively executing our strategic workforce plan and staying on track?

How Accurate Must Demand Forecasts Be?

Accuracy in forecasting labor demand varies considerably by firm and industry type (e.g., utilities versus women's fashion) — roughly a 5% to 35% error factor. Accuracy is affected by the duration of the planning period, the quality of the underlying data, and the degree of integration of SWP with strategic business planning. The degree of accuracy needed also depends on staffing flexibility: to the extent that people are geographically mobile, multiskilled, and easily hired, there is less need for precise forecasts. In the engineering and technology sectors, the focus is primarily on workforce readiness — making substantial investments, in current or potential future employees, to ensure a sufficient pool of talent with the skills likely to be needed.

SWP is not static. As SWP matures, four things happen: (1) organizational boundaries disappear or become less important, so talent and skills can be utilized as a shared resource and managed more efficiently; (2) SWP gains broader support and ownership; (3) it incorporates tools from other functions and frameworks (e.g., finance, marketing, supply-chain management); and (4) it becomes increasingly data driven — for example, modeling the feasibility and cost of executing alternative business scenarios.

Integrating Supply and Demand Forecasts

If forecasts are to be genuinely useful, they must result in an end product that is understandable and meaningful. Senior leaders need a concise presentation of projected staffing requirements that integrates supply and demand forecasts. Figure 10.5 in the text compares net workforce demand at the end of each year of a five-year forecast against net workforce supply for the same year, yielding a “bottom-line” number that can show an increasing deficit each year across the period. Progressive firms use technology to improve these forecasts — digitized talent inventories let geographically distributed teams pool their knowledge to develop integrated supply-and-demand forecasts, which in turn support “what-if” scenario planning.

Integrated supply and demand forecasts affect a firm's programs across many areas, including recruitment, staffing, performance management, training, transfer, and other talent management activities. These activities together comprise action plans, which help organizations adapt to changes in their environments.

Assuming a firm has a choice, is it better to select workers who already have the skills needed to perform competently, or select those who lack the skills immediately but can be trained to perform competently? This is the same “make-or-buy” decision managers face in many other areas of business. As a general principle, to avoid mismatch costs, balance “make” and “buy.”

When to Buy Rather Than Make

The chapter frames five diagnostic questions, each pointing toward “buy more” when the answer is unfavorable to “making” talent internally:

Managers often find it more cost-effective to buy than to make — a finding that parallels the classic staffing-versus-training research (Schmidt, Hunter, & Pearlman, 1982). The chapter's guidance: put money and resources into staffing first. Always strive to develop the most accurate, most valid staffing process possible, since it yields higher-ability workers; then apply the action plans best suited to further increase employee performance. With high-ability employees, the time required for training and the productivity gain from a training program (say, in financial analysis) may be greater than the gain from the same program with lower-ability employees. Training costs are therefore reduced, and training's net effectiveness is greater, when combined with a highly valid staffing process.

Control and evaluation are necessary features of any planning system, but organizationwide success in implementing HR strategy will not occur through disjointed efforts. Because SWP activities override functional boundaries, broader system controls are necessary to monitor performance. Change is to be expected; the function of control and evaluation is to guide SWP activities through time, identifying deviations from the plan and their causes.

Goals and objectives are fundamental to this process, serving as yardsticks for measuring performance. Both qualitative and quantitative standards may be necessary, although quantitative standards are preferable because numbers make control and evaluation more objective and let deviations from desired performance be measured more precisely. The chapter's example: an HR objective to reduce the attrition rate of truck drivers in the first year after hire from 50% to 20% within three years. At the end of the third year, evaluation is simplified because the initial objective clearly specified both the evaluation time period (three years) and the expected percentage improvement (30 points).

Some objectives are harder to quantify — for example, the quality of a diversity-management program, or the quality of representation of women and minorities in management. One strategy is to specify subobjectives: a subobjective of a plan to improve the quality of supervision might be participation by each supervisor in a two-week training program, with evaluation comparing the number of employee grievances, requests for transfer, or productivity measures at time 1 versus time 2. Appropriate experimental designs can usually control for other factors that might account for observed differences. Difficulty establishing adequate, accurate criteria does not eliminate the responsibility to evaluate programs.

Sampling and Measuring Performance

Effective control systems include periodic sampling and measurement of performance. The chapter draws an analogy to a space vehicle, whose computer guidance systems continually track the flight path and provide feedback to maintain the desired course — an analogous tracking system should be part of any SWP system. In long-range planning, shorter-run intermediate objectives must be established and monitored as benchmarks on the path to more remote goals, letting managers sample and measure performance through time and take corrective action before the ultimate success of longer-range goals is jeopardized.

Commonly used sampling and measurement procedures include: examination of the costs of current practices (e.g., turnover costs, breakeven/payback for new hires); employee and management perceptions of results (e.g., via pulse surveys, audits of organizational culture); and analysis of costs and variations in costs under alternative decisions (e.g., comparing the costs of recruiting versus internal development of current employees). In performance management specifically, plots of salary and performance progress of individual managers may be compared against organizational norms by age, experience, and job level, making it possible to identify and praise superior performers and counsel ineffective performers to reverse the trend.

Identifying an Appropriate Strategy for Evaluation

The nature of evaluation and control should always match the degree of development of the rest of the SWP process — this is the direct answer to learning goal 10.8. In newly instituted SWP systems, evaluation is likely to be more qualitative than quantitative, with little emphasis on control, because supply-and-demand forecasts are likely based more on hunches and subjective opinions than hard data. Under these circumstances, the chapter recommends assessing:

• The extent to which those responsible for SWP are tuned in to workforce problems and opportunities, and the extent to which their priorities are sound.
• The quality of their working relationships with line managers who supply data and use SWP results — how closely do they work with these managers day to day?
• The extent to which decision makers, from line managers who hire employees to top managers who develop business strategy, are actually using workforce forecasts, action plans, and recommendations.
• The perceived value of SWP among decision makers — do they view the information provided as useful to them in their own jobs?

In more established SWP systems, where objectives and action plans are underpinned by measured performance standards, key comparisons might include:

• Actual staffing levels against forecast staffing requirements.
• Actual levels of labor productivity against anticipated levels of labor productivity.
• Action plans implemented against action plans planned (were there more or fewer? why?).
• The results of action plans implemented against expected results (e.g., improved applicant flows, lower quit rates).
• Labor and action-plan costs against budgets.
• Ratios of action-plan benefits to action-plan costs.

Assessment of these issues may highlight potential problem areas and provide the basis for constructive discussions.

SWP is a basic responsibility of every line manager in the organization. The line manager is ultimately responsible for integrating talent management functions, which include planning, supervision, performance appraisal, and job assignment. The role of support staff, such as I/O psychologists or HR professionals, is to help line managers manage effectively by providing tools, information, training, and support.

Basic planning assumptions (e.g., sales or volume assumptions for a future time period) may be given to all operating units periodically, but each individual manager must formulate their own strategic workforce plans consistent with those assumptions. The plans of individual managers are then reviewed by successively higher organizational units and finally aggregated into an overall workforce plan.

The chapter closes by noting that systems thinking and applied measurement concepts, together with work analysis and SWP, provide the necessary foundation for sound employment decisions — concepts examined in practice starting with Chapter 11's treatment of recruitment.

Cascio and Aguinis close every chapter with an “Evidence-Based Implications for Practice” list — a distilled set of practitioner takeaways. For Chapter 10, the list functions as the chapter's own executive summary, and is worth reading as a checklist of what you should be able to state confidently after finishing the reading.

• Recognize that organizations compete just as fiercely in talent markets as they do in financial and customer markets.
• Plan for people in the context of managing a business strategically, recognizing the tight linkage between HR and business strategies.
• View the four components of an SWP system — a talent inventory, forecasts of workforce supply and demand, action plans, and control and evaluation — as an integrated system, not as unrelated activities.
• With respect to leadership succession, recognize that the CEO must drive the talent agenda. It all begins with commitment from the top.
• Identify and communicate a common set of leadership attributes to promote a common set of expectations for everyone in the organization about what is expected of leaders.
• Keep to a regular schedule for performance reviews, broader talent reviews outside one's functional area, and the identification of talent pools for critical positions.
• Link all decisions about talent to the organization's business strategy.

Chapter 10 ends with ten discussion questions. Below, each is paired with a concise model answer grounded directly in the chapter's content — useful both for self-testing and as a starting point if any of these questions resurface in a graded discussion or quiz.

1. Contrast the conventional approach to strategy development with the values-based approach.

The conventional approach starts by analyzing the environment (SWOT/PESTLE), then defines company philosophy, identity, and objectives, evaluates strengths and weaknesses, determines organization design, and devises strategies and programs — treating the competitive landscape as a fixed backdrop to maneuver against. The values-based approach, used by firms like Southwest Airlines and AES, reverses this sequence: it starts from a set of energizing core values (fun, fairness, trust, respect, community), builds management practices consistent with those values, lets those practices generate distinctive capabilities (like Southwest's productive employees), and only then arrives at strategy — which is secondary to living the values.

2. How are strategic workforce plans related to business and HR strategies?

Strategic workforce plans must flow from, and be consistent with, both the overall business strategy and the HR strategy that parallels and facilitates it. HR strategy answers how the organization will build the workforce capacity needed to execute the business strategy, and SWP operationalizes that answer across long-range, middle-range, and annual planning horizons, translating business issues into workforce actions.

3. What are some examples of high-performance work practices?

Examples include worker empowerment, participation, and autonomy; self-managed and cross-functional teams; commitment to superior product and service quality; flat organizational structures; use of contingent workers; flexible work design built around roles and output rather than rigid job descriptions; rigorous staffing and performance management practices; and family-friendly HR policies supporting development, continuous learning, and work–life fit.

4. How might the four components of an SWP system apply to a hospital setting? What determines specific workforce needs in various areas? What programs might you suggest to meet such needs?

A hospital would build a talent inventory tracking clinical certifications, specialties, and license renewals; forecast demand driven by patient volume, service-line expansion, and regulatory staffing ratios (e.g., nurse-to-patient ratios) against supply constrained by nursing-school graduation rates and regional competition for clinicians; and design action plans combining aggressive recruitment of pivotal roles (e.g., ICU nurses, specialist physicians) with internal training pipelines for harder-to-fill specialties. Control and evaluation would track metrics such as vacancy rates, time-to-fill for clinical roles, and retention against turnover-cost benchmarks, feeding back into revised forecasts each planning cycle.

5. Why is SWP especially necessary in a downsizing environment?

Downsizing directly disrupts the talent inventory and the historical patterns used for supply forecasting, while typically leaving pivotal, hard-to-replace skills as vulnerable as easily replaced ones unless workforce planning deliberately protects them. SWP is necessary to identify which capabilities are truly mission-critical before cuts are made, to devise alternatives to layoffs where possible, and to implement layoff policies that are fair and workable — exactly the kind of talent management problem the chapter opens by naming.

6. Why are forecasts of workforce demand more uncertain than those of workforce supply?

Supply forecasts rely on relatively stable, internally observable variables — the current workforce's age distribution and historical rates of turnover, retirement, and transfer. Demand forecasts, by contrast, depend on external business factors like consumer behavior, technology shifts, economic conditions, and contracts won or lost — forces the organization does not control and cannot predict with the same confidence, which is why demand forecasting is described as largely subjective while supply forecasting can lean more on hard internal data.

7. The chairperson of the board of directors at your firm asks for advice on leadership succession. What practices or research results might you cite?

Cite the finding that companies forced to fire a CEO lost an average of $1.8 billion in shareholder value compared with firms that executed a planned succession, and note that fewer than half of boards have a succession plan despite nearly 15% annual CEO turnover. Recommend the chapter's concrete steps: start looking before a vacancy occurs, secure the sitting CEO's commitment to the process, focus on future organizational needs rather than past accomplishments, seek candidates with mental agility and empathy, rotate high-potential candidates through varied roles every three to five years, and give the board direct exposure to the talent pipeline.

8. How do different planning time horizons affect SWP?

Long-range, middle-range, and annual business planning each raise different talent management issues and require asking, at every horizon, which factors will most affect the organization's ability to reach its objectives and how those effects will change over time. Long-range horizons (three to five years) demand attention to succession pipelines and broad capability building; shorter, annual horizons demand more immediate staffing and action-plan adjustments, with changes in the business environment driving issues, issues driving actions, and actions materializing as concrete programs.

9. Compare and contrast SWOT and PESTLE analyses of the business environment.

Both are tools used at the start of strategic planning to analyze the environments an organization operates in, aimed at identifying opportunities to offer something different to customers. SWOT (strengths, weaknesses, opportunities, and threats) evaluates the organization itself against its external environment, mixing internal factors (strengths, weaknesses) with external ones (opportunities, threats). PESTLE (political, economic, social, technological, legal, and environmental) is purely external-facing, systematically scanning macro-environmental categories that could affect the organization, providing broader environmental context that can feed into a SWOT analysis's opportunities and threats.

10. Your organization began using SWP three years ago. What kinds of outcomes would you use to evaluate it?

Three years in, the system sits between “newly instituted” and “well established,” so evaluation should blend both approaches. From the newly instituted side, assess whether those responsible for SWP are tuned in to real workforce problems, whether they have solid working relationships with line managers, and whether decision makers actually use the forecasts and recommendations produced. From the more established side, begin comparing actual staffing levels and labor productivity against forecasts, tracking how many planned action plans were actually implemented and why, and weighing action-plan costs and benefits against budget and expected results.

Every bolded or explicitly defined term in Chapter 10, in one line each, in the order the chapter introduces them.

A single table capturing the chapter's core system, its key frameworks, and its most quotable claims — everything you need to answer a cold-call question about Chapter 10 without re-reading it.