All the uncertainty created by the global coronavirus pandemic, stock market volatility, upcoming elections and the important black-lives-matter movement are bound to create greater uncertainty in business and talent planning for the remainder of this year and likely well beyond. That said, uncertainty doesn’t mean that planning isn’t possible. In fact, it raises the importance of—and value from—planning efforts.

The key here is not to plan for a single scenario for the future but rather several “what if” alternatives (in truth, it usually is) in order to engage leaders in a thoughtful discussion about how business and talent decisions would change under varying conditions. To date, HR leaders typically focus on the concept of "strategic" workforce planning to elicit insights on the longer-term priorities for the business and key talent implications.

While this longer-term, strategic planning is still fundamental, it is only the beginning of what we need to address with sustained local and global volatility. The current and projected macroenvironment may mean that "risk-based" workforce planning will become the new baseline terminology to describe how organizations establish and address future workforce gaps.

Aren’t We Doing Risk-Based Workforce Planning Already?

Interestingly, although many organizations and HR functions talk about scenario planning, few truly develop risk-based workforce plans. What’s particularly challenging here is that risk-based workforce planning is more needed in times of uncertainty, but it is also more complex. We’ve seen many organizations forgo this complexity in order to get workforce planning "off the ground," and this approach can be quite effective in a stable environment. That said, it creates added risk exposure to the business—and to the success of the workforce planning process itself—during times of greater volatility, such as what we are seeing in today’s environment.

The New Normal: Risk-Based Workforce Planning

What is risk-based workforce planning? While traditional, strategic workforce planning looks to match future workforce needs to available and projected workforce supply, risk-based workforce planning highlights the degree of variance in—and potential timing implications of—future needs and supply based on alternative conditions or risks. We have found that this type of advance planning is particularly and disproportionately valuable in times of uncertainty.

Let’s go through a few examples of what we mean and show why risk-based workforce planning is so important:

There have been 7 recessions in the U.S. in the past 50 years (prior to the current one) with an average duration of one year

Fixed costs can lead to underperformance, or even the demise, of an organization during a market downturn. Organizations need to be able to anticipate and manage fixed costs differently to minimize performance differentials and provide greater flexibility when market conditions are unfavorable. We have only to look at the Sears case study to see the challenges of an organization burdened with high fixed costs and limited flexibility to address market risk factors. In our current healthcare crisis and non-essential business shutdowns, fixed talent costs are leading to aggressive short-term actions for many organizations—from furloughs and layoffs to forced hours’ reductions. While organizations have analyzed the short-term savings generated by these measures, how many have played out alternative, what-if scenarios longer term? For example, what are the potential implications for (and timing of) future voluntary turnover?

Global trade represented about 25% of the U.S. GDP (before our most recent market chaos)

For any organization operating across markets, the ephemeral nature of existing trade agreements means that organizations may need to make adjustments in where work gets done and how products and services are distributed around the globe. The current Coronavirus pandemic adds to this uncertainty, given the concerns that politicians and others have expressed recently about the risk exposure associated with foreign production of critical supplies. Even an organization operating in a single market is still impacted by foreign trade policies and this reliance on overseas production at some level; they just potentially have fewer scenarios that they can play out to minimize potential negative impacts.

By 2025, machines are projected to account for more than half of the division of labor globally

With predictions about many tasks (and people) being replaced by automation and the like, organizations will need to play out the various impacts of alternative ways of working near and longer term. We already are seeing a variation of this issue in the unexpected and significant reliance on work-from-home activity during the current health crisis. To what extent will employers return to “normal”, if alternative models are “working”? And, because risk-based workforce planning is time-based vs. primarily destination-oriented, the transformation itself is embedded in the approach, which can help reduce exposure to undesirable and untimely talent surpluses and shortages going forward.

Geopolitical tensions will continue with an average of almost 1 Government shutdown every 2 years over the past 45 years for the U.S. alone — the most recent one (before the pandemic) being the longest in history

Whether pandemic-related border closures, government shutdowns in the U.S., tax protests in France or Brexit in the U.K. (to mention a few), governments are considering more radical interventions that may reshape how and where organizations conduct business profitably, which may in turn have long-term consequences on their desired talent profiles and market-driven talent gaps.

Taking Immediate Action

The current reality is that all of these scenarios—and more—are playing out in some form this year, which makes risk-based workforce planning an urgent priority for HR functions. Those who are ready and can implement quickly will be comparative winners, by being able to adapt and adjust course more effectively than those who wait until there is some semblance of “certainty”.

As we’ve reviewed existing workforce planning capabilities for organizations, we’ve seen that some are challenged by operational planning, most struggle to conduct strategic workforce planning and almost all lack core elements to support risk-based workforce planning. Below is a summary of some of the key distinctions between these approaches to help you gauge your own organization’s approach:

KEY DIFFERENCES IN WORKFORCE PLANNING
BASED ON EXTERNAL CONDITIONS

If you’d like to learn more about our approach or have us review your current workforce planning process, please reach out to info@meritanalyticsgroup.com.

Sources:
Market Recession: https://www.thebalance.com/the-history-of-recessions-in-the-united-states-3306011
Trade Wars: https://data.worldbank.org/indicator/NE.TRD.GNFS.ZS?locations=US
The Future of Work: https://www.weforum.org/agenda/2018/09/future-of-jobs-2018-things-to-know/
Geopolitical Issues: https://www.nytimes.com/interactive/2019/01/09/us/politics/longest-government-shutdown.html