Everything you need to know about the steps in human resource planning. Human resource planning is a process through which the company anticipates future business and environmental forces.
Human resources planning assess the manpower requirement for future period of time. It attempts to provide sufficient man power required to perform organizational activities.
HR planning is a continuous process which starts with identification of HR objectives, move through analysis of manpower resources and ends at appraisal of HR planning.
Human resource planning consists of different steps, phases and process. These are explained under the following heads:-
A: The five major steps involved in human resource planning are:-
1. Assessing Human Resources 2. Demand Forecasting 3. Supply Forecasting 4. Matching Demand and Supply and 5. Action Plan.
B: The four distinct phases of human resource planning are:-
1. Situation Analysis, Environmental Scanning and Strategic Planning 2. Forecasting Human Resource Demands 3. Human Resource Supply Forecasting 4. Action Decision.
C: The following steps are involved in the process of strategic human resource planning:-
1. Taking Stock of Company Business 2. Understanding Company Core Functions and Other Support Functions 3. Understanding Company Strategy 4. Understanding the Career Expectations of the Concerned Employees 5. Understanding the Current Stock of Competencies at Functional Areas 6. Estimating Requirements of Competencies in Different Functional Areas 7. Estimating the Internal Flow of Competencies at Different Levels 8. Assessing the External Availability of Competencies and their Flow.
D: The seven steps involved in the process of human resource planning are:-
1. Definition of Organisational Objectives 2. Assessment of Future Requirement (Demand) 3. Assessment of Current Resources and Availability of Resources in the Future (Supply) 4. Identification of Human Resource Gap 5. Manpower Plans 6. Training and Development and 7. Appraisal of Manpower Planning.
Human Resource Planning (HRP): Steps, Phases and Process
Steps in Human Resource Planning – 5 Major Steps Involved: Assessing Human Resources, Demand Forecasting, Supply Forecasting and a Few Other Steps
Human resource planning is a process through which the company anticipates future business and environmental forces. Human resources planning assess the manpower requirement for future period of time. It attempts to provide sufficient man power required to perform organizational activities. HR planning is a continuous process which starts with identification of HR objectives, move through analysis of manpower resources and ends at appraisal of HR planning.
Following are the major steps involved in human resource planning:
Step # 1. Assessing Human Resources:
The assessment of HR begins with environmental analysis, under which the external (PEST) and internal (objectives, resources and structure) are analyzed to assess the currently available HR inventory level.
After the analysis of external and internal forces of the organization, it will be easier for HR manager to find out the internal strengths as well as weakness of the organization in one hand and opportunities and threats on the other. Moreover, it includes an inventory of the workers and skills already available within the organization and a comprehensive job analysis.
Step # 2. Demand Forecasting:
HR forecasting is the process of estimating demand for and supply of HR in an organization. Demand forecasting is a process of determining future needs for HR in terms of quantity and quality. It is done to meet the future personnel requirements of the organization to achieve the desired level of output.
Future human resource need can be estimated with the help of the organization’s current human resource situation and analysis of organizational plans and procedures. It will be necessary to perform a year-by-year analysis for every significant level and type.
Step # 3. Supply Forecasting:
Supply is another side of human resource assessment. It is concerned with the estimation of supply of manpower given the analysis of current resource and future availability of human resource in the organization. It estimates the future sources of HR that are likely to be available from within an outside the organization. Internal source includes promotion, transfer, job enlargement and enrichment, whereas external source includes recruitment of fresh candidates who are capable of performing well in the organization.
Step # 4. Matching Demand and Supply:
It is another step of human resource planning. It is concerned with bringing the forecast of future demand and supply of HR. The matching process refers to bring demand and supply in an equilibrium position so that shortages and over staffing position will be solved.
In case of shortages an organization has to hire more required number of employees. Conversely, in the case of over staffing it has to reduce the level of existing employment. Hence, it is concluded that this matching process gives knowledge about requirements and sources of HR.
Step # 5. Action Plan:
It is the last phase of human resource planning which is concerned with surplus and shortages of human resource. Under it, the HR plan is executed through the designation of different HR activities. The major activities which are required to execute the HR plan are recruitment, selection, placement, training and development, socialization etc.
Finally, this step is followed by control and evaluation of performance of HR to check whether the HR planning matches the HR objectives and policies. This action plan should be updated according to change in time and condition.
Steps in Human Resource Planning – Top 7 Steps Involved in the Process of HRP
The following steps are involved in the process of human resource planning:
Step # 1. Definition of Organisational Objectives:
The personnel involved in the process of human resource planning must be aware about the organisational objectives. The effectiveness of plan will depend on how soundly the organisation has considered and planned the corporate strategy and integrated the objectives of its component departments. Once these fundamental details have been thoroughly examined and decided, the senior directing manager of the organisation can consider the implications in terms of human resources.
Because of the constantly changing environment in which all work organisations operate, whether they manufacture a product or provide a service, the corporate strategy and objectives will necessarily require continuous monitoring and revision from time to time. Any change in the business objectives would certainly affect the human resource planning.
Necessary elements or aspects to be kept in mind at this stage are:
(i) Human resource planning should be integrated into other areas of organisations’ strategy and planning.
(ii) Senior management must give a lead in stressing its importance throughout the organisation.
(iii) In larger organisations, a central human resource planning unit responsible to senior management needs to be established, and in smaller organisations, these responsibilities would probably be carried out by a senior manager or even the managing director.
(iv) The time span to be covered by the plan needs to be defined.
(v) The scope and details of the plan have to be determined.
(vi) Human resource planning must be based on the most comprehensive and accurate information that is possible. Such personnel information is essential in any case for the effective management of the organisation.
Step # 2. Assessment of Future Requirement (Demand):
The task is concerned with estimating the quantity and quality of human resources needed to meet the objectives of the organisation. Several methods of forecasting are in regular use, some of them simple and non-technical, others sophisticated and involving specialist statistical knowledge and skills.
These include:
(i) Estimates Made by Management:
This is the simplest method of assessment and is therefore, the most common method in use, especially in small organisations. Assessments of this kind are provided from two main sources – the estimates submitted by the individual line managers and the corporate estimates produced by the senior management, advised by the HR department. Since these forecasts rely entirely on the personal judgements, they have obvious potential weakness of subjectivity.
However, this can be mitigated in the following ways:
a. In submitting assessments, managers should include explanations and reasons to support their claims.
b. These assessments ‘from the bottom up’ should be compared with those prepared by the senior management, with the purpose of discussing and reconciling discrepancies.
(ii) Statistical Methods:
A number of statistical methods are now used for forecasting, which vary in their degree of sophistication. This is a task of specially qualified staff and such methods are mainly used by the large organisations for which HR planning poses complex problems.
Some of the techniques which are often used are:
a. Simple Extrapolation which attempts to predict growth of a variable or a set of variables for a period of time.
b. Regression Analysis based on the assumptions about the stability of certain relationships.
c. Econometric Models in which past statistical data are studied on the assumption that relationships between a number of variables will continue in future.
(iii) Work Study Methods:
Work study is the systematic analysis of the work in terms of people, skills, materials and machines, and in particular, the work hours needed per output unit to achieve maximum productivity.
Work study data may be used for forecasts of productivity, for detailed production schedules for specific periods of time within the plan and for estimating the total numbers needed to achieve production targets within a specific period. Work study techniques are particularly appropriate for estimating human resource requirements for works that are directed towards end products.
Step # 3. Assessment of Current Resources and Availability of Resources in the Future (Supply):
As a basis for estimating the future supply of people, a detailed and accurate account of the current situation is needed. Each organisation has to decide for itself the quantity and quality of information it needs, but some broad bases can be established for analysing existing resources which include –
(i) Operational Functions – As initial tally of employees is made, based on divisions into functional units. Specific categories produced by subsequent analysis may be related to these units, if desired.
(ii) Occupations – Employees are categorised according to occupational groups. These categories may be particularly related to strategically significant occupations and anticipated recruitment problems, in terms of detail required.
(iii) Status and Skill Level – To a certain extent, the categorisation of employees by occupation also implies a categorisation by status and level of skills.
(iv) Labour Turnover – One of the most common factors which complicates the task of human resource planning is unforeseen attrition. The most significant source of loss is through resignations, that is when the employees leave of their own accord.
Step # 4. Identification of Human Resource Gap:
Forecasting needs of human resources and forecasting supply of human resources, both taken together help to identify the gap between human resources needed and their availability. This gap may be either surplus or shortage of human resources.
Step # 5. Manpower Plans:
After the personnel forecasts decide the required number of right type of personnel, the next phase is to plan how the organisation can obtain these people. In this step, the strategies are developed for recruitment, selection, training, transfers, and promotions so that the future manpower requirements can be met.
Step # 6. Training and Development:
In this step, the training and development needs of the employees are identified with the help of skill inventory preparations. Training is required not only for the new employees, but also for the existing employees.
Step # 7. Appraisal of Manpower Planning:
The last step in the process of human resource planning is to appraise and evaluate the whole mechanism. In this stage, human resource planning is assessed, whether it has been successful in the achievement of the organisational goals. If it has not worked effectively, there is a need to review the human resource plan and to make the necessary changes as required for making human resource planning effective.
Steps in Human Resource Planning – 4 Distinct Phases of Human Resource Planning
One of the most significant factors affecting planning involves the goals of the controlling interests in the organization. If planning and effective utilization of human resources are not a significant goal for the organizations, employment planning will not be performed formally, or not in an organized manner.
If the goals of top management include stable growth, employment planning will be less important than if the goals include rapid expansion, diversification, or other factors with a significant impact on future employment needs.
Government policies are another important factor in planning. Requirements for equal employment opportunity and promotion call for more HR planning for women and other employees in minority groups and special categories. Other examples include government’s raising the age of mandatory retirement and encouraging the hiring of disabled and veterans.
The types of people employed and the tasks they perform also determine the kind of planning necessary. An organization may not need to plan very far in advance for unskilled jobs since there usually will be abundance in supply of workers for these jobs. Certain high skilled jobs, on the other hand, require planning activities projecting one or two years or even more in the future.
These and other factors in the external and the internal environment influence the specifics of an HR plan. However, all effective HR planning shares certain features.
It is generally agreed that HR planning involves four distinct phases:
1. Situation analysis, environmental scanning and strategic planning
2. Forecasting human resource demands
3. Human resource supply forecasting
4. Action decisions in HRP.
1. Situation Analysis, Environmental Scanning and Strategic Planning:
The first stage of HR planning is where HRM and strategic planning initially interact. Strategic planning requires consideration of both external and internal environment. Strategic planning is the determination of overall organizational purposes and objectives and how they are to be achieved.
The strategic plan must adapt to environmental circumstances, and HRM is one of the primary mechanisms that an organization can use during adaptation process.
Without an effective HR plan to support the recruitment and selection functions in the organization, it will be impossible to stay competitive. Thus, organizations are becoming more and more dependent on an ability to gather information from the environment and to react to this information.
The problems associated with changing environments are greater today than they were ever before because success now depends on an ability to be able to be a global scanner.
2. Forecasting Human Resource Demands:
The next phase of an effective HR planning process is estimating how many and what kinds of employees will be needed. Forecasting yields advanced estimates or calculations of the organizations’ staffing requirements. Along with various quantitative tools available to help in forecasting, human judgment also plays a vital role.
There are four basic terms used in forecasting, they are:
i. Long-Term Trend:
Long-term Trend is a projection of demand for a firm’s products, typically five years or more into the future. Early recognition of such trends is crucial as some employees may need extensive training and development before they are capable of taking on new or added responsibilities. Therefore, proper estimation of long-term trends is essential for organizational success.
ii. Cyclical Variations:
Cyclical Variations are reasonably predictable movements about the trend line that occur over a period of more than a year. Cyclical variations may be caused by war, elections, changes in economic conditions and consumer demands, and societal pressures. These variations last between one to five years.
Anticipating cyclical demand is important because of the potential for severe fluctuations. Extra people may be required to meet high cyclical demand, even though a stable long-term demand has been forecast. Although the long-term forecast may be upward, conditions such as – a short-term recession may require a temporary work force reduction.
iii. Seasonal Variations:
Seasonal Variations are reasonably predictable changes that occur over a period of a year. Seasonal variations follow cyclical variations, but may fluctuate drastically. These variations occur within a twelve month period and are of most immediate concern to many firms. Seasonal demand can have a major impact on a firm as it attempts to stabilize its workforce and still meet productions and inventory requirements.
iv. Random Variations:
Random Variations are changes without pattern. Even the most sophisticated forecasting techniques cannot anticipate such changes. Management must, therefore, anticipate and plan for long term trends, cyclical variations, and seasonal variations, and be ready to deal with random variations.
Several techniques of forecasting human resource demands or requirements and availability are currently used by those in the profession. Some of the techniques are qualitative in nature, and others are quantitative.
Some of these more commonly used ones are described here:
a. The Expert Estimate:
It is the least mathematically sophisticated approach to employment planning yet the one which is most frequently used. It involves an “expert” forecasting the employment needs based on her or his own experience, intuition and guess. The HR manager may do this by thinking about past employment levels and questioning future needs.
This method is an informal system. A forecast by a single expert is the most frequently used approach to forecasting employment. It works in small and medium – sized enterprises that are in stable environments.
In larger and more volatile organizations a technique is used in which a most reliable consensus of opinion of a group of experts is obtained by individually seeking information from experts and then using the averages as the forecasts.
Another technique that can be used in situations where an individual expert’s estimates may not be satisfactory is the Nominal Group Technique (NGT). This technique uses several expert opinions coupled with a group brainstorm to generate decisions that are better than an individual expert could have generated.
A silent generation of ideas by individual experts is followed by an open discussion of those ideas. The group of experts then tries to create the best solutions based on their discussions.
b. Trend Projection:
In this technique a forecast is developed based on a past relationship between a factor related to employment and employment itself. Example, in many companies, sales levels are related to employment needs. The planner can develop a table or graph showing past relationships between sales and employment.
Trend projection is used frequently but not as widely as expert estimate or unit demand. Trend projections are an inexpensive way to forecast employment needs.
c. Modelling and Multiple Predictive Techniques:
This top – down approach to prediction of demand uses the most sophisticated forecasting and modelling technique. Trend projections relate a single factor for e.g., sales, to employment.
The more advanced approaches relate many factors to employment such as sales, gross national product, income etc., or they mathematically model the organization and use simulations with methods such as Markov models and analytical formulations such as – regression analysis.
These are the most expensive approaches to employment forecasting because of the cost of computer time and salaries of highly paid experts to design the models.
The use of the Markov chain analysis involves developing a matrix to show the probability of an employee morning from one position to another or learning the organization. A full treatment of HRM applications of Markov analysis is found in management science, or operations management literature.
Markov analysis begins with an analysis of staffing levels in various levels from one period to another. Then it analyzes the human resource shifts followed by transition probabilities for retaining staff. Markov analysis can help identify the power relations probability, but it does not suggest any particular solution to the potential problem.
Regression analysis is a mathematical procedure that predicts the dependent variable on the basis of knowledge of factors known as independent variables. When only one dependent and one independent variable are studied, the process is known as simple linear regression. When there is more than one independent variable being considered, the technique is referred to as multiple regression.
Most uses of multiple regression emphasize prediction form two or more independent variables, Xi, to a dependent variable, Y. For example, suppose an HR manager wants to predict how many manufacturing workers are needed. Assume that the manager is attempting to predict the number of workers (the dependent variable) by using sales, efficiency of the workforce, and productivity per worker as the independent variables.
d. Unit – Demand Forecasting:
The unit, which could be a department, a project team or some other group of employees, forecast is a bottom – up approach to forecasting demand. Headquarters sums these unit forecasts, and the result becomes the employment forecast.
The unit manager analyzes the person – by – person, job – by – job needs in the present as well as the future. By analysing present and future requirement of the job and the skills of the applicants, this method focuses on the quality of workers.
Usually, the manager will start with a list of the jobs in the unit. This list will also record the number of job holders for each job. The manager evaluates both the numbers and skills of the present personnel. Consideration is given to the effects of expected losses due to retirement, promotion or other reasons.
Whether the losses will require replacement and what the projected growth needs will be are the questions the managers must answer and project into calculations to determine net employment needs.
In larger organizations, an HR executive at headquarters who is responsible for the employment demand forecast will improve the estimates by checking with the HR and operating manager in the field. If the units forecast their own needs, the HR executive would sum their estimates to arrive at the forecast.
One or more of these techniques can be used together to produce a single employment forecast. It is apparent that HRP requires the cooperation of many people in the organization. A strategic plan must be communicated to operational managers and HR professionals, who must in turn provide higher levels of management with data about their human resource needs.
The planners are major sources of data and information for strategy development. Thus, HRP function plays a critical role in making sure that strategy implementation is effective throughout the organization.
3. Human Resource Supply Forecasting:
The third phase of HRP is designed to answer the question, “How many and what kind of employees do I currently have in terms of the skills and training necessary for the future?”
Determining whether the firm will be able to secure employees with the necessary skills and from what sources is called an availability forecast. It helps the HR manager to determine whether the needed employees may be obtained from within the company, from outside the organization, or from a combination of the two resources.
i. Internal Sources of Supply:
Many of the workers needed for future positions may already be working for the firm. If the firm is small, management probably knows all the workers well enough to easily match their skills and aspirations with the company’s need. This unplanned process of matching people and positions may be sufficient for smaller firms.
As organizations grow, however, the matching process becomes increasingly difficult. In such cases human resources professionals are increasingly seen using both management and skills inventories.
ii. Management Inventories:
Managerial talent is an essential resource in every organization. Therefore organizations maintain better data on managers than they do on non-manager’s skills. A management inventory contains detailed information about each manager and is used to identify individuals who have the potential to move into higher level positions. Essentially this inventory provides information for replacement and promotion decisions.
It is likely to include data such as – work history and experience, educational background, assessment of strengths and weaknesses, developmental needs, promotion potential at present and with further development, current job performance, field of specialisation, job preferences, geographic perferences, career goals and aspirations, anticipated retirement data, personal history, including psychological assessments etc.
iii. Succession Planning:
Takes on a greater importance now than ever before because of the tremendous changes being confronted by management today. Keeping in mind these expected changes; organizations need to develop a profile of the type of individuals who can effectively lead the organization both now and in the future. Many companies are doing this.
One of the outcomes of a management inventory is a succession plan, which can be most useful in HRP. One form of a succession plan is The Career Planning Inventory Organization Review Chart. It gives information about people who will retire in a span of next five years, and those who will retire in subsequent five years for long – range planning. It also indicates positions unfilled and anticipated positions in future.
It also provides information about developmental programmes in which employees participate, their planned retirement dates, estimated potentials for promotions, long – range career potential with the company, current organizational level, priority development needs, potential positions, possible replacements and so on.
iv. Skills Inventories:
A skill inventory is information that is maintained on the availability and preparedness of non-managerial employees to move into higher-level positions or laterally in the organization. The process and the intent of skills inventory are same as that of management inventory, the information contained therein is somewhat different.
Generally, a skills inventory includes background and biographical data, work experience, specific skills and knowledge, Licenses or certificates held, in-house training programmes completed, previous performance appraisal evaluations, career goals.
A properly designed and updated skills inventory system permits management to readily identify employees with particular skills and match them in so far as possible to the changing needs of the company.
v. External Supply:
Sometimes an organization will have to recruit some people from outside the organization, unless there is a declining demand. However, finding and hiring new employees capable of performing immediately is quite difficult. The best source of supply varies according to industry, firm, and geographic location. Some organizations find that their best source of potential employees are colleges and universities.
Others get good results from vocational schools, competitions, or even unsolicited applications. If the company has information revealing where its present employees were recruited, it can develop statistics and project the best sources. For example, a firm may discover that graduates from a particular college or university adapt well to the firm’s environment and culture.
Others may discover from past records that majority of their more successful employees lived no more than 20 km from their place of work. This information may suggest constant recruiting efforts in that area.
Forecasting can assist not only in identifying where potential employees may be found but also in predicting the type of individuals that will likely succeed in the organization.
However, forecasting has many pitfalls, and examples of improper forecasting are numerous.
4. Action Decision in HRP:
It is the fourth phase in HRP. After the HRP has analyzed both the supply and demand for future workers, these two forecasts are compared to determine what, if any, action should be taken. Whenever there is a discrepancy between these two estimates, the organization needs to choose a course of action to eliminate the gap.
No matter how good the HRP is, an exact match between supply and demand forecasts is rare. Even when overall estimates are similar, there are frequently important gaps in certain sub-groups. These data facilitate decisions about training, promotion, demotion, and similar decisions to be made by HR specialists.
Action decisions with a shortage of employees when employment specialists comparing demand to supply find the supply of workers is less than the demand, several possibilities are open to the organization. If the shortage is small and employees are willing to work overtime, it can be filled with present employees.
If there is a shortage of highly skilled employees, training and promotions of present employees, together with recruitment of lower-skilled employees, are possibilities. This decision can also include recalling previously laid – off employees.
Intense global competition, rapid technological change, and apprehensions caused by recent workforce reductions have also led to organizations increasing their use of part – time workers, sub-contractors, and independent professionals in response to changing demands.
Using these kinds of employees given an organization far more flexibility in dealing with temporary shortages or surpluses of labour than does maintaining more traditional full time employees for all jobs.
Action decisions in surplus conditions when comparison of employee demand and supply indicates a surplus, the alternative solutions include attrition, early retirements, demotions, lay – offs and terminations.
Decisions in this condition are some of the most difficult decisions that managers need to make because employees who are considered surplus are seldom responsible for the conditions leading to surplus, which are usually shortage of raw material or poorly designed or marketed products etc.
Most organizations avoid layoffs at first by such means as attrition, early retirement, and work creation. Many organizations can reduce workforce simply by not replacing those who retire or quit (attrition). Sometimes this approach is accelerated by encouraging employees close to retirement to leave early.
Another variation to this approach is work – sharing. The organization asks all employees to work fewer hours than normal and thus share the work. Many unions favour this approach.
In managing a surplus through layoffs, employers take the surplus employees off the payroll temporarily to reduce the surplus. If the layoff is likely to be permanent or semi-permanent, it is in effect a termination and usually results in the payment of severance pay as well as unemployment compensation.
Managers use two criteria to decide whom to lay – off, merit and seniority. In the past, most senior employees were laid off last. A second approach is to lay off those with lower merit ratings. Merit means that those who do the job the best are kept; those who perform poorly are laid off. If merit ratings are not precise, unions may fight their exclusive use as a reason for laying off particular employees.
The Measurements in Human Resource Planning:
Human resource planning is concerned with the controlled utilization of human resources to achieve pre-set objectives, both short-term and long – term. The planning process aims to bring supply and demand into balance at the levels most consistent with the needs of the projected requirement, and with the assessments, of the economic and social environment prevailing and expected.
The basis for all manpower planning is information. One needs to know how to gather relevant data, to analyse manpower demand and supply, and how to apply this information to improve job efficiency and manpower utilization. Be it auditing the current situation or looking forward, information and reliable data is needed, in order to make best decisions or to move into new direction.
One needs to collect hard data in order to make future events more manageable than before. Increasingly, human resource professionals and specialist managers wanting to introduce a new manpower planning system or improve an existing one, use information as an invaluable aid in decision making. This tool is developed by systematising the processes of collecting, maintaining, analysing and reporting information.
Steps in Human Resource Planning – Process of Strategic Human Resource Planning
How could one go about doing a manpower planning for a company? An integrated human resource plan is a continuous process and requires continuous dialogue between the human resource managers, line managers, and business planners. The objective of the human resource plan is to ensure that the company would be able to maintain its competitive advantage in its market.
A few suggested steps in the process of strategic human resource planning are as follows:
1. Taking stock of company business
2. Understanding company core functions and other support functions
3. Understanding company strategy
4. Understanding the career expectations of the concerned employees
5. Understanding the current stock of competencies at functional areas
6. Estimating requirements of competencies in different functional areas
7. Estimating the internal flow of competencies at different levels
8. Assessing the external availability of competencies and their flow
1. Taking stock of company business:
The first step in a strategic human resource planning is to know and understand a company’s business both in term of volume and in range of products and services it trades with customers. This information over a period of time would give one a fairly good idea about the type of goods and services it is able to make, and the kind of growth it experienced in the recent past.
2. Understanding core and support functions:
A company pursues its business strategy in such a way that it uses a few of its departmental or divisional capabilities more intensively. Its cost advantage in these functions ensures its success.
Thus, to understand what are core and support functions, it is important to see how the growth of a company business is related to its demand for functional or departmental activities. If an aggregate business growth of say 20% a year creates a demand growth of 20% or more for function A while considerably less growth for function B, then it is quite likely function A is a core function while function B is a support activity.
In order that random environmental factors do not mask the real picture, it is important that such differential loads are checked over a period of time. A second type of analysis is to compare the cost to output ratio of different functions of the company with those of a good competitor for similar functions.
This comparison should be done over a period to eliminate statistical error on account of random change in manpower in different departments. This analysis will tell whether a company followed the right strategy in the recent past.
3. Understanding company strategy:
Once we have identified the core functions and support functions, we need to understand what the company would like to do in future. It is obvious it would like to expand business in such a way that its core functions are used more. But there could be many other strategies, e.g., it may acquire another company to add to its core functional competency. It may also enter into strategic alliance with another company with complementary skill.
Along with this business policy, one should also get a feel about the company’s broad strategy about human resources. A company may decide not to expand employment in the next few years, or it may adopt a strategy of expanded employment for certain category of employees like managerial cadre while restricted employment for low-level workers. Such broader human resource strategy is adopted based on the emerging status of the human resource environment of the company.
This broad strategy for company business and human resources would provide a general macro framework within which the company micro HR plan must be designed. Obviously this would require a close communication between the strategic planners and the HR managers. And, such communication is unlikely to be effective when it is held only occasionally.
Only when one is involved very closely on how and why certain strategies are adopted to the exclusion of others, that one could get a feel of it and be excited about it. This continuous dialogue between HR managers and line managers would reveal areas of
HR that in the context of changed business policy of the company require overhauling. Company structure, managerial development, and reward policies are quite common areas which require a fresh look when it goes for any major change in business policy.
4. Understanding the career expectations of the concerned employees:
Company employees are critical resources. As such any plan for their supply and demand must include a careful assessment of their expectations, aspirations, and their satisfactions with the existing practices. Employees join an organization to satisfy their personal career goals. Employees differ in terms of their personal goals and expectations.
Some employees would prefer very difficult and challenging jobs with considerable scope for experimentation and innovation while others may prefer careers that are less demanding for new initiative but more demanding for productivity in current activity. Some employees may prefer jobs that are more outward oriented while some employees may prefer more machine-oriented positions.
These personal preferences of employees are valuable resources and an organization would get more valuable and combatted services from its employees if it could create positions where services demands are aligned well with the preferences of the incumbents. Thus, knowledge of career goals of employees in general and managerial employees in particular could be a valuable resource which could be created only if managers care to understand their employees and their aspirations and expectations.
Sometimes an organization may find that some of its employees are not happy because of the methods it follows to arrive at their career decisions and outcomes, e.g., position, compensation, performance evaluation, developmental opportunities.
Another resource regarding the employees is to know to what extent they are satisfied with the existing HR processes of the company. An occasional employee survey done by external experts may reveal some problems in the early stage before they have started affecting the motivation and attitude of the employees.
5. Understanding current stock of competencies at functional areas:
A company’s HR plan is meant for its people assets whose objectives are to increase, decrease, or modify their number, and/or, quality, and ensure their better utilization. As such knowledge of current capital stock position and its composition is essential before any new policy is adopted to change it. In this context, a human asset approach to HR plan could be very useful.
Economists have defined assets in two ways. An entity can be considered an asset which has been acquired in the past through a valid and documented transaction process and which is still functionally active. According to this definition all unsold inventory of goods, raw materials, and plant machineries are assets because they are all acquired or produced by valid transaction process.
And, this is why all companies take stock of these items from time to time. When a company is in dire need, at least in principle it can convert some of these assets into cash by selling them in outside markets.
There is another definition of asset. According to this terminology, anything that generates services that can be sold in the market can be considered an asset, e.g., the stock of a company or a house inherited from parents. Using this definition we can also claim all employees of a company as its assets because they all collectively generate certain economic values for the company.
It is true that an employer does not have any property rights over the human capital of its employees.
But by virtue of employment contract and by voluntary commitment to work for the organization, an employee has transferred the property right of the value to be created by him/her to the company. Since asset is nothing but a cumulative service available over a period of time, we can consider all the employees as assets of the company.
A good measure of a company’s human capital stock must be prepared in terms of their various characteristics including, educational background, age, work background, expertise, attitude, and job aspirations. Since many of the individual information change with time, this must be done as a regular exercise every year.
These characteristics of the employee human capital may indicate the part of the potential economic values of the employees that the company would be able to appropriate under favourable environmental conditions.
6. Estimating the requirements of competencies in different functional areas:
On the basis of company business plan and human resource plan, operational-level manpower requirements for various functions and levels within functions must be prepared. This exercise should give not only the number of people but also the type of employees needed for executing the business plan. This demand estimate should also specify if certain positions need to be filled from inside or from outside the organization.
Some positions may require employees who are well aligned with company culture and values while there may be a few new positions which require people from outside who can bring market or customer intelligence and also some new alternative perspectives, managerial values and practices essential for execution of certain parts of the strategy.
7. Estimating the internal flow of competencies at different levels:
Internal availability of manpower and competency is one of the most important requirements for a company to maintain its competitive advantage. As they are internally developed, as long as the concerned employees are loyal members of the organization, the company is assured of their services. Since individual employee skills and competencies change from internal work experiences, the internal availability or flow of competencies and people could depend on a number of factors.
Some of them are described here:
i. Current employee demography:
A company with a skewed demography where a lot of its current employees are going to retire soon will have difficulty in getting adequate number of employees in the near future. Similarly, a company where most of the managerial employees are fresh recruits from college is likely to face shortage of competencies that are built only by working in certain positions for a few years.
ii. Internal HR policies:
Employees move through various levels on the basis of company’s internal HR policies of manpower development and career management. A company which is very strict in evaluating and promoting its employees to higher positions may experience shortage of employees in senior positions.
On the other hand, a company which is very liberal in promoting employees to higher level positions may experience the problem of too many employees in middle layer because there are a limited number of positions in higher levels.
iii. Current distribution of employees in different functions and different levels:
Since employees move up in hierarchy from various lower levels through an internal career-management system, the number of employees in lower levels would be a critical factor in meeting demands for employees in higher levels.
8. Estimating the external availability of competencies and their flow:
External availability of manpower and competencies may depend on many external and internal factors.
Some of the important ones are as follows:
i. Local area population and their demography:
If a company’s plant is located in a remote area with limited local population, it is quite likely it will face difficulty in attracting very many job seekers.
Some of the coal and metal mining areas of the country suffer from poor local supply. Many of them resort to importing manpower from neighbouring states and other areas. On the other hand, the plant of the same company which is located in an urban metropolitan centre will have no difficulty in getting adequate number of employees from local markets.
In fact while hiring employees, many such companies that are located in metropolitan centre face the reverse problem of how to choose the right employees from a huge pool of potential candidates.
ii. Local supply of academic and other human capital development institutes:
Academic institutes are the places where young people go to acquire knowledge and analytical skills. They acquire expertise on different subjects which are useful for working in a business. Example – If a company is doing business that uses a lot of chemical engineers, then the presence of an engineering institute nearby that offers engineering degree with specialization in chemical engineering would assure good supply of chemical engineers.
On the other hand, if the local college offers engineering programmes in all disciplines except in chemical engineering, then the company business strategy could get affected due to poor local supply of professional manpower. It may have to plan for acquiring chemical engineers from distant places and at a higher cost or may be through long-term internal development of diploma holders through carefully designed internal development process.
iii. Demand for manpower from local industries:
External manpower supply to a company would depend very much on what is the level of demand for similar manpower in other industries in the local area. If you are looking for say 10 fresh electrical engineering graduates with a degree in electrical engineering and a local engineering college is producing just 20 or so graduate engineers, then you may not get adequate number of applicants if there are other industries which are also looking for electrical engineers.
In other words, in your assessment of local availability of manpower of certain kinds, you should consider the demand of similar manpower in other companies in your neighbourhood.
iv. Demand for similar manpower in national market:
Manpower supply to a company in general and supply of professionally qualified manpower in particular depends on the availability of manpower in the national market. This is because professionally qualified manpower has higher mobility across states, any shortage in a local market is likely to get adjusted by supply from national market. This means the supply of professional manpower in a company will be affected by the total demand of similar manpower in the national market.
In times of heavy demand for qualified manpower at national level, a company may face great difficulty in getting adequate number of applicants for its new positions. This has been the situation in BPO industries in India for the last many years until it hit the recession rock in late 2008 when there was a glut in external supply of qualified manpower in all the metros.
v. Popularity of local area as a place to live and work for families:
Every employee is a member of two organizations, viz., his company and his family. Family as an organization requires certain goods and services from the surrounding social environment. If those goods and services are not available according to the need of the family, an employee may feel discomfort and stress which may affect his/her performance and commitment in the company.
If a company is located in a place where local availability of family-related goods and services is poor, a company would have hard time attracting high quality employees from the external market. Some of the goods and services that affect an individual’s decision to accept job offer are schooling facility for children, day care facility for babies, career opportunity for spouse, good health care, and housing.
vi. Company image as a fair employer:
A company could have a dented image as an employer because of unfair retrenchment of a few employees in the recent past. Such companies may have difficulty in attracting quality employees for good many years. On the other hand, a company, which has established good reputation as a fair and good paying employer over a period of time, will have no difficulty in filling up vacant position from local or national labour markets.
vii. Company current HR policies:
A company’s current HR policy influences prospective employees’ perception about the company as an employer which in turn affects their intention to seek employment there. A company that has unattractive employee career management policy is unlikely to get good many applications from talented candidates. On the other hand, a company that cares for the growth of its employee’s career and invests on their development will be able to attract good many candidates without any difficulty.
viii. Identify gap between supply and demand:
Make an estimate of the gap between demand for and supply of manpower of different characteristics at different points in time in future. It is to be kept in mind that based on the company business plan, this gap can be both positive and negative. Even a negative gap which means supply is more than demand does not mean the company is doomed!
For certain types of organizations, e.g., an organization working on long-term projects where manpower demands go over various cyclical phases, such short-term ups and downs are natural and one must prepare a perspective plan for at least eight-nine years to see if indeed there is heavy surplus or insurmountable shortage. Carrying a small slack is desirable where skill is in short supply.
ix. Prepare list of actions at HR level to deal with anticipated shortage and/or surplus:
For sustained shortage or surplus preparing a list of remedial action by way of recruitment or redeployment, and outplacement including voluntary reduction may save a lot of managerial time that may otherwise go into finding the right action.
While preparing this plan it is important to keep in mind that some parts of the shortage or surplus picture for manpower could be due to volatile nature of business and not necessarily due to poor manpower planning. While estimating manpower requirements for a function or a department, one would be better off if one takes a long-term view of company business.
x. Send the anticipated shortage and surplus information to strategic planners:
It is important to keep the strategic planners updated on the operational exercise and its outcome in terms of shortage, surplus, or fund requirements for internal manpower development at HR level. Such information may sometimes give rise to modification of the existing business strategy or the emergence of a new strategy.
xi. Who should do the HR planning?
Both human resource managers and the line managers must be involved in strategic HR planning. However, there are lots of activities in which the HR managers have better understanding and access to relevant data. There are activities which are very structured and data based, and the HR department has full access to these resources.
Considering that line managers have other operational responsibilities, they may be relieved from doing such operational part of the HR planning. But they must be involved when unstructured information, e.g., understanding the suitability of a person for a position, needs to be processed.
xii. Going beyond—developing organizational knowledge stock:
In this connection, it is to be kept in mind that sometimes shortage or surplus may be a symptom of general malaise or misfit of a company’s HR policies and environmental demand. The areas of particular concerns are company policies for recruitment and selection, training and development, performance appraisal, and reward and compensation policies, and how they fit with the company’s internal and external human resource environment.
Thus, when an estimation of internal supply and demand throws up a huge gap over a period, it is desirable to take a fresh look at all the HR policies of the company to see if they are consistent with the new environmental conditions and the company’s new business policies. Without a thorough analysis of these macro sides of an organization’s HR, a mere estimation of demand and supply gap and remedial action by way of external acquisition or retrenchment cannot prevent the problem from occurring again and again.
If a company’s objective is to develop HR system as a principal driver for its competitive advantage, then as a strategic planner it should document its experience of using different components of HR over a period of time both in terms of inputs in the form of managerial time, actions and in terms of outcomes in the form of individual, group, and unit-level performance.
A company should track the career of a few of its best managers and see how their career developed over time, where they worked, and under which supervisors. This information could be valuable resource for its next level of innovation in HR package.