By John Clarke
Jan. 29, 2010
In the last 12 months, hundreds of companies around the world have announced and executed large involuntary reductions in force. This list of companies is a who’s who of corporations across all industries, including automotive, banking, manufacturing and retail.
So what happened? Why were these companies forced to make abrupt, costly and disruptive labor reductions? One reason we’ve seen put forth is that nobody truly understood the speed and depth of this economic downturn. And, most people we speak with seem to accept that fact as the sole reason and move on. But if you dig a little deeper into this issue of mass layoffs, you’ll see that most of these companies have been using large-scale involuntary reductions in force for years.
The automotive and airline industries have been doing mass layoffs since 9/11. Most industries over the span of five to 10 years go through a period of growth (hire, hire, hire) and then, when the economy turns, are forced to make large adjustments (fire, fire, fire). This yo-yo effect can have devastating consequences, not only to a company’s balance sheet and morale, but, more important, to shareholder value.
Is there a better way? Can the yo-yo effect be broken? Yes, it can.
At Deloitte, we believe the foundation of an effective and economical talent strategy is workforce planning and labor optimization. This is not the lip-service exercise that takes place in many organizations, however. In those organizations, senior management teams could get away with waste as long as revenue grew year over year and the company stock price provided a growing return on investment. Many of companies treated the workforce planning process as an annual HR exercise, where they set their talent goals in early fall for the next year and then reviewed results the following year, only reporting on historical metrics with no ability to change course and anticipate problems before they happened.
What we champion is something very different, and we can see the change taking place in companies’ finance and HR organizations, with this economy driving that change. We see companies today taking these steps:
• Workforce planning is no longer just an HR exercise or responsibility. Typically, labor is one of the top three largest P&L line items. It is now getting the attention of the C-suite with both finance and HR leading the way.
• Companies no longer have an annual process. It’s done quarterly, at a minimum. We recommend monthly. One of our clients does it every pay period. Very smart, considering companies spend large sums of money every payday, and once you burn cash, you can’t get it back.
• Companies are no longer looking at just HR data, but are expanding their data sources to include finance, operations, sales and other critical internal data. And they are not stopping there. Some companies source key external data, such as macroeconomic data (GDP, housing, unemployment and car sales) to get an even deeper understanding of the external marketplace and its potential impact on their business.
• And, in the most important shift we see, some companies are using advanced analytical techniques, such as predictive modeling, to no longer just report on what happened, but to anticipate and predict workforce demand. This is where the game is changing. A company’s ability to more accurately predict and monitor demand can give it a significant competitive advantage. Better aligning your workforce supply to your demand can give you more time to source or redeploy needed talent, avoiding large-scale hiring surges and layoffs.
While most companies have undertaken a rigorous approach to putting a value on their supply chain optimization efforts, relatively few have put in place ongoing, sustainable approaches to measuring the impact of workforce planning and labor optimization. Typically, events such as an acquisition or a sudden economic downturn cause companies to put in single-event processes for determining the number of people they need and measuring the financial savings. These typically take the form of project teams armed with spreadsheets, trying to gather information and produce point-in-time financial savings reports. These efforts generally are inefficient and unsustainable. They last for a few months, and any initial savings generated are eroded as the company goes back to business as usual.
Ongoing and sustainable workforce planning and labor optimization can be applied to each of the following decisions:
• Hiring a new employee into the company
• Investing in an existing employee, resulting in a promotion or redeployment
• Terminating or demoting an employee
|Best practices in developing a new approach to workforce intelligence:|
|Get in front of problems: Don’t just report on what happened, but use advanced analytics to anticipate and predict what might happen.|
|Expand the data: Go beyond HR data to include finance, operations and sales data. Tap external data too.|
|Go macro to micro. Don’t just deliver enterprise reports. Take the data gathering down to the individual level.|
|Learn, adapt and improve. Any application of workforce intelligence must follow through to the results. By monitoring, measuring and publicizing results, you can build confidence and begin to embed workforce intelligence in the organization’s culture. Get started. Learn from experience. Adapt and improve as required.|
Companies already have some tools and processes in place to help make these decisions, but there is tremendous benefit to improving on their timing and scale. Typically, companies are too late in making these decisions and thus are forced to make decisions on large groups of employees all at once.
The alternative to mass hiring, training or layoff decisions is putting in place a process that allows for much quicker micro-decisions on individual employees. This requires new approaches for understanding the workforce demand at a much more detailed level. For example, a large telecommunications company has been able to streamline and accelerate the workforce decision process (who should stay, who should be redeployed and who should leave the business) by re-engineering their process and accelerating the decision process with advanced technology. By improving the process they not only created a best practice for the organization, but also were able to deliver hard-dollar savings back to the business in excess of $5 million annually.
Current methodologies for predicting workforce demand include tribal wisdom (“Let’s ask our top managers in the field”), high-level economic trend analysis and pipeline analysis. Often companies use all three, but rarely is this information stitched together in a way to give both senior management and line management a common view across time. Adding to the difficulty is the need to understand how different critical workforce segments require different hiring lead times. For example, nuclear engineers cannot be hired in a hurry. Call center sales representatives can.
It is easy to see how workforce planning and labor optimization can quickly become complex. That is why it is vital to start with a simple, scalable design that will begin to deliver value early in the process. The starting point and scale should be carefully constructed and tied back to a specific benefit that can be monitored. A simple place to begin is with the supply component—your current workforce—and do some basic analytics, such as attrition metrics. As you gain experience with the business issues, data and technology, move to the more complex demand component and then scenario planning. This gradual process will help you better manage the complexities that come into play. In the end, decision makers must begin to see the information they need to make daily hire, redeploy and fire decisions. This requires a combination of people, process, technology and data. These solutions must be built and delivered in a way that will be sustainable and become part of the way a company does business.
While you may never be able to predict the stock market, interest rates and other complex economic indicators, you can do better at proactively making small adjustments to your workforce sooner, thus better positioning your organization to realize significant benefits and avoid mass workforce disruptions.
The information contained in this article is intended to provide useful information on the topic covered but is not a substitute for professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Copyright © 2009 Deloitte Development LLC. All rights reserved.
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