The reasons are simple: with the current economy driving revenues down dramatically, many senior executives are examining how to plan ahead in order to increase their firms’ capabilities, reduce costs, and survive the economic chaos likely to continue for some time.

Organizations need an effective talent management plan that will allow them to “explode out of the box” at the first sight of economic recovery, yet one that doesn’t threaten economic sustainability in the short term.

While most in talent management are continuing to react with stale cost containment approaches developed decades ago, strategic talent managers are stepping forward with robust workforce planning solutions and new work models that account for the significant changes in both how people work and live that have occurred in the last 20 years.

If you are interested in doing more than talking about being strategic, here are some recommended action steps to help improve your organization’s workforce planning.

What the Heck is Workforce Planning?

It might seem like a simple question, but there is little to no agreement among HR and talent management professionals as to what constitutes workforce planning. To some, it’s mostly an administrative activity that reports on historical changes to headcount and forecasts likely changes based on historical trends (i.e., headcount planning).

To others, it is a more strategic effort designed to forecast talent needs, talent supply, and the ability of existing HR programs and activities to align the two.

The more strategic variant looks at both internal and external trends and predicts what will be needed to recruit, develop and redeploy “just the right amount” of talent to meet specified business needs. The definition of workforce planning I prefer is:

“Workforce planning is an integrated and forward looking process that is designed to predict (what, when, how much) will likely happen in talent management and then to provide action plans that will cause managers to act in the prescribed way. As a result of the planning process, managers will be able to avoid or mitigate people problems, take advantage of talent opportunities and to improve the “talent pipeline,” so that your organization will have the needed “people capabilities” required to meet your business goals and to build a competitive advantage over other firms.”

Goals of Workforce Planning

Once again, not everyone agrees on what workforce planning is, but generally speaking, there are eight major goals for workforce planning that everyone should agree make sense. These goals relate to an organizational capability to:

1. Reduce labor costs rapidly without negatively impacting productivity.
2. Identify and prepare leaders and managers for future openings.
3. Fill “sudden vacancies” in key roles immediately with capable talent.
4. Maintain a flexible contingent workforce.
5. Proactively move talent internally to maximize the return on talent.
6. Target retention activities on key talent.
7. Identify mechanisms to rapidly hire needed talent.
8. Increase the overall productivity of the workforce.

Key Programs within Workforce Planning

There is no standard array of programs that define every organizations’ workforce planning effort. No matter what you end up doing, your programs will largely fall into one of two areas.

The first area focuses on increasing organizational capability through talent, and common programs in each area include:

• Forecasting the future needs, talent availability, and potential talent problems.
• Succession planning and leadership development.
• Forecasted recruiting plans.
• Workforce innovation management.
• Retention planning.
• Immediate “backfill” planning (To fill sudden openings in key positions).
• Internal re-deployment and “right job” placement planning.
• Merger and acquisition integration plans.

The second area focuses on decreasing labor costs, and common programs in each area include:

• Contingency/contract labor workforce planning.
• Workforce outsource planning.
• Reduction in force planning.

Benchmark Firms

In my experience, these are the firms to study:

• Microsoft
• KLA Tencor
• Valero
• WellPoint
• U.S. Marines
• Google
• Eli Lilly
• Qualcomm
• Intel
• GE
• P&G
• Booz Allen
• Toyota
• NASA
• Starbucks

Workforce Actions That ‘Fit’ the Current Environment

The most effective workforce plans are not developed over a long period and then implemented all at once. Instead, while some plans are being developed, talent management leaders simultaneously take action to resolve immediate needs.

If your company is struggling in the current economic environment, five of the key action steps that you should consider immediately are listed below.

Action Step I – Labor cost containment/headcount reduction

I am not alone in forecasting the fact that the decrease in revenues that businesses are facing will continue for at least another year. Whether that actually happens or not, it’s always a good idea to prepare for the “worst-case scenario” and hope that your plan is not needed.

Start with position prioritization, a process that identifies which key positions, key individuals, and key skill sets will have the most business impact during the next two years. Once you prioritize, you can then focus on retention, redeployment, and development efforts on the most impactful positions.

A related step is to develop a process to effectively identify and “control” all forms of labor costs throughout the organization (that includes full-time employees, part-timers, contractors, consultants, strategic partner labor, and outsourced labor).

The next step involves developing the capability of reducing “labor costs” and headcount in the lower priority positions. That might include “mock layoffs” and designating lower priority positions as “contingent labor” positions. Other options to consider include labor wage arbitrage (moving labor to lower-cost areas) or outsourcing with contracts that allow you to rapidly reduce outsourcing costs as your needs decrease.

Action Step II – Increase the internal movement of key employees

As business needs change, it’s important to develop processes that don’t leave the internal movement of talent into the “right job” to chance (as most internal job posting system’s do). I recommend that you develop a proactive redeployment process and plan to move your top performers and highly skilled individuals out of less essential business units and into units and jobs where they can have a greater impact.

The goal is to make sure that you don’t have a “Michael Jordan” playing “baseball” within your organization, when his impact would be significantly greater if he was proactively moved into “basketball.”

The right job can be defined as having your top performers and highly skilled individuals:

• Doing what they do best;
• With the right skill set for the job and business unit;
• With the right tools, resources, and motivators;
• With the right manager; and
• With the right teammates.

Action Step III – Increase the retention of key employees

Most organizations literally “forget” about retention during tough economic times because they assume that their employees will put security over external opportunity.

Unfortunately, that would be a mistake because the seeds for foundation of top performer turnover begin long before they decide to leave the firm. “How you treat your current employees now,” will directly impact their willingness to stay later on when the economy turns around. If your firm has been using hiring freezes, pay cuts, furloughs and layoffs recently, your key employees are likely to be frustrated and overworked. It’s also true that some firms have learned to continue hiring while simultaneously releasing employees.

This “churn” means that recruiters in some industries, firms and regions are still targeting your very best.

The best retention plans first identify the things that excite and frustrate your key workers and then provide a plan for increasing their level of excitement, challenge, learning, and opportunity within the firm.

The last but most important action step is to develop a “bad manager identification program” because bad managers are the number one cause of employee turnover. [For more information on setting up a Bad Manager Identification Program, click here.]

Action Step IV – Reinvigorate your succession plan

If your firm has undergone layoffs, hiring freezes, and reductions in college hiring, you are likely setting up your organization for a future “talent pool gap.” What this means is that by failing to hire and develop talent over a period of even a few years, there simply won’t be enough available talent to fill future management leadership positions when growth begins. This will slow promotions because there just isn’t anyone internally to replace them. This will make the predicted “leadership gap” even worse.

The best course of action is adopt your own “churn” approach to maintain some minimal level of hiring and development to minimize the possibility of any future internal talent pool gap. A related option is to implement a talent SWAP approach, where you continually “troll” for top talent and then replace bottom and average performers only when you find an exceptional replacement.

Action Step V – Prepare to “explode out of the box”

The final action step is to develop a plan that enables your firm to have sufficient talent to enable it to “explode out of the box” the minute that your firm’s revenues begin to turn around. That means retaining your very best recruiters on staff and having them focus on developing Web 2.0 recruiting tools. It’s equally important to maintain the two most-impactful recruiting programs, employee referrals, and employment branding.

Develop a “boomerang” program that tracks and maintains a relationship with the very best employees you must release. The goal is to be able to almost immediately rehire some of the proven talent that you lost.

Final Thoughts

The basic premise of workforce planning is that it’s better to be prepared than surprised. It might seem counter-intuitive to try to plan during times where uncertainty is so high, but that would be a mistake.

During times of turmoil, almost any forecasting and planning will produce higher business impacts than reacting to unforeseen events without a plan. Fortunately, if you’re personally interested in workforce planning, you’re likely to find that no one actually has the formal authority to “own it” at the present time, so you can seize the opportunity and become known as the person who can see around corners. During turbulent times, you will find that no one will be considered more valuable than someone who is not “surprised” by the future!

Free Workforce Planning Handbook: If you are interested in reading in-depth about workforce planning, I have compiled a number of articles into “The Workforce Planning Handbook,” a 240+ page electronic book which is available at no cost for evaluation purposes at www.drjohnssullivan.com. Once registered and logged in, click on “Publications,” then click on “Draft Books.” It’s free to download.

It defined succession planning and why recruiters can and should play a role in a modern, world-class succession planning program. Part one also concluded by listing a series of metrics to evaluate existing programs based on their usage and design.

In part two, the focus will shift away from discussing what makes a great program to covering metrics that demonstrate what a great program accomplishes.

Part B: Plan Output or Success Measures

Group 3 – Output measures of plan success

The best plans have goals (and measures) that cover each of these areas:

1. Percentage of all management positions filled by internal candidates (this is the broadest measure of development success because it covers all management and leadership positions). A high rate of internal placement (vs. external hires) can be considered as an indication that development efforts have been successful.
2. The success rate of external hires over internal moves for plan jobs. Good development should result in a higher success rate (performance and retention) for internal moves.
3. Percentage of interviewees for plan positions whose positions are designated as ideal jobs for stretch assignments. Ideally, 100% of the interviewees for open plan positions will be “on” the succession plan.
4. Percentage of actual movers on the plan, where “movers” are the individuals who were actually transferred to or promoted into any designated plan position. Ideally, 100% of those actually selected from the interviews will come from the plan.
5. Percentage of movers without the most tenure in the job. Natural movement generally means the candidate with the most tenure will receive the nod. Effective succession planning periodically selects a “not so obvious” candidate from those being interviewed.
6. Percentage of movers from another department/business unit (again, “natural” movement generally means most positions are filled from within a department).
7. Percentage of movers who jumped a level (natural movement generally means promoting individuals “up” one level). Successful succession planning occasionally promotes individuals more than one level up.
8. Percentage of “on plan” movers who get promoted again (if a promoted individual is promoted again within three years, that can be considered as an indication that the first promotion was successful).
9. Percentage of movers placed in their targeted business cycle. Innovators are placed in departments or business units that require innovation (i.e., start up business units). On the other end of a business cycle, efficiency experts are placed in cost-cutting or commodity business units, where their skills are a better fit to the business cycle that the unit is in.
10. Percentage of job openings predicted accurately (successful plans prepare the individuals for movement at a designated time. Plans that successfully forecast openings within six months of their “projected time” are more effective than those that prepare individuals well before or way after they are needed).
11. Percentage of jobs with a defined back-fill person for sudden openings. In some plans, having “backfill” replacements are considered to be a separate plan element. Effective plans have pre-identified qualified and tested individuals that can immediately fill a sudden “unplanned” opening, without a loss in productivity.

Group 4 — Indications of plan failure

In addition to the factors that make a plan successful, there are some events that demonstrate the plan has, at least in part, failed. Indications of obvious failure include:

1. Percentage of “on plan” movers who fail during their first movement after being put on the plan (an individual who must be removed from their first placement because of a bad “fit” or performance must be considered a failure).
2. Percentage of movers who fail to stay in the “moved” position for at least two years (if someone must be removed or they voluntarily leave a position that they’ve been placed in, the placement can be considered a failure because of the obvious negative impact that it will have on business performance).
3. Percentage of individuals on the plan who fail to stay with the firm at least four years (retention rates are important, so you must consider it a failure whenever someone on the succession plan is forced out or voluntarily leaves the firm).
4. Positions filled by external hires who were not “on the plan” (if a plan has a provision for including external candidates in your succession hierarchy, consider it a major failure each time an “off plan” external hire is made).
5. Percentage of individuals who are removed from the plan. It is essential to keep the plan vibrant by periodically “dropping” those who have failed to meet their development or performance targets. However, too high of a percentage being removed each year must be considered as either a failure in selection or a failure in development.
6. Percentage of plan jobs vacant for more than 30 days. Effective succession processes fill plan openings rapidly, because the ideal candidate was successfully developed and prepared in advance. As a result, whenever a plan position remains vacant for more than 30 days or when it must be filled with an unplanned “interim” individual, it must be considered as a failure.
7. Percentage of “not promoted” finalists who leave in frustration within one year. Whenever someone on the plan is moved into a plan position, obviously you have been successful. However, if any of the other “finalists” who were “interviewed” but later rejected for a particular position leave the firm within a year, consider that promotion at least a partial failure. Turnover among second or third choices is not unusual, but it should be prevented whenever possible because of the high costs associated with losing any individual with sufficient qualifications to be considered a finalist.

Group 5 — Measures of direct business impacts

The most powerful measures are those that demonstrate a measurable impact both on leadership development and business results. The three most direct measures of business impact are:

1. Dollars saved by avoiding the added cost of outside hires. On average, external candidates for leadership positions and mission-critical roles receive a significantly higher salary than internal hires (some studies show the variance as high as 165%). Because of this cost differential, one of the most obvious advantages of effective succession planning is the cost-savings resulting from selecting a larger percentage of internal candidates.
2. Percentage increase in team performance six to 12 months after a plan employee is moved into a leadership position. Less-direct measures of successful placements might include the percentage of bonus the mover receives (compared to the average), their performance appraisal score while in the job, or their relative ranking in forced-ranking exercises.
3. The cost of avoided errors. The total dollar costs of errors that would have occurred if leadership positions were vacant too long or if they were filled by below-average leadership talent.
4. Program ROI exceeds that of other HR programs (successful plans demonstrate to cynical CFOs that their benefits and dollar impact well exceed their costs).

Final Thoughts

When times are tough, a common characteristic of “survivors” is often their ability to shift their focus toward new and developing business needs. Obviously, when budgets are tight, headcounts aren’t likely to grow, but the need for great leadership talent will actually increase (because it takes great leadership to manage under severe budget constraints).

If you want to increase your visibility and business impact, now’s the time to get involved in succession planning. Given the upcoming baby boom retirements, and limits on recruiting actual talent, the shortage of internal leadership and mission-critical talent will soon become the top HR issue.

The most likely answer to that question is no, because nearly 90 percent of the attendees at the “Workforce Planning” workshop at today’s ERE Expo in San Diego said their companies only had basic workforce planning models in place, and those traditional models don’t forecast human capital needs based upon possible future business scenarios.

“Too often the first step in the workforce planning process happens when the requisition is received, and that’s too late,” said Ed Newman, president of the Newman Group, who facilitated the workshop. Newman says that intermediate-level workforce planning combines workforce analytics with scenario modeling to look at how future business circumstances may impact retention and future hiring needs.

An example of the “what if” modeling strategy cited by Newman was the golden handcuffs scenario, which contemplates the impact of future stock prices on the company’s executive compensation plan. The model projects scenarios where the company’s executives might be vulnerable to poaching based upon future stock option vesting dates at a range of stock prices.

The most advanced level of workforce planning dovetails talent plans with business and financial planning, thus enabling organizations to achieve a comprehensive workforce plan that’s aligned with the business strategy. This high level planning facilitates business decisions. Only two attendees said their companies were currently planning at an advanced level.

An example of when advanced planning capabilities are required is when companies upgrade talent and employee skillsets to meet competitive pressures. A workforce segmentation plan defines the positions that are critical to driving the new strategy and those that are not. From there, the gaps in the workforce are uncovered and employees can be sourced, developed or redirected to meet the new business model.

“It’s important to understand the business strategy at the most finite level, so you can align the workforce plan, identify the gaps, and then build action plans to close them,” says Newman.

All talent gaps are closed in one of four ways according to Newman:

• Build:develop internal talent to fill openings

• Buy: acquire talent externally

• Borrow: augment headcount with contract or temporary labor

• Bounce: planned attrition

In the afternoon, the workshop attendees participated in hands-on exercises led by Mitzi Adwell, talent management practice leader for the Newman Group. Participants forecasted hiring needs, prioritized talent acquisition schedules, authored plans to close workforce gaps, and aligned workforce analytic fundamentals with business plans.

Practical application of the skills seemed to be just what the attendees wanted, because Newman says that all workforce plans must be updated at least quarterly to maintain efficacy, so having a strong comfort with the required skills is vital. Newman further commented that no matter how detailed the analytics, the plans are largely based on estimates, so if it takes HR one year or longer to complete the plan, it will be outdated before it’s implemented. Given the fact that the majority of today’s hot jobs didn’t even exist in 2004, HR professionals need to hone their workforce planning skills, because the only constant in business is that shift happens.

Among the survey’s key findings: The number of respondents citing that retaining key employees and maintaining intellectual capital were the human capital issues of most concern rose from 38% in the prior survey to 68% in the current survey. Also 70% of respondents in the recent survey said that the impact of the aging workforce will reach beyond the members of the C-suite to members of middle management, compared to 48% in the last survey.

One of the gaps noted in the survey is around succession planning activity. The survey noted that senior-level executive positions is where 75% of HR executives say they are focusing their succession planning time and efforts, while 41% of respondents say that the retirement of middle managers is the area most likely to be affected by the brain drain and skill shortages. According to the survey, lack of succession planning for middle managers is resulting in unplanned turnover and higher recruiting costs.

“One of the key findings in the survey is that middle management is going to be more affected by the retirement of the baby boomers, but succession planning stops at the top executive levels,” says Bill Arnone, principal with the Ernst & Young Employee Financial Services Practice. “There’s been a great deal of slimming down at the middle management level, so now those employees play a vital role in company operations, and because there are fewer of them, any loss can impact wisdom continuity.”

While the survey reveals that companies are aware of the potential impact of retiring middle management boomers, few have engaged in formal workforce planning activities, so some retirements are catching HR executives by surprise.

“I think one of the biggest lessons from this survey is know your workforce,” says Arnone. “Companies are having a tough time knowing how many workers are likely to retire. They need to move beyond anecdotal evidence, so they aren’t finding out about the loss of a valuable older worker at the eleventh hour.”

Another key survey finding was that most HR executives have engaged in some planning and solution-driven activity surrounding the aging workforce issue; however, Anone says that in looking at the survey responses, no one company or HR leader has created a comprehensive solution for the entire challenge. That leads him to believe that the position of competitive leader is up for grabs.

“I really didn’t see that any one company has developed an encompassing strategic model to deal with the aging workforce issue,” says Arnone. “The company that figures it out will have a clear competitive advantage.”

-This article has been corrected from an earlier version.