66 Long Range Planning, Vol. 21, No. 1, pp. 66 to 72, 1988 Printed in Great Britain

0024~301/88 $3.00 + .OO Pcrgarnon Journals Ltd.

Strategic Planning for Human Resources Let’s Get Started Stella A4. Nkomo

This article sets forth a basic starting framework for a strategic human resource planning system. The framework involves several complex subsystems which require sustained effort and persistence in developing a workable model. The incom- plete practices often used by organizations run the risk of reducing human resource planning to an unproductive management activity, instead of recognizing it as an important component in the total strategic planning process of a business.

Introduction In recent years considerable attention has been focused on strategic human resource planning as a means of directly linking organizational goals and stratcgics to human resource objectives and programmcs.’ ’ Governmental, economic, sociocul- tural and demographic changes during the 1970s are often cited as a major impetus for this heightened intcrcst.5 Advocates of human resource planning argue that the USC of formal human resource planning models in organizations will contribute to the effective and cfflcicnt utilization of human resources. While numerous models and approaches to human resource planning have been dcvcloped and proposed, a recent survcyh of Fortune 500 firms indicated that while 54 per cent of the firms prepare formal strategic human resource plans, only a small fraction (15 per cent) are currently using comprc- hensive systems. The few firms using fully inte- grated strategic human resource planning systems reported significant benefits in the areas of labour costs savings, employee satisfaction, employee pro- ductivity, management development and stafling effectiveness. Managers also felt that there had been a positive impact on overall organization perfor- mance.

Further, few firms in the survey report an integral

Stella M. Nkomo is Assistant Professor in the Department of Business Administration at the University of North Carolina at Charlotte.

linkage between human resource planning and strategic business planning. Strategic human resource planning efforts appear to be carried out in isolation from strategic business planning or human resource planning decisions are trcatcd solely as a derivative of strategic business planning rather than a primary function. What is clear from this survey is that formal strategic human resource planning is still in its infancy even among Fortune 500 firms. This result suggests that the literature is far ahead of actual organizational practices.

These findings raise an important question. Why have so few firms dcvcloped comprchcnsive stratc- gic human resource planning systems? Many poss- ible explanations exist. First, despite the lip service given to the clichk ‘Pcoplc arc our most important asset’, in many organizations people are viewed as an operating cost and not as a major corporate resource or investment. Most well-operated companies rou- tinely apply the ‘return on investment’ concept to

their financial and production operations, yet fail to apply this concept to the management of their human rcsourccs. The prevailing assumption of most line managers is that appropriate human rcsourccs can bc found on short notice. Second, strategic planning for human rcsourccs has generally lagged behind planning for capital and financial resources. The human rcsourcc dimension of plan- ning has been largely treated as a short-term implementation issue rather than a driving force in the formulation of strategic plans. As a result most human resource planning has been essentially ‘employment planning’-the extrapolation of future human resource needs from the number of employees on the current payroll with little know- ledge and understanding of the strategic business objectives of the organization. The irony of this reality has been aptly described by Skinner:’

So the ultimate irony is that the personnel function--which deals with the most fundamental and central corporate competitive resource and that has the longest time horizon of

any function-is left with no long-range strategy and allowed to react mcrcly to transient pressures and events. (p. 112)

Finally, many organizations lack the necessary expertise to effectively formulate strategic human resource plans. Miller and Burack’ in a survey of 200 human resource planning professionals found a large discrepancy between the current abilities of such planners and the requisite skills nccdcd to implement human resource planning. Dyer” has made a similar observation. Before strategic human rcsourcc planning can make a significant contribu- tion to organizational performance, it must be implemented correctly. Adopting a strategic approach to human resource planning requires an understanding of the essential features of such an approach. The rcmaindcr of this article presents a working framework of the major components of strategic human resource planning.

The Concept of Strategic Human Resource Planning De$ifinitiotl An adcquatc definition of strategic human rcsourcc planning must use as a base the two essential clcments of planning-objectives and means.‘” Con- ceptually, we can view planning as consisting of three separate but intcrrclatcd activities: (1) cstab- lishing objectives; (2) developing strategies; and (3) formulating specific plans and programmes to achieve objectives. Strategic human resource plan- ning may be generally dcflncd as the process used to

Strategic Planning for Human Resources 67

establish human resource objectives, to develop strategies for attaining objectives and to identify policies governing the acquisition, utilization, de- velopment and maintenance ofhuman resources. At the strategic level of human resource planning the focus is relatively long-term (three to five years) and essentially addresses two broad questions:” (1) What kinds of people will be needed to manage and run the organization in the future to meet strategic business objectives? and (2) How can human resource programmes bc designed to deal effectively with environmental contingencies and pressures? There are csscntially six key elements in a strategic human rcsourcc planning system. These elements and their interrelationships are shown in Figure 1. Each of these elements is briefly outlined.

Environmental Analysis This step entails the systematic identification and analysis of key trends and forces in the external environment having a potential impact on the management of an organization’s human rcsourccs. Changes taking place in the technological, ccon- omit, sociocultural, legal/regulatory and labour market environment must be monitored for their impact on human resource policies and pro- grammcs. Objective knowledge about the environ- ment is needed in the human resource strategy- making process in order to achicvc compatibility between the human resource management system and the external forces that affect, directly or indirectly, its goals, structure, size, policies, pro- cedurcs or operations. If strategic human resource planning is to play a proactive role in the strategic

ANALYSIS OF BUSINESS OBJECTIVES AND ____--------------------E~al~at~o~~Re~~e~-~~~---~~~---~~~

STRATEGIES

HUMAN RESOURCE DEMAND FORECAST

\ \

\

‘Legal/Regulatory *Social/Cultural *Labor Market

HUMAN RESOURCE STRATEGIC HUMAN HUMAN THREATS AND --_, HUMANRESOURCE + RESOURCE --+ RESOURCE - OPPORTUNITIES ISSUES OBJECTIVES STRATEGIES

INTERNAL HUMAN RESOURCE ANALYSIS

Micro Level

*Employee Skill Levels *Productivity *Employee Mix *Managerial Competence *Etc.

Macro Level

STRENGTHS AND WEAKNESSES

I

” RESOURCE FUNCTIONAL

*Succession Plans *Compensation

‘igurc 1. A conceptual model of strategic human rcsourcc planning

68 Long Range Planning Vol. 21 Fcbr uary 1988

planning process, a human resource oriented cn- vironmental scanning system becomes essential. Major environmental changes with human resource implications should bc considcrcd prior to the sclcction of strategic alternatives. Figure 2 gives a simple overview of the role of environmental analysis in strategic human resource planning. In order to effectively link the results of the analysis to strategic human rcsourcc planning two questions must be addressed: (1) What is the potential impact of the environmental changes idcntificd on human rcsourcc policies and programmcs? and (2) What is the potential impact of human resource issues on current and proposed organization objectives and strategies? The value of this analysis rests in its anticipation and identification of human rcsourcc opportunities and threats. As shown in Figure 2, environmental analysis is not a one-time effort. Human resource planners need continuously to review and remain sensitive to new factors and possible changes in the environment that will affect human resources and rclatcd organization pcrfor-

mancc.

Several organizations have dcvclopcd processes for carrying out environmental scanning for strategic human resource planning. For example, one com- pany prepares a human resource cnvironmcnt scenario at the corporate level for their long-range

planning horizon. Major human resource issues arc highlighted in terms of both their probability of occurrence and cxpcctcd impact on the company. This report is then distributed to key divisional managers with human resource responsibility.

Operating division managers (both line and staff) may then assess how these human resource issues may impact on their specific business needs.

Another company in developing strategic informa- tion for human resource planning assembled a task force of personnel managers from all segments of the organization. These managers were subdivided into functional cxpcrt teams in such areas as compensation, labour relations, affrrmativc action, staffing, etc. Each team was given the assignment to identify those human resource issues which should be considered in the organization’s business plans over the next five years and to recommend action steps that could bc taken to meet anticipated challenges. Finally, the teams met collectively for a two-day personnel strategic planning session to develop a final report containing those human resource issues to be addressed in the long-range planning effort of the company. These cxamplcs point out the need to develop a system that can tit into the organization’s present planning cycle and culture. The collected data must be synthesized and summarized in a way that is meaningful to those involved in strategic decision-making. The idcal approach should involve both personnel/human resource staff and line managers.

Analysis (?f Business Objectives and Strategies Human resource objcctivcs and strategies will bc largely derived from overall organization strategic plans. For example, changes in business direction may involve major shifts in the nature of employees required and/or the work to be performed. How- ever, at the same time, the strategic choices of an organization will be constrained by the quality and quantity of its current human rcsourccs or those available in the external labour market. The human resource forecast may reveal factors that influence the desirability or feasibility of certain corporate goals and the probability of achieving those goals.

HUMAN RESOURCE ENVIRONMENTALANALYSIS

J Identifies

STRATEGIC HUMAN RESOURCE ISSUES

\ \

\ Continue Environmental

Monitoring

Tested I Needed I Against Information

and Feedback

COMPAN? SiRATEGY CURRENT HUMAN

RESOURCE POLICIES AND PROGRAMS

STRATEGIC HUMAN RESOURCE

RESPONSES f

Which Suggests

Figure 2. The human resource environmental analysis process. Source: adapted from Richard F. Vancil (Ed.), Formal Planning Systems, Harvard Business School, Cambridge, MA (1972)

Or strategic human resource planning may result in overall corporate mission. At the business or the identification of new markets that can be division level, strategic human resource planning developed using current human resource capabili- should focus on meeting the human resource ties. Many researchers have noted that the human demands that would complement and support the resources available to a firm can influence its state of objectives and strategies of that particular product/ adaptation. That is, the extent and nature of a firm’s or market segment. At the department level, efforts human resources is one determinant of an organiza- would be focused on developing policies and tion’s adaptive ability. Further, the firm which does programmes for each functional human resource not carry out formal human resource planning is area (staffing, career dcvclopment and training, more likely to experience costs associated with not compensation, etc.). These three levels must inter- being able to meet market demands because of lock and interface smoothly-like pieces of a labour shortages or poor use of available human puzzle-resulting in an integrated set of human resources. It is essential that strategic human resource policies and programmes which are di- resource plans and business strategic plans be rectly linked to organization objectives and strate- developed in tandem. gies.

The linkage between the objectives and strategies of an organization and strategic human resource planning can be understood by drawing upon the three levels of strategy identified in the strategic management literature: corporate level portfolio planning, business unit planning and functional lcvcl planning.‘* For an organization, corporate level planning is concerned primarily with answer- ing the question: What set of businesses should WC be in? At the business unit lcvcl, planning focuses on how to compete in a particular industry or product/market segment. At the functional level, the principal focus of strategic planning is on the maximization of resource productivity, or simply, resource planning. This resource planning includes the determination of necessary requirements, plans for acquisition or generation of resources, and the allocation of resources.13 Examples of planning at the functional level would include production plan- ning, financial planning and human resource plan- ning. Functional level strategic planning should result in the development of explicit functional area strategies designed to integrate individual politics developed within each functional area. In a multi- business firm there will most likely be three levels of strategic human resource planning (see Figure 3). At the corporate level, strategic human resource plan- ning would focus on developing an organization- wide human resource strategy which supports the

Firms which have achieved a successful linkage between business planning and human resource planning have reported three ways in which this is being accomplished: (1) Strategic human resource issues are studied by the personnel staff and their findings are presented to management as inputs to strategic planning; (2) planning committees com- prised of line managers, personnel staff, and corpor- ate planners are formed to identify and analyse key human resource issues; and (3) line managers are asked to complete a ‘strategy impact analysis’. Managers identify the human resource implications (e.g. staffing mix, recruitment, training and de- velopment needs, etc.) of proposed strategic plans and indicate possible actions to meet their strategic human resource needs.

This step has two major dimensions (set Figure 4). The first dimension involves a micro analysis of the current number of employees, their job-related skills, demographic make-up, performance levels (productivity), potential performance and work attitudes. Such an analysis can help to identify current human resource strengths and weaknesses. These data form a baseline of human resource capabilities which would be available for future organizational requirements. In addition to focusing on the basic nature of the work force, an analysis

Strategic Planning for Human Resources 69

LEVEL RESPONSIBILITY FOCUS

Corporate Corporate Human Organization Wide Human Resource Resource Staff and Strategies and Policies Tailored Corporate Management to Fit the Corporate Mission

and Business Portfolio Planning

Business/ Division

Divisional Human Resource Staff and

Human Resource Strategies and Policies

Division Management Tailored to Meet Specific Product/Market/Customer Segments

Department Departmental Human Resource Staff

Human Resource Programs and Policies for Each Functional Area (e.g. Recruitment, Staffing, Compensation, Career Development, etc.)

I I

Figure 3. Levels of strategic human resource planning

70 Long Range Planning Vol. 21 February 1988

I I I I A. Micro Analysis- Nature of the

I I B. Macro Analysis - Organizational

Workforce Context I I I I I

0 Employee Demographics 0 Organization Climate 0 Employee Skill Levels 0 Organization Structure 0 Productivity and l Quality of Work Life

Performance 0 Absenteeism Trends 0 Employee Potential 0 Turnover Trends 0 Employee Satisfaction 0 Job Analysis and Job Design 0 Management Competence l Cost/Benefit of Current

Human Resource Programs

Human Resour!e Strengths and Weaknesses

L

Figure 4. Checklist for internal human resource analysis

should also be made of macro level variables like organization climate and culture, organization structure, quality of worklife, trends in absenteeism and turnover, and the current status and effectivc- ness of current functional area personnel systems. Upon completion of these analyses the organization should have a clear understanding of its present human resource position.

Forecast Future Human Resource Demand A recent survey of Fortune 500 firms found that while a large number of these firms prepare a forecast of future human resource demand, the vast majority rely heavily upon traditional forecasting techniques like replacement charts. This finding implies that human resource forecasting efforts have been largely confined to providing a supply of employees as replacements for existing business strategies rather than anticipating the impact of future business strategies on human resource needs. A strategic perspective requires both a quantitative and qualitative forecast of human resource demand. The end result should be not only a projection of staffing needs (number of employees for each job category) but an understanding of the qualitative mix that is needed to accomplish strategic objcc- tives. The qualitative aspect of demand forecasting is often overlooked. It is important to understand what new skills might be needed due to changes in businesses, markets, technology, organization size, competitive conditions, etc. For example, an organ- ization moving from a basic business strategy of stability to a growth strategy may require managers with entrepreneurial type skills rather than caretaker type skills. A vivid illustration of this has taken place in the banking industry. The increasing competition faced by banks in the financial services market has caused most major U.S. banks to shift from the traditional ‘banker-type’ manager to selecting and identifying managers with strong entrepreneurial and customer marketing orientations.”

Generating and Developing Human Resource Strategies and Objectives Data from the previous analyses should be com- bined to develop human resource objectives and strategies. This phase involves defining the organiz- ation’s desired human resource position and pro- grammes designed to reach that position. The human resource strategy basically involves modify- ing the internal configuration of an organization’s human resources to assure successful alignment with both business strategies and the external environ- ment. Human resource objectives will influence a wide range of employee activities such as producti- vity, skill levels and compctencies, employee atti- tudes and staffing levels. Once objectives have been defined, functional area programming activities (e.g. recruitment, selection/staffing, training and development, reward systems) must be identified for achieving the objectives. It is critical that these specialized functions be integrated among one another and with business strategy and not be designed as disparate non-complementary pro- grammes. For example, if the organization is about to undertake a growth strategy, recruiting and career development plans should be geared towards attracting and developing the right types of human resources to support growth. The texture of the career development programmc has to mesh with the characteristics of those rccruited.‘5 In sum, the end result should bc a well-integrated, coordinated and consistent long-term plan of action to achieve human resource objectives. Finally, these broad human resource plans should be translated into short-term operational plans.

Evaluation and Review The final element in a strategic human resource planning system is the on-going review and moni- toring of progress toward objectives. A formal evaluation and review procedure should involve the evaluation of the results of human resource pro-

Strategic Planning for Human Resources 71

gramming activities and the correction of any deviations identified. The essential question is: How well is the plan working? At a minimum such a review should include:”

(1) (2) (3)

(4)

(5)

(6)

Actual vs planned staffing requirements

Productivity levels vs established goals

Actual personnel flows (turnovers, absenteeism, promotions, etc.) vs desired rates

Functional personnel programmes imple- mented vs planned programmes

Labour and programmes costs vs budgeted amounts

Ratios of programmes results (benefits) to programme costs.

While these measures represent a good starting point for evaluation, the real task is to evaluate the impact of a total human resource planning system, not merely measure the costs or benefits attained from particular actions or components. The ulti- mate test of effectiveness of strategic human resource planning is the impact it has on overall organization performance. Very few firms have developed evaluation systems for assessing the effectiveness of the strategic human resource plan- ning system as a whole in achieving organization objectives. At Upjohn Corporation, Dahl” and Dahl and Morgan” have suggested a number of indexes for measuring the contribution of human resources to organization performance. One sug- gested measure is the ratio of pretax earnings to payroll dollars. This ratio attempts to directly relate the cost of invcstmcnt in human resources to company earnings. The ratio compares a unit of payroll costs (SlOO) with pretax earnings. This measure, albeit rclativcly new, emphasizes the relationship between human resource costs and organization earnings. By monitoring such a ratio it may be possible to demonstrate the impact of strategic human resource planning efforts on changes in the index. The underlying assumption is that human resource planning activities contribute to longer-run employee productivity, improved human resource cost containment, and thus profita- bility. The important point here is that human resource planners must have a means of dcmonstrat- ing how strategic human resource planning contri- butes to organization performance. A well-designed evaluation procedure is critical in demonstrating this impact.

Given the novelty and complexity of human resource planning a complementary direction should be a qualitative evaluation of the strategic human resource planning process itself.“’ Important questions are: To what extent are the various human resource functional areas integrated? What is the quality of communications and interactions between line managers and human resource plan- ners? To what extent have line managers made USC

of human resource recommendations? To what extent has the human resource plan met the expectations of management?

Responsibility for Planning A prerequisite for effective strategic human resource planning must be the involvement and support of top management. Top management must make a strong commitment to having human resource considerations in strategic plans. Human resource planning must be viewed as a vital part of both the formulation and implementation of overall organ- izational planning and cannot bc effectively carried out as a separate or parallel activity or a mere addendum to strategic plans. Business strategy reviews involving line managers, human resource planners or senior human resource managers are needed to identify and manage the human resource implications of proposed business strategies. It cannot be seen solely as a personnel/human resource department activity. Human resource staff must bear the responsibility of being an equal contributor in the strategic planning process. This will require that human resource managers become business managers having knowledge of the basic operations of the organization, a keen understanding of the selection, utilization, deployment, maintenance, and compensation of human resources and the ability to integrate the various personnel areas into a unified system to achieve harmony with the organization’s strategic mission. A recent survey that compared the personnel department emphasis of 24 high-performing billion dollar companies in 11 industries with average-performance competi- tors found that 54 per cent of the human resource executives in the high performance firms saw their role as primarily strategic, participating in the formulation and implementation of business stra- tegy. Only 10 per cent of personnel executives in the average performing companies emphasize strategy. Their jobs were viewed as primarily administrative.“”

Conclusion In this article I have attempted to set forth a basic starting framework for a strategic human resource planning system. It must be emphasized that this framework involves several complex subsystems which will require sustained effort and persistence in dcvcloping a workable model. Strategic human resource planning efforts may require several plan- ning cycles. Constructing a system for monitoring the external and internal environment alone will require a major time and resource commitment. Developing a comprehensive strategic human resource planning system is very similar to solving a puzzle-all of the pieces must be available before putting together the final puzzle. One missing element results in an incomplete puzzle. Incomplete,

72 Long Range Planning Vol. 21 February 1988

piecemeal practices by many organizations run the risk of reducing strategic human resource planning to just another unproductive management activity trap. It is time for organizations to accept the challenge and adopt a strategic approach to human resource management closely linked to the strategic goals of the organization. Formal strategic human resource planning is an important component of the business organization’s total planning process. Or- ganizations cannot hope to remain successful in the long run if planning fails to focus upon the human resource dimension.

References

(1)

(2)

(3)

(4)

(5)

James Walker (Ed.), The Challenge of Human Resource Planning: Selected Readings, Human Resource Planning Society, New York (1980).

James Walker, Human Resource Planning, McGraw-Hill, New York (1980).

Lee Dyer, Human resource planning, in PersonnelManagement, ed. Kenneth Rowland and Gerald Ferris, pp. 52-77, Allyn & Bacon, Boston (1982).

Mary Anne Devanna, Charles Fombrun and Noel Tichy, Human resource management: a strategic perspective, Organizational Dynamics, Winter (1981).

Stella M. Nkomo, Stage three in personnel administration: strategic human resource management, Personnel, July-August (1980).

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(20)

Stella M. Nkomo. Prescription vs. practice: the state of human resource planning in large U.S. organizations, Southern Management Association Proceedings (1984).

Wickham Skinner, Big hat, no cattle: managing human resources, Harvard Business Review, Seotember-October (1981).

Edwin L. Miller and Elmer H. Burack, A status report on human resource planning from the perspective of human resource planners, Human Resource Planning 4, 3340 (1981).

Lee Dyer, Bringing human resources into the strategy formula- tion process, Human Resource Manaaement 22, 2577271 (198i).

Ft. Anthony, Planning and Control Systems: A Framework for Anafvsis, Division of Research. Graduate School of Business Admmistration, Harvard University, Boston (1965)

Devanna, Fombrun and Tichy, Human resource management.

Dan E. Schendel and Charles W. Hofer, Strategy Formulation. Analytical Concepts, West, St Paul, Minnesota (1978).

Anthony, Planning and Control Systems.

Wanted: a manager to fit each strategy, Business Week, 25 February (1980).

Lloyd Baird, llan Meshoulam and Ghislaine DeGive, Meshing human resource planning with strategic business planning: a model approach, Personnel, September-October (1983).

Dyer, Human Resource planning.

Henry J. Dahl, Measuring the human ROI, ManagementReview 68,44-50 (1979)

Henry J. Dahl and Kent S. Morgan, Return on investment in human resources, in R. Lehrer (Ed.), White Collar Productivity, McGraw-Hill, New York (1983).

Walker, Human Resource Planning.

Kenneth F. Misa and Timothy Stein, Strategic human resource

management and the bottom line, Personnel Administrator, October, 27-30 (1983).