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circular rather than linear, with the process starting anywhere in the cycle. For example, scenario planning may impact on resourcing strategy which in turn may influence the business strategy. Alternatively, the starting point could be demand and supply forecasts which form the basis for the resourcing strategy. The analysis of labour turnover may feed into the supply forecast, but it could also lead directly to the development of retention plans.

It cannot be assumed that there will be a well articulated business plan as a basis for the HR plans. The business strategy may be evolutionary rather than deliberate; it may be fragmented, intuitive and incremental. Resourcing decisions may be based on scenarios riddled with assumptions that may or may not be correct and cannot be tested. Resourcing strategy may be equally vague, or based on unproven beliefs about the future. It may contain statements, about for example building the skills base, that are little more than rhetoric.

There is much to be said for a systematic approach to developing resourcing strategy, scenario planning, demand and supply forecasting and labour turnover analysis as discussed in the rest of this chapter. But because of the factors mentioned above, there will often be reservations about the extent to which this process can be formalized. What may emerge is simply a broad statement of intent, although this could be sufficient to guide resourcing practice generally and would be better than nothing at all. The degree to which human resource planning can be carried out systematically will depend on the nature of the organization. If the future is fairly predictable, then formal planning might be appropriate. If it is not, the approach to human resource planning might have to rely on broad scenarios rather than precise forecasts.

These processes are summarized below.

●Business strategic plans: defining future activity levels and initiatives demanding new skills.

●Resourcing strategy: planning to achieve competitive advantage by developing intellectual capital – employing more capable people than rivals, ensuring that they develop organization specific knowledge and skills, and taking steps to become an ‘employer of choice’.

●Scenario planning: assessing in broad terms where the organization is going in its environment and the implications for human resource requirements.

●Demand/supply forecasting: estimating the future demand for people (numbers and skills), and assessing the number of people likely to be available from within and outside the organization.

●Labour turnover analysis: analysing actual labour turnover figures and trends as an input to supply forecasts.

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RESOURCING STRATEGY

Objective

The objective of HRM resourcing strategy, as expressed by Keep (1989), is ‘To obtain the right basic material in the form of a workforce endowed with the appropriate qualities, skills, knowledge and potential for future training. The selection and recruitment of workers best suited to meeting the needs of the organization ought to form a core activity upon which most other HRM policies geared towards development and motivation could be built.’

The concept that the strategic capability of a firm depends on its resource capability in the shape of people (resource based strategy, as explained in Chapter 7) provides the rationale for resourcing strategy. The aim of this strategy is therefore to ensure that a firm achieves competitive advantage by employing more capable people than its rivals. These people will have a wider and deeper range of skills, and behave in ways that maximize their contribution. The organization attracts such people by being ‘the employer of choice’. It retains them by providing better opportunities and rewards than others, and by developing a positive psychological contract which increases commitment and creates mutual trust. Furthermore, the organization deploys its people in ways that maximize the added value they supply.

Checklist

The resourcing strategy should attempt to provide answers to the following questions:

●In the light of the business plan, how many people are we likely to need in each of our key operational or functional areas in the short and longer term?

●What skills are we likely to need in the future?

●Will we be able to meet the needs from our existing resources?

●If not, where will we be able to find them?

●What do we need to do to develop or extend our skills base?

●What should we do about identifying people with potential and developing their abilities?

●Do we have a problem in attracting or retaining key staff? If so, what do we need to do about it?

●Is there scope to make better use of people by increasing employment flexibility?

●Is there any danger of downsizing? If so, how are we going to deal with it?

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The components of resourcing strategy

These are:

●Resourcing plans: preparing plans for finding people from within the organization and/or for training programmes to help people learn new skills. If needs cannot be satisfied from within the organization, preparing longer term plans for meeting them by attracting high quality candidates as the ‘employer of choice’.

●Flexibility plans: planning for increased flexibility in the use of human resources to enable the organization to make the best use of people and adapt swiftly to changing circumstances.

●Retention plans: preparing plans for retaining the people the organization needs.

Resourcing strategy provides the basis for these plans within the framework of business needs. It will, however, be more strongly based if it is underpinned by a process of scenario planning.

SCENARIO PLANNING

Scenario planning is sometimes described as a formal strategic planning technique, but it can also be regarded as an informal approach to thinking about the future in broad terms, based upon an analysis of likely changes in the internal and external environment.

A scenario can be defined as ‘an imagined sequence of future events’ (Oxford English Dictionary). Scenario planning is simply a more or less formalized process for establishing a view about any changes that can be foreseen to the scale and type of activities in the organization and to its structure, and for identifying any external environmental changes that are likely to affect it. The aim is to obtain a better understanding of the possible situations that may have to be dealt with in the future. It is described by Reilly (1999) as follows: ‘Scenario planning tries to open minds to a range of possibilities that organizations may have to confront. These possibilities are then ordered to produce a series of internally consistent pictures of alternative futures… It is an intellectual process that seeks to identify issues and examine the possible consequences of events.’

The creation of a scenario involves making broad assessments of likely internal developments – the direction in which the organization is going and the implications this has on people requirements. The assessments may have to be made in the absence of any articulated business plan, and thus involve questioning top managment and key line managers on how they see the future, and asking them to interpret

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future workloads, and decide how many people are needed. This can be no more than guesswork unless there is reliable evidence available of forecast increases in activity levels or new demands for skills.

Ratio trend analysis

This is carried out by studying past ratios between, say, the number of direct (production) workers and indirect (support) workers in a manufacturing plant, and forecasting future ratios, having made some allowance for changes in organization or methods. Activity level forecasts are then used to determine (in this example) direct labour requirements, and the forecast ratio of indirects to directs would be used to calculate the number of indirect workers needed.

Work study techniques

Work study techniques can be used when it is possible to apply work measurement to calculate how long operations should take and the number of people required. Work study techniques for direct workers can be combined with ratio trend analysis to calculate the number of indirect workers needed.

Forecasting skill and competence requirements

Forecasting skill requirements is largely a matter of managerial judgement. This judgement should, however, be exercised on the basis of a careful analysis of the impact of projected product market developments and the introduction of new technology, either information technology or computerized manufacturing.

Supply forecasting

Supply forecasting measures the number of people likely to be available from within and outside the organization, having allowed for attrition (labour wastage and retirements), absenteeism, internal movements and promotions, and changes in hours and other conditions of work. The forecast will be based on:

●an analysis of existing human resources in terms of numbers in each occupation, skills and potential;

●forecast losses to existing resources through attrition (the analysis of labour wastage as described in the next main section of this chapter is an important aspect of human resource planning because it provides the basis for plans to improve retention rates);

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●forecast changes to existing resources through internal promotions;

●effect of changing conditions of work and absenteeism;

●sources of supply from within the organization;

●sources of supply from outside the organization in the national and local labour markets.

Mathematical modelling techniques aided by computers can help in the preparation of supply forecasts in situations where comprehensive and reliable data on stocks and flows can be provided. As this is rarely the case, they are seldom used.

Analysing demand and supply forecasts

The demand and supply forecasts can then be analysed to determine whether there are any deficits or surpluses. This provides the basis for recruitment, retention, and if unavoidable downsizing, plans. Computerized planning models can be used for this purpose. It is, however, not essential to rely on a software planning package. The basic forecasting calculations can be carried out with a spreadsheet that sets out and calculates the number required for each occupation where plans need to be made, as in the following example:

LABOUR TURNOVER

The analysis of the numbers of people leaving the organization (labour turnover or wastage) provides data for use in supply forecasting, so that calculations can be made on the number of people lost who may have to be replaced. More importantly, however, the analysis of the numbers of leavers and the reasons why they leave provides information that will indicate whether any action is required to improve retention rates. It can prompt further investigations to establish underlying causes and identify remedies.

In this section, consideration is given to the following aspects of labour turnover:

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●its significance;

●methods of measurement;

●the reasons for turnover;

●what it costs;

●its incidence;

●how to benchmark rates of turnover.

The significance of labour turnover

The point was made by IRS (2000) that ‘rates of labour turnover provide a graphic illustration of the turbulence within an organization. High rates of attrition can destabilize a business and demotivate those who attempt to maintain levels of service and output against a background of vacant posts, inexperienced staff and general discontent.’ Obviously recruitment, induction and training costs all rise with an increase in labour turnover. As the CIPD (2000) has commented, ‘Turnover may be a function of negative job attitudes, low job satisfaction, combined with an ability to secure employment elsewhere, ie the state of the labour market. On the other hand, turnover is a normal part of organizational functioning, and while excessively high turnover may be dysfunctional, a certain level of turnover is to be expected and can be beneficial to an organization.’

Methods of measurement

There are a number of ways of measuring labour turnover, as described below.

The labour turnover index

The labour turnover index (sometimes referred to as the employee or labour wastage index) is the traditional formula for measuring wastage. It has been described by the CIPD (2000) as the ‘crude wastage method’. It is calculated as follows:

Number of leavers in a specified period (usually 1 year) × 100

Average number of employees during the same period

This method is commonly used because it is easy to calculate and to understand. For human resource planning purposes, it is a simple matter to work out that if a company wants to increase its workforce by 50 people from 150 to 200, and the labour turnover rate is 20 per cent (leading to a loss of 30 people), then if this trend continues, the company would have to recruit 90 employees during the following year in order to increase and to hold the workforce at 200 in that year (50 extra

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employees, plus 40 to replace the 20 per cent wastage of the average 200 employees employed). It can also be used to make comparisons with other organizations which will typically adopt this method.

This wastage formula may be simple to use but it can be misleading. The main objection to the measurement of turnover in terms of the proportion of those who leave in a given period is that the figure may be inflated by the high turnover of a relatively small proportion of the workforce, especially in times of heavy recruitment. Thus, a company employing 150 people might have had an annual wastage rate of 20 per cent, meaning that 30 jobs had become vacant during the year, but this could have been spread throughout the company, covering all occupations and long as well as short service employees. Alternatively, it could have been restricted to a small sector of the workforce – only 20 jobs might have been affected, although each of these had to be filled 10 times during the year. These are totally different situations, and unless they are understood, inaccurate forecasts would be made of future requirements and inappropriate actions would be taken to deal with the problem. The turnover index is also suspect if the average number of employees upon which the percentage is based is unrepresentative of recent trends because of considerable increases or decreases during the period in the numbers employed. When assembling and analysing labour turnover figures, it is important to obtain information on the incidence for different categories of employee, especially those who are most difficult to attract and retain, such as knowledge or highly skilled workers.

Survival rate

A method of analysing turnover that is particularly useful for human resource planners is the survival rate: the proportion of employees engaged within a certain period who remain with the organization after so many months or years of service. Thus, an analysis of trainees who have completed their training might show that after two years, 10 of the original cohort of 20 trainees are still with the company, a survival rate of 50 per cent.

The distribution of losses for each entry group, or cohort, can be plotted in the form of a ‘survival curve’ as shown in Figure 25.2. The basic shape of this curve has been found to be similar in many situations, although it has been observed that the peak of the curve may occur further along the time scale and/or may be lower when it relates to more highly skilled or trained entry cohorts. Table 25.1 tells human resource planners that unless they do something about the situation, they will have to allow for half the number of recruits in any one year to be lost over the next five years. Thus, to ensure that 50 trained staff in five years’ time, 100 people would have to be engaged this year. Stark figures like this can prompt action, especially when the costs of recruitment and induction are taken into account.

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Leavers as a percentage of total entrants

Time

Figure 25.2 A survival curve

Table 25.1 Survival rate analysis